Update Regarding Courts' Views on Granston Motions to Dismiss in FCA Cases

As a result, the DOJ increasingly began to use its statutory power to move to dismiss qui tam FCA cases in which it did not intervene. This marked a change in enforcement policy, as the DOJ historically had been reticent to dismiss non-intervened cases to avoid precluding relators from pursuing potentially worthwhile cases on their own. The increase in these so-called Granston motions to dismiss have highlighted an existing circuit split among the Ninth, Tenth, and D.C. Circuit Courts of Appeals regarding the level of deference a court must give to the DOJ’s dismissal decision. Most recently, two appellate courts reviewed denials of such motions to dismiss and added new gloss to the circuit split.

The Statutory Framework of the False Claims Act

When a relator brings a qui tam action under the FCA, the action is brought on behalf of the federal government. The government may elect to intervene in the action.⁴ If the government declines to intervene, the relator can choose to proceed with the prosecution of the case alone.⁵

Even if the government declines intervention, it retains the right throughout the litigation to either intervene or seek dismissal. This includes the right to dismiss the action over the objections of a relator so long as the relator “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” pursuant to 31 U.S.C. § 3730(c)(2)(A). Although the government has used this dismissal power in the past, typically in cases involving issues of national security, it did so sparingly.⁶ .

The Granston Memorandum

The DOJ is the principal federal agency authorized to enforce the laws and defend the interests of the United States. As such, DOJ trial lawyers and Assistant U.S. Attorneys (AUSAs) oversee the enforcement of the FCA on behalf of the federal government.

On January 10, 2018, the DOJ issued the Granston Memorandum advising its AUSAs to consider dismissal of meritless FCA suits pursuant to Section 3730(c)(2) instead of simply declining intervention. The Granston Memorandum encouraged prosecutors to exercise “unfettered” discretion in dismissing certain FCA suits when dismissal would advance the government’s interests, preserve limited resources, and avoid adverse precedent. Towards this end, the Granston Memorandum outlined seven, non-exhaustive factors for the DOJ to consider in the dismissal decision:

• Curbing meritless qui tam actions;
• Preventing parasitic or opportunistic qui tam actions;
• Preventing interference with agency policies and programs;
• Controlling litigation brought on behalf of the United States;
• Safeguarding classified information and national security interests;
• Preserving government resources; and
• Addressing egregious procedural errors.

As discussed below, most Granston motions to dismiss have raised the preservation of government resources as a rationale.

The Circuit Split on the Standard of Review for Granston-Induced Motions to Dismiss

Originally it was unclear whether the Granston Memorandum would lead the DOJ to be more assertive in seeking dismissal of cases it determined were not in the public interest. While there has been an increase over the past two and a half years, motions to dismiss remain the exception, not the rule. In a December 19, 2019 letter to Senator Charles Grassley (R-IA), the DOJ explained that it had moved to dismiss 45 qui tam cases between January 1, 2018 and October 25, 2019 — roughly four percent of the 1,170 cases filed during that time.⁷ In contrast, there was only a single reported instance between 1986 to 1996 in which the DOJ sought to dismiss a qui tam suit on the ground that the suit lacked substantive merit or otherwise contradicted the interests of the United States.⁸

While most Granston motions to dismiss have been granted, courts disagree on the fundamental standard of review because Section 3730(c)(2) does not provide statutory grounds for granting or denying dismissal.

In United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., the Ninth Circuit endorsed a two-part “rational relation” standard, under which the government must identify (1) a “valid government purpose” to be served by the dismissal, and (2) a “rational relation between dismissal and accomplishment of the purpose.”⁹ If the government satisfies the two-part test, the burden switches to the relator “to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.”¹⁰ The Ninth Circuit explained this standard was appropriately adopted from other cases evaluating whether executive action violates substantive due process, and it aligned with the FCA’s legislative history.

