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30 August 20236 minute read

Fifth Circuit slashes damages because of government delay in bringing False Claims Act suit

In a decision issued last week, the Fifth Circuit cut a jury award in half in a False Claims Act (FCA) case, citing the Department of Justice’s (DOJ’s) “inexcusable” eight-year delay in making a decision to intervene in the lawsuit.

Although it stopped short of dismissing the suit entirely, the court excoriated the DOJ for seeking eighteen extensions over a period of eight years before moving to intervene. In upholding the jury verdict, the court also considered arguments concerning both materiality and scienter, applying the Supreme Court’s recent opinion in United States ex rel. Schutte v. Supervalu, Inc., --- U.S. ---, 143 S. Ct. 1391 (2023).


On August 21, 2023, the U.S. Circuit Court of Appeals for the Fifth Circuit became the latest federal appellate court to weigh in on important areas of the FCA in United States ex rel. Aldridge v. Corporate Management, Inc., --- F. 4th ---, 2023 WL 5343778 (5th Cir. 2023).

The defendants in Aldridge owned and operated a “critical access hospital” in Wiggins, Mississippi, a designation applicable to rural hospitals whose patients otherwise lack access to healthcare, and which entitles the hospital to Medicare reimbursements of 101 percent of costs. In May 2007, the defendants’ hospital’s former CEO filed a qui tam lawsuit, alleging that the defendants had submitted false claims to Medicare. Eight years later, in 2015 – and after eighteen separate requests to continue the seal – the government intervened in the suit. In its intervenor complaint, the government alleged that the defendants defrauded Medicare by causing the hospital to enter into a “sweetheart” management contract with another entity they controlled, and then charging the hospital – whose costs were reimbursable at 101 percent – twice as much as the entity was charging other entities that were not critical access hospitals. The complaint alleged further that, despite doing no work for the hospital, the individual defendants charged the hospital huge sums for the services they supposedly provided.

After a nine-week trial, a jury found for the government and awarded over $10 million in damages, which the trial court trebled under the FCA’s penalty provisions. The defendants appealed, and the government’s long pre-intervention delay featured prominently in their several arguments.

The court’s opinion

First, the defendants argued that the government failed to prove materiality, which requires the plaintiff to show that the misrepresentation influenced, or was capable of influencing, the government’s decision to pay. Relying heavily on the Supreme Court’s seminal decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016) the defendants asserted that Medicare’s pay and chase policy – whereby it pays claims first, and then challenges those payments later – foreclosed the government’s ability to show materiality, particularly given that Medicare continued to pay over the many years that the government was investigating.

The Fifth Circuit rejected the defendants’ argument, noting that continued payment despite knowledge of fraud “often,” but does not always, defeat materiality. In this case, the court found that the materiality element of the government’s False Claims Act claim was satisfied by evidence that the defendants’ hospital would have shut down without Medicare payments, and thus, had the government decided not to pay claims, it would have undermined Medicare’s goal of sustaining access to healthcare for rural patients. The court appeared satisfied that materiality can be satisfied where continuing payment in the face of fraud would otherwise serve an important government policy objective (in this case, preserving access to healthcare in rural communities).

Second, the court quickly dispensed with the defendants’ arguments that the government failed to prove scienter (intent) at trial. Applying the Supreme Court’s recent Supervalu decision, the court rejected the argument that no evidence demonstrated the defendants’ claims contained “objective falsit[ies],” because the Supreme Court ruled that “[w]hat matters for an FCA case is whether the defendant knew the claim was false.” The court found that there was ample evidence in this case that the defendants submitted knowingly false claims, citing testimony from employees that they never saw the defendants do any work at the hospital; that they never communicated with the defendants about the hospital; and that when they did appear at the hospital, it was to eat lunch in the cafeteria and never to do work related to patients. The court also rejected the defendants’ reasonability argument. In so doing it noted that the costs for which defendants sought and obtained reimbursement from Medicare were so much larger than the national average that their interpretation of the regulations – even if they were subject to a bona fide dispute—was not reasonable.

Finally, the defendants took aim at the government’s tactics in making repeated requests to extend the seal period and long-delayed decision to intervene, both as a statute of limitations matter and as a basis for dismissing the complaint entirely for failure to prosecute. Under the False Claims Act, a complaint is automatically sealed for an initial 60-day period, which can be extended “for good cause shown” upon the government’s request. In this case, as noted above, the government sought and received no fewer than eighteen separate extensions over the course of eight years. Although the court was not willing to dismiss the complaint, it did rule that the delay caused the statute of limitations to begin running in 2009; the government’s complaint-in-invention (filed in 2015) was sufficiently distinct from the relator’s complaint (filed in 2009) that the government’s complaint did not “relate back” for statute of limitations purposes. This reduced the damages at issue by 50 percent. The court described the government’s delay as “inexcusable,” chastised the district court for “enabl[ing] the Government’s gamesmanship,” and asserted that a court could dismiss a complaint for failure to prosecute, although the panel nevertheless declined to do so. In so refusing, the court noted that it was not aware of any precedent “where such an extraordinary sanction as dismissal has been awarded because of the Government’s inexcusable delays in intervening in a relator’s case.”


The Aldridge decision is noteworthy for a few reasons.

First, it suggests that pre-intervention delays – which are so common in FCA cases – may be useful to defendants in trying to limit liability and/or exposure based on the statute of limitations.

Moreover, the Fifth Circuit’s criticism of the government and district court may spur district courts to scrutinize government seal extension requests more closely. Although there is no mechanism in the FCA for defendants to oppose seal extension requests, the Fifth Circuit’s strong reproach and recognition that a court can dismiss a qui tam complaint for failure to prosecute opens the door for defendants to challenge the pace of the investigation and litigation once they are unsealed.

Finally, the opinion serves as a reminder that the issues of materiality and scienter – when viewed in the context of an ever-evolving legal landscape – will continue to be central elements in FCA disputes.

Find out more about the implications of this case for your business by contacting any of the authors.