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Introduction

A ZPIC inspection can be onerous for any health care provider. Center for Medicare and Medicaid Services (CMS) has delegated its responsibilities to administer the Medicare and Medicaid programs, in large part, to private contractors. The original intent underlying this delegation of authority to private entities was to minimize government intrusion in the administration of federal and state health care programs. Nonetheless, many of these contractors operate with substantial, seemingly unfettered discretion and, at times, inspections conducted by these contractors resemble raids or searches conducted by law enforcement agents with one critical distinction — law enforcement agents must execute a search warrant supported by a probable cause unless the search is conducted pursuant to an exception to the search warrant requirement.

Zone Program Integrity Contractor (ZPIC) onsite inspections illustrate this point. ZPICs performed 777 onsite inspections in 2012 and maintain broad authority to conduct these inspections, as part of provider-specific prepayment audits designed to ferret out and prevent fraud and abuse. A ZPIC inspection may be conducted without providing sufficient advanced notice to the provider based on information obtained through data mining or predictive models, or based on third party complaints, including complaints received from former employees or patients. ZPIC inspections are also particularly unnerving in comparison to audits conducted by Medicare Administrative Contractors (MACs) or Recovery Audit Contractors (RACs), since ZPICs work closely with the FBI and the Office of the Inspector General for the Department of Health and Human Services (OIG-HHS).

During the ZPIC inspection, ZPICs will frequently request and obtain, among other things, copies of claims for certain services and patient records from the provider. ZPICs may also photograph diplomas, office space, and equipment. Following the inspection, a ZPIC investigator and a resident nurse will likely conduct several patient interviews at the patient’s home.   Equally as important, depending on the ZPIC’s findings after an inspection, the ZPIC may refer a provider to the Office of the Inspector General for the Department of Health and Human Services (OIG-HHS) for a potential civil or criminal prosecution or exclusion. If OIG declines the referral, then the ZPIC may still refer the case to the FBI or other state enforcement agencies. In addition to referring providers to OIG and law enforcement agencies, the ZPIC may place the provider on pre-payment review indefinitely due to a parallel criminal investigation, or the ZPIC may refer the matter to the MAC for recoupment of overpayments if the ZPIC concludes that the provider’s billing mistakes did not result from intentional fraudulent conduct. This Note will broadly address some of these concerns by recommending a series of steps providers might take prior to, during, and after a ZPIC inspection.

The Quiet before the Storm

If counsel is retained prior to an inspection, then the provider should be adequately prepared for a possible ZPIC inspection.

Review the OIG Work Plan. Review the OIG Work Plan, which identifies services covered by Medicare and Medicaid that OIG will more closely scrutinize as part of their ongoing efforts to prevent and deter fraud, to establish whether the provider may be susceptible to an audit or an inspection. By conferring with the Work Plan, the provider will be well-positioned to anticipate what segments of her practice may be of potential concern to OIG.

Conduct a Shadow Audit. Conduct a shadow audit to emulate the processes and procedures employed by ZPIC’s to detect possible fraudulent conduct. The purpose of the audit – much like the predictive models widely used by ZPICs – is to identify and remediate errors related to claims for payment and any documentation supporting those claims. As part of this process, providers should also reassess their coding, and coverage determinations, and should address any deficiencies related to supporting documentation, including signature requirements.

Determine Whether the Provider’s Claim Denial Rates Vary Significantly in Comparison to Other Similarly Situated Providers. As part of any audit, the provider should also undertake a review of the quality of the documentation verification policies and procedures to ensure that the provider’s claim denial rates do not vary significantly from the claim denial rates at other similarly situated providers in the same specialty and similar geographic region.

The Inspection

Review the Notice of Onsite Inspection. Once counsel learns about the ZPIC inspection, a copy of the Notice of inspection for facial sufficiency (time, date, location, correct address, organization name) should be obtained.

Obtain the Name of the Agency and the Names of the Investigators. On occasion, ZPICs will arrive for an inspection with OIG or other investigative agencies. Therefore, determining what agency is conducting the ZPIC inspection and how many investigators are on scene is critical. The names of each individual investigator should also be obtained.

Scope of the ZPIC Inspection. Determine the scope of the ZPIC inspection, the scope of any request for records, and whether the investigators intend on conducting employee interviews onsite.

Copies of Any Records the ZPIC Has Scanned or Copied Onsite. If the ZPIC has begun copying or scanning any records before counsel arrives on site, then a request that the ZPIC furnish the provider with a list (or copies) of those records should be made.

Establish Credibility and Cooperate with the ZPIC. The importance of establishing credibility and cooperating with the ZPIC cannot be overstated. Engaging in any conduct which may be viewed as obstructing, impeding, or impairing the inspection will not only undermine the provider’s credibility with the ZPIC, it may also subject the provider to criminal consequences, including obstruction of a federal audit.

Provide the Requested Claims and Documents. While, generally, the provider has 30 days to produce the requested records, if ZPIC determines that the books, documents, or records are “necessary for the reimbursement determination,” then the ZPIC may demand to inspect, examine, or copy those records. Under these circumstances, a failure to provide access to those records may result in adverse consequences to the provider, including revocation or obstruction charges. Accordingly, where feasible, bate-stamped copies of the claims and documents requested by the ZPIC should be provided to the ZPIC.

Manage Onsite Interviews of Employees. Although the ZPIC is statutorily authorized to inspect the provider’s business and to request medical records as a condition of participation in Medicare or Medicaid, there is no ancillary legal authority for conducting employee interviews on site to gather additional information related to the ZPIC inspection. So, even if ZPICs view employee interviews as an integral part of their quest to deter and prevent fraud, neither the provider nor her employees are required to consent to interviews.