The D.C. Circuit in 2003 rejected the Ninth Circuit’s two-part “rational relation” standard, concluding that Section 3730(c)(2)(A) does not give courts oversight over the government’s dismissal decision.¹¹ Instead, the court found that the statutory language “suggests the absence of judicial constraint” and that there is a presumption that the government’s decisions not to prosecute are essentially unreviewable.¹² The D.C. Circuit interpreted that provision as giving the government an “unfettered right” to dismiss an action. In other words, the decision whether to bring an action on behalf of the United States is “a decision generally committed to [the government’s] absolute discretion.”¹³ The D.C. Circuit further explained 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.”¹⁴

In 2005, the Tenth Circuit rejected the “unfettered right” standard, and instead adopted the Ninth Circuit’s two-part “rational relation” standard.¹⁵ The Tenth Circuit explained that the “rational relation” standard “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.”¹⁶ The Tenth Circuit conceded, however, that the “rational relation” need not be a “tight fitting relationship.”¹⁷ It is enough if there are “plausible, or arguable, reasons supporting the agency decision.”¹⁸

Several appellate courts since have refused to take a clear stand in the circuit split because the relators in those cases would fail under either standard.¹⁹ But generally speaking, federal district courts in the Third, Ninth, and Tenth Circuits have followed the “rational relation” standard.²⁰ Indeed, one district court explained that the rational relation test “accords with statutory interpretation,” “fosters transparency,” and “is consistent with the constitutional scheme of checks and balances.”²¹

On the other hand, various federal district courts in the Fifth, Eighth, and D.C. Circuits follow the more deferential “unfettered right” standard, with one court explaining that “[g]iving the government the unilateral power to dismiss qui tam actions is consistent with the notions of prosecutorial and executive discretion” provided by the FCA.²²

Recently, the U.S. Supreme Court denied certiorari in a D.C. Circuit case in which the relator urged the Court to address the circuit split and adopt the stricter rational relation standard.²³ So, the circuit split on this issue of immense import for defendants and plaintiffs will continue into 2021.

Common DOJ Rationales for Dismissal

All but two Granston motions to dismiss have been granted. Many of the rulings cite the DOJ’s costs of litigating a non-intervened FCA case, including the costs and time required to monitor the case (e.g., filing statements of interest and briefs), costs related to responding to discovery and preparing document production, and attorney time associated with preparing and defending depositions of government personnel.

Some rulings do note the importance of the DOJ conducting an adequate investigation before determining that the costs outweigh the benefits. For example, the DOJ moved to dismiss a case filed in the Northern District of California only after investigating the relators’ allegations for over two years, having consulted with experts from the Department of Health and Humans Services’ Office of Inspector General (OIG) and the Food and Drug Administration, met with the relator and defendant on multiple occasions, interviewed witnesses, reviewed over 600,000 pages of documents, and physically reviewed the manufacturing lots identified by the relator in that case as having serious problems.²⁴

Similarly, motions have been granted because the DOJ stated that it had doubts about the relator’s likelihood of establishing FCA liability. For example, the Eastern District of Pennsylvania dismissed an FCA case where the DOJ raised concerns with the relator’s ability to prove his case because he did not have access to medical records to determine whether all of the claims at issue were false.²⁵

Finally, the DOJ may move to dismiss a case because it threatens to interfere with another agency’s enforcement efforts. For example, a Northern District of Mississippi case involved FCA allegations premised on a hospital’s violations of the Emergency Medical Treatment and Labor Act (EMTALA).²⁶ The hospital was in the process of administratively settling penalties associated with the underlying EMTALA violations with OIG. The DOJ moved to dismiss the FCA case since the hospital could not finalize settlement with OIG out of fear that such a settlement would increase its risk of liability under the relator’s FCA qui tam action.

Rarely Are Motions to Dismiss Denied

As noted above, there have been only two cases in which a Granston motion was denied. The first case, United States ex rel. CIMZNHCA, LLC v. UCB, Inc., was filed in the Southern District of Illinois by a corporate entity that had filed 11 similar qui tam cases.²⁷ The DOJ declined intervention and moved to dismiss under Section 3730(c)(2)(A) per its “unfettered right” to do so. Even under the Ninth Circuit’s “rational relation” standard, the DOJ argued dismissal was appropriate “because it is rationally related to the valid governmental purposes of preserving scarce government resources and protecting important policy prerogatives of the federal government’s healthcare programs.”²⁸ Specifically, the DOJ concluded that the relators’ allegations lacked sufficient factual and legal support, even after an extensive government investigation into the matter, and that further expenditure of government resources (e.g., incurring costs in monitoring the litigation, preparing deposition witnesses, filing statements of interest, and responding to discovery requests) was not justified.

