This post was written by Andrew Bernasconi and Nathan Fennessy.
As we noted previously, there has been increasing attention in False Claims Act (“FCA”) cases to whistleblowers who fail to preserve relevant evidence. Now, in a recent decision in the United States District Court for the District of New Mexico, the government has been sanctioned for its failure to preserve relevant evidence from key officials at the Centers for Medicaid & Medicare (“CMS”). See United States of America, ex rel. Baker v. Community Health Systems, Inc., No. 05-279 WJ/ACT (Oct. 3, 2012).
The court overruled the objections raised by the government to the magistrate’s Report and Recommendation (“R&R”) granting defendants’ motion for sanctions, and agreed with the magistrate’s conclusions that the government had belatedly issued a litigation hold, and that “the ESI and documents which were lost by virtue of the belated litigation hold are critical to one of the Defendants’ theories of defense” – that the government’s knowledge of defendants’ activities negated the scienter requirement of the FCA. The government argued that the missing documents were irrelevant or cumulative, and thus would have no impact on defendants’ ability to defend themselves. The court did not agree and stated that “[w]ithout knowing what is missing, it is impossible to take the Government at its word that the missing or destroyed documents are either irrelevant or cumulative.”
Although the court agreed that the government did not engage in bad faith or intentional conduct, it still found that sanctions were appropriate “to prevent the Government to benefit from its apathetic conduct in preserving documents that were clearly meant to be preserved, when it had ample reason to believe the documents and ESI should have been preserved for some time prior to the litigation hold.” Thus, the court imposed the following sanctions:
- The government must produce all documents being withheld under a claim of work product immunity, attorney client privilege, or deliberative process privilege from or to the two key CMS officials, or discussing the withholding of government reports that purportedly supported the defendants’ government knowledge defense
- The defendants’ reasonable attorneys’ fees and costs associated with the motion for sanctions
- The government must show cause why it should not conduct an additional forensic search for documents of the two key CMS officials
This decision reinforces the often-overlooked notion that discovery is a two-way street in FCA cases, and that the government has its own duties to preserve potentially relevant documents even though they support potential defenses to the government’s cause of action. This decision should embolden companies to explore whether the government is complying with its discovery obligations, but it should also serve as a reminder to companies about the importance of issuing their own document hold notices at the earliest stages of a government investigation to ensure that the company’s documents and ESI are being properly preserved and maintained.