The U.S. District Court for the Eastern District of Pennsylvania recently refused to extend the period during which a False Claims Act (FCA) action remains under seal while the government investigates and decides whether to intervene. In U.S. ex rel. Brasher v. Pentec Health, Inc., which involved claims of illegal kickbacks constituting FCA violations, the court denied the government’s eleventh extension request and subsequent request for reconsideration even after both the relator and the defendant joined that request. The case had been under seal for more than five years.

Settlement Discussions Were Not Good Cause to Extend the Seal Period

The court held that the matter would not remain sealed to allow the government and defendant time to reach a settlement. It noted that “the purpose of the sealing provision is not to allow the Government to prosecute a civil action entirely under seal and then to present a settlement as a fait accompli to the Court and the general public.”

The Seal Could Not Remain in Place to Allay Concerns that Public Allegations Might Threaten Company Financing

Pentec argued that the matter should remain sealed because a senior lender might back out of financing if it became aware that Pentec had been the subject of a parallel criminal investigation. However, the court found this argument insufficiently supported, and dismissed Pentec’s concern in the absence of additional information as “sheer speculation.”

The Court Articulated a Narrow View of the Purpose of the Seal Requirement

Quoting a 1986 Senate Judiciary Committee report, the court observed that the purpose of the seal period is only to permit the government to determine “if that suit involves matters the Government is already investigating and whether it is in the Government’s interest to intervene and take over the civil action.” And, according to that report, “with the vast majority of cases, 60 days is an adequate amount of time to allow the Government coordination, review and decision.”

Evidence of a Growing Trend?

Citing other district court opinions, Brasher recognized that “courts have grown increasingly impatient with the Government’s repeated requests for extension of the seal in qui tam actions.” As a case in point, on the same day Brasher was issued, the Fifth Circuit issued an opinion noting the district court’s “frustration with the Government for taking so long to decide whether to intervene.” U.S. ex rel. Vaugh v. United Biologics, LLC

It remains to be seen whether these cases evidence a growing trend. The implications of such a trend, if it does exist, are mixed. Shorter government investigations might mean lower costs for FCA defendants. On the other hand, more fulsome investigations offer defendants more opportunity to prove their innocence and resolve allegations of fraud before they are made public.

For a further analysis of the Brasher case, please access the Law360 article authored by Brian Irving and Taylor Chenery titled, “A Critical Approach to Repeat Extensions of FCA Seal Period.”