The Delaware Supreme Court recently affirmed a decision by the Delaware Court of Chancery addressing a plaintiff’s ability to acquire key documents from a defendant company based on allegations against that company in an ancillary False Claims Act (FCA) complaint. See UnitedHealth Group Incorporated v. Amalgamated Bank as Tr. for Longview Largecap 500 Index Fund, 2018 WL (Del.).
The Underlying FCA Allegations
In two separate federal districts, UnitedHealth Group Incorporated (United) faced unsealed, factually similar FCA complaints brought by two different relators. See United States ex rel. Swoben v. Secure Horizons, No. CV 09-5013 (C.D. Cal.) (Swoben Action); United States ex rel. Poehling v. UnitedHealth Group, Inc., No. CV 16-08697 (W.D.N.Y.) (Poehling Action). (The Swoben and Poehling Actions previously were discussed here, here, here and here.)
Both relators alleged that United engaged in a scheme whereby it overbilled Medicare through the use of improper diagnostic codes that were not supported by patients’ medical charts and failed to reimburse Medicare once learning of improper diagnostic coding. After its investigation, the government filed complaints in intervention in both the Swoben and Poehling Actions.
Based on the government’s complaints, several shareholders of United brought suit under Delaware law (8 Del. C. § 220) seeking corporate books and records from United relating to the fraud alleged in the government’s complaints. To inspect corporate books and records under Delaware law, a plaintiff must show, among other things, “a proper purpose for conducting the inspection.” One “proper purpose” for an inspection of books and records is “to investigate wrongdoing or mismanagement,” but that purpose must be supported by a “credible basis” to infer possible wrongdoing or mismanagement warranting further investigation.