Unsurprisingly, the employees may be inexperienced in managing or responding to a random ZPIC inspection. Likewise, employees may have a very limited understanding of what their options are in this scenario and may, believe that they are required to consent to interviews. At the same time, statements made by employees may be imputed to the provider for purposes of criminal or civil liability as non-hearsay statements. Therefore, to manage this process and to address these concerns, counsel or a representative of the provider should inform all employees that they are free to speak to the ZPIC investigators but they are not required to speak to them and that, should they decide to speak to the ZPIC investigators, they are entitled to have an attorney present during any interview.

Furthermore, to prevent unnecessary interviews on site, only essential employees – employees whose day by day responsibilities are relevant to the ZPIC inspection — should be made available for interviews and the provider may notify non-essential staff, e.g. administrative and secretarial staff, that, they are free to go home for the day. This is reasonable under the circumstances and should not be viewed as obstructive conduct.

Request an Extension. Where appropriate, a request for an extension to produce the necessary claims and supporting documentation should be made. An extension may be entirely reasonable when the inspection interferes with the provider’s ability to provide adequate care to her patients, or when the ZPIC requests a voluminous amount of documents, which are not readily accessible for production and copying on site. Indeed, often providers use third party vendors to submit claims and the provider may need additional time to coordinate the production and copying of the requested claims (and supporting documentation) with the third party vendor.

Obtain a Complete List and Copies of all Documents or Claims Obtained by the ZPIC. Before the ZPIC leaves, the provider should ensure that she has a complete list (and copies) of all the documents, claims, and records obtained by the ZPIC.

After the Inspection

Suspend Document Destruction Policies. A hold, or its functional equivalent depending on the size of the provider, should be placed on any applicable document destruction policies. Suspending these policies will accomplish two objectives: it will show that the provider is sincerely committed to retrieving and producing additional documentation upon request and will demonstrate that the provider is not seeking to impede, obstruct, or impair the audit by altering, deleting, or falsifying documents.

Anticipate Patient Interviews. The local ZPIC, along with a registered nurse, may interview patients. The purpose of patient interviews varies depending on the particular industry. For example, in the home health context, the purpose of a patient interview is to analyze medical necessity. By reviewing copies of the claims obtained by the ZPIC, the provider may determine which patients the ZPIC might interview. Claims and any supporting documentation obtained by the ZPIC during the inspection should be examined in order to identify and address any deficiencies.

Anticipate Employee Interviews at Home. Similarly, ZPIC investigators may show up at an employee’s home to request an interview. Employees should know in advance of that exchange that they may tell a ZPIC investigator that appears at their door that they would prefer that an attorney be present during any interview.

Conduct an Internal Investigation. After the inspection, the provider should conduct an internal investigation and engage in additional fact-finding. The objective of the investigation is to determine why the ZPIC conducted the inspection, why the ZPIC requested and obtained specific documents or claims, and ultimately, to educate the provider with respect to her options based on the investigative findings.

Employee Interviews. In performing the investigation, employee interviews should be conducted by in house counsel or outside counsel.

Claims Review and Gap Analysis. In addition, the provider should review any and all claims or documents obtained by the ZPIC during the inspection and evaluate the significance of those documents. The claims review should focus on, among other things, the accuracy of the claims and any supporting documentation, the legibility of all supporting documentation, and compliance with all signature requirements. An essential part of the claims review should also include a gap analysis to confirm whether the services in the sample set of claims obtained by the ZPIC during the inspection are covered by applicable Medicare regulations, national coverage determinations, and local coverage determinations. Further, the analysis should determine whether the provider (or the third party vendor) used incorrect codes or modifiers in the sample set of claims at issue.

Anticipate Additional Document Requests. Where applicable, bate-stamped documents and a cover letter listing all of the documents included in the submission should be provided to the ZPIC in response to any additional document requests (ADR’s) from the ZPIC. The organization of the documents will convey a specific theme to the ZPIC. Thus, the documents should be organized in a way that convincingly conveys a theme to the ZPIC. For example, if the theme is “sloppy record-keeping” or a failure to understand ambiguous or complex regulations, then it may be beneficial to supplement the record with documentation supporting that theme. Likewise, if the theme is that the ZPIC made a mistake, for example, through predictive modeling or data analyses, then the documents in the submission should be organized to best communicate that them and, where applicable, should include all necessary certificates, any applicable plans of care, and any other information to illustrate that claims are accurate, reasonable, and medically necessary.

Conclusion

ZPICs have broad authority to initiate proactive and reactive inspections as part of an audit, they view themselves as fraud fighters, and they work closely with the FBI. Therefore, even though these recommendations address general concerns that broadly apply to ZPIC audits and inspections, providers, and their counsel, should be well-equipped to manage and respond to a ZPIC onsite inspection.

Search Warrants: An Introduction

An owner of a corporation operating in a highly regulated industry calls counsel’s office to inform counsel that FBI agents are executing a search warrant at one of the corporation’s facilities and may begin gathering employees in a room for interviews. The corporation and its employees have no experience with responding to or managing search warrants. The owner is present at the facility subject to the search and wants to retain counsel to come to the facility and manage the search. How should counsel respond to the phone call and what steps should counsel take to minimize the impact of the search?

Preliminary Steps

During the initial exchange with the client, counsel should confirm how many agents are present at the site, whether agents are particularly interested in specific areas or divisions of the facility, and whether the agents requested that certain employees consent to interviews. After obtaining this information, counsel might take the following preliminary steps to reasonably assure that the corporation’s interests remain protected and that employees on site understand their individual roles, where applicable, during the execution of the search warrant.