The district court denied the DOJ’s motion. The court instead applied the two-part “rational relation” standard and concluded that the DOJ’s decision to dismiss was not based on a “minimally adequate investigation, including a meaningful cost-benefit analysis.”²⁹ The court determined that the DOJ had conducted a general collective investigation of all 11 cases filed by the relator against various defendants nationwide, and had not fully investigated the allegations against the specific defendants in this case. The court also found that the DOJ failed to review materials from the relator relevant to this case and did not conduct a cost-benefit analysis. Further, the court criticized the DOJ’s disapproval of the relator as part of a group of “professional relators,” stating that such “animus towards the relator” is not a valid purpose for dismissal under Section 3730(c)(2)(A).³⁰

The second case, United States ex rel. Thrower v. Acad. Mortgage Corp, was filed in the Northern District of California.³¹ The DOJ claimed that most of the relator’s allegations were copied from a prior FCA complaint without the addition of any specific details unique to the defendant. In addition, the three allegedly false claims underlying the relator’s suit totaled less than $1 million. So, the DOJ moved to dismiss, arguing that it had the “right to undertake a cost-benefit analysis” after “having already spent resources investigating [r]elator’s claims, reviewing the merits of the case as presented by [r]elator, and monitoring the case after declination.”³²

In response, the relator argued her pleadings included allegations of systemic fraud that went far beyond the “three claims” referenced by the DOJ. Despite this, the relator argued, the DOJ limited its investigation to just the relator’s work location and time period and apparently did not include any witness interviews or requests for documents from the defendants.

The district court denied the DOJ’s motion, finding evidence submitted by the relator that showed the DOJ had indeed performed only a limited investigation of the original complaint’s allegations and no investigation of the amended complaint.³³

The DOJ appealed both denials, arguing that appellate courts should adopt the “unfettered right to dismiss” standard such that the basis for its decision to dismiss an FCA case is not subject to judicial scrutiny. The DOJ also argued that even under the “rational relation” standard, it had sufficiently satisfied the two parts of the test, and the district courts’ denials were improperly based on their disapproval of the extent and form of the DOJ’s investigations in the two cases.

Recent Appellate Decisions Fail to Add Clarity to the Dismissal Standard

In August 2020, the Seventh and Ninth Circuit Courts of Appeals issued opinions in the two cases discussed above. The Seventh Circuit held that neither the D.C. Circuit’s “unfettered right” standard nor the Ninth Circuit’s “rational relation” standard provided the appropriate standard of review.³⁴ Rather, the court turned to the Federal Rules of Civil Procedure. Rule 41(a)(1)(A)(i) states that “the plaintiff may dismiss an action without a court order” by serving a notice of dismissal any time “before the opposing party serves either an answer or a motion for summary judgment.”³⁵ Since the DOJ’s motion to dismiss was filed in this case before defendants had answered or moved for summary judgment, the DOJ was within its rights to move for automatic dismissal without justification.

The Seventh Circuit disagreed with the district court’s view that the DOJ must conduct a “meaningful cost-benefit analysis” before moving to dismiss, explaining that “[t]he government is not required to justify its litigation decisions in this way.”³⁶ As a result, the Seventh Circuit conceded its approach “lies much nearer” to the extremely deferential “unfettered right” standard than the more stringent “rational relation” standard.³⁷ The court explained the notice-and-hearing requirements outlined in 31 U.S.C. § 3730(c)(2)(A) “serve no great purpose,” unless the DOJ has missed its opportunity to automatically dismiss the case under Rule 41(a)(1)(A)(i).³⁸ In that scenario, the hearing will “serve to air what terms of dismissal are proper.” Any additional requirements, such as the need to demonstrate the fairness, reasonableness, or adequacy of dismissal, would need to come from Congress in the form of legislative amendment to the FCA.

An additional issue was whether the Seventh Circuit actually had jurisdiction to review a denial of a motion to dismiss pursuant to Section 3730(c)(2)(A). Under 28 U.S.C. § 1291, appellate courts have jurisdiction over “appeals from all final decisions of the district courts.” This statute is most often invoked as the basis for appellate jurisdiction over final judgments. But it also encompasses a small set of pre-final judgment orders that are “collateral to” the merits of an action and too important to be denied immediate review. This has become known as the “collateral order doctrine.” The Seventh Circuit held it had jurisdiction because the DOJ’s motion would be construed as one “both to intervene and then to dismiss,” and denials of motions to intervene have been held to be appealable collateral orders in various federal jurisdictions.³⁹

