Gathering Evidence in Qui Tam Actions

According to the federal government, while the act of gathering evidence creates a direct conflict between competing interests, the interest in disclosing the fraud generally outweighs the defendant's interest in keeping the fraud from being divulged. Submission of the United States as Amicus Curiae in Support of Relator's Motion to Dismiss the Counterclaims of Defendant Midwestern Regional Medical Center, Inc. at 7, U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 99-C-8287 (E.D. Ill. Apr. 2, 2004) (“Implicit in the very purpose of the statute is an assumption that individuals who become qui tam relators possess and are willing to disclose to the government inside evidence of fraud ' whether in the form of documents or other information ' that their employers or other potential FCA defendants would rather that relators not disclose to the government.”). How can the relator strike the right balance?

Employer and Employee

From the defendant's perspective, the employee's duties of loyalty and confidentiality trump all other interests, and any breach is intolerable. As a result, after an employee gathers and discloses the evidence of fraud, employers often file counterclaims against relators for breach of confidentiality agreements, breach of fiduciary duty, and conversion. See, e.g., U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 350 F. Supp. 2d 765, 772-74 (N.D. Ill. 2004). In ruling on these counterclaims, courts consider several factors, including: 1) whether the relator had access to the documents in the course and scope of employment; 2) the relevancy of the documents; and 3) the applicability of a valid privilege or enforceability of a confidentiality agreement.

First, the relator must have “legitimate possession and custody of the documents.” Submission of the United States as Amicus Curiae in Support of Relator's Motion to Dismiss the Counterclaims of Defendant Midwestern Regional Medical Center, Inc. at 16, U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 99-C-8287 (E.D. Ill. Apr. 2, 2004). For example, relators may gather and produce to the government voluminous documents, e-mails, and other communications received during the course of their employment. As long as the relator is preparing to file a qui tam suit or otherwise disclose the information to the government, his search efforts should be unimpaired. A relator may not, however, rummage through someone's office without permission or gain computer access unlawfully or through false pretenses.

Second, courts consider the relevance of the documents at issue. Qui tam cases typically involve hundreds of thousands (sometimes millions) of documents. Therefore, relators who have no prior qui tam experience should not have the burden of analyzing the legal significance of each document before gathering and preserving them for their qui tam counsel to review ' a process that often consumes a significant amount of counsel's time. So long as the relator has some basis to reasonably believe that the documents have some relevance to the allegations, collection of such documents should be permitted. But see U.S. ex rel. Cafasso v. General Dynamics C4 Sys., Inc., CV 06-1381-PHX-NVW, 2009 WL 3723087, at *5-7 (D. Ariz. Nov. 4, 2009) (concluding that the relator indiscriminately gathered documents wholesale without regard to the documents' relevancy to the qui tam action). Cafassso is an outlier case and is not the majority rule on gathering evidence in qui tam cases.

Finally, equally important in ruling on a defendant's counterclaims are privilege or confidentiality concerns. A defendant may attempt to exclude certain evidence gathered by a relator by asserting that the evidence is privileged. Depending on the evidence at issue, a relator may challenge the defendant's assertion of privilege. For example, a relator may contradict a defendant's claim that a document is protected by the attorney-client privilege by arguing that under the crime-fraud exception, communications made for an unlawful purpose or to further an illegal scheme are not privileged. See, e.g., U.S. ex rel. Smart v. CHRISTUS Health, CIV A C-05-287, 2009 WL 1658008, at *5 (S.D. Tex. June 12, 2009) (concluding that relator failed to meet his burden of showing that the crime-fraud exception applies because relator's brief does not identify where in the complaint or the attachments in particular the court was to find the evidence on which to base a prima facie case that defendants' attorneys furthered a fraud).

Confidentiality Agreements

It should also be noted that while employee confidentiality agreements may appear to tie relators' hands unacceptably in the disclosure of relevant evidence and prohibit relators from carrying out legitimate investigations that are encouraged by public policy, the U.S. Supreme Court has held that a private contract is “unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.” Town of Newton v. Rumery, 480 U.S. 386, 392 (1987); see Restatement (Second) of Agency ' 395 cmt. F (1958) (“An agent is privileged to reveal information confidentially acquired by him in the course of his agency in the protection of a superior interest of himself or of a third person,” where, for example, “the confidential information is to the effect that the principal is committing or is about to commit a crime.”).