Obtain and review the search warrant and request a copy of the search warrant affidavit. Because Federal Rule of Criminal Procedure 41(d) entitles the subject of a search to obtain a complete copy of the search warrant, counsel should advise the client to request a copy of the search warrant to understand the precise scope and nature of the search, the agency conducting the search, and the magistrate to whom the search warrant must be returned. Defects in the warrant should also be identified immediately by reviewing the warrant, including whether the warrant is overly broad with respect to the places to be searched, whether the warrant is stale, or whether the warrant fails to describe with adequate particularity the property to be seized. There is disagreement among district courts, however, as to exactly when the officer is required to provide the corporation with a copy of the warrant, the receipt of the property seized, or the affidavit supporting probable cause.

The Supreme Court has also noted, in dicta, that neither the Federal Rules of Criminal Procedure nor the Fourth Amendment imposes a requirement upon the officer executing the search to present the property owner with a copy of the warrant before conducting the search.

This seemingly adverse precedent does not necessarily mean that executing officers will not furnish a copy of the warrant to the corporation before the search as a matter of best practices to avoid future litigation, including evidentiary hearings in connection with motions to suppress or emergency motions for return of property pursuant to Federal Rule of Criminal Procedure 41(g), nor does it mean that an Assistant United States Attorney (AUSA) would not be receptive to such requests. Thus, counsel should instruct the corporation to obtain the warrant and a copy of the probable cause affidavit at the earliest possible time although, generally, courts require the filing of a motion to unseal the search warrant affidavit in order to obtain that affidavit.7

Identify the agents on site and contact the agent in charge or the AUSA. A representative of the corporation, or contact person, should obtain the names of the agents on site, including the agent in charge (AIC), and request the name of the individual AUSA responsible for supervising the ongoing investigation. After someone obtains that information, counsel should contact the AIC, and whenever possible, the AUSA, to inform both of them that counsel represents the corporation. Establishing a rapport with the AUSA is critical since she may provide valuable information with respect to the direction of the ongoing investigation. It will also be in the corporation’s best interests to maintain an amicable relationship with the AUSA if the corporation decides to voluntary disclose violations and cooperate with the government.

Communicate ground rules for the search to employees. The client should also assign a representative of the corporation to communicate the following information to employees: (1) the agents are on the premises to conduct a search; (2) the corporation does not know if any of the employees are targets of the search or an ongoing investigation; (3) employees should not engage in any obstructive conduct or alter, delete, or remove any records, equipment, or electronically stored information (ESI) on site; (4) agents may try to interview employees, but the employees are not required to speak to the agents;9 and (5) employees should not create or sign any documents on behalf of the corporation without first conferring with their appropriate supervisor.

Designate note-takers and begin conducting an internal accounting of the items seized. The corporation should also designate at least one employee to take notes while the search is underway. Note-taking accomplishes significant objectives for the corporation. First, employee observations contained in notes may provide the legal basis for challenging either the government’s seizure of corporate property or the legality of the search. Second, notes may provide the corporation with valuable information about the scope and direction of the government’s case and, potentially, the government’s sources of information. Third, note-taking is especially important in the scenario described above in which the corporation does not have a copy of the search warrant prior to its execution.

There is a fundamental difference, however, between taking notes, as observers of the search, and unnecessarily stalking the agents, eavesdropping on conversations between or among agents, or engaging in conduct that may be reasonably viewed as interfering with the search. Bearing this in mind, as observers of the search, each note-taker should pay attention to where the agents commenced the search, how the search progressed, what locations of the facility were the subject of the search, and whether the agents appeared particularly interested in a specific item of property.

Whenever possible, each note-taker should also take note of any of the agents’ questions with respect to the location of a specific item of property. In addition, since the attorney-client privilege attaches to “information gathered by corporate employees for transmission to corporate counsel for the rendering of legal advice,” each note-taker should address his note — containing his observations during the search — to counsel in order to put those communications under the cloak of the attorney-client privilege.10 Finally, the corporation should assign additional employees at the facility to conduct an internal accounting of what the agents seized from the corporation. An internal accounting is a significant step that will preserve the corporation’s ability to later challenge any discrepancies between its internal accounting and the inventory return produced by the government.

Avoid Common Missteps

There are several common missteps the corporation should avoid during the search. As set forth below, employees of the corporation should not engage in obstructive conduct nor should they supply the government with any additional legal authority to search the facility by either signing a consent to search form or verbally consenting to a search of the facility. Moreover, employees on site should take reasonable measures to identify and safeguard privileged documents, including potentially privileged documents, and documents containing confidential or proprietary information.

Avoid obstructive conduct. Employees should understand that they should refrain from impeding or obstructing the search and should not tamper with, alter, or destroy any documents, equipment, or ESI. Any of those acts may be considered obstruction of justice pursuant to 18 U.S.C. § 1519 or another federal obstruction of justice statute.12

Do not consent to search the facility. Agents will frequently attempt to obtain written or verbal consent to search the business premises even if they have a search warrant. This is a significant event because voluntary and knowing consent provides the government with an additional, legal basis for executing the search in the event that the corporation challenges the search warrant based on a defect in the warrant or deficiencies in the probable cause affidavit.13 To this end, employees should be instructed that they should not sign a consent to search form or permit agents to obtain verbal consent to search the facility. Employees also should not consent to a search of an area of the facility that is outside the scope of the particular places to be searched included in the search warrant. A search warrant should be narrowly tailored for its specific purpose; it should not provide the government with free reign to conduct a fishing expedition that auspiciously unearths evidence of a criminal violation.14 Importantly, the corporation may also retract its consent when it mistakenly consents to a search of a segment of the facility that exceeds the scope of the search warrant.15 The sudden retraction may annoy the agents on the scene. Agents may even threaten a noncompliant employee with an obstruction charge or inform the employee that if he does not consent to the search of the area outside the search warrant, they will obtain a warrant that covers that area.16 Putting the agent’s sentiments aside, even if an item is not within the scope of the warrant, employees should not act in such a way that they are perceived as undercutting the agents or object to the search in any way that could be viewed as interference. Instead, they should relay any questions with respect to the scope of the search warrant to counsel (either in person or through a contact person on site) in order for counsel to adequately provide advice to the corporation with respect to the search. And, even in close cases, counsel might advise the corporation to retract consent to preserve the objection to the search and require the agents to obtain an additional warrant.

