In recent months, False Claims Act plaintiffs have come up empty-handed in a series of cases with hundreds of millions of dollars on the line.

Among them: a decision by the U.S. Court of Appeals for the Eleventh Circuit last week, denying a $320 million FCA claim against hospice provider Chapters Health System, represented by Carlton Fields.

The week before, lawyers from Skadden, Arps, Slate, Meagher & Flom and Akin Gump Strauss Hauer & Feld won judgment as a matter of law, wiping out a $350 million jury verdict in Florida against a nursing home provider in Ruckh v. Salus Rehabilitation.

And in October, the largest FCA judgments ever of its kind—a $682 million penalty against Dallas-based Trinity Industries—was reversed and remanded by the U.S. Court of Appeals for the Fifth Circuit.

These cases all have something in common: the government declined to intervene. Unfazed, the whistleblowers (eying potentially huge payouts) went it alone.

But a FCA sea change may be coming. Last week, my colleague Cogan Schneier reported that the government plans to make it harder for qui tam relators to bring cases on their own. Michael Granston, the director of the commercial litigation branch at the DOJ's Fraud Section, issued a memo calling for government lawyers to seek to have “meritless” False Claims Act cases dismissed.

Is this the end of the FCA as we know it?

I spoke last week with two FCA experts, Akin Gump partners Robert Salcido and Terence Lynam, about what's behind the plaintiffs' losses and what lies ahead.

The interview transcript has been edited for clarity and length.

Jenna Greene: What's behind recent reversals in FCA judgments totaling more than $1 billion?

Robert Salcido: When you look at the recent reversals in False Claims Act judgments, the prevailing factor by far is the Supreme Court's [2016] decision in Escobar.

In the unanimous decision, what the Supreme Court said—that I think has resonated with lower courts—is that the False Claims Act is not an all-purpose, anti-fraud statute. It isn't a vehicle to enforce garden-variety contractual and regulatory disputes. A statute like the False Claims Act, which provides for treble damages and massive civil penalties, should not be used when there are insignificant regulatory or contractual violations.

In order to establish materiality under the False Claims Act, you have to demonstrate proof that in the normal or typical case, the government would actually deny payment based on the alleged contractual or regulatory infraction. If you don't establish that, you cannot establish a central element of the False Claims Act. It makes it much more difficult for the relators at the end of the day to prevail.

JG: Still, plaintiffs lawyers have had some success at trial convincing juries that wrong was done. How do you think they've been able to do this?

RS: In my experience, they seem to make three moves. One is that they seek to identify what we on the defense side would call a garden-variety regulatory or contractual dispute. And then they take that dispute and submit it to an expert witness, who will then identify an alleged error rate.

Once an error rate is identified together with an overpayment, then they would make the third move. They would undertake massive discovery. They would identify documents that—not surprisingly—indicate for-profit companies seek to be profitable. And they will assert before a jury or a judge, that as a result of the error rate identified by experts and the accompanying desire to be profitable, [the company] cut corners or engaged in misconduct in order to obtain additional governmental funds.

One court stated this was using 'traps, zaps and zingers' to persuade the jury. Because that approach doesn't fundamentally satisfy Escobar, judges—whether at the appellate or district court level—have been reversing jury findings.

JG: Tell us about your Florida nursing home case, where the trial court judge overruled the jury verdict as a matter of law.

RS: Looking at the opinion, what occurred is that the court correctly applied the Escobar decision.

What the trial record showed, and what the court described in the decision, was that on over 1,000 occasions, inspectors had gone into the facility and did not find widespread, systemic issues regarding which the government would deny payment.

The judge provided the relators with a basketful of warnings during the course of trial that [they] weren't submitting sufficient evidence to get to a False Claims Act judgment. He even stated at the end of trial that their case was not close.

The evidence submitted at trial was insufficient. I think that's what accounts for his judgment at the end of the day.

JG: From a client's point of view, these must be very frustrating cases to face, especially in instances where the customer—the government—isn't complaining.

RS: These cases can be potentially catastrophic, with an astronomical price tag. That's the reason in part I think the Department of Justice has issued its recent guidance on moving to dismiss meritless False Claims Act cases.

JG: How big a deal is this new guidance?

RS: It's a good first step, but the jury is out on it. The reason I say that is in the past, the Department of Justice has issued other guidance in terms of False Claims Act enforcement.

For example, in the 1990s, they issued what was then known as the “Holder guidelines,” after Eric Holder. They had promised certain types of reform to False Claims Act enforcement, like not actively pursuing actions where there was an ambiguous regulatory framework.

Certainly, defense lawyers believed the Department of Justice continued to pursue such cases. So it's an example where guidelines were issued, arguably to forestall legislative action to amend the False Claims Act, but then those guidelines weren't enforced internally at DOJ.

