A Kansas federal court recently ruled against the United States Department of Veterans Affairs (VA) in litigation arising out of a discovery dispute brought by the relator and defendant in a separate, pending FCA action. See Schroeder v. United States Department of Veterans Affairs, No. 22-2209-DCC-KGG, 2023 WL 3478052 (D. Kan.). This relatively unique case is based on Plaintiff Thomas Schroeder filing suit against the VA, a non-party to his qui tam action alleging violations of the FCA, after the department declined to produce certain documentation within its sole possession during the FCA case’s discovery phase. Subsequently, Medtronic, Inc., defendant in the qui tam action filed by Schroeder, filed an intervenor complaint in Schroeder’s lawsuit after the VA similarly declined its discovery request too. Not only does this case serve as a unique example of opposing FCA litigants joining together as temporary allies in a separate discovery dispute, this case further suggests that while courts give agencies broad discretion, courts will – absent a rational justification – side with the parties bringing suit, even if orders to compel discovery onto an agency may be rare.
1. Initial FCA Action.
In January 2017, Schroeder initiated a qui tam action against Medtronic, a manufacturer of medical devices including peripheral vascular devices, alleging Medtronic paid illegal remuneration to employees at the Dole VA facility in Wichita, Kansas. See United States ex rel. Schroeder v. Medtronic, Inc., No. 17-2060-DCC-KGG, 2021 WL 4168140 (D. Kan.). Schroeder contends the illegal payments caused the VA to purchase an excessive number of medical devices, provide unnecessary medical treatment, and promote off-label use of devices, all in violation of the FCA (either as a directly submitted false claim or due to violation of the Anti-Kickback Statute).
During the case’s discovery phase, Schroeder sent written requests to the VA for relevant testimony and documents in accordance with the VA’s internal policies for the production of official information or records. In response, the VA concluded it would not authorize the production of certain requested documents and cited several factors from its internal policies supporting its decision, most notably: (i) the need to avoid spending the time and money of the United States for private purposes; (ii) the request being unduly burdensome; (iii) confidentiality concerns; and (iv) the need to minimize VA’s involvement in issues unrelated to its mission.
2. Subsequent Lawsuit Against VA.
Consequently, Schroeder filed a lawsuit seeking to compel the VA to produce the requested documents. The suit alleged the VA’s refusal to comply with Schroeder’s discovery request was arbitrary and capricious, and thus, a violation of the Administrative Procedures Act (APA). Concurrently, Medtronic had sent the VA its own discovery requests relevant to its defense in the qui tam action. The VA similarly concluded it would not produce the requested documents. As a result, five months from the onset of Schroeder’s lawsuit, Medtronic filed an intervenor complaint also seeking to compel the VA to comply with its discovery request.
The Kansas district court held the VA’s justification in denying both FCA parties’ discovery requests to be arbitrary and capricious in violation of the APA. Notably, the VA had already conducted its own internal investigation of the allegations asserted against the catheterization lab’s practices at the Dole VA facility, and thus, had demonstrated an ability to procure several of the requested documents; and the plaintiffs’ offer to pay the costs associated with the discovery requests nullified the VA’s claim that the costs associated with producing the requested documents would be unduly burdensome. Accordingly, the Court explained the VA did not provide any rational connection between the facts found and its decision to deny both parties’ discovery requests. However, regarding the requested remedy – an order to compel – the district court decided against and instead remanded the matter to the VA for further consideration of the respective discovery requests. In other words, the district court did not order the agency to produce documents. Instead, like most singular cases, the VA was merely directed to reconsider the discovery requests in light of the court’s holding and directed to heed the time constraints of the underlying qui tam action while reconsidering its prior decision.
As FCA cases continue to grow, plaintiffs’ theories surrounding these actions and judicially required evidence has strengthened. Accordingly, parties often need information from government agencies. At the same time, with the Supreme Court’s view that alleged conduct be material to the government’s decision to pay, defendants will also want such information, if available to defend certain cases. Therefore, as FCA parties continue to request more documentation from agencies, separate actions seeking court orders to compel discovery may also grow. As such, we may see more adversaries turned co-plaintiffs seeking information from reluctant government agencies in the near future, potentially with similar results.
The authors thank McGuireWoods summer associate Donald J. Kwasigroch for assistance preparing this legal alert. He is not licensed to practice law.