The Ninth Circuit’s ruling disagreed on this point. The Ninth Circuit held that it did not have jurisdiction because a district court’s order denying a motion to dismiss under Section 3730(c)(2)(A) is not appealable as a collateral order.⁴⁰ The court did not construe the DOJ’s motion to dismiss as also being a motion to intervene. Rather, the court justified the dismissal of the appeal by explaining that the government’s interests become “qualified” and “particularly attenuated” once it has declined intervention.⁴¹

The Ninth Circuit also dismissed the concern that its ruling would render district courts’ denials of Granston motions to dismiss essentially unreviewable. The court deemed any likelihood of an erroneous denial “extraordinarily low” and the DOJ would not be subject to significant discovery burden in a non-intervened case.⁴² In other words, the government’s interest in “avoiding burdensome discovery expenses in a case [it] does not think will ultimately be worth the cost” was “not an interest important enough to merit expanding the narrow scope of the collateral order doctrine.”⁴³

The Seventh and Ninth Circuits’ recent decisions do little to resolve the circuit split. Both decisions could be read to suggest that a Granston motion to dismiss must be preceded or accompanied by a motion to intervene. But the Seventh Circuit appears to endorse a new standard of review that is similar — though not identical — to the “unfettered right” standard. Conversely, the Ninth Circuit seemed less deferential to the DOJ’s dismissal decision (corresponding to its “rational relation” standard), somewhat indifferent to its concerns about costs outweighing benefits in a non-intervened FCA case, and unconcerned about denials of motions to dismiss being unreviewable on appeal.

Conclusion

The DOJ increasingly is willing to exercise its clear statutory authority to dismiss qui tam actions, although motions to dismiss remain rare in non-intervened cases. Qui tam litigants should evaluate weaknesses in the case based on the Granston Memorandum factors while the case is still under seal and being investigated. Litigants should be aware that different jurisdictions treat these factors differently, though courts are generally deferential to the DOJ’s dismissal decision regardless of the standard of review. Even if the DOJ does not move to dismiss under Section 3730(c)(2)(A), plaintiff and government attorneys may choose to warn clients of potential deficiencies in the case. Such an approach may lead to an increase in voluntary dismissals by relators and a greater chance of avoiding the time and expense related to non-intervened FCA litigation. Litigants in FCA cases therefore should remain mindful of the risks in bringing and defending qui tam matters and the applicable substantive and procedural bars, which seemingly incorporate the Granston factors, when determining to proceed or abandon such cases.

