Follow Up on False Claims Act Actions

But should you? Probably not, because your journey may not be over. Indeed, state attorneys general may be waiting, hoping to file their own state false claims act cases based on the conduct discovered in the recently unsealed federal qui tam complaint. And despite the seemingly endless passage of time, these state actions may still be timely.

This article discusses why that is the case, and what you can do to mitigate against the risk inherent in prolonged exposure. While a 50-state survey is beyond the scope of this article, we identify issues that should be on the forefront of your mind if faced with potential state false claims act liability.

Nullum Tempus Occurrit Regi

The doctrine of Nullum Tempus Occurrit Regi — translated as “time does not run against the king” — is a common law doctrine providing that statutes of limitations do not run against the sovereign unless the legislature has expressly provided otherwise. (For a general discussion of the nullum tempus doctrine, see, e.g., Block v. N. Dakota ex rel. Bd. of U. and Sch. Lands, 461 U.S. 273, 294 (1983).)

Many states have abolished this doctrine due to its judicial erosion over the years. These states include Colorado, Florida, Georgia, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New York, North Dakota, South Carolina, South Dakota, West Virginia and Wisconsin. See Shootman v. Dept. of Transp., 926 P.2d 1200, 1207 (Colo. 1996); Fla. Stat. Ann. § 95.011; Ga. Code Ann. § 9-3-1 (2013); Minn. Stat. § 541.01; Mo. Rev. Stat. § 516.360; Mt. Code. Ann. § 27-2-103; Neb. Code § 25-218; Gen. Sta. Nev. § 3649; N.J. Stat. Ann. § 2A:14-1.2; N.Y. C.P.L.R. § 201 (McKinney 2013); N.D.C.C. § 28-01-023; State ex. rel. Condon v. City of Columbia, 528 S.E.2d 408 (2000) (South Carolina); SDCL § 15-2-2 (South Dakota); State v. Kermit Lumber & Pressure Treating Co., 488 S.E.2d 901 (W. Va. 1997); Wis. Stat. Ann. § 893.87 (West).

Critically and perhaps surprisingly to many, however, this doctrine is alive and kicking in some form in over 30 states around the country. Some states that recognize the doctrine have limited it to apply only to the state itself, and not municipalities, agencies or other political subdivisions. See, e.g., State Through Dept. of Highways v. City of Pineville, 403 So.2d 49, 52-53 (La. 1981) (Louisiana Department of Highways is not considered “the state” for purposes of immunity from statute of limitations); Mayor and Council of Wilmington v. Dukes, 52 Del. 318, 328-29 (1960) (nullum tempus does not extend to municipalities, or state agencies). In other states, the doctrine only applies to the state when acting in its “public” (not proprietary) function. See, e.g., District of Columbia Water and Sewer Authority v. Delon Hampton & Associates, 851 A.2d 410 (D.C. App. 2014) (Water and Sewer Authority has functions that are “proprietary in nature and thus beyond the protection of nullum tempus“); People ex. Rel. Ill. Dept. of Labor v. Tri State Tours, Inc., 795 N.E.2d 990, 992-93 (Ill. App. 2003) (“A statute of limitations will not apply to bar a claim by a governmental entity acting in a public capacity[.]“). But nullum tempus is still out there, and litigants should take note.

In the states that still recognize nullum tempus, the state legislature may override it, leaving the question of whether a particular statute of limitations applies to the state in the hands of the statutory interpretation gods. There is a dearth of case law in state courts addressing this issue in the context of state FCA analogues, which is not surprising given that many of these statutes still are in their nascent stages. This leaves wide open the possibility that state attorneys general may exploit this common law doctrine to argue they are immune from the relevant statute of limitations.

So how big of a risk is this? The short answer is that it remains to be seen, but would-be defendants had better be vigilant and familiar with this doctrine in the states in which they do business. In at least one state (Louisiana), the attorney general has affirmatively taken the position that the state is not bound by the applicable statute of limitations with respect to its false claims statute. Other states may follow suit.

Take Washington State, for example. Washington has attempted to cement its nullum tempus doctrine by statute, providing in its code of civil procedure that “there shall be no limitation to actions brought in the name or for the benefit of the state, and no claim of right predicated upon the lapse of time shall ever be asserted against the state[.]” Wash. Rev. Code Ann. § 4.16.160. The Washington Medicaid Fraud False Claims Act provides that all civil actions “ may be brought at any time, without limitation after the date on which the violation … is committed.” Id. § 74.66.100(2).

Texas's Medicaid Fraud and Prevention Act specifies a statute of limitations for qui tam relators in the event the State elects not to intervene. But the Statute does not contain an express statute of limitations in the event the attorney general elects to bring its own action. See Tex. Hum. Res. Code Ann. §§ 36.052, 36.104. Not surprisingly, Texas still recognizes some form of nullum tempus. As one example, in State of Texas v. Nazari, 497 S.W.3d 169 (Tex. App. 2006), the state did not hesitate to seek damages from various dental groups for false claims dating back more than 10 years.

Maine, too, has a false claims provision that is silent on the statute of limitations applicable to the state. See Me. Rev. Stat. tit. 22 § 15. Query on whether this provision, effective Oct. 9, 2013, overrides Maine's nullum tempus doctrine.

The analysis could continue, but there is sufficient evidence that states' attorneys general will attempt to seek remuneration for alleged false claims dating back as far as possible. Would-be defendants, therefore, must be mindful not only of the statute of limitations in state false claims acts where they do business, but also of whether those states are bound by the statutes of limitations.

How to Mitigate Risk in View of Prolonged Exposure

There are several steps to take in order to avoid the pitfalls that could accompany lengthy exposure vis-à-vis state false claims actions:

• Document Retention: Retain relevant documents. False claims exposure may well outlast any regularly scheduled email overwriting; so, even when the DOJ has elected not to intervene and the relator in the federal case has decided not to pursue the case, it may be worth retaining the key documents that can be used to defend your case.
• Information Gathering, Organization and Retention: Interview relevant witnesses (about substantive issues and document location) early and thoroughly, documenting the conversations in order to guard against loss of memory, staff turnover at the client and/or law-firm, and the potential for mergers or layoffs. Discovery is expensive enough. If state governments can bring actions premised on ancient conduct, take steps to avoid reinventing the wheel years after the initial qui tam is dismissed.
• Create a Procedure for Staff Turnover: Create procedures at your law firm and/or company to mitigate against the impact of staff turnover, relocations, mergers, layoffs, or any other event that might result in documents or information changing hands or laptops being wiped clean for the new user.
• Conduct Damages Analyses Early: You may not want to wait until being served with a state lawsuit to determine the potential exposure. An early, state-specific damages analysis will accelerate and inform decision-making along the way, including regarding the cost/benefit of early settlement versus litigation.
• Be Wary of Driving Up Potential Damages: If an internal investigation gives credence to the government's investigation, discontinuing or changing ongoing sales practices may not only be the right thing to do, but will also prevent you from driving up damages and being subject to injunctive relief in a later-filed state lawsuit.

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Jacqueline C. Wolff, a member of Business Crimes Bulletin's Board of Editors, is Co-Chair of both the Corporate Investigations and White Collar Defense and the False Claims Act Practice Groups at Manatt, Phelps & Phillips, LLP. At press time, Benjamin J. Wolfert was a litigation associate at the firm.