Department of Justice lawyers should seek to have “meritless” False Claims Act cases dismissed, according to a recent internal memo obtained by The National Law Journal, an affiliate of The Recorder.

The memo, from Michael Granston, the director of the commercial litigation branch at the DOJ's Fraud Section, was sent to attorneys in the branch as well as assistant U.S. attorneys across the country on Jan. 10. It outlines factors DOJ lawyers should consider when deciding whether to seek dismissal of False Claims Act cases brought by qui tam relators on behalf of the government. While the DOJ can move to dismiss such cases, it's rarely done so in the past.

“This is a sea change in the way the department has been working,” said Marc Raspanti, a partner at Pietragallo Gordon Alfano Bosick & Raspanti in Philadelphia who has represented qui tam relators for decades. “I have never heard or seen a memo like this in the past. In my experience working on qui tams, generally, the department has not exercised its right to dismiss matters.”

A DOJ official said the memo gives DOJ litigators a “general framework” for evaluating when to seek dismissal of a case under Section 3730(c)(2)(A) of the False Claims Act, and ensures “a consistent approach to this issue across the Department.”

“The memo incorporates factors that the DOJ has historically used in seeking 3730(c)(2)(A) dismissals to preserve the government's limited resources and to avoid adverse decisions that affect the government's ability to enforce the FCA,” the official said.

When qui tam claims are brought, the government can decide to join the litigation or opt not to intervene, allowing the relator and his or her lawyer to proceed on their own on behalf of the government. Raspanti said he could only think of a “handful” of cases where the government has moved to dismiss in addition to declining to intervene.

Eric Havian, a partner at Constantine Cannon in San Francisco, also pointed out that the memo comes at a time when recoveries in qui tam cases where the government has declined to intervene are at all-time highs. According to DOJ statistics, settlements and judgments in non-intervened cases totaled more than $425 million in 2017, two years after they hit an all-time high more more than a half-billion dollars in 2015. Havian said five to seven years ago, defense lawyers would point to the “paltry amounts” recovered in non-intervened cases when urging judges to dismiss individual cases.

“That's not true anymore,” he said. “Nine-figure recoveries in declined cases are no longer a big surprise.”

According to the memo, the DOJ has seen “record increases” in qui tam actions in the past few years. The memo said that even in cases where the DOJ doesn't intervene, “the government expends significant resources” to monitor the cases and comply with discovery requests and other needs. If the cases lack merit, the memo continues, they can “generate adverse decisions” that can affect the DOJ's ability to enforce the FCA.

“Thus, when evaluating a recommendation to decline intervention in a qui tam action, attorneys should also consider whether the government's interests are served, in addition, by seeking dismissal,” the memo said.

The memo outlines seven reasons attorneys should seek to dismiss qui tam actions, though it notes the list is not exhaustive. Those include that lawyers should move to dismiss cases if they are duplicates of a government investigation, interfere with agency policies or programs, or would lead to unfavorable precedents.

Mitchell Ettinger, a Washington, D.C.-based partner at Skadden, Arps, Slate, Meagher & Flom, praised Granston's memo.

“In reality, this issue is about the allocation of resources by the DOJ and companies, and the financial and reputational harm that arises from False Claims Act allegations, irrespective of merit,” Ettinger said. “We see companies put through the ringer with respect to cases that are totally meritless.”

Ettinger said that if government lawyers adhere to the memo, “administration of the False Claims Act will improve.”

Late last year, Granston hinted at changes to the DOJ's policy during a health care compliance conference, but the DOJ denied any major changes.

Raspanti said the memo should concern “anyone who spends a fair amount of time representing qui tam plaintiffs.” He said that should the DOJ ramp up efforts to dismiss cases, instead of merely declining to intervene, it could have a chilling effect on lawyers and qui tam relators who bring them.

Many cases in which the DOJ declined to get involved have led to the development of new and successful theories for bringing FCA challenges, such as off-label promotion cases, he said.

“Relators brought the majority of early kick-back cases, and those were not generally embraced by DOJ,” he said. “There's always a fear that if you prematurely dismiss theories that may not be accepted by DOJ now, but could be accepted by courts, that you could be having chilling effect.”

Ettinger dismissed the concern, noting that it's the judge, in the end, who decides if a case should be dismissed.

“The real reason for the DOJ to do this is that when a frivolous lawsuit is allowed to proceed, it costs companies a lot of money and resources to defend. …The DOJ has a responsibility to ferret out and dismiss meritless cases. At the end of the day, it's doing the right thing,” he said.

DOJ recently sought the dismissal of a fraud case last November against HCR ManorCare, a leading nursing home provider. The government joined the litigation in 2015, and the dismissal came after the judge struck a key witness and scolded prosecutors for bringing the case. She referred to the action as a “waste of money.”

San Francisco whistleblower lawyer Paul Scott said that during his stint at DOJ he saw a fair number of frivolous qui tam suits that merited dismissal and he's sure that's still the case. “The big question, of course, will be the standard that DOJ applies to determine what is a frivolous case,” said Scott, who represents cyclist Floyd Landis in a suit the government joined against Lance Armstrong. “As long as DOJ continues to be highly circumspect on this front, then this criteria should not deter good cases from being filed.”

But Scott said the merit of dropping cases where there's a preexisting investigation seems less clear, especially since the public disclosure bar of the False Claims Act lays out when dismissal is appropriate in such cases. “If the new policy is not applied judiciously, it could potentially be a serious deterrent to insiders with valuable knowledge coming forward in cases where the government has just initiated an investigation,” Scott said.  “Deterring whistleblowers from helping the United States learn the full scope of frauds being committed against it would not serve the interests of U.S. taxpayers.”

 

Read more:

Trump Picks FTC's Maureen Ohlhausen for Federal Claims Court Slot

US Justice Dept. Backs Hogan Lovells Client Venezuela in DC Circuit Case

Trump's US Attorney Pick Reports $1.2M Partner Share at Drinker Biddle

Who Is Zack Harmon, New Chief of Staff to FBI Director Wray?

Ross Todd contributed reporting to this article.