Magazine article National Defense

Civil Litigation Can Sink Contractors

Magazine article National Defense

Civil Litigation Can Sink Contractors

Article excerpt

Most people picture high stakes civil litigation taking place in a courtroom where a party has the chance to persuade a judge or jury to validate or reject huge claims for damages.

But envision a different picture, one that takes place in a United States attorney's office, where only an investigator is running the show, along with a prosecutor, a court reporter and a company's ex-employee who was "in the know."

Law enforcement is questioning this former worker under oath, on the record, about claims against a company in a sealed complaint. And this testimony could lead to treble damages. The company doesn't know about this meeting or even that there is a complaint against it.

Welcome to the new front in high stakes False Claims Act litigation: civil investigative demands, or CIDs.

While the second scenario is not necessarily common place--usually companies eventually learn about an investigation or a whistleblower lawsuit--it can, and does, happen. Use of CIDs in False Claims Act investigations is increasing and defense contractors need to recognize the risks and implement best practices in the event a CID is served on one of its employees.

Civil investigative demands can request any combination of documents, answers to interrogatories or oral testimony. As to oral testimony, the witness has the right to be accompanied by an attorney and any other representative. CIDs are typically used to gather information and testimony prior to a lawsuit against a company or individuals or prior to intervening in a qui tarn (a complaint filed under seal by a whistleblower). The government has no duty to notify a company when serving a current or ex-company employee with a civil investigative demand.

The act gives the attorney general the power to issue civil investigative demands. In March 2010, he delegated to all 93 U.S. attorneys the power to issue CIDs in False Claim Act investigations. As a result, attorneys across the country are increasingly relying on them as an investigative tool--a trend likely to continue in investigations of defense contractors.

In fiscal year 2013, the Justice Department recovered $3.8 billion from FCA cases. While much of that came from health care fraud matters, $887 million came through settlements and judgments in procurement fraud matters, with most of those dollars relating to the defense industry. As stated by Justice, the act "is the government's primary civil remedy to redress false claims for government funds and property under government contracts, including national security and defense contracts...."

While CIDs are issued by the civil division of the Justice Department or a U.S. attorney's office, either can share the information with the criminal division. In January 2012, an attorney general memorandum called for coordination of parallel criminal, civil, regulatory and administrative proceedings, and specifically noted that "[c]ivil attorneys can obtain information through the use of False Claims Act civil investigative demands and that information may be shared with prosecutors and agency attorneys."

The risk for defense contractors and employees is that the government has no obligation to give notice that information is being shared with criminal prosecutors. …

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