Extending Secrecy in Whistleblower Probes Divides DOJ, Judges

Courts are pushing back on the Justice Department’s practice of concealing whistleblower-generated investigations for years, exposing tension over a law that some DOJ officials say judges fail to grasp.

The conflict spilled into public view recently when prosecutors from two of the most active districts for attracting whistleblower complaints of corporate fraud—Philadelphia and Boston—said that federal judges are rushing the department to lift seals on the cases because they don’t understand the complexities of the Civil War-era False Claims Act.

“Everything takes a long time. The judges really don’t get that,” said Joshua Levy, the acting US attorney for Massachusetts, during a Feb. 23 legal conference. “I’ve actually asked for an opportunity to brief the judges on this issue, and they don’t really want to hear from me.”

Levy said in a follow-up interview that judges have been open to hearing the office out, and that he still hopes to present to them on how modern-day evidence gathering necessitates extra time.

His fellow panelist, Charlene Fullmer, deputy chief of affirmative litigation for the Philadelphia-based US attorney’s office, told the audience that “judges don’t understand the animal that is the False Claims Act. And they lose control in the process, quite honestly, because you’ve got the United States filing seal extension motion after seal extension motion.”

In a subsequent interview, Fullmer said her office is fortunate to practice in the Eastern District of Pennsylvania, where judges are “extremely knowledgeable” about the FCA. But the problem lies in other districts that handle far fewer claims under the statute, she said.

“Why I think there’s this trend of denying the government seal extensions” or an “impatience with the government seal extensions is the cases are few and far between in a lot of other districts—smaller districts,” Fullmer said. “So when the courts don’t have exposure to the cases that come before them, there’s just not as much of a familiarity with them.”

DOJ’s civil fraud enforcers nationwide have a tradition of repeatedly requesting and typically receiving judicial grants to extend seals on whistleblower complaints, keeping them hidden from the public and the company accused of misconduct.

The practice allows the government more time to advance investigations, such as through document subpoenas, before deciding whether to take over litigation or let whistleblowers proceed on their own.

However, the law, which is commonly enforced in the health care industry for overbilling Medicare, only guarantees a 60-day seal from when the complaint is filed before DOJ must determine whether to intervene. That deadline usually forces the department to ask judges for additional time, filing motions arguing that they’ve met a good cause standard.

Recent Challenges

The judiciary’s patience with prosecutors varies from district to district, lawyers say. And courts may be further pressured to rein in lingering seals in response to defendants showing signs of getting more aggressive in challenging DOJ’s right to remain covert for vast periods.

In August, a company’s $33 million Medicare fraud penalty was slashed by more than half by the US Court of Appeals for the Fifth Circuit on grounds that DOJ took too long before joining the lawsuit. There were 18 seal extensions over eight years.

And in New Jersey, a medical device company sued the department in 2020 for allegedly violating its First Amendment right to transparent judicial proceedings through multiple false claims seal extensions.

The impact in New Jersey, where judges had previously agreed to indefinite seals, is “an unlawful shroud of secrecy cast over scores of civil actions that have languished on hidden dockets,” the company alleged in a complaint that’s since been resolved out of court.

Although defense lawyers can benefit from more deliberate investigations that lead prosecutors to decline cases, their clients also worry about protracted investigations that can expand in scope from the initial whistleblower allegation. They also argue that the longer a case drags on under seal, the tougher it is for the company to defend it because memories fade and employees depart.

“I expect to see more challenges to government requests for seemingly indefinite seal extensions—likely more in connection with summary judgment decisions or decisions challenging trial verdicts, along the lines of the” Fifth Circuit decision, said Debra Schreck, an Arnold & Porter partner who defends clients accused of FCA violations.

Denise Barnes, who used to enforce the FCA as a DOJ civil trial attorney, said a careful balance must be struck in assessing how long is too long for an investigation to proceed.

Now a partner with Honigman where she represents companies in false claims matters, Barnes sees the perspective from both sides.

“There are some instances where it would be helpful that the judges were active in understanding what steps DOJ has taken,” she said. “But at the same time I think that it behooves a company to not rush DOJ to make a decision about intervention, and to allow sufficient time for the client to engage with the department.”

New Jersey

The lawsuit in New Jersey was what sparked the discussion at last month’s conference in Washington, an annual gathering of False Claims Act practitioners hosted by the Federal Bar Association.

Lee Cortes, the executive assistant US attorney in the Newark-based office, said at the event that after the challenge was settled, his team has pivoted to a world in which judges are much more involved in their process.

“It did lead us to a conversation with our bench about how other districts do this, and it led to us adopting a practice that most districts adhere to in terms of six-month seal extensions, where we go to our judges and have to show good cause to extend the seal,” Cortes said on the panel. “It is taking some getting used to for our bench.”

The “good part about it,” Cortes added, is that the previously indefinite seal was “counterproductive” to the goal of moving cases expeditiously.

However, Levy, who is also the pending White House nominee to serve as the chief prosecutor in Massachusetts, said that investigations in 2024 often must be lengthier.

Prosecutors reviewing whistleblower claims now rely on extracting data-intensive smartphone chats to get the best evidence, prolonging investigations in a manner that’s evolved since most judges were practicing law.

“The nuggets of scienter"—or intent—"are in those documents that take a long time to get,” Levy added. “That’s how cases are made.”

“Most of the judges are older than me,” he said. “And when they were practicing law, documents were actually documents in a box.”

When speaking a week later in an interview, Levy said he appreciates that judges can’t rubber stamp seal extensions.

“It’s appropriate certainly for judges to be independent of that and to ask questions,” he said. “The judge is trying to serve different interests. So delay just for delay’s sake is not appropriate. Delay because you’re making progress I think is appropriate.”