May 17, 2018

The DOJ’s Granston memo encourages dismissal of meritless qui tam cases

Gerald L. Aben, Dykema, Ann Arbor, MI and Lea Courington, Dykema, Dallas, TX

AuthorAuthor

A recent memorandum (Memo) issued by the United States Department of Justice (DOJ) to attorneys in the Commercial Litigation Branch, Civil Fraud Section suggests that the DOJ may be adopting a more assertive attitude with regards to dismissal of False Claims Act (FCA) qui tam cases.1 The Memo, authored by Michael Granston, Director of the Civil Fraud Section and issued on January 10, 2018, addresses the DOJ’s authority to dismiss a FCA qui tam case under 31 U.S.C. § 3730(c)(2)(A) and outlines a number of factors that DOJ attorneys should use to determine whether the DOJ should seek dismissal when it has otherwise declined to intervene.

Importantly, the Memo argues that even when it has declined to intervene in a qui tam case, such cases utilize significant DOJ resources and, as discussed in more detail below, have the potential to result in adverse decisions that could affect other DOJ priorities. This is particularly pertinent given the increase in qui tam cases over the past several years.

Whether the Memo will have an effect on how the DOJ handles future FCA qui tam cases remains to be seen. The Memo may, however, offer defendants some guidance on how to urge the DOJ to dismiss under Section 3730(c)(2)(A) after the DOJ has declined to intervene in a qui tam relator’s case. It may also help potential relators assess whether and how to proceed.

1. FCA Qui Tam Litigation Has Surged

In recent years, the number of FCA qui tam cases, particularly related to the healthcare industry, has increased. On average, the DOJ received 12 new qui tam cases every week in Fiscal Year 2017.2 While the DOJ has not released statistics on its rate of intervention, a 2012 memorandum reported that “fewer than 25% of filed qui tam actions results in an intervention on any count by the Department of Justice.”3

2. Overview of the FCA

The FCA imposes civil liability when a person “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or knowingly makes a “false statement material to an obligation to pay or transmit money or property to the Government.”4 Under the FCA’s qui tam provisions, a person, also known as a relator, may file a civil action on behalf of the government alleging violation of the FCA.5          

The relator filing the qui tam claim must serve the DOJ with a copy of the complaint and must also disclose substantially all of the evidence in the relator’s possession.6 Once filed, the complaint remains under seal for a period of 60 days, which can be extended at the request of the DOJ. During that time, the DOJ must determine whether to intervene in the case.7 If the DOJ intervenes, it has primary responsibility for prosecuting the case. If it declines to intervene, the relator may proceed with the case on an individual basis.8 In either scenario, the relator stands to benefit financially if victorious.9

3. Dismissal Under Section 3730(c)(2)(A)

Although the FCA allows a relator to bring suit on behalf of the government, the DOJ “retains the power to take the more radical step of unilaterally dismissing the defendant.”10 Specifically, Section 3730(c)(2)(A) of the FCA grants the DOJ the power to dismiss the claim, even over the objections of the relator:

The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.11

Beyond granting authority to dismiss qui tam cases, however, Section § 3730(c)(2)(A) itself does not provide the DOJ guidance on a standard for dismissal or when to use its dismissal authority.

Courts that have had the opportunity to consider the DOJ’s decision to dismiss under its Section 3730(c)(2)(A) authority have split on the appropriate standard of review. In United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., the Ninth Circuit adopted a two-step analysis to evaluate the DOJ’s justification for dismissal. The Sequoia test consists of:

(1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose.12  

Once the DOJ has satisfied the two-step test, the burden switches to the relator "to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.”13 In adopting the Ninth Circuit’s Sequoia test, the Tenth Circuit noted that “it recognizes the constitutional prerogative of the Government under the Take Care Clause, comports with legislative history, and protects the rights of relators to judicial review of a government motion to dismiss.”14

In Swift v. United States the Circuit Court for the District of Columbia rejected the Sequoia test, noting that “it cannot see how Section 3730(c)(2)(A) gives the judiciary general oversight of the Executive’s judgment in this regard.”15 That “[Section 3730(c)(2)(A)] states that ‘The Government’-- meaning the Executive Branch, not the Judicial -- ‘may dismiss the action,’ . . . at least suggests the absence of judicial constraint.”16

