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Qui Tam "Seal” Windows Shrinking?

Written by Ellyn Sternfield and Stephanie Willis

Is time the government’s friend?  

When qui tam relators/whistleblowers file suit under the civil False Claims Act (FCA), they are “standing in the shoes” of the government to allege that the government has suffered damages due to fraud.  By law, the case remains under seal for a 60-day period to allow the government to initially investigate and verify the allegations.  The government may then (i) elect to intervene in the case and take over pursuit, or (ii) decline to intervene, forcing the relator to either proceed on his/her own or dismiss the case.  Either way, the case proceeds publicly. 

But law and reality can be vastly different.  In reality, these FCA cases can be pending under seal for years before any government action becomes public.  Historically, the government’s attorneys take advantage of numerous seal extensions to conduct full-scale investigations and negotiations, and ultimately use the threat of intervention as incentive for settlement.  A target company must defend itself without fully knowing the extent of the allegations filed against it.  Indeed, the underlying case behind the recent Pharmaceutical Industry Average Wholesale Pricing settlements with multiple pharmaceutical companies had been under seal for more than ten years.

But time may no longer be on the government’s side in qui tam cases.

Now companies are fighting back and district court judges are more carefully scrutinizing routine government requests to extend a seal in a FCA filing.  A recent National Law Journal article noted multiple jurisdictions where seal extensions are no longer automatically granted. 

There are definite strategic advantages to pushing back on seal extensions; for example, getting a qui tam suit unsealed provides target companies more leverage to counter the false claims allegations earlier in the investigation.  And as a July 2011 ruling from the District of Maryland illustrates, unsealing can have other strategic purposes.  In that case, a defendant used a motion to unseal all of the court filings to determine whether the relator improperly disclosed privileged attorney-client discussions to the government, and to bolster an argument that the relator was not the original source of the FCA allegations.  In granting the defendant’s request, the court rejected the government’s argument that its motions for extensions of the seal that contained critical investigative strategy and information that could affect other pending cases.  

As an April 2011 Fourth Circuit opinion confirms, the seal remains a tool that protects the integrity of an initial investigation by the government.  But aggressive defense counsel now have more hope of peeking behind the curtains of a seal sooner to see what false claims allegations are lurking there.

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Authors

M. Daria Niewenhous is a Mintz Member with a well-established health care practice. National and local providers rely on Daria’s experience to navigate capital projects, mergers & acquisitions, integration, and other strategic initiatives; adverse events; and licensing, contracting, patient care/risk management, and other complex legal matters.

Ellyn L. Sternfield

Special Counsel

Ellyn L. Sternfield is a Mintz Special Counsel with an extensive background in government health care enforcement. She provides insight to clients with compliance concerns and helps clients facing potential state or federal investigations.