In the Matter of the Enforcement of New Jersey False Claims Act Subpoenas (077506) (Essex and Statewide) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0749-15T2
A-0756-15T2
APPROVED FOR PUBLICATION
IN THE MATTER OF THE
ENFORCEMENT OF NEW JERSEY March 18, 2016
FALSE CLAIMS ACT SUBPOENAS APPELLATE DIVISION
________________________________________________________
Argued February 23, 2016 – Decided March 18, 2016
Before Judges Fisher, Espinosa and
Rothstadt.
On appeal from the Superior Court of New
Jersey, Chancery Division, Essex County,
Docket No. C-208-15.
Elizabeth J. Hampton argued the cause for
appellant John Henderson (Fox Rothschild
LLP, attorneys; Alain Leibman and Ms.
Hampton, of counsel and on the brief).
Kevin H. Marino argued the cause for
appellant Arthur Nardin (Marino, Tortorella
& Boyle, P.C., attorneys; Mr. Marino and
John A. Boyle, on the brief).
Janine Matton, Deputy Attorney General,
argued the cause for respondent State of New
Jersey (John J. Hoffman, Acting Attorney
General, attorney; Andrea M. Silkowitz and
Brian F. McDonough, Assistant Attorneys
General, of counsel; Ms. Matton, Joan E.
Karn and Kent D. Anderson, Deputy Attorneys
General, on the brief).
Lawrence S. Lustberg argued the cause for
intervenors Medco Health Solutions, Inc. and
Express Scripts Holding Co. (Gibbons P.C.,
Jennifer G. Wicht (Williams & Connolly) of
the Washington, D.C. bar, admitted pro hac
vice, and Holly M. Conley (Williams &
Connolly) of the Washington, D.C. bar,
admitted pro hac vice, attorneys; Mr.
Lustberg, Amanda B. Protess, Ms. Wicht, and
Ms. Conley, on the brief).
The opinion of the court was delivered by
FISHER, P.J.A.D.
In this appeal, we consider the propriety of an order that
directed appellants John Henderson and Arthur Nardin and
intervenors Medco Health Solutions, Inc., and Express Scripts
Holding Co. to comply with administrative subpoenas issued by
the Acting Attorney General (the Attorney General) pursuant to
the New Jersey False Claims Act (NJFCA), N.J.S.A. 2A:32C-1 to
-15, -17 to -18. Because the NJFCA precludes the Attorney
General's use of administrative subpoenas into the subject
matter of a qui tam action once, as here, he declines to
intervene within the prescribed time period, we reverse.
I
We start at the beginning. In August 2011, Paul Denis, a
former Medco employee (hereafter "the relator"), commenced a qui
tam action — under seal — in the United States District Court
for the District of Delaware. United States ex rel. Denis v.
Medco Health Sols., Inc., No. 1:11-cv-00684-RGA (D. Del.). Two
years later, the relator amended his complaint to assert claims
on behalf of the State of New Jersey; he alleged that Medco, the
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pharmacy benefits manager for the State's employee health
benefits programs, perpetrated a massive fraud on the State and
other governmental entities by retaining rebates it was required
to pass through to its clients, in violation of the federal
False Claims Act, 31 U.S.C.A. § 3729 to § 3733, and the NJFCA.1
Pursuant to N.J.S.A. 2A:32C-5(d), the Attorney General was
required to determine, within sixty days of service of the
amended complaint, whether to intervene and take control of the
State's claims. This sixty-day period may be extended by motion,
N.J.S.A. 2A:32C-5(f), and the record reveals the Attorney
General's office repeatedly took advantage of this opportunity;
extensions granted by the district judge in the qui tam action
totaled approximately 600 days. When yet another extension was
sought on March 6, 2015, the district judge granted it but also
declared that the "final intervention deadline" would be June 2,
2015.
In a certification filed in the suit at hand, the Attorney
General asserted that since April 2014 he had been "diligently
investigat[ing] relator's claims . . . to determine whether to
intervene," although the certification suggests only there were
attempts to schedule meetings and the production of documents
that, for the most part, never occurred by the time the district
1 The amended complaint includes claims asserted on behalf of
other states as well.
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judge's deadline came and went. Even if we were to agree that
appellants engaged in delaying tactics — as to which we are not
convinced but need not decide — it neither explains nor excuses
the Attorney General's failure to proceed more expeditiously for
such an extraordinarily lengthy period of time. There is no
dispute Medco was timely served with a subpoena and, to the
extent it could be argued it did not comply — a matter in
dispute — the Attorney General did not seek enforcement within
the extended time period permitted by the district judge.