Protect any privileged documents located at the facility. A determination of whether privileged or potentially privileged documents are located at the facility should be made. Documents identified as privileged or potentially privileged should then be sealed, a privilege log should be created, and the sealed documents and the privilege log should then be delivered to a magistrate judge or special master to resolve any government objections to the corporation’s privilege determinations.17 In the rare circumstance in which the agents begin seizing documents the corporation has identified as privileged or potentially privileged documents, counsel should consider filing an emergency Rule 41(g) motion with the magistrate judge.18Rule 41(g) is concerned with those whose property or privacy interests are impaired by the seizure and plainly permits anyone aggrieved by the deprivation of property to seek its return. An unlawful search or seizure is not a precondition to a Rule 41(g) motion.19 It is important to note, however, that courts may be reluctant to intervene in this process for several reasons. First, on balance, the corporation’s interest in reviewing the potentially privileged materials may be substantially outweighed by the government’s interest in seizing the materials as long as the government properly employs a “taint team.”20 Second, a magistrate judge may not want to second-guess law enforcement judgments. Third, reviewing voluminous amounts of documents is overly burdensome to the magistrate judge. Fourth, some magistrate judges may admonish the parties for failing to resolve these issues, independently, as professionals. Furthermore, in response to the filing of the Rule 41 motion, there is always a risk that the magistrate judge may issue an order determining that the communications are not protected by the attorney-client privilege.

Send nonessential employees home. Essential employees who may be able to assist the agents in locating documents or items specified in the search warrant should remain on site at the facility, whereas employees who are not essential should be informed that they are free to go home for the remainder of the day. By notifying nonessential employees who are not in “custody” that they are free to go home, the corporation has not engaged in any inherently obstructive conduct.21 A cursory review of the applicable obstruction statute illustrates this point.22 In fact, the argument that counsel herself has somehow obstructed the agent’s investigation in this scenario rests on shaky grounds.23 One way to distinguish between essential and nonessential employees might be to determine what segment of the business is subject to the search and identify the employees who are working in that area.

Drawing this important distinction may also provide several additional benefits to the corporation. First, it may accelerate the search because employees with the requisite knowledge will be able to redirect the agents to the location of items described in the search warrant. Second, it might minimize the amount of materials seized and will, at the very least, reduce the disruptive effect of the search. After all, the corporation has interests beyond the search, including its reputation and maintaining goodwill with its employees and its contractual partners, and counsel must be mindful of those interests. Third, by reducing the number of employees onsite, employees are less likely to make spontaneous statements to the agents that may potentially harm the corporation. Moreover, they are less likely to consent to a search of any places or of any items or materials not specifically included in the search warrant, which may prolong the search or require additional litigation.

Employee Interviews

Counsel’s strategy with respect to employee interviews should be informed by five substantial considerations: counsel’s duty to the corporation, counsel’s duty of loyalty, concerns related to communicating with individual employees at the site, obstruction of justice concerns, and practical considerations.

Duty to the corporation. As counsel for the corporation, counsel has a duty to represent and protect the vital interests of the corporation, including its potential exposure to civil or criminal liability.24 During a search, because employees may be untrained, nervous, unprepared, or a combination thereof, employees are not likely to understand that they may decline agent interviews. This fundamental misunderstanding undeniably has the potential to expose the corporation to both civil and criminal liability because certain employee statements, including potentially incriminating statements, may be imputed to the corporation as nonhearsay statements of an opposing party.25 To make matters worse, even though an employee interview conducted during a search is an inherently coercive situation in which the employee, objectively, may not feel free to leave, courts have held that employees are not in “custody” during these interviews, and therefore, employees have no cognizable Fifth Amendment rights during these interviews.26 Further, even if employees were cloaked with the protections of the Fifth Amendment, the corporation only has standing to challenge the legality of the search and any statements, including employee statements, obtained during an unlawful search as fruits of the poisonous tree.27 Yet even that doctrine is far from absolute.28 A court may deny a motion to suppress the statements if the court finds that the taint from the unlawful search had dissipated at the time that the statements were obtained.29 Given this venerable jurisprudence, it is incumbent upon counsel for the corporation to fashion appropriate strategies to protect the corporation’s interests. As discussed in greater detail below, one way to protect the corporation’s interests and to avoid either obstructing an ongoing investigation or providing advice to employees is to propose reasonable guidelines governing how, when, and where such employee interviews might be conducted. After all, both the government and the corporation should be interested in taking reasonable steps to minimize the risk that employee statements are obtained by agents through coercion, cajoling, or intimidation during the execution of a search warrant. The employee should know that he may decline an interview and obtain counsel.30

Duty of loyalty. Because loyalty to a current client prohibits undertaking representation directly adverse to that client without that client’s informed consent,31counsel should not attempt to represent or imply that he represents an employee whose interests are adverse to the interests of the corporation. For example, there may be a reason to believe that an employee is a whistleblower or the employee is a potential government witness armed with incriminating information about the corporation’s business activities.32

Concerns related to communication with individual employees. Counsel’s communication with individual employees raises two principal concerns. A primary concern is that, by communicating with an employee or by responding to an inquisitive employee’s questions about agent interviews, counsel for the corporation might inadvertently form an attorney-client relationship33 with the employee and, in so doing, might place himself in the awkward and undesirable position of having to rebut a claim that counsel simultaneously represents the employee and the corporation. In fact, even if an attorneyclient relationship is never formed, counsel’s law firm may still be required to respond to an unsettling (and humiliating) motion to disqualify.34 Another significant, related concern is that by communicating with an individual employee about an agent interview, counsel may be required to repudiate allegations, regardless of their merit, that counsel has somehow obstructed the government’s investigation.35 Accordingly, to avoid these potential pitfalls, counsel for the corporation should avoid communicating with an employee in any way that may be reasonably construed either as providing legal advice to the employee concerning an agent interview or as improperly influencing an employee’s decision to agree to an interview.

