David O’Neill is a third-year law student at The George Washington University Law School. He is a member of the Public Contract Law Journal and hopes to join the U.S. Army JAG Corps following graduation. Mr. O’Neill would like to thank Professor Allison Geewax for her help throughout the writing process. Mr. O’Neill can be reached at firstname.lastname@example.org.
A. The Standard for FCA Dismissals Is at Issue After the DoJ Advocated for More Dismissals in Early 2018 and Moved to Dismiss Several Qui Tam Actions in Early 2019
On January 10, 2018, Michael Granston, the Director of Commercial Litigation in the Fraud Section at the Department of Justice (DoJ), disseminated a memo to all attorneys in his section.1 This memo advocated for the government to move to dismiss some False Claims Act (FCA) qui tam actions for several reasons.2 Granston advised the DoJ that dismissals would help to minimize frivolous or parasitic suits, conserve government resources, and look out for the U.S. Government and contractor interests.3 He advocated for dismissals pursuant to 31 U.S.C. § 3730(c)(2)(A), a subsection of the FCA that allows the government to move to dismiss relators’ actions when deciding whether to intervene in their actions.4 The DoJ has rarely dismissed qui tam actions pursuant to 31 U.S.C. § 3730(c)(2)(A),5 but the memo advocated for more use of the dismissal power to save government resources, dismiss frivolous actions, and solve DoJ capacity issues going forward.6 On February 28, 2018, Deputy Associate Attorney General Stephen Cox echoed Granston’s message, stating,
Ultimately, it is in the interests of everyone — including the Federal Government and, importantly qui tam relators — for the United States to exercise its dismissal authority in appropriate cases. When we don’t exercise the dismissal authority in non-meritorious qui tam cases, this not only imposes obvious costs on defendants, but it results in substantial costs that the government must bear to monitor the enormous docket of declined qui tam cases and the costs incurred when an agency gets dragged into those cases through discovery.7
On another front, in 2017, the Ninth Circuit reversed a government motion to dismiss in United States ex rel. Campie v. Gilead Sciences, Inc., a case in which a relator claimed that a pharmaceutical company made false statements about its HIV medication’s compliance with Food and Drug Administration (FDA) regulations resulting in receiving billions of dollars in government funding.8 The government moved for dismissal, at the pleadings stage, alleging that continuing the case would be contrary to the United States’ interest.9 Following the Ninth Circuit’s decision, the Supreme Court requested the solicitor general’s opinion on whether to grant certiorari in the case.10 In a surprising decision, the DoJ asked the Court not to grant certiorari for the case and stated that it would seek dismissal pursuant to 31 U.S.C. § 3730(c)(2)(A) if the Court remanded the case to the district court for further proceedings.11
In the latest development, Director Granston revealed on June 24, 2019, that the DoJ moved to dismiss at least thirty qui tam actions since he wrote his memo in early 2018.12 He elaborated, “That is a much larger number than in the past, but it is also a fraction of the [whistleblower] cases that were filed in the same period of time.”13 This increase in government motions for the dismissal of qui tam actions mirrors Granston’s guidance from the memo.14
B. Circuits Are Split About Whether the Government Is Required to Provide a Valid Governmental Purpose When Moving to Dismiss Qui Tam Actions
The FCA is the government’s most important tool for combatting civil fraud today. In 2017, the government recovered $3.7 billion from FCA actions,15 with nearly $3.4 billion recovered from qui tam actions brought by relators.16 Relators filed 674 qui tam actions and earned $392 million from settlements and damages.17 Both the government and relators have financial incentives with qui tam actions, but not all qui tam actions filed are meritorious.18 To manage non-meritorious qui tam actions, the government has several options including declining to intervene in a relator’s action, and occasionally using 31 U.S.C. § 3730(c)(2)(A) to move to dismiss the relator’s action after deciding not to intervene.19 Dismissing a relator’s qui tam action ends the government’s obligation to monitor the action and can decrease litigation expenses for the government.20 Because conserving government resources and litigation costs is a goal of dismissal pursuant to 31 U.S.C. § 3730(c)(2)(A), these dismissals are a valuable tool only if they can be executed efficiently without requiring significant additional litigation in themselves.21 Further, the government can only conserve resources and achieve its goals when given broad discretion to dismiss non-meritorious qui tam actions. Currently, circuits are split about how much discretion the government should have when moving to dismiss actions after declining intervention.22 The Ninth and Tenth Circuits have required the government to provide a valid governmental purpose and a rational relationship between dismissal and the governmental purpose to dismiss the qui tam action before the burden of proof shifts to the relator.23 The D.C. Circuit gave the government broad discretion to dismiss qui tam actions and did not require the government to offer a governmental interest in moving to dismiss the action.24
C. The FCA Should Be Amended to Give the Government Unfettered Discretion to Dismiss Non-Intervened Qui Tam Actions Consistent with the D.C. Circuit’s Approach
In the case of the government moving to dismiss qui tam actions, Congress should amend 31 U.S.C § 3730(c)(2)(A) to give the government “unfettered discretion” when moving to dismiss relators’ actions consistent with the D.C. Circuit’s analysis. The government should not be required to state a governmental purpose and rational relation between that purpose and dismissal because this will waste further litigation and government resources while litigating the merits and reasonableness of dismissal. The government should also have broad discretion to dismiss frivolous qui tam actions as part of its role as a regulator of civil fraud lawsuits. Dismissing frivolous actions can protect contractors from litigation costs and reputational damage. An amendment to the FCA would provide unambiguous guidance for both the relator and the government for the resolution of qui tam actions. An amendment is preferential to a Supreme Court ruling resolving the circuit split in favor of the D.C. Circuit’s analysis because it would likely take less time to be implemented and require fewer government resources as the case moved through the appellate courts.