Given the broad prosecutorial discretion granted to the executive branch, the Swift Court concluded that the DOJ has “an unfettered right to dismiss an action” pursuant to Section 3730(c)(2)(A).17 Despite the fact that the relator is entitled to a hearing, the Court “conclude[d] that the function of a hearing when the relator requests one is simply to give the relator a formal opportunity to convince the government not to end the case.”18 Any exceptions to the DOJ’s unfettered right, “if there are any -- must be like ‘fraud on the court . . . .’”19

4. Granston Memo

Although the Memo acknowledges that the DOJ has historically been reluctant to use its authority under Section 3730(c)(2)(A), it argues that dismissal is “an important tool to advance the government’s interests, preserve limited resources, and avoid adverse precedent.”20 To ensure consistent application of Section 3730(c)(2)(A) by DOJ attorneys, the DOJ undertook a review of cases dismissed since 1986 when Section 3730(c)(2)(A) was added to the FCA.21 As a result of that review, the Memo identified seven common factors that the DOJ has historically relied upon when seeking to dismiss a qui tam claim. Those factors are:

  • “Curbing Meritless Qui Tams.” A motion to dismiss should be considered “where a qui tam complaint is facially lacking in merit,” such as “if the relator’s legal theory is inherently defective, or the factual allegations are frivolous.”22
  • “Preventing Parasitic or Opportunistic Qui Tam Actions” and “Controlling Litigation.” A motion to dismiss should be considered when the complaint “duplicates a pre-existing government investigation” and does not provide new information.23
  • “Preventing Interference with Agency Policies and Programs.” A motion to dismiss should be considered if the case could interfere with an agency’s existing policies or the administration of the agency’s programs.24
  • “Controlling Litigation Brought on Behalf of the United States.” A motion to dismiss should be considered to protect the government’s prerogatives in pending litigation, such as to avoid interference with similar claims in which the government has intervened.25
  • “Safeguarding Classified Information and National Security Interests.” A motion to dismiss should be considered if the case may compromise classified information or national security interests, such as cases involving the procurement contracts of intelligence agencies or the military.26
  • “Preserving Government Resources.” DOJ attorneys should consider whether the government’s cost will exceed any expected gain. Such costs could include monitoring or participating in the litigation, including responding to discovery requests.27
  • “Addressing Egregious Procedural Errors.” A motion to dismiss should be considered whenever the relator’s actions may “frustrate the government’s efforts to conduct a proper investigation.”28

In addition to outlining the factors listed above, the Memo suggests that DOJ attorneys seeking dismissal argue that such dismissal is warranted under Swift’s unfettered discretion standard, as well as under the Sequoia’s two-step test.29 Even if dismissal under Section 3730(c)(2)(A) is not warranted, the DOJ has other options to seek dismissal, such as under the “first to file” bar, public disclosure bar, enforcement of Rule 9(b) and the materiality requirement.30 Finally, a DOJ attorney considering dismissal should, if possible, notify the relator, as many relators (more than 700 since 2012) may drop the case when he or she learns that the DOJ will not be intervening and is considering dismissal.31

5. Conclusion

Legal counsel advising both relators and defendants will need to wait and see whether the Memo results in a real change to the number of qui tam cases dismissed by the DOJ under Section 3730(c)(2)(A). Nonetheless, defense counsel assisting a client with a civil investigative demand should consider how that client’s facts align with the Memo’s seven factors, and, importantly, whether the DOJ can be convinced that dismissal under Section 3730(c)(2)(A) would save the DOJ from expending resources monitoring the case as well as avoid adverse precedent from a meritless claim.32 Even if the DOJ itself declines to dismiss the case, the DOJ attorney may use the criteria presented to advise the relator’s counsel of the relative merits of the case and urge that the relator voluntarily dismiss the claim. Likewise, relators should carefully consider the Memo’s factors while evaluating a case and should consider drafting the complaint to highlight how the case will address the DOJ’s concerns as raised by the factors. Such careful consideration and drafting may prevent the DOJ from seeking dismissal, even if it declines to intervene. 