Obstruction of justice concerns. Counsel should not attempt to terminate, impair, or impede the agents’ efforts to interview employees who voluntarily agree to an interview because such interference may be viewed as obstructive conduct. A critical difference exists, however, between informing an employee that he is not required to speak to the agents and instructing or encouraging a particular employee not to agree to an interview with the agents.36

Practical considerations. While employee interviews may be standard procedure during the execution of a search warrant, agents have no ancillary legal authority for conducting such interviews. Instead, the search warrant provides the agents with a legal basis to conduct a search and to seize the particular property named in the search warrant, not to conduct unrestricted employee interviews. Further, attorneys representing the employees may file motions to suppress any statements obtained during employee interviews. For these reasons, counsel for the corporation should communicate to the AUSA that the corporation will assist the agents in locating the items and property named in the search warrant but should also engage in a dialogue with the AUSA to address how, when, and where employee interviews might be conducted. Understanding that it is nearly impossible to predict how a particular AUSA will respond to counsel’s suggestions for conducting employee interviews, counsel should be prepared to present the AUSA with a variety of common-sense options for conducting employee interviews.

1. Reschedule employee interviews. Counsel might first propose that the AUSA reschedule employee interviews until the employees have an opportunity to evaluate whether they want separate legal counsel to represent them during the interviews. The interviews could be conducted at a location that is convenient to the government, and this option may also permit the AUSA to avoid the necessity of having to issue grand jury subpoenas for each employee.
2. Delay employee interviews until counsel arrives. Assuming the AUSA is unwilling to reschedule interviews, counsel should then propose that the agents delay employee interviews until counsel arrives at the facility or until local counsel arrives at the facility.
3. Propose reasonable guidelines for conducting employee interviews. If the AUSA refuses to reschedule or delay employee interviews and counsel cannot locate another qualified attorney within driving distance of the facility to assist with the search, counsel might then propose the following reasonable guidelines37 for conducting employee interviews: (1) permit a representative of the corporation to inform the employees prior to conducting each interview that they are not required to agree to an interview and that, if they agree to an interview, the corporation is willing to pay for an attorney to be present during the interview; (2) provide each employee with a written consent form in the employee’s native language prior to conducting each employee interview to confirm that the employee understands that the employee is free to decline the interview and may have an attorney present during the interview; (3) inform each employee verbally in the employee’s native language prior to conducting each interview that employees are free to decline the interview and to leave the facility and that, should she consent to the interview, she may have an attorney present during the interview; or (4) permit in-house counsel (where applicable) to sit in on the interview of each employee provided that the employee has no objection and provided that the employee understands that counsel represents the corporation, not the employee individually.

In sum, while there are no magic words that will convince an AUSA to agree to implement any of the above-mentioned guidelines for conducting employee interviews, counsel has a duty to protect the corporation’s interests and to recommend reasonable alternatives to conducting the type of involuntary and uninformed interviews that typically transpire during the execution of a search warrant.

AUSA vs. AIC. The possibility always exists that counsel will not be able to identify or contact the AUSA and may wind up negotiating with the AIC with respect to employee interviews. Under these circumstances, counsel should still propose that the AIC reschedule, delay, or implement reasonable guidelines for conducting interviews. Even if the AIC rejects all of counsel’s suggestions for conducting employee interviews, counsel should treat this exchange as an opportunity to set up the cross-examination of the agent during which the agent may be required to explain: (1) why the agents were unwilling or unable to agree to reschedule or delay the interviews; (2) why each interview was “noncustodial”; (3) when and how the agents communicated to the employees that they were “free to leave”; (4) why each interview was voluntary; and (5) why the agents were unwilling or unable to agree to any of counsel’s proposed guidelines for conducting employee interviews, including why the agents were unable or unwilling to communicate to the employees that they may be represented by counsel during the interview.

Final Steps

Prior to the conclusion of the search, the corporation should ensure that it obtains a copy of the receipt of the seized property and requests a copy of the inventory. In addition, when appropriate, the corporation should debrief employees after agents leave the facility.

Obtain a copy of the receipt of the seized property and request a copy of the inventory. The plain language of Rule 41 seems to require that an officer leave a copy of the receipt of the seized property with the corporation before the agents leave the premises.38 Thus, a copy of the receipt should be requested and reviewed to ensure that the list is accurate. If there are any discrepancies between the property listed in the receipt of the seized property and what the search warrant authorized the agents to seize, then these issues must be addressed immediately. In fact, in this scenario, an emergency Rule 41(g) motion before a magistrate judge may be necessary. In addition, a copy of the inventory should be requested prior to the conclusion of the search although the plain language of Rule 41 only requires the magistrate judge — not the officer executing the warrant — upon request to give a copy of the inventory to the person from whom the seized property was taken.39 When such requests are denied, such as when the officers have not completed a copy of the inventory, a request for the copy of the inventory should be made to the magistrate judge as soon as practicable to ensure that the copy is promptly delivered to the corporation.

Debrief employees. After the agents complete the search and leave the facility, employees should be debriefed. The debriefing should focus on determining what materials the agents seized and what segments of the facility were particularly important to the agents. When appropriate, employee interviews should also be conducted to determine what occurred during the search and what may have prompted the search.