Moreover, there is no dispute Henderson and Nardin were not
served with subpoenas until July 22, 2015 — seven weeks after
the deadline's expiration and the unsealing of the qui tam
complaint.
When the district judge's extended deadline expired,
appellants refused to comply with the Attorney General's tardy
subpoenas. In September 2015, Medco filed — and Henderson and
Nardin joined in — a motion in federal court for a protective
order. The State opposed the motion, which the district judge
denied because he believed the parties' dispute about the
enforceability of the administrative subpoenas was a matter to
be resolved by our courts.
While opposing Medco's motion, the Attorney General also
sought — by way of the civil action at hand — enforcement of his
subpoenas, citing N.J.S.A. 2A:32C-14(a) and Rule 1:9-6(b). The
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application was vigorously opposed. For reasons expressed in an
oral decision, the chancery judge entered an order, which
enforced the subpoenas and directed Henderson's and Nardin's
appearances on October 30, 2015, and November 2, 2015,
respectively.2
On October 30, 2015, we granted an emergent stay of the
chancery judge's enforcement order and accelerated these
appeals.
II
The purely legal question posed in these consolidated
appeals concerns the extent to which the NJFCA permits the
Attorney General to continue to utilize the NJFCA's
administrative subpoena power once his right to intervene in the
qui tam action expired. We conclude, for the following reasons,
that with the passing of the intervention deadline and the
unsealing of the qui tam complaint, the NJFCA precluded the
issuance and enforcement of subpoenas for the purpose of
investigating the false claim or claims alleged in the qui tam
action. The parties' dispute about the scope of the subpoena
power created by the NJFCA turns on the meaning and relationship
of a number of its provisions.
2 We have the added benefit of the chancery judge's submission on
October 23, 2015, pursuant to Rule 2:5-1(b), of a written
amplification of the reasons he previously expressed in granting
relief.
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Initially, we observe that the NJFCA imposes on the
Attorney General an obligation to investigate NJFCA violations
and gives that office the authority to bring a civil action in
state or federal court against violators. See N.J.S.A. 2A:32C-
5(a). The NJFCA, however, also permits "[a] person [to] bring a
civil action for a violation of this act for the person and for
the State," N.J.S.A. 2A:32C-5(b), i.e., a qui tam action.3 Such a
complaint is filed under seal, N.J.S.A. 2A:32C-5(c), and its
service on the Attorney General triggers his right "to intervene
and proceed with the action on behalf of the State within 60
days," N.J.S.A. 2A:32C-5(d). The NJFCA also declares that the
Attorney General may, "for good cause shown," seek from the qui
tam court an extension of "the time during which the complaint
remains under seal." N.J.S.A. 2A:32C-5(f).
"Before the expiration" of that 60-day period or any
permitted extension, the Attorney General "shall" either:
(1) file a pleading with the [qui tam] court
that he intends to proceed with the action,
in which case the action is conducted by the
Attorney General and the seal shall be
lifted; or
(2) file a pleading with the [qui tam] court
that he declines to proceed with the action,
in which case the seal shall be lifted and
3 "Qui tam" is a shortened title for the Latin expression, "qui
tam pro domino rege quam pro si ipso in hac parte sequitur,"
meaning: "who sues on behalf of the King as well as for
himself." Black's Law Dictionary 1251 (6th ed. 1990).
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the person bringing the action shall have
the right to conduct the action.
[N.J.S.A. 2A:32C-5(g).]
The NJFCA provides the Attorney General with no further options.
Although the Attorney General expressly chose neither of
these two options, he has acknowledged that we may assume he
chose the second option, and that we should consider the issues
presented as if he filed a pleading in federal court declining
to proceed with the qui tam action on behalf of the State.
III
The Attorney General argues we should affirm the
enforcement order, claiming his right to investigate remains
unfettered despite the passing of the federal court's
intervention deadline and the unsealing of the complaint. The
Attorney General contends his right to investigate is limited
only by the duration of the last vestige of his future potential
involvement — the opportunity to seek intervention upon good
cause shown. See N.J.S.A. 2A:32C-6(f) (recognizing when the
Attorney General opts out and the relator "proceeds with the
action" the Attorney General may later be "permit[ted] . . . to
intervene and take over the action on behalf of the State . . .
upon a showing of good cause"). The Attorney General also relies
on N.J.S.A. 2A:32C-14(a), as if its terms were untethered to his
choice not to intervene as of right; this provision states:
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If the Attorney General has reason to
believe that a person has engaged in, or is
engaging in, an act or practice which
violates this act, or any other relevant
statute or regulation, the Attorney General
or the Attorney General's designee may
administer oaths and affirmations, and
request or compel the attendance of
witnesses or the production of documents.
