Civil Investigative Demands (CIDs) are powerful pre-litigation tools the government frequently utilizes to investigate potential allegations of FCA liability. CIDs can be broad and invasive, time-consuming and expensive. What’s a company to do upon receipt of a CID? Is there any recourse? Unfortunately, neither case law nor published guidance offers the recipient much in the way of a formal, timely mechanism to challenge the scope or appropriateness of a CID. Nevertheless, there are certain practical steps one can take to reduce a CID’s scope that, in turn, will reduce disruption and expenses associated with CID compliance.
Under 31 U.S.C. § 3733, the Attorney General, or his designee, is authorized to serve a CID before commencing a civil FCA proceeding when there is reason to believe that the person or entity may be in possession, custody or control of any documentary material or information relevant to an FCA investigation. A CID is a tool for the government “to determine whether enough evidence exists[s] to warrant the expense of filing, as well as to prevent the potential Defendant from being dragged into court unnecessarily.”1 A CID must be issued prior to commencement of formal civil proceedings; once litigation has commenced, the government must turn to traditional discovery tools to gather information.2 A CID may compel: (1) the production of documents; (2) written responses to interrogatories; and (3) sworn oral testimony related to the documents or information requested.3
Prior to 2010, the Attorney General was the only person authorized to issue CIDs and that authority could not be delegated. In May 2009, however, the Fraud Enforcement and Recovery Act authorized the Attorney General to delegate that authority to others within DOJ. In March 2010, a rule was issued that provided all U.S. Attorneys with the authority to issue CIDs.4
Since 2010, the rate at which CIDs have been issued has multiplied. Furthermore, in recent years, the scope of information requested in CIDs has become more aggressive and increasingly broad. In some instances, CID recipients may be forced to produce hundreds of thousands of documents before the government is willing to discuss substantively the scope of the investigation or the conduct alleged.
There are limited judicial opinions considering the appropriate parameters of a CID. The authority that does exist, however, recognizes some – albeit limited – boundaries to a CID’s authority. For example, a 2012 opinion from the United States District Court for the District of Maryland held that the government could not issue a CID under the FCA after a complaint had been filed.5 In United States v. Kernan, after a lengthy investigation, the United States’ FCA lawsuit had been dismissed for failure to plead fraud with particularity under Federal Rule of Civil Procedure 9(b). After the district court’s dismissal of the government’s complaint, the government issued a new CID to Kernan Hospital seeking documents concerning the same subject as was at issue in the previous FCA action. Thereafter, Kernan Hospital petitioned the district court to set aside the CID arguing that § 3733 gives the United States authority to issue a CID only “before commencing a civil proceeding.”6 The district court agreed with Kernan Hospital and granted its petition to set aside the CID. In so holding, the district court pointed to the government’s prior three-year FCA action concerning the same subject matter and noted that through that investigation it had already “gathered the information it needed to determine whether to file suit.”7
A more recent case additionally considered the scope of CID authority and, though not in direct conflict with the holding in United States v. Kernan, recognized the broad scope of the government’s CID authority and took a narrow view of what constituted the commencement of a civil proceeding. In August 2016, the United States District Court for the Western District of Virginia considered whether to quash a CID based on arguments that: 1) actions taken by the United States had constituted a de facto commencement of a formal civil proceeding and, accordingly, the CID was no longer a proper tool for information gathering; and (2) the CID was overly burdensome in that it requested information that, in large part, was already in the possession of the United States.8 With regard to the first question, the district court found that the CID should be enforced notwithstanding an admittedly lengthy, six-year investigation during which the government had received a substantial volume of information and had engaged in settlement discussions with the defendant. The district court reasoned that because the United States had issued neither a formal notice of intervention nor declination, the issuance of the CID was proper. In reaching that conclusion, the district court took a formalistic approach and drew the line at whether an action had actually been filed; it was not persuaded by arguments regarding the length of the government’s investigation or number of documents previously solicited and received.