Conclusion

As shown, responding to a search in real-time presents uniquely difficult challenges for counsel. A search is a disruptive, unnerving show of force with the potential to shut down a business or cripple its reputation within the community. Armed agents have immediate access to significant documents and essential employees, which the government does not otherwise enjoy when it issues a grand jury subpoena, and there is also no necessity requirement controlling the government’s authority to obtain a search warrant from a magistrate judge.40 Therefore, counsel for the corporation must react quickly, cautiously, and calmly to minimize the potentially devastating consequences of the search. If a corporation has advance notice that it may be subject to a search, such as receiving a grand jury subpoena or determining that it is particularly susceptible to a search because of the industry within which it operates, then employees should be appropriately trained to manage and respond to search warrants.

CIDs or Civil Investigative Demands are an increasingly common tool for federal prosecutors in False Claims Act investigations. Indeed, with the sheer volume of qui tam lawsuits filed under seal poses significant administrative and logistical challenges for the government and various U.S. Attorney’s offices. With the uptick in jaded former employee-relators filing impulsive, sometimes parasitic, lawsuits combined with the government’s duty to investigate each and every qui tam lawsuit, deciding which lawsuit is meritorious is challenging and time consuming. Once a complaint is deemed non-frivolous, the government must then further investigate the allegations contained in the sealed complaint to determine if the government should intervene. Time is of the essence though. So, how might the government make an informed decision with respect to intervention given the heightened demand presented by the constant ebb and flow of qui tam complaints? There is no simple answer to this question, yet it is undeniable that, in recent years, the government has stepped up its use of CIDs or Civil Investigative Demands  to investigate possible False Claims Act violations to adequately respond to the spike in whistleblower complaints and to ferret out and punish fraud perpetrated against the government and taxpayers.

This article will focus on how to respond to a civil investigative demand by first analyzing the methods by which the government may request and obtain information through a civil investigative demand. Next, this article will discuss the risks that should inform any strategy for responding to a civil investigative demand and will provide some guidance to practitioners with respect to how clients might counterbalance the sweeping investigative tools employed by the government during this process.

HOW THE GOVERNMENT REQUESTS INFORMATION

The government has the distinct advantage of requesting information in one of three ways because of the broad investigative powers afforded by a civil investigative demand and the government may serve a civil investigative demand on any person in any jurisdiction in the United States and in any foreign country provided that service does not run afoul of due process. See 31 U.S.C. Section 3733(c)(1)-(2). Indeed, the government may request information through oral testimony, written interrogatories, or requests for production of documentary materials. In so doing, the government is also under no obligation to announce whether they intend to intervene in the sealed qui tam action nor will they communicate to a recipient of the CID, whether an employee or a corporate entity, whom the defendants are in the sealed complaint. In fact, in the case of an employee recipient, the corporate entity has no legal authority to obtain the CID or to determine whether they might be the subject of the CID.

What the government, however, must tell any recipient of a CID is the nature of the conduct constituting the alleged violation of the False Claims Act which is under investigation and the applicable provision of law alleged to be violated. See 31 U.S.C. Section 3733 (a)(2)(A). And, if the CID requests oral testimony from the witness, then the CID must describe the general purpose for which the demand is being issued and the general nature of the testimony, including the “primary areas of inquiry which will be taken pursuant to the demand.” See 31 U.S.C. Section 3733 (a)(2)(D)(v). Stated differently, the government should be prohibited from randomly deviating from the line of questioning set forth in the CID and any attempt to broadly characterize the primary area of inquiry should be met with skepticism.

WHAT ARE THE RISKS OF RESPONDING TO A CID?

Risks abound when deciding whether to respond to a CID. Importantly, a CID may be the prelude to something much more serious, for example, a criminal investigation. In fact, viewed together, Assistant Attorney General Caldwell’s pronouncement last September that the Criminal Division will review every qui tam, and the Holder Memorandum’s strong emphasis on considering investigative strategies that maximize the government’s ability to share information among criminal, civil, and agency administrative teams to the fullest extent permissible by law, should compel practitioners to critically evaluate whether producing documents or providing sworn testimony is in their clients’ best interests.

The above risks are also compounded based on the latitude the government enjoys when it comes to sharing CID materials. Section 3733(i) specifically authorizes any attorney of the Department of Justice, including attorneys who may appear before a grand jury, to receive documentary material, answers to interrogatories, or transcripts of oral testimony received by the custodian designated by the government as a consequence of a CID. See 31 U.S.C. Section 3733(i)(3) (“Whenever any attorney of the Department of Justice has been designated to appear before any court, grand jury, or federal agency in any case or proceeding, the custodian of any documentary material, answers to interrogatories, or transcripts of oral testimony received under this section may deliver such attorney such material, answers, or transcripts for official use in connection with any case or proceeding as such attorney determines to be required..”).

Complicating matters further, a corporate entity or a health care professional, for example, a physician, desiring to challenge the scope of, or set aside, a CID runs the risk of tarnishing his or her reputation because a challenge to a petition has the effect of publicizing the investigation. Indeed, the investigation is nonpublic until a petition to set aside a CID is filed. Thus, petitioners seeking to maintain the secrecy of the investigation may be required to file the petition under seal or move for a protective order in connection with the petition. See Fed. R. Civ. P. 5.2(e) (“for good cause the court may order in a case…require redaction of additional information..”).

TESTIMONY

Deciding whether to provide oral testimony requires counsel for the CID recipient to examine several key risks.

First, whether a criminal investigation is lurking around the corner or not, sworn testimony is sworn testimony. There are no “do-overs.” A client is stuck with whatever testimony the client has provided. Under these circumstances, even the slightest transgression from the former testimony may be impeachable and harmful concessions are likely admissible in future proceedings. Sometimes even a seemingly innocuous prior inconsistent statement may provide a savvy AUSA with sufficient ammunition for a piercing cross examination. A written transcript of the client’s testimony may also be introduced at a civil trial or a criminal trial even when the declarant (the client) is unavailable or refuses to testify. See Federal Rule of Evidence 801(d)(2)(A) (a statement is non hearsay if “the statement is offered against an opposing party and was made by the party in an individual capacity..”). And, as mentioned above, CID materials may be shared with attorneys presiding over a grand jury proceeding.

