U.S. District Court in Maryland Rules on When the Government May Issue Civil Investigative Demands Under the False Claims Act


The U.S. District Court for the District of Maryland in United States v. Kernan Hosp., Civil Action No. RDB-11-2961, 2012 U.S. Dist. LEXIS 165688 (D. Md. Nov. 20, 2012) (Bennett, J.), ruled that the False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq., does not authorize the United States to issue a civil investigative demand (CID) to investigate allegations that were the subject of a complaint that was dismissed without prejudice for lack of particularity.

Allegations and Procedural History:  On October 17, 2011, the United States filed a complaint against the defendant Kernan Hospital alleging that the defendant systematically “upcoded” diagnoses and submitted false claims to government health care programs.  Before initiating the action, the Government investigated the alleged misconduct for three years, obtaining nearly 19,000 documents. On July 30, 2012, the court dismissed the complaint without prejudice for lack of particularity and closed the case.  On August 23, 2012, the Government issued a CID that sought information to cure the deficiencies in the original allegations of fraud.  The defendant asked the court to set aside the CID, and the court granted the motion.

Ruling on the Scope of the CID Authority: The FCA authorizes the Attorney General or a designee, “before commencing a civil proceeding under [the FCA] or other false claims law, or making an election [to intervene in a FCA action],” to issue a CID requesting documents, answers to written interrogatories, or deposition testimony.  31 U.S.C. § 3733(a)(1).   As noted by the court, the Senate and House Reports accompanying the False Claims Amendments Act of 1986 explained that “without a prefiling subpoena power the Government was unable to properly assess whether to commence a case under the False Claims Act.”  Kernan Hosp., 2012 U.S. Dist. LEXIS 165688, at *16. In light of this statutory language and legislative history, the court ruled that the Government may not issue a CID to investigate allegations that were already the subject of a suit filed by the Government, regardless of whether that suit is still pending.  The court explained its rational as follows:

[T]he plain meaning of the statute makes clear that the tool is to be used “before commencing a civil proceeding.”  31 U.S.C. § 3733(a)(1).  Moreover, the legislative history confirms that the civil investigative demand is a prefiling investigative tool that Congress created to aid the Government in deciding whether to file suit in the first place.  The Government already determined that the False Claims Act suit against Kernan was worthwhile.  For these reasons, this Court finds that the Government may no longer exercise the civil investigative demand power under section 3733 with respect to its allegations that Kernan engaged in fraud by upcoding secondary diagnoses concerning malnutrition.

Id. at *18.

In light of the extensive pre-filing investigation already undertaken by the Government, and the overlap between the proposed CID and the prior investigation, the court rejected the Government’s argument that, as a matter of policy, it should be permitted to issue a CID to cure the deficiencies in the original fraud allegations.  The court held:

[T]he circumstances of this case suggest that the Government conducted a thorough investigation and gathered the information it needed to determine whether to file suit. The length and depth of the investigation, along with the fact that the Government’s recent civil investigative demand seeks documents within the same universe of information it already had the opportunity to access, reveals that the Government took full advantage of its section 3733 power in preparation for filing suit.

Id. at *19-*20.