“Staying” Discovery Can Save Your Lab Tens of Thousands of Dollars in Baseless Qui Tam Cases

The False Claims Act (FCA) litigation process is so time-consuming and expensive that just about any whistleblower lawsuit against your lab is a losing proposition, even if you ultimately prevail in the case. Perhaps the most onerous part of the process is “discovery,” the evidence gathering that takes place before the case even gets to trial. It’s during discovery that labs must track down, copy and disclose literally reams of internal documents and allow their officers, managers and employees to undergo hours and hours of interrogation in depositions. It seems highly unfair and wasteful for labs to have to go through all of this, especially when whistleblowers have a weak case.

The good news is that an increasing number of federal courts are agreeing and “staying” discovery, i.e., dismissing claims that lack merit early in the proceedings without even giving the whistleblower the chance to drag the accused into discovery. Here’s a look at the “stay” rule and its potential to save your lab thousands of dollars.

The Problem: Potential Whistleblower Abuse of the Discovery Process

Litigation Law, 101: As with most civil lawsuits, the so-called pleadings are the opening salvo of whistleblower suits. The plaintiff kicks things off by filing a complaint, essentially a narrative that documents what the defendants allegedly did wrong, the laws they violated and the harms they caused as a result. The plaintiff/whistleblower needn’t prove its claims; at that point in the proceedings its only burden is to make out a legally valid claim that, if true, would warrant a finding of liability against the defendant.

If the plaintiff fails to do this, the defendant can ask the court to dismiss the claim. For example, suppose a former employee files a qui tam suit accusing your lab of giving a single $10 gift card to the office manager of a referring physician. This isn’t a legally valid claim for an Anti-Kickback Statute (AKS) violation because, even if the whistleblower can prove it’s true, the gift card would be allowed under the de minimis exception rule of the AKS. But even if the court dismissed the claim, the whistleblower could just go back and amend her pleadings. All the while, discovery continues.

As a result, whistleblowers who clearly don’t have real cases, just vendettas, can game the system by getting to discovery in the hopes of finding some kind of dirt to dig up. Adding to the problem is that there are heightened pleading standards in FCA lawsuits. In other words, pleading a valid case in an FCA whistleblower suit is harder than in other forms of civil lawsuits. And that gives whistleblowers added incentive to game the discovery process.

The Solution: Stay of Discovery

US District Courts have the legal discretion to stay or limit discovery in the interest of justice and managing their caseloads. But because whistleblowers play such an important role in enforcing the FCA, some federal courts have been reluctant to exercise this discretion in whistleblower lawsuits. However, courts won’t hesitate to stay discovery in a qui tam lawsuit when it’s clear that the whistleblower’s case is weak, non-existent or speculative.

Accordingly, federal courts have exhibited an increased willingness to stay discovery, i.e., put discovery on ice pending the outcome of the motion to dismiss. Then, if the whistleblower doesn’t meet the heightened pleading standards, the court dismisses the complaint “with prejudice,” meaning that the case ends then and there, and the plaintiff doesn’t get to go to discovery.

In a recent example, a California US District Court stayed discovery in a qui tam case against a Los Angeles medical consulting firm. “The idea is that a plaintiff should not be able to use an inadequate complaint to get a foot in the door and discover unknown wrongs,” the court explained. Allowing the plaintiff to get to discovery on the basis of a weak claim would be tantamount to allowing “the claim itself claim itself to be used as a means for discovering the wrong” [United States ex rel. Williams v. Medical Support L.A., Inc., 2021 U.S. Dist. LEXIS 89197].

Takeaway

Asking a court to dismiss a whistleblower’s claim and stay discovery pending the ruling can help your lab from getting dragged into the pit of the discovery process. The strategy is likely to be effective only when it’s clear and obvious that the whistleblower doesn’t have a real case and is just engaging in a fishing expedition. Thus, winning the motion to dismiss won’t lead to dismissal with prejudice if the whistleblower made a simple pleading or other technical error that can be cleaned up by amending the complaint. Still, the stay can at least buy you time and spare you the need to initiate the process of meeting the whistleblower’s discovery demands unless and until the court tells you it’s necessary.