Second, a client unwilling or reluctant to tell the truth, the whole truth, and nothing but the truth may be subject to a possible false statement or obstruction of justice charge. The government may also compel the client to answer any question to which the client fails to provide an adequate response. See 31 U.S.C. Section 3733 (h).

Third, if a client invokes the Fifth Amendment as a ground for refusing to provide oral testimony, the client may be required to robotically invoke the Fifth Amendment on the record each time the government attorney asks a question as a basis for refusing to answer each question. Based on a witness’ continuing invocation of the Fifth Amendment during the oral examination, the government may request an adverse inference instruction although it is debatable if an oral examination pursuant to a Civil Investigative Demand should qualify as a proceeding where an adverse inference instruction is warranted.

In some SEC cases, for example, courts have found that if a witness refuses to testify at an SEC examination, an adverse inference may be drawn from her invocation of the Fifth Amendment. Courts have reached this conclusion even when the witness has a change of heart and decides to testify at a subsequent hearing, proceeding, or trial. See SEC v. Casano, 2000 WL 1512617 (S.D.N.Y. 2000) (finding that adverse inference was warranted after defendant’s assertion of Fifth Amendment during an investigative interview even though defendant later testified at a deposition); but see SEC v. Freiberg, 2007 WL 2692041 (D. Utah Sept. 12, 2007)(finding that adverse inference was unwarranted when defendant invoked the Fifth Amendment during an investigative interview because defendant testified at deposition). On the other hand, some courts have also found that deficiencies in a complaint cannot be overcome simply by pointing to a defendant’s assertion of silence. see also “Testify First, Know Why Later: Responding to Civil Investigative Demands for Testimony in False Claims Act Cases,” Karen F. Green and James J. Fauci, Financial Fraud Law Report, pages 301-308 (April 2015) (arguing that no adverse inference should be drawn against a defendant who agrees to testify at a deposition but invokes the Fifth Amendment during oral testimony pursuant to a CID reasoning that, if the defendant later testifies, the government and defendant are equal footing); In Re Enron Corp. Sec. Derivative & ERISA Litig., 409 F. Supp. 2d 784, 825-26 (S.D. Tex. 2007) (dismissing complaint for fraud because of failure to plead particularity even though defendants asserted Fifth Amendment); In Re Curtis, 177 B.R. 717, 720 (S.D. Ala. 1995) (finding that plaintiff cannot rely on defendant’s assertion of Fifth Amendment to establish elements of fraud)

Thus, counsel for clients faced with the prospect of appearing for oral testimony should consider the above risks.

PRODUCTION

Responding to a request to produce documentary materials similarly obligates counsel to assess various risks and answer some preliminary questions.

First, has the government properly described each class of documentary material to be produced with certainty to allow the client to “fairly identify” such material? See 31 U.S.C. Section 3733(a)(2)(B)(i). Second, assuming the documents are properly identified, are there any reasons, short of arguing that production is “testimonial” or that the documents requested are privileged that, constitute legitimate grounds for objecting to a request for production? If so, what are the short term and long term consequences, if any, of objecting to a CID on the basis of the Fifth Amendment?

Counsel for the client receiving a CID must cautiously examine these questions before agreeing to respond to any request for production pursuant to a CID.

Furthermore, another important consideration is, under what circumstances, should the client consider filing a petition to set aside the CID on the basis of the Fifth Amendment and/or how should the client respond if the government moves to enforce the CID? See 31 U.S.C. Section 3733(j)(3) (A) (permits a CID recipient to petition to set aside or modify any portions of the demand requiring production). Two recent cases involving petitions to enforce CIDs shed some light on strategies for responding to motions to enforce a CID and the validity of certain objections to requests for production.

In United States v. Aria Sabit, No. 14-MC-50155 (E.D. Mich. April 1, 2014), for example, the district court addressed the limitations of broad CID requests for email communications. Dr. Sabit was a physician investor in a company called Apex which supplied medical implants manufactured by Reliance to hospitals. After Dr. Sabit’s investment in Apex, his use of Reliance implants at various hospitals increased dramatically. The government alleged that Dr. Sabit received $30,000.00 a month based on his investment in Apex. To this end, the government requested that Dr. Sabit produce documents concerning payments Reliance made to Dr. Sabit and, more significantly, “documents concerning communications or meetings between you and Reliance, or between you and any actual or potential Reliance investor.” United States v. Aria Sabit, No. 14-MC-50155 at *4 (E.D. Mich. April 1, 2014). Dr. Sabit refused to produce the requested email communications with Reliance emphasizing that the Fifth Amendment shields him from any obligation to produce those documents. The district court agreed reasoning that the request was a “fishing expedition” much like the one found to be testimonial in United States v. Hubbell. Id. at *6, citing United States v. Hubbell, 530 U.S. 27, 41-43 (2000). In so holding, the court found that an act of production of documents is testimonial where it is “akin to answering interrogatories or responding to a series of questions at a discovery deposition where the witness ‘make[s] extensive use of his own mind’ in identifying the documents requested” by the government. Id. at *5, citing United States v. Hubbell, 530 U.S. at 41-43. Significantly, the court also reinforced that “Dr. Sabit would be required to sift through all of his emails to respond to the document request” and that “such an exercise would require Dr. Sabit to use the contents of his mind” which is identical to answering written interrogatories or questions during a discovery deposition. Id. at *5-6.

