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UNITED STATES EX REL. COSTA v. BAKER & TAYLOR

January 16, 1997

UNITED STATES OF AMERICA ex rel. ROBERT COSTA and RONALD THORNBURG and STATE OF CALIFORNIA ex rel. ROBERT COSTA and RONALD THORNBURG, Plaintiffs,
v.
BAKER & TAYLOR, INC., et al., Defendants.



The opinion of the court was delivered by: WALKER

 Relators Robert Costa and Ronald Thornburg filed this False Claims Act case on behalf of the United States and the State of California on June 1, 1995. In their complaint, relators allege that Baker & Taylor Books ("B & T") has engaged in a practice of fraudulently overcharging institutional customers, including federally funded libraries. Pursuant to 31 USC § 3730, the complaint was filed under seal and served on the government. On August 21, 1995, the court granted the government's first request for a six-month extension of time to make its intervention determination. The court granted further six-month extensions of time on March 1, 1996, and August 6, 1996. On December 10, 1996, relators' moved to lift the seal on this case file in order to make a limited disclosure to relator Costa's employer, the City of Richmond, Virginia. Upon receipt of this motion, the court issued an order to show cause why the seal in this case should not be lifted in its entirety and the complaint served upon the defendants.

 Title 31 USC § 3730(b)(2) provides that a private party bringing suit on behalf of the government should file the complaint in camera and further provides that the file is to be kept under seal for at least 60 days. The court may grant extensions of that time, at the request of the government, for good cause shown. 31 USC § 3730(b)(3). The government must elect, before the file is unsealed, whether to intervene in the action or to inform the court of its decision not to do so. 31 USC § 3730(b)(4).

 When Congress amended the False Claims Act in 1986 to create the current statutory framework, it sought to foster more qui tam lawsuits. S Rep No 345, 99th Cong, 2d Sess 23-24 (1986), reprinted in 1986 USCCAN 5266, 5288-89. The Justice Department had expressed concern, however, that the filing of a lawsuit by a private party might "tip off" the subject of a criminal investigation. Id at 24, reprinted at 5289. The sixty-day period during which the complaint would be sealed was intended as a compromise, allowing the government to formulate and adopt an investigation and litigation strategy that took account of the justified them. Id.

 There is nothing in the statute or legislative history to suggest that, in evaluating requests for such extensions, the court should disregard the interests of the defendant and the public. Defendants have a legitimate interest in building their defense while the evidence is still fresh. The public has a right to monitor the activities of government agencies and the courts.

 In this case, the government appears to be fully engaged in its discovery, without giving the defendants the opportunity even to answer the complaint. The government's return to the order to show cause states that each of the defendants has been served with a subpoena, investigative interviews have been conducted with numerous current and former B & T employees and government personnel have been criss-crossing the country to conduct interviews and audits. The memorandum further suggests that the government has engaged in settlement negotiations with B & T. The defendants are proceeding in these matters based on plaintiffs' representations. They are apparently discussing the settlement of a case without knowing with certainty the allegations leveled against them. Each of the plaintiff parties has suggested that keeping the file under seal serves defendants' interests by avoiding unflattering publicity; the court is not, however, convinced that defendants' current state of ignorance is a blissful one.

 It is possible that defendants wish to keep this case from the public eye, but the court must also consider the interest of the public. Court records are normally open to the public. Nixon v Warner Communications, 435 U.S. 589, 597, 55 L. Ed. 2d 570, 98 S. Ct. 1306 (1978) ("It is clear that the courts of this country recognize a general right to inspect and copy public records and documents, including judicial records and documents" (citations omitted)). One interest this access has been thought to protect is "the citizen's desire to keep a watchful eye on the workings of public agencies." Id at 597-98. In this case, defendants are accused of defrauding federal, state and local agencies across the country. Many of those agencies continue to purchase books from B & T, and do so without benefit of the information developed by the government's current investigation. The proceedings of this case, therefore, fall well within the bounds of that which citizens may wish to observe.

 The legislative history of the False Claims Amendments Act makes abundantly clear that Congress did not intend that the government should be allowed to prolong the period in which the file is sealed indefinitely. The Senate report states:

 
Subsection (b)(3) of section 3730 establishes that the Government may petition the Court for extensions of both the 60-day evaluatory period and the time during which the complaint remains under seal. Extensions will be granted, however, only upon a showing of "good cause". The Committee intends that courts weigh carefully any extensions on the period of time in which the Government has to decide whether to intervene and take over the litigation. The Committee feels that with the vast majority of cases, 60 days is an adequate amount of time to allow Government coordination, review and decision. Consequently, "good cause" would not be established merely upon a showing that the Government was overburdened and had not had a chance to address the complaint. While a pending criminal investigation of the allegations contained in the qui tam complaint will often establish "good cause" for staying the civil action, the Committee does not intend that criminal investigations be considered an automatic bar to proceeding with a civil fraud suit.
 
The Committee believes that if an initial stay is granted based upon the existence of a criminal investigation, the court should carefully scrutinize any additional Government requests for extensions by evaluating the Government's progress with its criminal inquiry. The Government should not, in any way, be allowed to unnecessarily delay lifting of the seal from any civil complaint or processing of the qui tam litigation.

 S Rep 345, 99th Cong, 2d Sess 24-25 (1986), reprinted in 1986 USCCAN 5266, 5289-90. The "good cause" requirement of the statute is, therefore, a substantive one, which the government can only satisfy by stating a convincing rationale for continuing the seal. In this case, the government has utterly failed to meet that burden.

 The government next claims that lifting the seal might interfere with the related criminal investigation. Again, the Senate report quoted above indicates that Congress did not intend for the mere presence of an on-going investigation to forestall the termination of the seal. If the government could plausibly argue that some aspect of its criminal investigation would be jeopardized by prematurely "tipping-off" the defendant, perhaps the seal would be justified. See id at 16, reprinted at 5281 (seal established in response to Justice Department concerns that civil complaints might "tip off" subjects of criminal investigations). Such a circumstance does not exist here. The government has issued subpoenas to each of the defendants and has interviewed numerous current and former employees of B & T. The proposition that defendants are currently unaware of the investigation or its general nature, therefore, defies reason. The government suggests that discovery by defendants in the civil case might hamper the criminal investigation. The statute, however, provides that the court may stay discovery in the civil case if the government can establish that such discovery would interfere with its investigation. 31 USC § 3730(c)(4). Because the statute provides this alternative means of protecting the criminal investigation from the prying eyes of defendants, the government's concern about discovery in the civil case provides no basis to maintain the seal.

 It may be that the pendency of the criminal investigation will interfere with the progress of the civil case. Clearly, the defendants will be disinclined to settle the civil matter without addressing the potential for criminal liability. Moreover, if the government seeks to limit discovery by means of 31 USC § 3730(c)(4), the civil case will proceed more slowly than normal. Neither of these possibilities, however, justifies maintaining the seal in this case. Congress anticipated the difficulties resulting from simultaneous civil and criminal actions and made the ...


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