Before discussing the current problem involving the interpretation of 31 U.S.C. § 3730(c)(2)(A) and the background of the FCA, it is necessary to dis- cuss qui tam actions and how the government and the relator interact during the process of filing and litigating qui tam actions. Because the FCA has broad jurisdiction over so many contractors and the government has limited resources with which to investigate fraud, the government cannot investigate all contractors for potential false claims. For this reason, the FCA permits third-party whistleblowers or relators with evidence of fraud to proceed qui tam or to bring actions on behalf of the government.25
A. Qui Tam Actions Involve a Unique Relationship Between the Relator and the Government Where the Government May Intervene to Take Control of Litigating the Action, but the Relator Retains a Stake in the Proceedings
The relator begins the action by submitting the evidence of fraud and the sealed complaint to the government.26 After the relator submits the evidence of fraud to the government, the Attorney General has sixty days to investigate evidence of the claim and decide whether to intervene and have the DoJ litigate the case on behalf of the realtor or to decline intervention and allow the relator to bring the action independent of the government.27 If the government decides to intervene on behalf of the relator, the relator earns fifteen to twenty-five percent of the settlement reached or damages earned in the action depending on how substantially the relator’s allegations contributed to the investigation.28 If the government declines intervention, the relator can earn up to thirty percent of the settlement reached or damages earned and reasonable attorney’s fees for the independent litigation of the action.29 The relator’s award is a helpful tool that incentivizes relators to come forward and encourages self-policing by government contractors. As discussed previously, the central issue of this Note involves a third choice for the government regarding a qui tam action: whether the government can move to dismiss the relator’s action while deciding whether to intervene in the action.30
B. Initially, Congress Enacted the FCA to Deal with Specific Fraud During the Civil War but Today, Its Scope of Liability Has Significantly Increased After Several Important Amendments in 1986 and 2009
To look at the current problem, it is helpful to discuss the history of the FCA and qui tam suits to examine the development of today’s high volume of qui tam actions. The False Claims Act was originally known as the “Informer’s Act” and “Lincoln Law” when it was originally created to combat widespread contracting fraud in the Union Army during the Civil War.31 Congress enacted the FCA to solve the issues it had with enforcing federal law.32 The DoJ had not been formed, and the Attorney General did not have adequate control of the independent U.S. District Attorneys to police fraud.33 The volume of qui tam actions filed decreased significantly after the end of the Civil War because qui tam provisions became less popular as military spending went back to the lower levels seen before the war.34 In the 1940s, qui tam actions continued to further decline after President Franklin Roosevelt made several amendments to the FCA.35
The FCA did not become an expansive tool for combatting fraud until it was amended substantially in 1986.36 In 1986, Congress made amendments to the FCA similar to those made during the Civil War because of increasing concerns for the fraudulent use of government funding during a time of heightened defense spending.37 These amendments gave relators new rights, allowing the relator to remain a party to the litigation if the government intervened, increasing possible relator rewards, and protecting relators from discrimination or retaliation by their employers after filing their qui tam action.38
In 2009, President Obama signed the Fraud Enforcement and Recovery Act of 2009 (FERA) that expanded FCA liability and eliminated some common defenses to false claims cases.39 These changes were intended to combat mortgage and securities fraud after the financial crisis, but FERA’s changes affected all FCA cases, even outside the financial sector.40 Today, the FCA is one of the most useful government measures for combatting civil fraud because it applies broadly to various types of misconduct and can be used to collect large damages from contractors making false claims.41
C. Qui Tam Actions Are Widespread and Generally Helpful to the Government in Policing Fraud, but the Government Must Retain Unfettered Discretion to Dismiss Non-Meritorious Actions and Others That Are Not in the Public’s Best Interest
After the expansion of the FCA in 198642 and the succeeding financial sector amendments in 2009,43 nearly 700 qui tam actions were filed in 2017.44 Qui tam actions can motivate honesty and deter fraud by government contractors.45 While they may impose some costs on the contractors and the government, increased accountability and honesty among government contractors outweigh those costs.46 Unfortunately, many qui tam suits are filed every year in which the government decides not to intervene because the allegations of fraud lack merit, or because the government does not have the capacity to pursue the allegations.47 Generally, the government “cherry-picks” the cases that most strongly serve its interest, choosing to intervene in actions with large potential damages and strong evidence of fraud.48 Because the government generally chooses to intervene in most strong qui tam actions, some estimate that eight out of ten qui tam lawsuits in which the government decides not to intervene could be affirmatively dismissed by the government rather than allowing the relator to continue and privately litigate the action.49 In addition, statistically, only a small portion of recoveries made by the DoJ came from qui tam actions in which the DoJ declined intervention.50
The public would benefit more if the government moved to independently dismiss weak qui tam actions after deciding not to intervene, because very few qui tam relators proceeding independently succeed in exposing fraud and helping the government to recover damages.51 Additionally, many costs are involved with the action coming from the government’s investigation of the merits, discovery, and subsequent supervision of the litigation if the relator proceeds independently.52 Unfortunately, the government rarely moves to dismiss qui tam actions.53 The FCA does not identify a standard of review for evaluating government motions to dismiss in these circumstances,54 and several circuits have ruled differently on whether the government must provide a legitimate governmental interest when moving to dismiss the action.55 Resolving the circuit split and providing unambiguous guidance to relators and the government will help both sides understand their rights and responsibilities during qui tam litigation. In the following analysis, I will first analyze the D.C. Circuit and Ninth Circuit’s differing views before discussing solutions to the problem.