Turning to the second question – whether compliance with the CID was unduly burdensome – the district court acknowledged some limits to the scope of the government’s CID authority, noting that “courts must enforce” a CID only when, among other requirements (1) “the information sought is reasonably relevant to the investigation,” and (2) “where the information sought is not unduly burdensome.”9 In considering whether the information was unduly burdensome, the district court looked to prior judicial opinions stating that administrative subpoenas, including CIDs, are enforceable only to the extent that the “information sought is not already in the DOJs possession.”10 Based on the foregoing, the district court concluded that “it may well be that it would be unduly burdensome” for the recipient to comply with the parameters of the CID if the information requested is already within the government’s possession. Accordingly, the district court ordered the parties to “meet and confer on categories of relevant non-duplicative documents to be produced.”11
The district court’s opinion is noteworthy in that it takes a narrow approach to answering the question regarding whether “civil proceedings have commenced” and, at least implicitly, supports the government’s ability to pursue lengthy and drawn-out FCA investigations. It is also noteworthy in that it affirms prior judicial opinions concluding that, in order to be enforceable, a CID must be: (1) limited to documents not already in the government’s possession, and (2) “reasonably relevant” to the government’s investigation. Though these parameters retain the government’s vast discretion in issuing a CID, the holding, in small part, affirms that a CID’s scope is not without bounds.
The opinion, however, is perhaps most noteworthy in its mandate that the parties engage in dialogue – or, meet and confer – to determine the appropriate parameters of the CID. Early and regular dialogue with the government is typically the best way to effectively manage the scope of a CID. In most instances, reasonable government attorneys are receptive to these types of mutually beneficial communications. Such conversations are often most effective when the recipient makes clear its good-faith intention to comply with the CID and, at the outset, describes in practical and specific terms the time and resources it would take to comply with the CID as drafted. Educating government attorneys as to what, precisely, would be required for compliance is an important first step. Additionally, these conversations are often productive when the recipient suggests that the government propose a prioritization of certain time periods, custodians or subject matters. Adopting a phase-based or incremental process is often a win-win: it gets the government what it wants more expeditiously while also giving the producing party some insight into the focus of the government’s investigation and potentially narrows the scope of information that needs to be produced. Though the CID remains an increasingly utilized and powerful investigative tool, recipients that commit to ongoing dialogue with the government are often in the best position to negotiate down the scope of a CID and comply with its – hopefully less onerous – requirements in the most cost-effective and advantageous manner possible.
1 H.R. Rep. No. 660, 99th Cong. 2d Sess. 26 (1986); see also United States v. Markwood, 48 F.3d 969, 979 )(6th Cir. 1995) (stating that a purpose of the CID is to allow the government “to assess quickly, and at the least cost to the taxpayers or to the party from whom information is requested whether there is a grounds
2 31 U.S.C. § 3733(a).
4 Redelegation of Authority of Assistant Attorney General, Civil Division, to Branch Directors, Heads of Offices and United States Attorneys in Civil Division Case, Directive No. 1 – 10, 75 C.F.R. 14070 (March 24, 2010).
5 United States v. Kernan Hospital, 2012 WL 5879133 (D. Md. 2012).
6 Id. at *4.
7 Id. at *7.
8 In re Civil Investigative Demand 15 – 349. No. 5:16-mc-3 (W.D. Va. Aug. 12, 2016).
9 In re Civil Investigative Demand 15 – 349 at 6. In full, the district court stated: courts must enforce an administrative subpoena where: (1) the issuing agency has authority to engage in the investigation; (2) the issuing agency has complied with the statutory requirements of due process; (3) the information sought is reasonably relevant to the investigation and ( 4) where the information sought is not unduly burdensome. E.E.O.C. v. Ranstad, 685 F.3d 433, 442 (4th Cir. 2012); EEOC v. Maryland Cup Corp., 785 F.2d 471,476 (4th Cir. 1986); see also United States v. Powell, 379 U.S.48, 57-58 (1964); EEOC v. Ocean City Police Dept., 787 F.2d 955, 957 (4th Cir. 1986); Marshall v. Stevens People & Friends for Freedom, 669 F.2d 171, 176 (4th Cir. 1981)(citing United States v. Morton Salt Co., 338 U.S. 632,652 (1950)).
10 Id. at 15 (quoting Doe v. United States, 253 F.3d 256, 265 (6th Cir. 2001)); see also United States v. Powell, 379 U.S. 48, 57-58 (1964) (stating that when considering whether administrative subpoenas are properly issued, the Court requires “that the information sought is not already within the [agency’s] possession.”).
11 Id at 16.