* * *

Gerald L. Aben represents clients in the healthcare sector with respect to corporate and regulatory issues, including hospitals, physician groups, long-term care facilities, continuing care retirement communities (CCRCs), ambulatory surgery centers (ASCs), dental service organizations (DSOs), hospice providers and home health agencies. In particular, Mr. Aben counsels clients on compliance and reimbursement issues as well as health facility and physician practice acquisitions and other changes of ownership, including related licensure and Medicare/Medicaid certification matters. Mr. Aben also advises clients on structuring businesses and transactions to achieve client objectives while addressing anti-kickback, Stark and other legal restrictions.  He may be reached by email at GAben@dykema.com or by phone at (734) 214-7648.

Lea Courington focuses her practice on healthcare, government investigations and white collar criminal defense, and antitrust matters. She defends physicians, hospitals, healthcare systems, hospices, and home health care companies and their officers and directors in False Claims Act cases and represents them in parallel criminal and civil governmental investigations arising from whistleblower complaints and allegations of Medicare and Medicaid fraud. A former Trial Attorney with the U.S. Department of Justice Antitrust Division, her experience includes both civil cases and the prosecution and defense of white collar federal criminal matters.  She may be reached by email at LCourington@dykema.com or by phone at (214) 462-6491.

* * *

1

Memorandum from Michael Granston, Director United States Department of Justice, Commercial Litigation, Civil Fraud Section, to Commercial Litigation Branch, Fraud Section (January 10, 2018), available at file:///C:/Users/Marla/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/0A9U47W6/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S%20(1).pdf.

2

Id.

3

Memorandum from Department of Justice, False Claims Act Cases: Government Intervention in Qui Tam (Whistleblower) Suits, 2012, available at https://www.justice.gov/sites/default/files/usao-edpa/legacy/2012/06/13/InternetWhistleblower%20update.pdf. DOJ intervention in a qui tam case only occurs after the DOJ conducts an investigation of the allegation, and, together with other relevant investigative and regulatory agencies, has assessed the merits of the case. The decision to intervene or decline a case can involve various factors, including the merits of the case, the likelihood of success, the DOJ’s resources, and/or the DOJ’s current enforcement priorities.

4

31 U.S.C. § 3729(a)(1)(A) and (G).

5

31 U.S.C. § 3730(b)(1).

6

Id. at (b)(2).

7

Id.

8

31 U.S.C. § 3730(c)(1).

9

An FCA relator is entitled to an award of between 15 and 20 percent of a recovery in a case in which the DOJ has intervened and between 25 and 30 percent in a case in which the DOJ declined to participate.  31 U.S.C. § 3730(d).

10

Searcy v. Philips Elecs. N. Am. Corp., 117 F.3d 154, 160 (5th Cir. 1997).

11

31 U.S.C. § 3730(c)(2)(A).

12

151 F.3d 1139, 1145 (9th Cir. 1998).

13 Id.
14

Ridenour v. Kaiser-Hill Co., Ltd. Liab. Co., 397 F.3d 925, 936 (10th Cir. 2005).  Note, under Article II, Section 3 of the United States Constitution, the President must “take care that the Laws be faithfully executed.” (Emphasis added).

15

318 F.3d 250, 251 (2003).

16

Id.

17

Id.

18

Id. at 253.

19

United States v. Am. Nat'l Red Cross (Hoyte ex rel. United States), 518 F.3d 61, 65 (2008).

20

Memo supra at 1, pg. 2.

21

Id.

22

Id., pg. 3.

23

Id. pgs. 4-5.

24

Id. pg. 4.

25

Id. pg. 5.

26

Id. pg. 6.

27

Id.

28

Id. pg. 7.

29

Id.

30

Id.

31

Id.

32

A civil investigative demand (CID) is a legally-enforceable request for information relevant to the DOJ’s investigation of alleged FCA violations. A CID may be issued by the DOJ prior to commencement of litigation and does not require prior court authorization. If a party subject to the CID does not respond within the allotted period of time, the DOJ may seek a court order to compel the party to provide the information requested. 31 U.S.C. § 3733.

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