The Dark Side of the Boom: The Peculiar Dilemma of Government Spoliation in Modern False Claims Act Litigation
Torborg, David S., Journal of Law and Health
I. INTRODUCTION II. CAPTAINING THE FALSE CLAIMS ACT INTO UNCHARTED WATERS A. The Explosion of the False Claims Act B. Novel and Expansive Legal Theories Continue to Emerge III. THE HEIGHTENED IMPORTANCE OF EVIDENCE FROM GOVERNMENT ENTITIES A. Average Wholesale Price Litigation B. Off-Label Marketing of Pharmaceuticals Litigation C. Federal Funding Challenges IV. UNIQUE ISSUES OF SPOLIATION IN FALSE CLAIMS ACT LITIGATION A. An Unregulated Seal Period and Generous Statute of Limitations Can Delay False Claims Act Cases Indeterminately B. The Lack of a Clear "Trigger Date " Can Delay Preservation Efforts C. The Scope of the Government's Duty to Preserve Evidence in False Claims Act Cases Can Be Unclear D. The Government's Outdated Position on the Relevance of "Government Knowledge " Evidence Can Contribute to Spoliation V. RECOMMENDATIONS A. Increased Court Attention to Spoliation Issues in FCA Actions B. Improved Guidance for Government Attorneys C. Defendants Should Actively Seek to Protect The Preservation of Evidence
Spurred by treble damages, substantial penalties, and lucrative relator awards, litigation under federal and state False Claims Act ("FCA ") statutes has exploded in recent years. Much of that explosion stems from aggressive and creative legal theories that challenge controversial industry practices or even well-known loopholes or waste in government policy. Evidence from governmental entities can be critically important in litigating these FCA claims. Unique aspects of False Claims Act actions, however, can aggravate the risk of losing this important evidence, leaving the parties, judges, and juries without the evidentiary record necessary to equitably adjudicate these disputes. Defendants can face the risk of treble damages, substantial penalties, or worse without the opportunity to build their defense before evidence is destroyed. Calling on his first-hand experience litigating FCA cases, the author highlights the risk of government spoliation in FCA cases and provides recommendations for courts and counsel to address this escalating problem.
On a near-daily basis, the legal press brings word of a new, novel theory of liability under the False Claims Act ("FCA"), a federal law imposing liability on persons and companies who defraud the government. In this environment, alleged malfeasance with any feasible connection to government funds could invite exposure to treble damages, substantial statutory penalties, or worse under the FCA and its state law companions. Government contractors face potential FCA liability on all matters of contractual disputes, including those related to the costs of shipping, feeding overseas troops, the pricing for computer software, and providing nonconforming parts to the military. (1) Banks face FCA claims ranging from alleged failures to follow mortgage approval standards to assertions that inflated foreign exchange rates defrauded pension funds. (2) Pharmaceutical and medical device manufacturers face myriad FcA allegations, from promoting the "off-label" use of drugs and misreporting drug prices to alleged violations of FDA regulations in connection with securing drug approvals and misrepresenting the efficacy of drugs. (3) Even alleged recruiting violations and misstatements in accreditation certifications by educational institutions can give rise to FcA claims. (4) And these are just a handful of seemingly endless possibilities.
The FcA promotes new targets and theories with substantial financial awards for those who formulate them. FcA actions are typically filed in the first instance by private citizen "relators"--often former corporate employees or other "industry insiders"--who stand to recover 15 to 30% of any recovery. (5) The risks posed by treble damages, substantial penalties, and threats of exclusion from government programs or criminal liability has led to breathtaking settlements in recent years that run into the hundreds of millions and even billions of dollars. …