The Ninth and D.C. Circuits give the government varying amounts of discretion when the DoJ independently moves to dismiss a qui tam action.56 In Sequoia, the Ninth Circuit supported judicial review of government dismissals of qui tam actions and determined that the FCA was ambiguous concerning the standard of review.57 Thus, the court required the government to provide a valid governmental purpose for dismissal and to show a rational relationship between that purpose and dismissal.58 Conversely, in Swift, the D.C. Circuit rejected this two-part rational-relationship test from Sequoia and determined that the government had total discretion in dismissing qui tam actions.59
A. Ninth Circuit Analysis — United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp.
In United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., Sequoia Orange Company, a produce handler, and Lisle Babcock, an orange-grower, (hereinafter referred to as relators) filed a qui tam action under the FCA against several citrus growers for over-shipping oranges and failing to pay required fees and document their over-shipments.60 The Agricultural Marketing Agreement Act of 1937 (AMAA) governs produce commerce61 and is intended to guard against disruption of the flow of produce in interstate commerce to protect the purchasing power of farmers and the value of agriculture.62 The AMAA allows the Secretary of Agriculture to regulate the quality, size, and quantity of commodities shipped to market through the use of market orders.63 The Secretary regulates the California citrus industry through commodity committees who set market orders controlling the weekly limit of fruit shipped to market.64 The relators alleged that Sunkist and its subsidiaries consistently violated the AMAA by falsely documenting hundreds of citrus shipments that exceeded the market orders prescribed by the Secretary.65 Under the AMAA, citrus handlers who exceed their prescribed orders are subject to fines and penalties and forfeiture of the shipments.66 In addition to AMAA liability, the relators alleged that the citrus handlers faced FCA liability for making false claims by violating the market orders.67 Under the FCA, anyone who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property” to the government is liable for prosecution.68 The relators brought qui tam actions alleging that Sunkist and its subsidiaries failed to pay the government the required fines for their over-shipments.69
1. The District Court Determined That Judicial Review of DoJ Qui Tam Dismissals Was Permissible and Established a Two-Part “Rational Relation” Test for Evaluating the Government’s Motion to Dismiss
In August of 1994, the DoJ moved for dismissal on all of the FCA cases brought by the relators.70 Simultaneously, United States Department of Agriculture (USDA) officials also wanted to “clean the slate” of litigation to protect the industry from divisiveness and escalating litigation costs coming from the qui tam actions.71 After the DoJ moved for dismissal, the district court held an evidentiary hearing in June 1995.72 The government argued that its discretion to dismiss qui tam actions was unreviewable as an exercise of prosecutorial discretion, but the district court disagreed.73 The court relied on the earlier USDA testimony to refute defendants’ arguments that 31 U.S.C. § 3730(c)(2)(A)’s language only supported the interpretation that DoJ’s decision to dismiss was unreviewable.74
After hearing arguments from both sides, the court determined that 31 U.S.C. § 3730(c)(2)(A) was ambiguous because its plain language was silent concerning its standard of review, so the court examined its legislative intent.75 The court found that Congress gave the relator the right to oppose government dismissal as a check on DoJ dismissals of qui tam actions.76 In addition, the court also found that Congress intended to have judicial review of DoJ dismissals to ensure dismissals were for legitimate government reasons and not for fraud or ulterior motives.77
After determining that DoJ dismissal decisions were reviewable, the court looked to establish a standard of review.78 The court noted, “In analogous situations, courts have applied the ‘rational relationship’ test to determine whether legislation is constitutional or executive action violates substantive due process” and determined that a rational basis test was appropriate for reviewing DoJ dismissals pursuant to 31 U.S.C.§ 3730(c)(2)(A).79 For the court to approve a dismissal, there must be both (1) identification of a valid governmental purpose and (2) a rational relationship between dismissal and that governmental purpose.80
The government first argued for dismissal to create peace in the citrus industry after many years of disputes caused by widespread violations of market orders by Sunkist and its subsidiaries.81 The court found that the harmony of the citrus industry was a legitimate governmental interest in stabilizing the market, but did not believe that dismissal would reasonably bring harmony to the industry.82 Ultimately, however, the court granted the government’s motion and dismissed the qui tam action in order to prevent heavy losses to citrus producers, conserve government resources, and facilitate new marketing orders.83
2. The Ninth Circuit Affirmed the District Court’s Findings, Determining That DoJ Dismissals of Qui Tam Actions Were Reviewable and That the Rational Relation Test Was Appropriate and Did Not Violate Separation of Powers Principles
The Ninth Circuit issued a short opinion affirming the district court’s findings.84 The court determined that Federal Rule of Civil Procedure 41(a)(2) did not govern the standard for dismissal of a qui tam action85 and concluded the district court’s rational relation test appropriate for evaluating a government motion to dismiss pursuant to 31 U.S.C. § 3730(c)(2)(A).86 In supporting the rational relation test, the court focused on Congress’s intent in expanding the FCA in 1986.87 Next, the court of appeals determined that the rational relation test did not violate separation of powers principles, relying on prior Ninth Circuit precedent to support the relators’ arguments for the constitutionality of judicial review of dismissal.88 Ultimately, the Court agreed with the district court’s decision to grant the government’s motion to dismiss based on the government’s proffered reasons.89
B. D.C. Circuit Analysis — Swift v. United States
In Swift v. United States, Susan J. Swift acted as the relator and filed a qui tam action in January 1999 against four DoJ employees (and one employee later filed suit against another bringing the total to five) for their actions while they worked in the Office of Legal Counsel (OLC) at the DoJ.90 Swift later dropped three of the five defendants from the action but continued the action against the remaining two.91 She alleged that the two remaining defendants violated the FCA in 1992 by making false claims of approximately $6,000 while billing the government for their vacation time, rather than taking leave.92 First, Swift told her supervisor about the misconduct, and later she submitted a qui tam complaint of false claims to the Attorney General.93 The government determined that the action was not in the best interest of the United States and quickly moved to dismiss the action before determining whether to intervene.94 Even accepting Swift’s allegations as true, the government argued that more money would have been spent in discovery and supervision of Swift’s action if she continued privately than the government could have possibly recovered from litigation.95 The government also found other problems with Swift’s action because she may have lacked jurisdiction under the FCA.96
