One of the more concerning trends for the defense bar in False Claims Act cases is an uptick in parallel criminal and civil proceedings. While the pursuit of parallel proceedings is long-standing DOJ policy, the last few years have seen a “doubling down” by the government on the use of these proceedings — for instance, the 2014 Department of Justice policy requiring an automatic criminal division review of each qui tam complaint and the 2015 Yates Memorandum’s requirement for defendants to identify all culpable individuals to obtain “cooperation” credit in reaching a resolution with the government. From the defense side, parallel proceedings raise important and troublesome issues, including protecting the defendant’s Fifth Amendment rights while mounting a robust defense in the civil case. But, as shown in recent decisions from the Eastern District of Kentucky and Southern District of New York, parallel proceedings may also prove challenging to DOJ when a judge is impatient with the progress of case on its docket or when the relator is not on board with how the government would like the case to proceed.
On September 9, 2016, the court in U.S. ex rel. Jennifer L. Griffith and Sarah Carver v. Eric C. Conn, et al. denied the government’s and defendant’s motion to stay the civil case pending the outcome of a parallel criminal matter. In 2011, the relators filed a qui tam complaint alleging that Conn, an attorney, and David Daugherty, an administrative law judge, conspired to commit social security fraud. After receiving several seal extensions for over a year, DOJ decided to not intervene in 2013. Relators continued to pursue the case for the next three years. In 2016, however, DOJ changed its mind and moved to intervene in the case, which the court approved. DOJ then moved to stay the civil case because it indicted Conn and Daugherty before a grand jury in April 2016. The defendants also moved for a stay of the civil case in light of the criminal proceeding. The government and the defendant both argued litigating the criminal and civil cases at the same time would be harmful to their respective positions. The relator, however, disagreed.
Notably, the government and defendants sought a stay of the entire case pursuant to the inherent authority of the court to control its docket, with the government specifically declining to ask for the narrower relief contemplated by section 3730(c)(4) of the False Claims Act, which expressly provides for a stay of discovery as opposed to staying the entire case. Thus, the issue before the court was whether its inherent authority to stay proceedings was limited by section 3730(c)(4). Specifically, the relator argued that this provision expressly curtailed the court’s inherent stay power by restricting the circumstances in which the government could request a stay. The court, applying several canons of statutory construction, disagreed with relator’s interpretation and found that section 3730(c)(4) did not curtail the court’s inherent ability to control its docket and stay proceedings.
However, the court did not grant the stay sought by the government and supported by the defendant. While the court agreed that there was substantial overlap between the criminal and civil cases and that the fact of indictment weighed in favor of granting the civil stay, the balance of weighing the defendant’s, plaintiff’s, court’s and public’s interests did not. Most significantly, the court was not persuaded that the defendants’ dilemma between waiving their Fifth Amendment rights or not testifying in the civil case showed “substantial prejudice.” Because there is often overlap between federal criminal and civil laws, the defendants did not “allege any significant prejudice beyond the typical choice” of whether to invoke the Fifth Amendment. Further, the court posited that there were other ways to avoid implicating the Fifth Amendment in the civil proceeding, such as through protective orders or stays of certain depositions. Combined with the risk of lengthy delays to the civil case, the court denied the motion to stay.
While this situation is not unique, the variability of scenarios flowing from parallel proceedings should not be underestimated. In an ongoing FCA matter in the Southern District of New York, US ex rel. Brumfield et al. v. Narco Freedom, Inc., et al., No. 12 Civ. 3764 (JGK), the government intervened against numerous defendants, one of whom sought a stay of the entire case on the ground that he had been indicted by New York State on overlapping charges. The US Attorney’s Office in the Narco Freedom case opposed the stay largely on the ground that the federal allegations only partially overlapped with the much broader state criminal indictment and the defendant had not shown he would be prejudiced by the federal and state proceedings moving forward simultaneously. In addition, the government argued that the defendant, in any event, had not shown that there would be prejudice to him if he answered the federal complaint or produced documents. On July 19, 2016, the court granted the defendant’s request for a stay — not as to the entire case, but only as to the moving defendant. In a fact-intensive opinion issued from the bench, the court relied primarily on the defendant’s limited financial means and on the fact that the defendant had already provided discovery in a previous, and partially overlapping civil matter brought by the US Attorney’s Office. The court reasoned, inter alia, the government had not demonstrated that additional discovery was necessary. The court also observed that in light of the defendant’s limited financial means, it would be exceedingly burdensome for the defendant to litigate a criminal and civil matter simultaneously and that, in any event, he would be unlikely to contribute meaningfully to any recovery that the government might ultimately obtain. The court noted that the qui tam matter had been “put off, put off, put off” for four years, whereas the criminal matter appeared to be moving ahead. The court, however, would not stay the entire case and stated that the defendant could mitigate prejudice by monitoring the docket and asserting arguments as appropriate. As a result, the Narco Freedom case will go forward as to the other defendants, who are charged with the same conduct as the moving defendant. Thus, while the moving defendant’s Fifth Amendment rights may be protected, his ability to participate in and protect his interests in the civil FCA matter has been seriously curtailed.
Complex scenarios such as these may be expected to occur more in the future. Parallel proceedings, whether entirely federal or a mix of federal and state (thus begging the question of whether the proceedings are “parallel” or, simply, proliferating), appear to be a permanent fixture of the FCA landscape. With pressure by courts to make intervention decisions in FCA qui tam cases, the timing and coordination of intervention/prosecution decisions may be out of sync, leading to situations where DOJ may be aligned with the defendant on a stay motion, see Conn, or where DOJ is opposed to a defendant’s stay request, see Narco Freedom. Even in what appears to be a declined civil FCA matter, DOJ may continue its investigation while the relator pursues the FCA case. At some point in the future, DOJ may decide to re-enter and take control of the matter, which creates defensive complications during discovery and litigation with the relator simply because DOJ’s re-entry is a lingering possibility and because criminal proceedings are not necessarily foreclosed by a FCA declination. As in the Conn case, when DOJ rejoins a declined case and then ups the ante by starting a criminal proceeding, protecting the ability of the defendant to effectively navigate the civil matter and his or her Fifth Amendment rights is a complex challenge for the most experienced counsel, involving close consideration of the facts and range of remedial options, as well as the dynamics among the various governmental components that are involved and where the government’s and defendants’ interests overlap and diverge.