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.
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