1. The District Court Recognized the Government’s Reasons for Dismissal, Including Conservation of Resources and Capacity Issues, and Dismissed Swift’s Qui Tam Action
The District Court for the District of Columbia held a hearing on the government’s motion to dismiss where Swift testified and brought forward exhibits.97 Ultimately, the court granted the government’s motion and dismissed Swift’s action on July 30, 2001.98 The court recognized the government’s concerns for conservation of judicial resources, stating that this was a “valid governmental purpose,” consistent with Ninth Circuit’s analysis in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp.99 and that Swift failed to establish that the decision to seek the dismissal was fraudulent, arbitrary, capricious, or illegal.100 The District Court also noted that
if the Government were to investigate every single allegation of fraud that putative relators raise, it would be entirely underequipped to investigate any of them ‘diligently.’ In light of the resource restraints that beset DOJ, a blanket investigation requirement of the type that Swift envisions would spread the agency’s funds and staff so thin that it would be unable to conduct any of the investigations effectively.101
2. On Appeal, Swift Argued That the FCA Did Not Allow for Dismissal When the Government Declined Intervention and That the Government’s Proffered Reasons for Dismissal Did Not Pass the Sequoia “Rational Relation” Test
After the district court’s decision, Swift appealed the decision to the United States Court of Appeals for the District of Columbia Circuit (hereinafter D.C. Circuit).102 Swift argued that dismissal was improper because the government failed to conduct a diligent investigation of her action as required by the FCA.103 Swift made arguments based on both case law104 and the plain language of the FCA105 that the government lacked the standing to move to dismiss her action before intervening.106 Swift also maintained that the government could not seek dismissal at that point because the government had not intervened or become a party to the litigation.107 Conversely, the government argued that standing to dismiss under the FCA did not require intervention,108 and that the government remains a party to FCA litigation at all times because the relator is bringing suit on behalf of the government.109
Lastly, Swift argued that the district court erred by dismissing her action because the dismissal did not pass the Sequoia test where the government must provide (1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose.110 Swift argued that the government’s proffered reason for dismissal, that the fraud involved a “de minimis dollar loss to the government,” was not a valid governmental purpose because DoJ policies under the FCA and the FCA itself did not recognize a de minimis exception to prosecuting FCA cases.111 Swift also argued that the de minimis reason for dismissal was not rationally related to accomplishing the government’s interest in saving money because the action could have settled before accruing high litigation costs and that the government spent substantial legal resources drafting their motion to dismiss.112
In contrast, the government supported its dismissal by emphasizing that the Attorney General exercises control over whether to litigate on behalf of the government.113 The government used the Ninth Circuit’s decision in United States ex rel. Kelly v. Boeing Co. to show that the judiciary should not have the power to review the Executive’s prosecutorial discretion.114 Citing the Fifth Circuit ruling in Riley v. St. Luke’s Episcopal Hospital, the government argued that qui tam provisions were constitutional because the Executive exercised control over the litigation, noting that “the government retains the unilateral power to dismiss an action ‘notwithstanding the objections of the [relator].’”115
3. The D.C. Circuit Affirmed the District Court’s Holding, Finding That the Government Had Standing to Dismiss Even after Declining Intervention and Ruling That the Sequoia “Rational Relation” Test Was Improper
The D.C. Circuit analyzed Swift’s argument about the government lacking standing to dismiss without intervening and noted that the question was mostly moot.116 If the government truly lacked standing, it could have attached a motion to intervene to the motion to dismiss and it would not have changed any aspect of the case.117 The central issue still remained, which concerned the amount of discretion afforded to the government for its motion to dismiss the action, and the court hesitated to adopt the two-prong analysis from Sequoia, noting that it “[could not] see how § 3730(c)(2)(a) gives the judiciary general oversight of the Executive’s judgement in this regard.”118 The court’s analysis was based on the FCA’s plain language maintaining that the “Government may dismiss the action,” and the court found that this language and lack of mention of the judicial branch meant that the government’s decisions not to prosecute were unreviewable.119 Federal Rule of Civil Procedure 41(a)(1)(A)(i) also permits dismissals without judicial review.120 The court adopted the government’s view that the DoJ had total discretion to decide which actions were litigated because of the “Take Care Clause” in the Constitution,121 authorizing the executive to “take [c]are that the [l]aws be faithfully executed.”122 Lastly, while the court noted that the Sequoia test was not appropriate because the government’s decision to dismiss was unreviewable, the court nevertheless found that the Government would have passed the test because of the governmental interest in preserving resources for more significant cases.123
IV. The DoJ Must Have Unfettered Discretion to Dismiss Qui Tam Actions
Congress should amend the FCA in order to give the DoJ unfettered discretion to dismiss pursuant to 31 U.S.C. § 3730(c)(2)(A), consistent with the D.C. Circuit’s analysis in Swift124 for three reasons. First, the relator should bear the burden of proof in hearings for qui tam dismissals after the government has declined intervention because, generally, these lawsuits do not recover any money for the government. Second, the DoJ should have the discretion as a means of saving judicial resources and protecting the taxpayer from high costs of monitoring qui tam actions through discovery. Third, the DoJ needs discretion to regulate qui tam actions by dismissal to protect government contractors from high litigation costs that ultimately result in high costs for the government and the taxpayer.
