September 01, 2020 Procurement Lawyer

Separating the Wheat from the Chaff or Undermining Congressional Intent? The US's Proactive Dismissals of Qui Tam Actions

by Shelley R. Slade

Shelley R. Slade is a co-chair of the Procurement Fraud and False Claims Committee of the ABA’s Public Contract Law Section, and a member of Vogel, Slade & Goldstein, LLP, a law firm representing qui tam plaintiffs in False Claims Act actions. She gratefully acknowledges the assistance in the drafting of this article of Procurement Fraud and False Claims Committee co-chairs Brian Hill, Mark Sweet, and Gail Zirkelbach and VSG paralegals Brendan Keenan and Matthew McColl.

One of the most important tools in the government’s anti-fraud toolbox is the federal False Claims Act (FCA),1 a Civil War–era statute with a treble damage remedy and qui tam2 provisions that incentivize and protect private persons who bring civil actions to recover damages arising from fraud on government programs.3 The use of a private attorney general to supplement the sovereign’s resources has roots in our country’s statutes and in English law dating back hundreds of years.4 Private individuals are often much better situated, motivated, and even equipped to detect and redress wrongdoing. Indeed, in the last 30 years, qui tam actions have recovered more than $42 billion for the U.S. Treasury that otherwise potentially would have been lost as a result of fraud.5

In the Trump administration, however, practitioners have seen an uptick in government-led dismissals of such actions, with more motions to dismiss filed by the government in the last two years alone than in the previous 32 years. This sudden shift followed quickly upon the issuance of an internal, January 2018 Department of Justice (DOJ) memorandum by Michael Granston, Director of the Civil Fraud Section (the Granston Memo), that encouraged DOJ attorneys to dismiss declined qui tam actions when necessary to protect policy, resources, national security, and other government interests as well as to contain the risk of adverse decisions arising from meritless cases.6 This article traces the history of the government’s dismissal authority and analyzes the Department’s escalating use of this authority in the past two years.

Background

In general terms, the FCA is a federal law that imposes liability for, among other things, the submission of false claims to the United States or a recipient of federal funds or the use of false records or statements that are material to the decision to pay such a claim.7 Violators of the statute are liable for civil damages equal to three times the government’s loss, plus penalties for each violation of the law.8

The statute was enacted in 1863 to respond to fraud on the Union Army,9 with Congress of the view that qui tam provisions were warranted because “setting a rogue to catch a rogue” is often the most effective way to bring fraudsters to justice.10 In other words, to detect fraud, which is by its nature concealed, Congress decided to offer a carrot to persuade participants in the fraud to turn in their fellow thieves. As originally drafted, the law, however, did not prevent an individual from filing a complaint based on no more than public information such as a grand jury indictment. As a result, in 1943 Congress amended the law to bar actions “based upon evidence or information in the possession of the United States, or any agency, officer or employee thereof, at the time such suit was brought.”11 However, as drafted, this was an overcorrection, and the statute quickly fell into disuse as potential whistleblowers were chilled from filing cases due to a concern that somewhere in the government’s vast files there might be pieces of information that could be used to quash their suits.

During the Reagan administration, fiscal concerns and an increasing awareness of fraud in the Pentagon’s procurement of military equipment finally pushed Congress to reinvigorate the FCA. In 1986, through bills sponsored by Congressman Howard Berman (D-CA) and Senator Chuck Grassley (R-IA), Congress eliminated the “government knowledge” defense, increased rewards and protections for qui tam plaintiffs, and authorized the DOJ to issue “civil investigative demands” to investigate allegations.12 At the same time, Congress added a government-dismissal authority providing that “the Government may dismiss [a qui tam] 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.”13

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