The Attorney General may issue, or designate
another to issue, subpoenas to compel the
attendance of witnesses and the production
of books, records, accounts, papers and
documents.
The Attorney General asserts that this "extensive authority
granted to [him] over the State's false claims matters" imbues
him with "a broad subpoena power . . . that does not cease upon
the unsealing of a qui tam complaint or a decision to decline
intervention, and is not limited solely to determining whether
to intervene as of right in a qui tam." And the Attorney General
lastly urges that we consider the NJFCA's remedial purposes and
the legislative mandate that the NJFCA be applied liberally,
citing N.J.S.A. 2A:32C-17.
We reject the Attorney General's arguments. N.J.S.A.
2A:32C-14(a) broadly, but only generally, sets forth the
administrative investigatory powers granted the Attorney
General. It does not provide an additional or separate font of
power once the Attorney General declines the right to intervene
in a qui tam action within the prescribed timeframe. In other
words, N.J.S.A. 2A:32C-14(a) only describes the authority of the
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Attorney General to investigate a violation of the NJFCA and,
therefore, may only be utilized when the Attorney General acts
pursuant to N.J.S.A. 2A:32C-5. The triggering language of
N.J.S.A. 2A:32C-14(a) — "[i]f the Attorney General has reason to
believe that a person has engaged in, or is engaging in, an act
or practice which violates this act" — merely describes the
Attorney General's broad obligation to investigate violations of
the NJFCA, see N.J.S.A. 2A:32C-5(a) (declaring that "[t]he
Attorney General shall investigate a violation of this act"),
and his specific right to investigate for the purpose of
deciding whether to intervene in an existing qui tam action,
N.J.S.A. 2A:32C-5(g). Because N.J.S.A. 2A:32C-14(a) is expressed
in general terms, it cannot be construed so as to swallow up the
NJFCA's careful and specific expression of the Attorney
General's rights and obligations. See Wilson v. Unsatisfied
Claim & Judgment Fund Bd., 109 N.J. 271, 278 (1988); Maressa v.
N.J. Monthly, 89 N.J. 176, 195, cert. denied, 459 U.S. 907, 103
S. Ct. 211, 74 L. Ed. 2d 169 (1982).
That is, giving N.J.S.A. 2A:32C-14(a) the broad
interpretation urged by the Attorney General would render
meaningless most of what the Legislature carefully delineated in
the NJFCA's earlier specific sections. The Legislature fixed a
sixty-day deadline for the Attorney General to decide whether to
take over the relator's action or opt out. N.J.S.A. 2A:32C-5(g).
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The argument that the Attorney General could continue an
investigation for so long as he cared, notwithstanding the
passage of the deadline, implies that the Attorney General could
seek leave to intervene in the qui tam action at any time up
until the entry of final judgment. There is no support in this
legislative framework for such an absurd result. Our goal in
interpreting the NJFCA, or any other legislative enactment, is
to construe and interpret its terms and provisions in a way that
gives meaning to every part and produces "a harmonious whole."
Bedford v. Riello, 195 N.J. 210, 224 (2008). We reject the
contention that the investigative powers delineated in N.J.S.A.
2A:32C-14(a) provide the Attorney General with a continuing
right to investigate matters that are the subject of an unsealed
qui tam action4; to hold otherwise would render meaningless the
time frames set forth in N.J.S.A. 2A:32C-5. The Attorney
General's repeated requests for extensions in the qui tam action
belie his contention that the right to serve and enforce
4 We are cognizant of the fact that other states' false claims
acts, as well as the federal False Claims Act, expressly declare
that the passing of the intervention-as-of-right deadline
terminates the subpoena power contained in those acts. See,
e.g., 31 U.S.C.A. § 3733(a)(1); Ga. Code Ann. § 23-3-125(b)(1);
740 Ill. Comp. Stat. 175/6(a)(1); Mass. Gen. Laws, Ch. 12, §
5N(1). This does not mean that by failing to unambiguously
express a limitation on the subpoena power the NJFCA imposes no
limit at all. The absence of such clarity merely renders the
NJFCA ambiguous in this regard, leaving us to ascertain the
legislative intent through traditional canons of statutory
construction.
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administrative subpoenas survives undisturbed once the
opportunity to intervene as of right passes.
N.J.S.A. 2A:32C-6(f), which is fully implicated here,
limits the Attorney General's rights once he has decided "not to
proceed" with the qui tam action and once the seal has been
lifted. First, this provision recognizes that, once the Attorney
General selects a course, "the person who initiated the action
[the relator] shall have the right to conduct the action." Ibid.