A. Relators Rarely Recover Money After the Government Chooses Not to Intervene in Their Action
First, the DoJ must have unfettered discretion to dismiss qui tam actions after declining intervention because relators rarely recover money for the government in actions after the DoJ has declined intervention. As stated in Part I, generally, the government decides to intervene in qui tam actions with the strongest evidence of fraud and the greatest possible recovery.125 Because the government intervenes in the strongest actions, it is estimated that eight out of ten non-intervened qui tam actions could be affirmatively dismissed pursuant to 31 U.S.C. § 3730(c)(2)(A), rather than allowing the relator to continue and privately litigate the action.126 Further, a study of qui tam actions conducted from 1987 to 2004 indicated that ninety-two percent of non-intervened qui tam actions were later affirmatively dismissed (either voluntarily by the relator or by court order).127 Lastly, in 2009, the DoJ published that ninety-four percent of non-intervened qui tam actions were dismissed later during lit- igation.128 After the government declines intervention, relators litigating independently very rarely succeed in settling or winning at trial. Because the relator’s non-intervened qui tam action very likely will be dismissed at later stages of litigation, the government should have complete discretion to dismiss qui tam actions if it moves to dismiss affirmatively after declining to intervene. Instead of requiring the government to spend litigation resources proving a negative by arguing that the action lacks merit, the relator must bear the burden of proof in a hearing on a motion to dismiss. The relator must demonstrate why their qui tam action is the exception to the trend and that dismissal is improper. Giving the government discretion to affirmatively dismiss will conserve judicial resources during the dismissal process and will allow the government to dismiss qui tam actions more efficiently in the future.
B. The DoJ Has an Important Gatekeeper Role over Time and Resource-Intensive FCA Litigation That Can Place a High Burden on the Government Even in Meritless Cases
Second, the DoJ must have unfettered discretion to dismiss qui tam actions because the government has an important gatekeeper role in managing time and resource-intensive FCA litigation.129 The DoJ must select the best cases and be judicious with government resources for two reasons. First, FCA litigation is time consuming. The Government Accountability Office (GAO) studied FCA cases from 1987 to 2005 and found that cases in which the DoJ intervened took a median of thirty-eight months to resolve through settlement, judgment, or dismissal.130 In addition, more recent studies have indicated that even non-intervened FCA litigation can require monitoring by the DoJ for extended time periods: “Data obtained from DOJ under the Freedom of Information Act (“FOIA”) show that of the 2,086 cases in which DOJ declined to intervene between 2004 and 2013 and that ended with zero recovery, 278 dragged on for more than three years after the government declined to intervene.”131 Second, non-intervened cases are extremely expensive to monitor for the DoJ because of their complexity. Discovery in non-intervened cases can be extremely work-intensive and last for years, even in meritless cases.132 Discovery disputes can often be “antithetical to the government’s prerogative to end a qui tam case” because these disputes can turn into work-intensive proceedings on the merits, a type of “mini-trial.”133 The government needs discretion to dismiss before these costly discovery disputes begin because the government should not be forced to spend time and money monitoring or litigating a discovery dispute in a non-intervened case. This government investment is directly contrary to the government’s main goal of saving funding while dismissing qui tam actions. The government must not be required to spend litigation resources in discovery while making efforts to conserve the same resources through dismissal.
C. The DoJ Must Be Allowed to Protect Government Contractors from High Litigation Costs and Reputational Damage from FCA Allegations and to Protect Taxpayers from the Indirect Costs of Contractors Defending Against FCA Litigation
Lastly, the DoJ must have unfettered discretion to dismiss frivolous qui tam actions because government contractors face severe consequences while defending against FCA litigation, which ultimately negatively affect the government and taxpayers. First, it is extremely expensive for government contractors to defend against even relatively simple FCA claims. Studies have indicated that even defenses for simple causes of action are estimated to cost between $250,000 and $500,000, and millions of dollars when more complex actions are filed.134 These costs can be prohibitive. Michael Granston warned about these costs in his January 2018 memo stating that “there may be instances where an action is both lacking in merit and raises the risk of significant economic harm that could cause a critical supplier to exit the government program or industry.”135 These consequences have already created problems for some sectors of the government. For example, amid a shortage of doctors in the Medicare system, many physicians have stated that they did not want to be affiliated with the government healthcare system because of the prospect of costly FCA litigation.136 Contractors can also bill the government for their litigation expenses from non-intervened qui tam actions if they prevail.137 Litigating these cases is extremely expensive,138 so the DoJ must have unfettered discretion to dismiss qui tam actions so that the costs of litigation are not ultimately placed on the taxpayer.