With respect to the newest guidelines, they're a good new step. But the devil will be in the details. The Department of Justice says that it's going to monitor, in light of the guidelines, how many additional actions the department moves to dismiss. Making that information public, and actually increasing the number of actions they move to dismiss, would be a great indication that they're actually applying these guidelines.

Or if there is a spike in the number of instances in which the Department of Justice persuades relators not to proceed with meritless cases, even when DOJ doesn't actively move the court to dismiss those cases, that would also be another very positive step.

JG: So let's say DOJ moves to dismiss—could a case still go forward? Is it at the judge's discretion?

RS: That's an excellent question. There's a court split on that precise issue. Under the D.C. Circuit law, the government has essentially unfettered discretion to dismiss qui tam actions. After all, it is the executive branch that under the 'take care' clause must enforce the law, and you can't privatize law enforcement.

The Ninth and Tenth Circuits provide that the government has to have a reasoned basis for moving to dismiss the action, because the False Claims Act grants a relator a right to a hearing before dismissing on the government's motion. But even in those circuits, whenever the government has moved to dismiss, they have granted the government's motion.

JG: Looking ahead, do you think we may see fewer relators bringing FCA actions?

RS: The actual data we have in front of us is that relators in recent history have brought very large, very expensive lawsuits. But notwithstanding the great expenses, the suits have not resulted in any dollars being paid to relators.

The question becomes, will that have a chilling effect on future relators? I think that if these actions continue to be marginal and meritless, recent verdicts and judgments might chill the relators' behavior. But we'll have to wait a couple years and see.

JG: What do you find most satisfying about litigating FCA cases?

RS: It's all that I've done for 30 years now—for five years, bringing these cases on behalf of the United States, and for the last 25, defending these cases. So having subject matter expertise is something I find very satisfying. And the False Claims Act is such a unique, nuanced statute.

Terence Lynam: My practice is not limited to the health care industry. I've done white-collar criminal trials, and civil cases as well.

The False Claims Act to me is a very interesting area. The law is certainly evolving with the Escobar decision, and it provides some areas to really develop a defense—it's not an open and shut situation for companies that are facing these lawsuits.

They can defend them—but you really have to work at it. What we did in Florida was, we tried the case, we made a record of showing that state inspectors were in these facilities over a thousand times, and didn't deny any payments based on the things they saw and the things they examined.

The motion that the judge ultimately granted after trial was a renewal of arguments we had made during trial.

JG: How different are FCA cases from other litigation in terms of strategy at trial?

RS: When you do a trial against the government in a False Claims Act case, it's perfectly clear who the plaintiff is—the United States. But in cases where the government does not intervene, what's really challenging is the fact that the United States, the purported victim, isn't there in the courtroom.

The defendants want to present a certain story or narrative for why the government is not in the room. Certainly, the relator wants to create an entirely different picture.

Essentially, the defendants want to give the impression that the government looked at the evidence and decided actively not to intervene in the case, and the only reason the relator is pursuing it is because the relator has a personal financial interest in the recovery. And of course the relator is doing everything to create precisely the opposite impression. That is, that the relator is just acting on the government's behalf, and the government will get the lion's share of the recovery, and only the court will decide what amount the relator will get at the end.

There's a lot of continual maneuvering at trial on that precise issue.

JG: Do you tend to handle more cases where the government declines to intervene?

RS: The practice has evolved. Historically—meaning 20 years ago, 10 years ago—the vast majority of the time when you had a litigated case, the government was the plaintiff. Back then, what would occur was the government would review the allegations and if they decided they had merit, the government would intervene and have primary responsibility over the action.

If the government declined to intervene, it was relatively rare 10 or 20 years ago that the relator would incur the expense of litigating the case fully. Most of the time, the heavily-litigated cases were against the government itself.

In the last five to 10 years, in many more cases, the relators are moving forward notwithstanding the government's declination. They're willing to pay funds—sometimes a huge amount of funds—in order to pursue the litigation.

Now, about 50 percent of my litigated matters are against relators only, and the other 50 percent are against the government.

TL: I think more and more, you're seeing the use of statistical sampling and extrapolation of damages to create very large potential recoveries. Relator's counsel are using that more and more to try to assert a very large number for damages.

That's attracting some well-financed relators' firms who are willing to incur the cost of the litigation and hire experts—because the experts are going to take a sample of the files and say 'This sample establishes x amount of damages, but we can multiply it by thousands and get potential damages in the millions.' That's what is attracting some of these relators' firms. They're obviously interested in some of those larger recoveries.

JG: Are the relators winning at trial? Or are we mainly talking about settlements?

RS: There have been jury verdicts, but they've either been eliminated by the judge on a Rule 50 basis or on appeal. But what we've seen in the last five to 10 years are cases where the relators are making substantial recoveries in cases in which the government did not intervene. I think that's what has emboldened them—it's the settlements.

But we're still living in the aftermath of Escobar. Some of the cases that were settled for eight figures, nine figures five years ago may not be coming in at that dollar amount currently.