In U.S. ex rel. Aldridge v. Corporate Management, Inc., the Fifth Circuit recently cut a jury verdict by more than half after the government took eight years to investigate and intervene in a suit, but although it harshly criticized the government for the lengthy delay, the court stopped short of dismissing the government's complaint outright.
The case involved Medicare overbilling by a small hospital where the hospital's owners sought improper reimbursements for work they did not perform. The relator, an employee of the hospital, filed suit in 2007. Between 2007 and 2015, the government filed 18 motions for extensions of time while conducting its investigation. The government finally intervened in 2015. The government's complaint in intervention alleged frauds extending from 2002 through 2013.
The case went to trial in 2020, and the jury returned a US$10,855,382 verdict (US$32 million post-trebling) following the nine-week jury trial.
The hospital appealed the verdict on several grounds. While the Fifth Circuit rejected the hospital's appeals on the merits, the hospital prevailed on statute of limitations grounds. More specifically, the hospital argued that the statute of limitations should bar the government's claims from prior to September 2009 (i.e., six years before the government's intervention), and that the government's claims – which included new allegations not included in the relator's complaint, including allegations of excessive salaries and luxury cars – did not relate back to the relator's complaint.
The Fifth Circuit agreed. The Fifth Circuit reasoned that "relation back is generally improper when, though a new pleading shares some elements in common with the original pleading, it faults the defendant for conduct different than that alleged in the original complaint." Because the earlier complaint made no mention of excessive salaries or luxury vehicles, the government's complaint faulted the hospital for conduct different than that alleged in the relator's complaint. (Judge Ho dissented, noting that while it is a "close question," he would have concluded that the allegations relate back because the relator's complaint alleged billing of unallowable costs.)
The Fifth Circuit also declined to allow the government to invoke the False Claims Act's ("FCA") tolling provision given that the government likely knew of the factual basis for its claims by 2011 but offered "no explanation for how, despite this knowledge, it was nonetheless diligent in investigating and asserting its claims."
After applying the statute of limitations to claims prior to September 2009, the verdict was reduced to US$4,590,495 – nearly a 60% reduction.
The Fifth Circuit also criticized "the Government's incessant delay in intervening" as "inexcusable." However, it declined to impose the "drastic relief" of dismissing the case entirely, noting the difficulty in pinpointing "when the court's cumulative indulgence of the Government's snail's pace rose to an abuse of discretion." Stopping short of dismissal, the court quipped that "[t]he consequence of the Government's dilatory conduct is the reduction by over half of the judgment entered."
This case is interesting because the government often takes several years to conduct its one-sided investigation of a relator's claims before deciding whether to intervene, and it also frequently adds new allegations when it files a complaint in intervention. When this happens, FCA defendants may want to raise a statute of limitations defense for any alleged conduct that occurred more than six years prior to the date that the government filed its complaint.
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