Updated: Mar 17
On Feb. 24, the U.S. District Court for the Middle District of Tennessee issued a remarkable order in U.S. v. SouthEast Eye Specialists PLLC, denying the U.S. Department of Justice's motion to intervene in a qui tam action brought under the False Claims Act.
The court concluded that the U.S. lacked good cause to intervene despite the government moving to intervene only six months after the court's deadline for intervention — a deadline set despite the government's ongoing investigation — and the court made no finding that intervention would prejudice the defendants.
The court held that a finding of good cause required the U.S. to show specific, new evidence justifying its belated intervention, and that the government's submission fell way short of that standard. That holding was a complete reversal of the magistrate judge's report and recommendation, which found good cause, yet the district court offered no reasoned explanation of the magistrate judge's purported error.
Because the district court's novel and demanding approach to good cause is inconsistent with the FCA, frustrates its purpose of facilitating recovery of fraudulently obtained federal funds and potentially impinges on the executive branch's constitutional obligation to enforce the FCA, it should be rejected in favor of a more deferential approach.
First, to afford the U.S. adequate time to investigate a qui tam action and decide whether to intervene, the FCA expressly authorizes the government to seek extensions of the initial 60-day sealing period for good cause. Although the statute does not define good cause, the FCA does not limit the number of permissible extensions or the length of time a case may remain sealed.
In fact, it is common in FCA cases for the government to request, and courts to grant, numerous seal extensions solely because the government's investigation is active and ongoing, and for courts to maintain the seal for nine years or more. Such seal extensions are consistent with the U.S. Government Accountability Office's finding that government fraud investigations typically range from three years to more than eight years for extremely large or complex investigations.
Moreover, when a qui tam complaint has not been filed, the only time constraint the government faces in investigating and bringing suit is the FCA's statute of limitations. The FCA's qui tam provisions, which were enacted to aid the government's recovery of fraudulently obtained funds, should not be construed to substantially curtail the government's time to investigate such fraud.
Here, after only 28 months of seal extensions — for which the district court necessarily determined there was good cause — and despite the fact that the government's investigation was incomplete, the court set a deadline for intervention. Because the government could not make an informed decision about whether to intervene by that time, the district court unsealed the case.
The court's arbitrary deadline for intervention, despite an ongoing, active investigation, is inconsistent with the statute's allowance for seal extensions, as well as courts' prevailing, liberal approach to such extensions.
Second, the FCA provides that, even if the government initially declines to intervene, it may do so later for good cause. Although not defined, courts generally construe good cause broadly, consistent with the FCA's remedial purpose.
The district court here, however, denied the U.S.' motion to intervene, narrowly interpreting good cause to require the government to identify specific, new and adequate evidence to justify belated intervention, which the court then scrutinized and found to be insufficient. The district court's stringent and limited approach to good cause finds no support in the text or purpose of the FCA.
The district court's conclusion that the government's showing was deficient is particularly puzzling given the magistrate judge's report and recommendation, which determined that the government had established good cause.
The magistrate judge explained that the government pointed "to evidence discovered in [its] continued investigation of the case after [its] initial decision not to intervene," and observed that courts "generally allow late intervention based on this kind of new evidence" and that the "defendants do not identify any cases in which such new evidence has been found not to support late intervention."
The magistrate also concluded that the defendants would not be unduly prejudiced because discovery had not yet begun, there was no case law "in which courts deemed intervention before the start of formal discovery to prejudice [the] defendants," and any wasted resources expended on briefing the defendants' motion to dismiss prior to intervention did not amount to prejudice.
The district court provided no reasoned explanation for jettisoning the magistrate judge's findings and conclusions.
Third, the district court's good cause interpretation raises constitutional concerns. Although the FCA authorizes relators to bring qui tam actions on behalf of the government and share in any recovery, the underlying claim ultimately belongs to the government. The district court's approach, denying adequate seal extensions to the government and then applying a heightened good cause standard for belated intervention, effectively precludes the U.S. from exercising its statutory right to participate in a qui tam action.
The inability of the U.S. to intervene, in turn, may cast doubt on whether the executive branch maintains sufficient control over FCA actions such that it can fulfill its constitutional obligation to take care that the laws are faithfully executed. In addition, an interpretation of good cause that routinely precludes intervention is inconsistent with the FCA's broad, remedial purpose, particularly given that the chances of recovery in an FCA action are significantly higher when the government intervenes.
For all of these reasons, the district court's demanding good cause approach should be rejected in favor of a deferential standard. A deferential good cause standard would be consistent with the FCA's allowance for seal extensions and belated intervention, while sufficiently assuaging courts' and the defendants' concerns about unnecessary delay or gamesmanship.
If the U.S. can explain that it is actively and diligently investigating a qui tam complaint, and that explanation is plausible with respect to the subject and scope of the investigation, the good cause standard for a seal extension should be satisfied. Similarly, good cause for belated intervention should be satisfied where the government can identify a good faith basis for its changed decision, the timing of the belated intervention is not unreasonable and no party is unduly prejudiced.
Here, the government surely satisfied that standard by explaining that its investigation, once completed, confirmed its view that the FCA had been violated, only six months had passed since the court's intervention deadline, relators consented to intervention, discovery had not yet begun and briefing on the defendants' motion to dismiss was not yet complete.
Indeed, had the district court not established an arbitrary deadline for intervention in the first place, the U.S. would have been able to intervene as of right.
Catherine Dorsey is a shareholder at Baron & Budd PC.
Jacklyn DeMar is director of legal education at Taxpayers Against Fraud Education Fund.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
 See, e.g., In re Pharmaceutical Indus. Average Wholesale Price Litig., 498 F. Supp. 2d 389, 392 (D. Mass. 2007) (under seal for nine years); U.S. v. Baylor Univ. Med. Ctr., 469 F.3d 263, 266 (2d Cir. 2006) (under seal for eight years); U.S. ex rel. Health Outcomes Techs. v. Hallmark Health Sys., Inc., 349 F. Supp. 2d 170, 172 (D. Mass. 2004) (under seal for eight years).
 U.S. Gov't Accountability Office, False Claims Act: Information on False Claims Act Litigation 30 (2005), available at http://www.gao.gov/assets/100/93999.pdf.
 U.S. v. Southeast Eye Specialists PLLC, No. 3:17-cv-00689, 2020 WL 4431464 at *5 (M.D. Tenn. July 31, 2020).
 See, e.g., Joel D. Hesch, It Takes Time: The Need to Extend the Seal Period for Qui Tam Complaints Filed Under the False Claims Act, 38 Seattle L. Rev. 901, 902 (2015) (noting that when government intervenes, government obtains recovery in 95% of cases, but in non-intervened cases, relators obtain recovery in 5% of cases).