Much of the dispute concerning the government’s discretion to affirmatively dismiss qui tam actions is caused by the FCA’s lack of a standard of review or burden of proof for dismissals. Because of this lack, the FCA must be amended to clearly indicate that government has unfettered discretion to dismiss qui tam actions pursuant to 31 U.S.C. § 3730(c)(2)(A) for the reasons mentioned above in section IV. An amendment will provide unambiguous guidance to both sides and allow the government to dismiss qui tam actions more efficiently. This change will advance the goals of the DoJ, saving both judicial and governmental resources while preventing harm to government contractors. This change will not substantially interfere with the rights of relators. Because the majority of non-intervened qui tam actions end in dismissals, efficient affirmative government dismissals will simply save money for all parties as the actions end before litigation imposes costs on the government, relators, and contractors. This amendment will not weaken the FCA. Historically, the government has only used affirmative dismissals rarely and after careful investigation of the evidence submitted by the relator. While dismissals may increase, the government will only move to dismiss actions to conserve resources and help the public. After its ambiguity is resolved, the FCA will remain the government’s most powerful tool in combatting fraud. Congress must only amend the FCA to optimize its administration.
- See Memorandum from Michael D. Granston, Dir. Commercial Litig. Branch, Fraud Section on Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) to Fraud Section Attorneys, Commercial Litig. Branch (Jan. 10, 2018) (on file with author).
- See id. at 3.
- See id. at 2–4, 6.
- See id. at 1; see also 31 U.S.C. § 3730(c)(2)(A) (2012).
- See Steven L. Schooner, False Claims Act: Greater DOJ Scrutiny of Frivolous Qui Tam Actions?, 32 Nash & Cibinic Rep. 59, 60 (2018); see also David F. Engstrom, Public Regulation of Private Enforcement: Empirical Analysis of DOJ Oversight of Qui Tam Litigation Under the False Claims Act, 107 Nw. U. L. Rev. 1689, 1717 (2013) (finding that the DoJ exercised its dismissal power pursuant to 31 U.S.C. § 3730(c)(2)(A) in zero cases out of a 460 case sample).
- See Granston, supra note 1, at 3, 5, 6.
- Stephen Cox, Deputy Assoc. Attorney Gen., Dep’t of Justice, Remarks at the Federal Bar Association Qui Tam Conference (Feb. 28, 2018).
- See United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 890–91 (9th Cir. 2017).
- See United States Motion to Dismiss Relator’s Second Amended Complaint at 1, United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890 (9th Cir. 2017) (No. C-11-0941 EMC).
- See Nate Raymond, Supreme Court Seeks DOJ View on Gilead Whistleblower Case, Reuters (Apr. 16, 2018), https://www.reuters.com/article/health-gilead/supreme-court-seeks-doj-view-on-gilead-whistleblower-case-idUSL1N1RU00Q [https://perma.cc/SL39-4WE3].
- See Brief for the United States as Amicus Curiae at 15, 24, Gilead Scis., Inc. v. United States ex rel. Campie, 138 S. Ct. 1585 (2018) (No. 17-936).
- See Lydia Wheeler, Government Tosses out More Whistleblower Cases After 2018 Memo, Bloomberg L. (June 24, 2019), https:/news.bloomberglaw.com/health-law-and-business/government-tosses-out-more-whistleblower-cases-after-2018-memo [https://perma.cc/SHX3-N5EU].
- See Granston, supra note 1, at 1–2.
- See Fraud Statistics—Overview, Dep’t. of Just. (Dec. 19, 2017), https://www.justice.gov/opa/press-release/file/1020126/download [https://perma.cc/F34X-6XU6] [hereinafter Fraud Statistics—Overview].
- See id.
- See id.
- Cf. Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 949 (1997) (explaining that some FCA qui tam actions are “motivated primarily by prospects of monetary reward rather than the public good”).
- See 31 U.S.C. § 3730(b)(4)(B), (c)(2)(a).
- See Granston, supra note 1, at 6–7.
- See Schooner, supra note 5, at 62.
- Compare United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998), with United States ex rel. Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 936 (10th Cir. 2005), and Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003).
- See Sequoia Orange Co., 151 F.3d at 1145; Kaiser-Hill Co., 397 F.3d at 936.
- See Swift, 318 F.3d at 252.
- See 31 U.S.C. § 3730(b)(1) (2012).
- See id. § 3730(b)(2).
- See id.
- See id. § 3730(d)(1). Relator’s awards depend on if the qui tam action was filed correctly, the degree of assistance the relator provided to the government, the relator’s performance at trial, and the amount of damages recovered in the action. See id.; see also DOJ Relator Share Guidelines, Dep’t of Just. (Dec. 10,1996), https://www.vsg-law.com/wp-content/uploads/2016/08/doj_relator.pdf [https://perma.cc/9A9G-XFWQ].
- See 31 U.S.C. § 3730(d)(2).
- See id. § 3730(c)(2)(a).
- See John. T. Boese, Civil False Claims and Qui Tam Actions 5 (4th ed. 2019).
- See id. at 8.
- See id.
- See id. at 13.
- See id. at 15. These amendments barred qui tam actions in cases where the government had prior knowledge of the fraud and allowed the DOJ to take over a case from a relator. See id. The amendments also limited a relator’s recovery to twenty-five percent if the government declined intervention and ten percent if the government did intervene. See id.
