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FCA Qui Notes
October 16, 2018

What Happens in Settlement Negotiations Might Not Stay in Settlement Negotiations…

Qui Notes: Unlocking the False Claims Act

False Claims Act (FCA) defendants in Nevada received this news in June when a district court agreed with the magistrate's ruling that the relators in their case were entitled to receive discovery materials generated during settlement negotiations with the government prior to the government's decision not to intervene. United States ex rel. Luke v. Healthsouth Corp., No. 13-cv-01319, 2018 WL 3186941 (D. Nev. June 28, 2018). These materials included confidential white papers that contained defendants' legal theories and factual defenses, which had been provided to the government while the case was under seal. Defendants had convinced the government not to intervene in—but not, it seems, to dismiss—the FCA case. The relator then issued a request for production, specifically seeking "all documents you received from or provided the Government in connection with the Complaint filed in this action or in connection with any inquiry or investigation the Government has made since the filing of the Complaint concerning any of the allegations in the Complaint."

Defendants moved for a protective order, arguing that the documents were irrelevant, disproportional to the needs of the case, and that a forced disclosure would "chill the willingness" of future defendants to provide information to the government during an FCA investigation. The relator responded that no matter the effect, the documents provided to the government were relevant because the relator's complaint triggered the government's investigation and the documents surely related to the relator's allegations. The district court agreed with the relator, holding that the defendants had failed to show why documents provided to the government during its investigation were irrelevant to the ongoing suit based on the same allegations.

Notably absent from the district court's discussion was any mention of Federal Rule of Evidence 408 (FRE 408), which renders inadmissible any "conduct" or "statement[s] made during compromise negotiations." Granted, this is a rule of admissibility, not discoverability, and the defendants' brief gave it only a passing reference. Yet, the Healthsouth ruling arguably undermines FRE 408's policy objective to encourage settlement negotiations, which the district court dismissed asserting offhandedly that defendants will still "have plenty of incentive to cooperate" regardless. This decision is a reminder that whatever information a defendant shares with the government may not necessarily remain between defendant and government. Indeed, defendants may sometimes have to make a Hobbesian choice during the investigation phase of an FCA case: either fully disclose its legal arguments and known facts to encourage the government not to intervene while accepting the risk that a relator will get access to those documents, or pursue a conservative approach with the government to limit what a relator may obtain in discovery, but while simultaneously increasing the risk that the government will intervene.

Although not an argument made by defendants in their brief (perhaps they would have done so at the oral argument they sought, but were denied), we would argue that common sense dictates that "relevant" information under Rule 26 concerning allegations in any complaint consists generally of information in existence prior to the filing of a complaint. But the district court's reasoning inverts this common sense rule and renders relevant, and thus discoverable, legal analysis generated after the filing of a complaint and therefore outside the relevant time period. To be sure, some of the information disclosed to the government would be relevant under Rule 26, but that information is not relevant because it was disclosed to the government, but rather because that information existed during the relevant time period of the alleged fraud in the complaint. This important distinction appears to have been overlooked and thereby, at least here, resulted in a defendant's legal defense theory, as articulated to the government during an investigation, being deemed "relevant" as a fact that was discoverable early on in litigation.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.