Venue in False Claims Act cases

Civil War U.S. Army blanket containing “shoddy”

Ever wonder how venue works in qui tam cases? This order in an EDTX case provides a good overview of the standards.

The False Claims Act originated in the Civil War when the government created a cause of action against contractors who shortchanged the government by, for example, producing poor quality blankets with “shoddy” (bits and pieces of scrap wool) mixed in to cut costs. Today many FCA claims are brought against health care providers which are alleged to have overbilled the government for reimbursement under Medicare and Medicaid. This case, for example, was brought on behalf of eight states against an emergency room management company.

Defendants moved to dismiss the case for improper venue. An action under the FCA “may be brought in any judicial district in which the defendant or, in the case of multiple defendants, any one defendant can be found, resides, transacts business, or in which any act proscribed by section 3729 occurred.” 31 U.S.C. § 3732(a); see also 28 U.S.C. § 1391(a)(1).

To meet this test, Plaintiffs alleged that the Defendant transacted business with various emergency rooms located in the EDTX, causing these providers to falsify medical records in the EDTX which were then used to submit bills sent to the government for reimbursement. They also alleged that at least one of the Defendants “transacts business” in the EDTX by recruiting ER doctors.

After reviewing the evidence in the record and conducting an evidentiary hearing, Judge Gilstrap concluded that venue was proper. Specifically, at the evidentiary hearing, the Court heard testimony from the Chief Operations Counsel of one of the defendants that established that at least one defendant “transacts business” in this District. The Court also allowed the Plaintiffs to amend their complaint to add as an additional defendant a related company which the evidence showed also transacted the business in question in the district.

The Court also denied a motion to transfer venue to the Eastern District of Tennessee, finding that Defendants “have failed to sufficiently move the scales in a manner adequate to show that the transferee forum is ‘clearly more convenient.'”

In an interesting footnote, the Court rejected the argument that the location of relevant documents in Knoxville (Tennessee) should be disregard because the documents can be accessed electronically. “[T]he Fifth Circuit has made clear that for purposes of this factor, the relevant inquiry is the ease of access to where information is physically stored. Implicit v. Trend Micro, No. 6:16-cv-00080, 2016 U.S. Dist. LEXIS 191571, at *5 (E.D. Tex. Sept. 1, 2016) (citing Volkswagen II, 545 F.3d at 316) (“Despite technological advances in transportation of electronic documents, physical accessibility to sources of proof continues to be a private interest factor to be considered.”). The Court is bound by this precedent despite its clear obsolescence.” (Emphasis in original).

Reminds me of the Motiva case in 2009 only a few months after In re Volkswagen II where Judge Davis said something similar, writing that “[d]espite technological advances that certainly lighten the relative inconvenience of transporting large amounts of documents across the country, this factor is still a part of the transfer analysis. In re Volkswagen II, 545 F.3d at 316. Therefore, courts have analyzed this factor in light of the fiction that voluminous documents must be transported from their physical location (supposing that electronically stored documents are, in fact, physical) to the trial venue.”

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