When government comes knocking, but on civil side

It’s often the first sign that a busi­ness could be facing legal trouble.

The worrisome news arrives with a vis­it by a U.S. Marshal or government inves­tigator.

It’s a Civil Investigative Demand – a request for the company to turn over a batch of documents. Sometimes the pa­pers might include a series of questions to answer or a demand for a company offi­cial to answer questions under oath.

It’s not a criminal investigation, but the government has civil investigation resources that carry stiff penalties.

Lawyers like Charles E. James then get the call from an anxious client, worried that the government has the business in its crosshairs.

“They almost always go to the worse possible scenario,” James said. “Why are they interested in us?” the caller wonders.

James – who practices white collar crime defense in Richmond – says the au­tomatic next step after hanging up with the nervous client is to call the federal lawyers involved.

“It’s probably the first hour of every federal case I have,” James said.

The aim is to find out if the client is a target of a civil investigation under the False Claims Act, the whistleblower law that rewards insiders who report cheat­ers stealing from the taxpayers.

Sometimes, the news is good. The busi­ness might be a mere bystander to some­one else’s suspected wrongdoing. The gov­ernment just wants a few documents.

“I tell the client to rest easy,” James said.

But, if the client is a target, the work is just beginning.

Perhaps more problematic, James said, is when the government refers to the cli­ent’s business as a “subject.”

“That’s not very helpful” in getting a fix on whether trouble might lie ahead, he said.

Two recent court rulings reveal the administrative problems that may await after a company receives a Civil Investigative Demand.

False Claims

A Civil Investigative Demand is an administrative subpoena, according to a summary of the law in a re­cent federal court opinion.

The federal False Claims Act allows the U.S. attorney general or a designee to issue CIDs requesting docu­ments, interrogatory responses or deposition testimo­ny. The CID can be issued only before a target is sued or the government elects to intervene in a case filed by a private whistleblower.

The purpose of a CID is to allow the government to promptly decide whether there are grounds for initiat­ing an FCA suit.

Courts can rule on whether a CID is properly found­ed, timely, seeks relevant information and is not undu­ly burdensome.

Some of those factors were weighed in two recent fed­eral court decisions in Virginia

Attorney-client privilege tested

In Richmond federal court, a drug maker has been challenging government demands for documents as the government looks into whether the company engaged in unfair competition.

The records were voluminous. The company – now known as Indivior, Inc. – produced almost 600,000 docu­ments, according to the opinion from U.S. District Judge Robert E. Payne. The company withheld about 24,000 documents on the ground of attorney-client privilege.

Payne appointed Richmond’s Craig T. Merritt as a special master to oversee the privilege claims. Merritt reviewed an initial group of 3,704 documents and ques­tioned the reliability of the selection process and the accompanying privilege log.

Merritt then specified documents to be produced, some with redactions.

Payne overruled objections from the drugmaker.

The pharmaceutical company first balked at the test for attorney-client privilege when the attorney is asked to review materials that will be publicly released. Payne said he resolved that issue in an earlier opinion, reject­ing privilege claims for documents the client intended to be made public (VLW 015-3-121).

Payne also rejected the drugmaker’s suggestion to rule on privilege claims based on two exemplar documents.

The objections “must be presented specifically to the judgments made by the Special Master as to each docu­ment individually,” Payne wrote in FTC v. Indivior Inc. (VLW 016-3-360).

Regardless, Payne said the two documents were not shielded by privilege. The “record is clear beyond ques­tion that the services rendered by the two law firms involved … would reasonably be expected to entail the publication of the client’s communications,” Payne wrote.

Payne directed the pharmaceutical company and the FTC to work with Merritt on a plan for reviewing anoth­er group of 19,000 documents.

The drugmaker’s privilege log will likely see close scrutiny. The “descriptions in the log are so at odds with the text of the documents that are being identified as to make the log a functionally useless document, thereby rendering it no log at all,” Payne said.

Duplication of effort

Objections to a CID in the Western District of Virginia shed light on another document-rich investigation, this one focused on a trucking company subject to a six-year investigation into alleged misuse of government-paid fuel cards.

Beam Brothers Trucking Inc. was raided by a platoon of federal agents in 2013. The feds seized dozens of box­es of files and imaged all of the company’s computer hard drives. Afterward, the company voluntarily pro­duced many other relevant documents, according to a summary by U.S. District Judge Michael F. Urbanski.

Faced with new document demands, Beam said the government had effectively elected to launch a False Claims Act suit against the company, so the use of a CID was no longer proper. Beam also complained that many of the documents sought had already been turned over, either through the raid or voluntarily.

Contending the government had decided to intervene in a qui tam action, Beam pointed to a 2015 letter from a Justice Department lawyer outlining findings of “po­tential” False Claims Act violations. The government followed with a settlement proposal. Beam rejected the offer and the CID followed.

The government had not confirmed the existence of a qui tam action, nor had the government filed suit under the FCA, Urbanski said.

Urbanski found little guidance in the case law for deciding whether an extensive investigation and a set­tlement offer amount to the commencement of an FCA action or an election as to a qui tam action.

Denying Beam’s motion to set aside the CID, Urbans­ki concluded the length and depth of the government investigation played a diminished role in determining whether the government had decided on a qui tam in­tervention.

“The facts before the court reveal that the govern­ment has not filed an FCA claim, no qui tam action has been unsealed or served, and the government has taken no action that would foreclose its right to intervene in a qui tam action. Therefore …, DOJ-Civil has taken no action that bars the filing” of the CID, Urbanski said.

Acknowledging it might be unduly burdensome for Beam to “comply chapter and verse with the myriad specifications of the CID,” Urbanski gave the parties 60 days to try to agree on which relevant, non-duplicative documents should be produced.

The case is In re: Civil Investigative Demand 15-439 (VLW 016-3-386).