Once the relator is placed in control of the litigation, the
NJFCA clearly presupposes that the Attorney General must stand
down. This logical consequence of the Attorney General's
declination of the right to intervene is emphasized in the
provision's next sentence, which declares that "[t]he decision
of the Attorney General on whether to proceed with an action
shall be deemed final and shall not be subject to review by any
court or agency." Ibid. When a choice is made, there is no
turning back.
N.J.S.A. 2A:32C-6(f)'s next sentence relegates the Attorney
General to mere bystander: "If the Attorney General so requests,
the Attorney General shall be served at the expense of the
Attorney General with copies of all pleadings and motions filed
in the action and copies of all deposition transcripts." And the
sentence that immediately follows describes the only remaining
avenue for the Attorney General's subsequent participation in
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the qui tam action: "When a person [i.e., the relator] proceeds
with the action, the [qui tam] court, without limiting the
rights of the person initiating the action, may permit the
Attorney General to intervene and take over the action on behalf
of the State at a later date upon a showing of good cause."
Ibid. (emphasis added). The Attorney General naturally favors a
broad reading of this last sentence, urging that the existence
of this right to later seek intervention upon a showing of good
cause for not having previously intervened justifies his
continuing right to serve and enforce administrative subpoenas.
He is mistaken.
All four sentences of N.J.S.A. 2A:32C-6(f) clearly favor
the relator's right to control the action, as they concomitantly
limit the Attorney General's further interference: (1) the
relator has "the right to conduct the action"; (2) the Attorney
General's decision to opt out is final and unreviewable; (3) the
Attorney General is entitled to copies of pleadings, motions and
deposition transcripts but only at his expense; and (4) the
Attorney General remains on the outside looking in unless he can
later convince the qui tam court that he has "good cause" for
intervening. The fourth sentence, upon which the Attorney
General's position turns, must be construed in light of its
neighboring three sentences, all of which are flooded with a
legislative intent that the relator be uninhibited in
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controlling his qui tam action. The Attorney General's
opportunity to intervene at a later date is similarly limited,
requiring a demonstration of good cause that should be
considered in light of the entire tenor of N.J.S.A. 2A:32C-6(f).
This understanding of N.J.S.A. 2A:32C-6(f) compels our
conclusion that the Legislature meant to bar the Attorney
General's separate NJFCA investigations into the same subject
matter.
In the same spirit, we must also be mindful that the
control of the qui tam discovery proceedings rests with the
federal court. Matters of comity counsel against authorizing a
separate collateral investigation by the Attorney General that
might interfere with the federal judge's management of the qui
tam action. See Sensient Colors, Inc. v. Allstate Ins. Co., 193
N.J. 373, 387 (2008); Continental Ins. Co. v. Honeywell Intern.,
Inc., 406 N.J. Super. 156, 173-74 (App. Div. 2009).
The Attorney General lastly contends that special care
should be paid to N.J.S.A. 2A:32C-17, which mandates a
"liberal[] constru[ction]" of the NJFCA "to effectuate its
remedial and deterrent purposes." The Attorney General's
reliance on N.J.S.A. 2A:32C-17 is misplaced, because the
liberality the Attorney General would be entitled to in
generally investigating and prosecuting NJFCA violations, or in
determining whether to intervene as of right, quickly shifts in
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favor of the relator once the Attorney General opts out.
Consequently, the liberal construction of N.J.S.A. 2A:32C-6(f),
which the Attorney General urges, warrants a cessation of his
administrative subpoena powers, not their expansion.
IV
We recognize that the Attorney General retains the
opportunity to seek intervention upon good cause shown in the
qui tam action. But the NJFCA does not give the Attorney General
the right to investigate the allegations of the qui tam action
by way of administrative subpoena or through the conducting of
ex parte interviews of witnesses as otherwise would have been
permitted before he declined to intervene as of right. This
holding does not preclude any actions that may be taken in aid
or pursuit of a criminal prosecution5 nor does it impinge on the
Attorney General's investigation of other violations of the
NJFCA or as may otherwise be permitted by law.
Reversed.
5 Although N.J.S.A. 2A:32C-6(g) recognizes the Attorney General's
right to seek a stay of qui tam discovery proceedings if he can
demonstrate those proceedings would interfere with a pending
civil or criminal investigation, we do not view this provision
as meaning the administrative subpoena powers remain open to him
once the qui tam complaint is unsealed. The provision only
recognizes the possibility that the exercise of the Attorney
General's other broad investigatory powers may at times come in
conflict with qui tam proceedings.
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