- See id. at 6.
- See Boese, supra note 31, at 20–21. The 1986 amendments removed the required specific intent to defraud the government for some FCA violations and imposed a preponderance of the evidence burden of proof for all FCA violations. See id. at 21–22. The statute of limitations was also lengthened. See id. at 23.
- See id. at 25.
- See id. at 73.
- See id. at 73–74.
- See id. at 5–6.
- See Christina O. Broderick, Note, Qui Tam Provisions and the Public Interest: An Empirical Analysis, 107 Colum. L. Rev. 949, 954–55 (2007) (discussing the 1986 changes to the FCA and how they resulted in a drastic increase in qui tam actions).
- FERA was enacted in 2009 and lowered the requisite evidentiary threshold for filing qui tam actions, while increasing the scope of prosecutable actions governed by the FCA. See Charles T. Kirchmaier, Treating the Symptoms but Not the Disease: A Call to Reform False Claims Act Enforcement, 209 Mil. L. R. 186, 186–87 (2011).
- See Fraud Statistics—Overview, supra note 15.
- See Sean Hamer,Lincoln’s Law: Constitutional and Policy Issues Posed by the Qui Tam Provisions of the False Claims Act, 6 Kan. J. L. & Pub. Pol’y 89, 101 (1997).
- See id.
- See Engstrom, supra note 5, at 1714, 1719.
- After carefully selecting the strongest cases in which to intervene, the DoJ has a high recovery rate, and many cases settle. See Schooner, supra note 5.
- See Kirchmaier, supra note 43, at 226.
- “Over the last 30 years, qui tam cases in which the government declined to intervene account for just 3 percent of all FCA recoveries.” Brief for CTIA—The Wireless Ass’n as Amicus Curiae Supporting Petitioner at 6, Gilead Scis., Inc. v. United States ex rel. Campie, 138 S. Ct. 1585 (2018) (No. 17-936).
- See Kirchmaier, supra note 43, at 227.
- See Brief for Chamber of Commerce of the United States et al. as Amici Curiae Supporting Petitioner at 4, Gilead Scis., Inc. v. United States ex rel. Campie, 138 S. Ct. 1585 (2018) (No. 17-936):
All sectors of the American Economy are exposed to the high costs of litigating weak FCA cases that are allowed to proceed past the pleadings stage. Perversely, the weaker and the more attenuated the legal theory underlying the relator’s claims, the more complex and costly the discovery is for defendants. . . . Contractors will pass those litigation costs on to the government, billing them directly to the government or indirectly passing those costs on by increasing the prices they bid, if they bid at all.
- See Granston, supra note 1, at 1.
- See id. at 3.
- Compare Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003), with United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998), and United States ex rel. Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 936 (10th Cir. 2005).
- Compare Swift, 318 F.3d at 252, with Sequoia, 151 F.3d at 1145.
- See Sequoia, 151 F.3d at 1145.
- See id.
- See Swift, 318 F.3d at 252.
- See United States ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F. Supp. 1325, 1328 (E.D. Cal. 1995).
- See id. at 1329.
- See 7 U.S.C. § 601 (2012).
- See Sequoia, 912 F. Supp. at 1329.
- See id. at 1330.
- See id. at 1331.
- See 7 U.S.C. §§ 608a(5), 608c(14) (2012).
- See Sequoia, 912 F. Supp. at 1331–32.
- 31 U.S.C. § 3729(a)(1)(G) (2012).
- See Sequoia, 912 F. Supp. at 1328, 1331–32.
- See id. at 1337.
- USDA employees informed Deputy Secretary Rominger that the FCA litigation costs had the potential to bankrupt several citrus suppliers. See id. at 1335.
- See id. at 1334.
- The government relied on Federal Rule of Civil Procedure 41(a), but the court held that Rule 41(a) did not control because Congress did not include any reference to it in 31 U.S.C. § 3730(c)(2)(A). See id. at 1338. Sunkist also argued that judicial review was improper, stating that 31 U.S.C. § 3730(c)(2)(A) gave the government unfettered discretion to dismiss actions so long as the dismissal was not for unconstitutional grounds such as race, religion, or exercise of the First Amendment. See id.
- USDA Associate General Counsel John Golden issued a statement expressing that he believed dismissal pursuant to 31 U.S.C. § 3730(c)(2)(a) required an independent legal basis. See id. A USDA paper also stated, “the government does not have authority to dismiss the qui tam cases unilaterally.” See id. Both of these statements contradicted the defendants’ earlier arguments that dismissal was unreviewable. See id.
- See Sequioa, 912 F. Supp. at 1338–39.
- See id. at 1339.
- See id. at 1340.
- See id. at 1340–41.
- See id. at 1341.
- See id. (“There need not be a ‘tight fitting relationship’ between the two; it is enough that there are ‘plausible,’ or ‘arguable,’ reasons supporting the agency decision.”).
- See Sequioa, 912 F. Supp. at 1342. Many citrus providers believed the market order system was flawed and did not follow it strictly. See id. at 1342–43.
- See id. at 1342–43.
- See id. at 1353, 1354.
- See United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1147 (9th Cir. 1998).
- See id. at 1145.
- See id.
- See id. (explaining that the Senate Report to the False Claims Amendments Act of 1986 allowed relators to object if the government moves for dismissal without reason).
