United States: Leaked DOJ Memo Indicates New Government Focus On Dismissing Meritless False Claims Act Cases

Executive Summary

In a January 10, 2018 memo that leaked last week (the "Granston Memo"), the U.S. Department of Justice ("DOJ") directs its prosecutors to more seriously consider dismissing meritless False Claims Act ("FCA") cases brought by whistleblowers. We have long argued DOJ dismissal is an underused tool provided by the FCA. See "Dismissing FCA Cases Over Relators' Objections," Law360 (May 7, 2012). While we expect prosecutors will remain resistant to aggressively dismissing cases, the Granston Memo provides useful guideposts defense counsel should use to argue dismissal of defective cases – thereby saving clients significant costs and distractions in defending meritless lawsuits.

Background

The FCA's qui tam provisions permit individual whistleblowers, known as relators to sue defendants they believe engaged in fraud against the government, with the potential for triple damages and up to $21,916 in penalties per fraudulent filing.1 The magnitude of the potential damages and penalties often requires defendants to engage in lengthy and expensive efforts against suits of little merit, often brought by disgruntled former employees. A relator's financial incentive is considerable – they can potentially recover a bounty equaling up to 35% of the damages and penalties.

The FCA requires cases to be filed under seal, to provide the DOJ with time to investigate the allegations and decide whether to intervene and join the lawsuit. The FCA also provides that if the government determines its interests are not served by the lawsuit, it may seek dismissal, over the relator's objections, provided the relator has an opportunity to be heard. 31 U.S.C. § 3730(c)(2)(A). This gatekeeping function is not often used, even where the DOJ declines to intervene and actively litigate the lawsuit.

The Granston Memo addresses this dismissal provision. DOJ Commercial Litigation Branch, Fraud Division, "Factors for Evaluating Dismissal Pursuant to 31 USC 3170(c)(2)(A)" (available here). The Granston Memo acknowledges the "record increases" in whistleblower actions filed under the FCA, with approximately 600 new matters filed annually. Despite the substantial increase in the number of filings, the rate of government intervention has remained relatively static, indicating many of these cases may lack merit. The Granston Memo expresses concern both over the amount of resources required to monitor meritless cases, as well as the potential for those cases to generate adverse decisions that affect the government's ability to enforce the FCA.

In a potentially important policy shift, the Granston Memo notes that dismissal under § 3730(c)(2)(A) should be considered an "important tool" to advance governmental interests, preserve limited resources, and avoid adverse precedent.

The Granston Memo provides a non-exhaustive list of seven factors DOJ prosecutors should use to evaluate whether qui tam suits should be dismissed: (1) whether the complaint is facially lacking in merit, either because the relator's legal theory is inherently defective, or the relator's factual allegations are frivolous; (2) whether the action duplicates a pre-existing government investigation and adds no useful information, thus enabling the relator to receive an unwarranted windfall; (3) whether the relevant government agency has determined the action threatens to interfere with an agency's policies or the administration of its programs and has recommended dismissal to avoid those effects; (4) whether dismissal is necessary to protect the DOJ's litigation prerogatives; (5) whether dismissal will help to safeguard classified information; (6) whether expected costs of litigation are likely to exceed any expected gain; and, (7) whether there are issues, such as procedural errors, with the relator's action that frustrate the government's effort to conduct a proper investigation.

Takeaways

The Granston Memo demonstrates the need for defense counsel to interact with DOJ prosecutors as soon as a defendant becomes aware of an FCA case, and if possible, during the government's investigation before the case is made public. It is therefore important to retain counsel who has experience and credibility with the prosecutors who are evaluating the Granston Memo factors. And, if the government declines to intervene in a relator's case, defense counsel should advocate for dismissal of the case based on the seven guideposts set forth in the Granston Memo. We expect prosecutors may resist such arguments – especially in the near future – in favor of monitoring and allowing relators to bear the lion's share of litigation. But, many qui tam FCA lawsuits fall within the Granston Memo factors, and it is worthwhile for defense counsel to help DOJ with its evaluation of them. While the Granston Memo does not strongly counsel dismissal in any specific type of FCA case, the decision to issue it indicates at least an increased intent by the DOJ to dismiss defective qui tam suits. This is therefore an important development to employ in defense of FCA qui tam suits.

Footnotes

1 See 31 U.S.C. §§ 3729(a), 3730(b). "Qui tam is short for the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means 'who pursues this action on our Lord the King's behalf as well as his own.'" Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 769 (2000).

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