1. This article updates the presentation entitled “Qui Tam Cases: The Impact of the Granston Memo in Practice,” given by authors Sean McKenna and Neil Issar, as well as Leah Huyser, to the ABA Health Law Section Fraud & Compliance Interest Group on May 19, 2020.
2. The FCA imposes liability for knowingly presenting a false or fraudulent claim or making a false record or statement material to a false or fraudulent claim. 31 U.S.C. §§ 3729–33. The majority of FCA cases relate to the healthcare industry. Private citizens with knowledge of alleged fraudulent practices may file FCA cases on behalf of the government. These plaintiffs are referred to as “relators” and these cases are referred to as whistleblower or “qui tam” cases. 31 U.S.C. § 3730(b). Relators are entitled to a share of proceeds if the case resolves in their favor.
3. Michael D. Granston, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. § 3730(c)(2)(A) (Jan. 10, 2018), https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf.
4. 31 U.S.C. § 3730(b)(2).
5. Id. § 3730(b)(4)(B), (c)(3).
6. See, e.g., United States ex rel. Fay v. Northrop Grumman Corp., No. 1:06-cv-00581, 2008 WL 877180, at *5–10 (D. Colo. Mar. 27, 2008) (granting motion to dismiss as continued litigation would pose an unacceptable risk to national security due to the potential for the disclosure of classified information).
7. Letter from Stephen E. Boyd to Charles E. Grassley, Office of the Assistant Attorney General, U.S. Department of Justice (Dec. 19, 2019), https://www.arnoldporter.com/en/-/media/files/perspectives/publications/2020/01/doj-response-to-senator-grassley.pdf.
8. Schooner, S.L., False Claims Act: Greater DOJ Scrutiny of Frivolous Qui Tam Actions?, 32 Nash & Cibinic Rep. ¶ 20 at 60 (2018), https://scholarship.law.gwu.edu/cgi/viewcontent.cgi?article=2593&context=faculty_publications.
9. 151 F.3d 1139, 1145 (9th Cir. 1998).
10. Id.
11. Swift v. United States, 318 F.3d 250, 252–53 (D.C. Cir. 2003).
12. Id.
13. Id. at 253.
14. Id.
15. Ridenour v. Kaiser-Hill Co., L.L.C., 397 F.3d 925, 936 (10th Cir. 2005) (quoting Sequoia, 151 F.3d at 1145).
16. Id. The Take Care Clause is found in Article II, § 3 of the U.S. Constitution, which provides that the Executive Branch is entrusted with the duty to “take Care that the Laws be faithfully executed . . ..”
17. Ridenour, 397 F.3d at 936–37.
18. Id. at 937.
19. See, e.g., United States ex rel. Chang v. Children’s Advocacy Ctr. of Delaware, 938 F.3d 384, 387 (3d Cir. 2019).
20. See, e.g., United States ex rel. Campie v. Gilead Scis., Inc., No. 3:11-cv-00941, 2019 WL 5722618 (N.D. Cal. Nov. 5, 2019).
21. United States ex rel. SMSPF, LLC v. EMD Serono, Inc., 370 F. Supp. 3d 483, 488 (E.D. Pa. 2019).
22. United States ex rel. Sibley v. Delta Reg’l Med. Ctr., No. 4:17-cv-00053, 2019 WL 1305069, at *4 (N.D. Miss. Mar. 21, 2019); see also United States ex rel. Davis v. Hennepin Cty., No. 0:18-cv-01551, 2019 WL 608848, at *6 (D. Minn. Feb. 13, 2019), appeal dismissed, No. 19-1530, 2019 WL 4296887 (8th Cir. May 14, 2019); United States ex rel. Kammarayil v. Sterling Operations, Inc., No. 1:15-cv-01699, 2019 WL 464820, at *1 (D.D.C. Feb. 6, 2019).
23. United States ex rel. Schneider v. JPMorgan Chase Bank, Nat’l Ass’n, No. 19-7025, 2019 WL 4566462, at *1 (D.C. Cir. Aug. 22, 2019), cert. denied, No. 19-678, 2020 WL 1668623 (U.S. Apr. 6, 2020).
24. United States ex rel. Campie v. Gilead Scis., Inc., No. 3:11-cv-00941, 2019 WL 5722618, at *5 (N.D. Cal. Nov. 5, 2019).
25. Polansky v. Executive Health Res., Inc., 422 F. Supp. 3d 916, 927 (E.D. Pa. 2019).
26. Sibley, supra n. 22, 2019 WL 1305069, at *8.
27. United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 3:17-cv-00765, 2019 WL 1598109 (S.D. Ill. Apr. 15, 2019).
28. Memorandum of Law in Support of the United States’ Motion to Dismiss at 13–14, United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 3:17-cv-00765 (S.D. Ill. Dec. 17, 2018), Dkt. No. 64.
29. CIMZNHCA, LLC, supra n. 27, 2019 WL 1598109, at *3.
30. Id. at *4.
31. United States ex rel. Thrower v. Acad. Mortgage Corp., No. 3:16-cv-02120, 2018 WL 3208157 (N.D. Cal. June 29, 2018).
32. United States’ Notice of Motion and Motion to Dismiss Relator’s Amended Complaint at 7, United States ex rel. Thrower v. Acad. Mortgage Corp., No. 3:16-cv-02120 (N.D. Cal. July 19, 2017), Dkt. No. 60.
33. Thrower, supra n. 31, 2018 WL 3208157, at *3.
34. United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 19-2273, 2020 WL 4743033, at *2 (7th Cir. Aug. 17, 2020).
35. Fed. R. Civ. P. 41(a)(1)(A)(i), https://www.federalrulesofcivilprocedure.org/frcp/title-vi-trials/rule-41-dismissal-of-actions/.
36. CIMZNHCA, LLC, supra n. 34, 2020 WL 4743033. at *12.
37. Id. at *2.
38. Id. at *11.
39. See, e.g., Edwards v. City of Houston, 78 F.3d 983, 992 (5th Cir. 1996) (en banc) (“The denial of a motion to intervene of right is an appealable final order under 28 U.S.C. § 1291.”).
40. United States ex rel. Thrower v. Acad. Mortgage Corp., No. 18-16408, 2020 WL 4462130, at *5 (9th Cir. Aug. 4, 2020).
41. Id. at *9.
42. Id. at *8.
43. Id.