- See id. at 1143 (citing United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 746 (9th Cir. 1993) (holding that the FCA’s requirements of the government giving the relator notice of a motion to dismiss and a hearing do not violate separation of powers principles)).
- See Sequoia, 151 F.3d at 1147.
- The officials named in Swift’s complaint were Assistant Attorney General Timothy Flanigan, Assistant Attorney General Walter Dellinger, Principal Deputy Assistant Attorney General Douglas Cox, and OLC Executive Officer Kathleen Murphy (Murphy sued Assistant Attorney General Randolph Moss in his official capacity). See Final Brief for Appellee at 3, Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003) (No. 01-5312) [hereinafter Final Brief for Appellee, Swift v. United States].
- Swift dropped Flanigan, Dellinger, and Moss from her action. See id.
- Swift stated that Murphy assisted Cox in improperly labelling his three-week vacation as “compensatory time” rather than annual leave as it should have been. See id. at 6–7, 8.
- See id. at 7.
- See id. at 8.
- See id. The government calculated total damages involving treble and punitive damages from the false claims for $6,000 and found that they stood to recover a maximum of $28,508 from the action. See id. at 12.
- The government alleged that OLC was aware of the improper billing for vacation time and that Swift lacked jurisdiction for her action because she was not the original source of the complaint when she filed her action. See Final Brief for Appellee, Swift v. United States, surpa note 90, at 9–10.
- See id. at 10.
- See id.
- Because the Sequoia decision predated Swift, the Ninth Circuit’s “valid governmental purpose” test was the prevailing analysis at the time that guided the District Court for the District of Columbia’s analysis. See id. at 12–13.
- See id. at 16.
- Id. at 15.
- See generally Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003).
- Swift maintained that the dismissal was improper because 31 U.S.C. § 3730(a) states “[t]he Attorney General diligently shall investigate a violation under section 3729 [the prohibition against submitting or conspiring to submit false claims].” Appellant Br. at 17, Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003) (No. 01-5312) [hereinafter Appellant Br., Swift v. United States] (emphasis omitted, alteration in original).
- See id. at 20-21 (citing United States ex rel. Neher v. NEC Corp., No. 92-2854, slip op. at 29-30 (11th Cir. Apr. 28, 1995) (“This argument is specious. The government cannot, as it has in this case, actively participate in the case but retain the status of ‘amicus curiae’”)).
- See Appellant Br., Swift v. United States, supra note 103, at 20 (citing 31 U.S.C. § 3730(b)(4) (“[DOJ] shall (A) proceed with the action . . . or (B) notify the court that it declines to take over the action, in which case the [Relator] shall have the right to conduct the action.”)).
- See Appellant Br., Swift v. United States, supra note 103, at 19.
- See id. at 20, 22.
- See Final Br. for Appellee, Swift v. United States, supra note 90, at 28.
- See id. at 30.
- See Appellant Br., Swift v. United States, supra note 103, at 26.
- See id. at 39-40.
- See id. at 41.
- See Final Brief for Appellee, Swift v. United States, supra note 90, at 22.
- See id. at 23 (citing United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 755-56 (9th Cir. 1993), cert. denied, 510 U.S. 1140 (1994)).
- See Final Brief for Appellee, Swift v. United States, supra note 90, at 24–25 (citing Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 753 (5th Cir. 2001)).
- See Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003).
- See id.
- See id.
- 31 U.S.C. § 3730(c)(2)(A); see Swift, 318 F.3d at 252.
- See Fed. R. Civ. P. 41(a)(1)(A)(i).
- See Swift, 318 F.3d at 253.
- U.S. Const. art. II, § 3.
- See Swift, 318 F.3d at 254.
- See id. at 252.
- See Schooner, supra note 5.
- See Kirchmaier, supra note 43, at 226.
- See Broderick, supra note 42, at 975.
- See David Kwok, Evidence from the False Claims Act: Does Private Enforcement Attract Excessive Litigation?, 42 Pub. Cont. L.J. 225, 241 (2013).
- See Cox, supra note 7.
- See U.S. Gov’t Accountability Off., GAO-06-320R, Information on False Claims Act Litigation 3 (2006).
- Brief for Chamber of Commerce of the United States et al. as Amici Curiae Supporting Petitioner, supra note 52, at 13.
- See id. at 13–14:
FCA cases are also costly because highly complex and attenuated implied false certification theories require extensive discovery for relators to establish required elements. Failure to strictly enforce materiality at the pleadings stage results in an enormous deadweight loss to the economy, as even meritless cases that end without recovery require years of discovery. For instance, to show knowledge, an additional requirement under the FCA, relators have to show the rule the defendant allegedly failed to follow is unambiguous, or that the defendants did not hold an objectively reasonable reading of the rule, or that the government warned the contractor away from its interpretation.
- See United States v. Everglades Coll., Inc., 855 F.3d 1279, 1291 (11th Cir. 2017).
- See William E. Kovacic, The Civil False Claims Act as a Deterrent to Participation in Government Procurement Markets, 6 Sup. Ct. Econ. Rev. 201, 225 (1998).
- See Granston, supra note 1, at 5.
- See David Hogberg, The Next Exodus: Primary-Care Physicians and Medicare, Nat’l Ctr. Pub. Pol’y Res. (Aug. 1, 2012), https://nationalcenter.org/ncppr/2012/08/01/the-next-exodus-primary-care-physicians-and-medicare-by-david-hogberg [https://perma.cc/MBV3-4DJQ].
- See generally FAR 31.205-47(a).
- See Kovacic, supra note 134.