The government has taken the position that “[a] private agreement that broadly prevents a relator from turning over any non-privileged evidence of fraud which she 'possesses' to the Government should not be enforced” because such “broad corporate confidentiality agreements would frustrate the purposes of the FCA by proscribing the relator from providing the Government with some of the best evidence of fraud, gleaned from the company's files.” Brief for United States as Amicus Curiae in Support of the Appellee at 25-26, U.S. ex rel. Cafasso v. General Dynamics C4 Sys., Inc., 09-16181 (9th Cir. May 5, 2010). Defendants' confidentiality agreements are thus unenforceable to the extent that they conflict with the purpose of the FCA and prevent relators from disclosing non-privileged information evidencing fraud. See, e.g., U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 350 F. Supp. 2d 765, 773 (N.D. Ill. 2004) (“[T]he confidentiality agreement cannot trump the FCA's strong policy of protecting whistleblowers who report fraud against the government.”); X Corp. v. John Doe, 805 F. Supp. 1298, 1310 n.24 (E.D. Va. 1992) (noting that an agreement would be void as against public policy if it would prevent “disclosure of evidence of a fraud on the government”).

In U.S. ex rel. Head v. Kane Co., 668 F. Supp. 2d 146, 151-52 (D.D.C. 2009), the court held that a relator did not breach a separation agreement by failing to return an e-mail containing direct evidence of the defendant's fraud. The court reasoned that enforcing a private agreement that requires a qui tam plaintiff to turn over to the defendant who is under investigation the only copy of a document that is likely to be needed as evidence at trial would unduly frustrate the purpose of Section 3730(b)(2), which requires relators to provide the government with “all material evidence and information the person possesses” regarding the fraud allegations. See Id. at 152.

Practically speaking, concerns regarding confidentiality, trade secrets, and proprietary information need not impede disclosure, as the protections and requirements governing disclosure in the FCA involve and allow only disclosure to the government. The seal protects the defendant from disclosure to competitors and others initially, and a protective agreement can limit unnecessary disclosure once the seal is lifted.

Conclusion

The FCA, as the primary tool for combating fraud and recovering funds fraudulently obtained from the government, should be interpreted in a manner that encourages whistleblowers to come forward. Courts should, and generally do, allow relators significant leeway when gathering evidence because these people are unofficial agents of law enforcement and because evidence of fraud could be lost, misplaced, or suppressed if relators do not retrieve it. The public's interests are best served by affording relators protections that acknowledge their efforts and the personal sacrifices they make during their investigations.

Joel Androphy, a partner at Berg and Androphy, is the author of the treatise, “Federal False Claims Act and Qui Tam Litigation,” Law Journal Press (2010), the research source of the issues discussed in this article. Ashley Gargour is also a partner, and Sarah Frazier and Rachel Grier are associates in the firm.

According to the federal government, while the act of gathering evidence creates a direct conflict between competing interests, the interest in disclosing the fraud generally outweighs the defendant's interest in keeping the fraud from being divulged. Submission of the United States as Amicus Curiae in Support of Relator's Motion to Dismiss the Counterclaims of Defendant Midwestern Regional Medical Center, Inc. at 7, U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 99-C-8287 (E.D. Ill. Apr. 2, 2004) (“Implicit in the very purpose of the statute is an assumption that individuals who become qui tam relators possess and are willing to disclose to the government inside evidence of fraud ' whether in the form of documents or other information ' that their employers or other potential FCA defendants would rather that relators not disclose to the government.”). How can the relator strike the right balance?

Employer and Employee

From the defendant's perspective, the employee's duties of loyalty and confidentiality trump all other interests, and any breach is intolerable. As a result, after an employee gathers and discloses the evidence of fraud, employers often file counterclaims against relators for breach of confidentiality agreements, breach of fiduciary duty, and conversion. See, e.g. , U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am. , 350 F. Supp. 2d 765, 772-74 (N.D. Ill. 2004). In ruling on these counterclaims, courts consider several factors, including: 1) whether the relator had access to the documents in the course and scope of employment; 2) the relevancy of the documents; and 3) the applicability of a valid privilege or enforceability of a confidentiality agreement.

First, the relator must have “legitimate possession and custody of the documents.” Submission of the United States as Amicus Curiae in Support of Relator's Motion to Dismiss the Counterclaims of Defendant Midwestern Regional Medical Center, Inc. at 16, U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 99-C-8287 (E.D. Ill. Apr. 2, 2004). For example, relators may gather and produce to the government voluminous documents, e-mails, and other communications received during the course of their employment. As long as the relator is preparing to file a qui tam suit or otherwise disclose the information to the government, his search efforts should be unimpaired. A relator may not, however, rummage through someone's office without permission or gain computer access unlawfully or through false pretenses.