Similarly, in United States v. Aurora Health Care, No. 14-MC-77 (E.D. Wisc. March 20, 2015),the district court focused on, to what extent, a peer review privilege may establish a basis for refusing to produce documents. Aurora sought to withhold volumes of documents claiming that they were protected by Wisconsin’s peer review privilege which is codified by statute. While the district court noted that all states recognize some form of peer-review privilege, federal courts reject the peer-review privilege as a privilege recognized by federal common law. United States v. Aurora Health Care, No. 14-MC-77 at *2 (E.D. Wisc. March 20, 2015). According to the district court, the investigation, which did not relate to a malpractice lawsuit, would also be “hindered by blocking access to peer review materials which could shed light on whether Aurora was submitting false claims to the government.” Id. at *2-3.

Thus, Sabit demonstrates the narrow grounds for refusing to produce documents in response to a CID or for setting aside portions of a CID whereas Aurora, while an innovative approach to the CID enforcement, underscores the importance courts ascribe to these investigations even when they gobble up documents or communications purportedly protected by the peer review privilege.

TIPS

Based on the above risks, any decision to appear for oral testimony, produce documents, or respond to interrogatories should be carefully evaluated. Below are some suggested tips for softening the initial impact of receiving any CID.

Informal Meeting

While the CID statute proscribes three distinct methods by which the government may obtain information, there is no harm in requesting an informal meeting with the AUSA in lieu of oral testimony nor is there any prohibition against an informal meeting. Such a request might be rejected but it should be made as early as practicable and should spell out the reasons why the client’s attendance at an informal meeting with the AUSA might serve as an adequate substitute for oral testimony.

At a meeting, the client may also be in a position to produce documents which are directly responsive to the “primary areas of inquiry” set forth in the CID. Likewise, counsel for the client may be in a better position to glean additional facts and learn more about the direction of the investigation based on the questions at the informal meeting.

Narrow the Scope

Although Federal Rule of Criminal Procedure 17 governing subpoenas and/or Federal Rule of Civil Procedure 26 governing relevance are the operative provisions limiting CID requests for production, responses to interrogatories, and oral testimony, the civil investigative demand provision and Rule 9(b) of the Federal Rules of Civil Procedure are “intended to encourage careful behavior when alleging fraudulent conduct.” United States v. Kernan Hospital, Civil Action No. RDB- 11-2961 (D. Md. Nov. 20, 2012). Notably, a CID is intended to be used responsibly “only in those instances where it is absolutely necessary to determine whether a fraud action under the [False Claims Act] is appropriate.” Id.

Thus, at the outset, counsel should reach out to the AUSA and establish a proper understanding of precisely what questions will be asked and/or what class of documents the government seeks to obtain. There should be no surprises during any oral examination concerning the areas of inquiry, and even if there are, one easily overlooked benefit of oral testimony, unlike a deposition but akin to grand jury testimony, is that the client may confer with counsel “in confidence” prior to answering any question on the record. See 31 U.S.C. Section 3733(h)(7)(A). Notwithstanding this important benefit, an objection should be entered in the record based on the government’s failure to toe the line.

Invoking the Fifth

There are two primary methods a client may use to invoke the Fifth Amendment in response to CID: (1) objecting to a request for production because it requests testimonial communications protected by the Fifth Amendment; or (2) objecting to an individual question during an oral examination under oath. Where possible, counsel should avoid the second scenario by engaging in preliminary discussions with the AUSA to determine the nature of the questions the client should anticipate. That way, if the AUSA veers off the agreed upon line of questioning, an invocation of the Fifth Amendment might not be necessary. Instead, counsel may simply object to the questions because they are beyond the scope of the “primary areas of concern.”

Counsel should also be wary of the potential pitfalls of invoking the Fifth, e.g. the possibility of the government or another party requesting an adverse inference instruction, as a response to a request for production or during an oral examination. Yet, if a criminal investigation is underway, or the corporation is in a cooperative posture with the government in an effort to root out and disclose the alleged misconduct committed by the client, the client may be required to formally invoke the Fifth Amendment. Alternatively, if a client’s status as a subject or a target is unknown or undefined, counsel may ask the AUSA to delay any oral examination until counsel can conclusively determine if there is an ongoing criminal investigation involving the client. In short, invoking the Fifth Amendment — regardless of whether the client must assert it formally or may assert it informally by agreeing with the AUSA that oral testimony is unnecessary — is in the client’s best interest when there is any reason to believe that a criminal investigation is percolating, even if the government decides to request an adverse inference later on.

Petition to Set Aside a CID

Counsel might petition to set aside the CID if the CID is deficient. Petitions to set aside a CID, however, pose two significant hurdles for the client. First, any petition will immediately become part of a public court record unless the client successfully moves for a court order or moves to file the petition under seal to avoid the potential negative publicity associated with the petition. Second, as shown in Sabit and Aurora, the grounds for objecting to enforcement of a CID are narrow. Barring unusual circumstances, like the case of United States v. Kernan Hospital, Civil Action No. RDB- 11-2961 (D. Md. Nov. 20, 2012) during which the government served CIDs on defendant hospital a second time after unsealing the qui tam complaint, a CID recipient’s valid grounds for setting aside a CID or portions of the CID may be limited to reliance on an applicable privilege, assertion of the Fifth Amendment to avoid production of testimonial communications, or attacking the completeness or particularity of the requests for production or interrogatories. See 31 U.S.C. Section 3733(j)(3)(B).

CONCLUSION

Given that the government will continue to vigorously investigate allegations of False Claims Act violations and is not adequately equipped to sufficiently evaluate hundreds of qui tam filings simultaneously (even with the assistance of the Criminal Division), counsel should continue to expect a surge in CIDs and should properly advise the client with respect to the risks of responding (or not responding) to a CID. In so doing, as reinforced in this Article, it may be in the client’s best interests to engage in informal, preliminary discussions or negotiations to establish the guidelines that should govern the requests for production or oral examination. Taking this middle-ground approach might allow the client to avoid some of the negative consequences of implementing a strategy geared towards absolute silence or a strategy where the client alienates the government by lodging objections, filing petitions, and generally, being non-responsive.