In January, two memoranda—one authored by then-U.S. Associate Attorney General Rachel Brand and the other by civil fraud chief Michael Granston—suggested there should be a new hope for industry-friendly changes to the U.S. Department of Justice's view of the False Claims Act. The “Granston memo,” which although marked as confidential was promptly leaked, counseled DOJ attorneys to consider dismissing non-intervened qui tam cases that are weak or raise certain policy concerns. The “Brand memo” instructed Justice Department lawyers not to use putative violations of agency guidance documents as a basis for FCA cases.

Some in industry and the defense bar lauded these memoranda as harbingers of less aggressive FCA enforcement under the Trump administration. That outlook is doubtful, given that the Justice Department virtually self-funds through the billions a year money generated by FCA recoveries. While these memoranda may spruce things up for spectators like most window dressing, underneath the incentives that drive vigorous enforcement remain unchanged.

The Granston Memorandum

At a conference last November, Granston announced that the DOJ would be more receptive to dismissing meritless qui tam cases. At that time, there was no memorandum and the DOJ denied any change in policy. Then, in mid-January, a copy leaked of an internal Jan. 10 memorandum issued by Granston to all attorneys in the fraud section and all assistant U.S. attorneys handling FCA cases. The memorandum encouraged DOJ lawyers to seek dismissal of non-intervened qui tam cases that “lack substantial merit” and discussed factors that should guide dismissal.

The Granston memo admitted that “[h]istorically” Main Justice has been “sparing” and “circumspect” in using its power to dismiss qui tam cases. But the government said that now it embraces its role as “an important gatekeeper” and will dismiss weak FCA cases in order to “advance the government's interests, preserve limited resources, and avoid adverse precedent.” The memo listed seven factors that could justify dismissal: (1) “curbing meritless cases,” (2) “preventing parasitic” cases providing “duplicative information,” (3) “preventing interference with agency policies and programs,” (4) “avoid[ing] the risk of unfavorable precedent,” (5) “safeguarding . . . national security interests,” (6) “preserving government resources” “when the government's expected costs are likely to exceed any expected gains,” and (7) addressing relators' “procedural errors.”

Notably for defendants, the Granston memo also recognized 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.” That suggests the DOJ might dismiss cases where significant FCA liability for a defendant hinges on a contractual or regulatory violation that is likely not material under the U.S. Supreme Court's 2016 decision in Universal Health Services v. United States ex rel. Escobar, but may be costly to defend.

The memorandum has caused a stir, leading many to question whether there has been a fundamental shift at the fraud section, particularly in light of the second shoe to drop.

The Brand Memorandum

U.S. Attorney General Jeff Sessions last November issued a memorandum that “prohibited” the DOJ from issuing binding guidance documents without formal rulemaking. Expanding on Sessions' memorandum, Brand issued her own memorandum on Jan. 25 stating that the DOJ “may not use its enforcement authority to effectively convert agency documents” from any agency, not just the DOJ, “into binding rules,” and may not “treat a party's noncompliance with an agency guidance document as … establishing that the party violated the applicable statute of regulation.” The memo made clear that it “applies when the department is enforcing the False Claims Act” in implied certification cases.

The Brand memo has caveats, however. The memo allowed for the use of guidance documents to “explain or paraphrase legal mandates from existing statutes or regulations,” and as evidence the defendant “had knowledge of the mandate.” Also, despite its mandatory tone, the Brand memo said that it “may not be relied upon to create any rights,” and left to litigating attorneys whether to apply the memo's principles to pending cases.

Will Anything Actually Change?

No doubt, these memos are fodder for many a potential defendant's pre-intervention presentation to the DOJ, not to mention for arguments in briefs. But the real question is whether they only signal a change in tone at the “top” of the FCA pyramid. The Granston memo may weed out a few meritless matters—those also most susceptible to motions to dismiss by defendants—but little else. Main Justice's statistics show that for fiscal year 2017, 92 percent of the DOJ's $3.7 billion in FCA recoveries came from qui tam cases, and a quarter of the overall recoveries were from qui tam cases where the DOJ did not intervene. So the DOJ has a strong incentive to keep the relators coming. The authors also wonder how much force the Granston memo really has, since unlike the Yates memorandum, the Granston memo was never meant to be public, the DOJ has not acknowledged it, and DOJ attorneys speaking at a panel in New York suggested the Granston memo does not change anything because they have supposedly always used their dismissal power.

By comparison, the Brand memo has sharper teeth, although a much more limited reach. Part of its power comes from the fact it is part of an agencywide effort to rein in informal guidance, and FCA cases often rely on agency guidance to help establish falsity and materiality, particularly in the health care space. In practice, however, the line between prohibited reliance on extra-legal policy guidance and reference to memos that purport to simply “explain” the law will prove awfully blurry.

On balance, the authors simply do not see that much will come from these much-lauded memoranda except on the margins. Industry and the defense bar should wherever possible hold the DOJ's feet to the fire to see if there is any real change in practice.

Craig Margolis is a partner in Vinson & Elkins' Washington, D.C., office. Margolis focuses his practice on internal investigation and compliance matters, government investigations, prosecutions and other proceedings. Ralph Mayrell is an associate at the firm. His primary areas of practice are False Claims Act and antitrust litigation.