Second, courts consider the relevance of the documents at issue. Qui tam cases typically involve hundreds of thousands (sometimes millions) of documents. Therefore, relators who have no prior qui tam experience should not have the burden of analyzing the legal significance of each document before gathering and preserving them for their qui tam counsel to review ' a process that often consumes a significant amount of counsel's time. So long as the relator has some basis to reasonably believe that the documents have some relevance to the allegations, collection of such documents should be permitted. But see U.S. ex rel. Cafasso v. General Dynamics C4 Sys., Inc., CV 06-1381-PHX-NVW, 2009 WL 3723087, at *5-7 (D. Ariz. Nov. 4, 2009) (concluding that the relator indiscriminately gathered documents wholesale without regard to the documents' relevancy to the qui tam action). Cafassso is an outlier case and is not the majority rule on gathering evidence in qui tam cases.

Finally, equally important in ruling on a defendant's counterclaims are privilege or confidentiality concerns. A defendant may attempt to exclude certain evidence gathered by a relator by asserting that the evidence is privileged. Depending on the evidence at issue, a relator may challenge the defendant's assertion of privilege. For example, a relator may contradict a defendant's claim that a document is protected by the attorney-client privilege by arguing that under the crime-fraud exception, communications made for an unlawful purpose or to further an illegal scheme are not privileged. See, e.g., U.S. ex rel. Smart v. CHRISTUS Health, CIV A C-05-287, 2009 WL 1658008, at *5 (S.D. Tex. June 12, 2009) (concluding that relator failed to meet his burden of showing that the crime-fraud exception applies because relator's brief does not identify where in the complaint or the attachments in particular the court was to find the evidence on which to base a prima facie case that defendants' attorneys furthered a fraud).

Confidentiality Agreements

It should also be noted that while employee confidentiality agreements may appear to tie relators' hands unacceptably in the disclosure of relevant evidence and prohibit relators from carrying out legitimate investigations that are encouraged by public policy, the U.S. Supreme Court has held that a private contract is “unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.” Town of Newton v. Rumery , 480 U.S. 386, 392 (1987); see Restatement (Second) of Agency ' 395 cmt. F (1958) (“An agent is privileged to reveal information confidentially acquired by him in the course of his agency in the protection of a superior interest of himself or of a third person,” where, for example, “the confidential information is to the effect that the principal is committing or is about to commit a crime.”).

The government has taken the position that “[a] private agreement that broadly prevents a relator from turning over any non-privileged evidence of fraud which she 'possesses' to the Government should not be enforced” because such “broad corporate confidentiality agreements would frustrate the purposes of the FCA by proscribing the relator from providing the Government with some of the best evidence of fraud, gleaned from the company's files.” Brief for United States as Amicus Curiae in Support of the Appellee at 25-26, U.S. ex rel. Cafasso v. General Dynamics C4 Sys., Inc., 09-16181 (9th Cir. May 5, 2010). Defendants' confidentiality agreements are thus unenforceable to the extent that they conflict with the purpose of the FCA and prevent relators from disclosing non-privileged information evidencing fraud. See, e.g., U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am. , 350 F. Supp. 2d 765, 773 (N.D. Ill. 2004) (“[T]he confidentiality agreement cannot trump the FCA's strong policy of protecting whistleblowers who report fraud against the government.”); X Corp. v. John Doe , 805 F. Supp. 1298, 1310 n.24 (E.D. Va. 1992) (noting that an agreement would be void as against public policy if it would prevent “disclosure of evidence of a fraud on the government”).

In U.S. ex rel. Head v. Kane Co. , 668 F. Supp. 2d 146, 151-52 (D.D.C. 2009), the court held that a relator did not breach a separation agreement by failing to return an e-mail containing direct evidence of the defendant's fraud. The court reasoned that enforcing a private agreement that requires a qui tam plaintiff to turn over to the defendant who is under investigation the only copy of a document that is likely to be needed as evidence at trial would unduly frustrate the purpose of Section 3730(b)(2), which requires relators to provide the government with “all material evidence and information the person possesses” regarding the fraud allegations. See Id. at 152.

Practically speaking, concerns regarding confidentiality, trade secrets, and proprietary information need not impede disclosure, as the protections and requirements governing disclosure in the FCA involve and allow only disclosure to the government. The seal protects the defendant from disclosure to competitors and others initially, and a protective agreement can limit unnecessary disclosure once the seal is lifted.

Conclusion

The FCA, as the primary tool for combating fraud and recovering funds fraudulently obtained from the government, should be interpreted in a manner that encourages whistleblowers to come forward. Courts should, and generally do, allow relators significant leeway when gathering evidence because these people are unofficial agents of law enforcement and because evidence of fraud could be lost, misplaced, or suppressed if relators do not retrieve it. The public's interests are best served by affording relators protections that acknowledge their efforts and the personal sacrifices they make during their investigations.

Joel Androphy, a partner at Berg and Androphy, is the author of the treatise, “Federal False Claims Act and Qui Tam Litigation,” Law Journal Press (2010), the research source of the issues discussed in this article. Ashley Gargour is also a partner, and Sarah Frazier and Rachel Grier are associates in the firm.