United States: DOJ Issues Memorandum Outlining Factors For Evaluating Dismissal Of Qui Tam FCA Cases In Which The Government Has Declined To Intervene

Last Updated: January 30 2018
Article by T. Reed Stephens, Amandeep S. Sidhu and Rebecca C. Martin

As first reported in the National Law Journal, the US Department of Justice (DOJ), Civil Division, recently issued an important memorandum to its lawyers handling qui tam cases filed under the False Claims Act (FCA) outlining circumstances under which the United States should seek to dismiss a case where it has declined intervention and, therefore, is not participating actively in the continued litigation of the case against the defendant by the qui tam relator.

Authored by Michael Granston, director, Fraud Section, Commercial Litigation Branch of the Civil Division of the DOJ, the eight-page memorandum follows comments made by Mr. Granston last year suggesting that—in cases where the DOJ has determined that allegations in a qui tam complaint lack merit—the United States would more aggressively exercise its statutory authority to dismiss FCA complaints pursuant to 31 U.S.C. § 3730(c)(2)(A). The DOJ later indicated that Mr. Granston's public discussion of its policy regarding dismissals of declined FCA cases was merely a "continuation" of DOJ's past practice. Historically, however, DOJ's dismissal power has been rarely invoked in active qui tam litigation or discussed in any public setting. Thus, Mr. Granston's public reference to the potentially increased use of that power—combined with the first-time public availability of a DOJ guidance memorandum addressing the use of this tool—signals a potential shift in the DOJ's thinking and openness to such dismissals.

The primary questions, however, are (1) on what grounds will the DOJ choose cases for dismissal; and (2) under what circumstances defense counsel can effectively participate in the framing of the motion to dismiss without reigniting the government's interest in the case or creating a situation in which Relator's counsel will have access to additional evidence.

The memorandum, available in its entirety, reiterates DOJ's longstanding statutory authority to dismiss qui tam matters pursuant to 31 U.S.C. § 3730(c)(2)(A):

The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.

Id. While DOJ has held this statutory authority since 1986, the memorandum acknowledges that it has been used "sparingly" and that DOJ has been "circumspect with the use of this tool to preclude relators from pursuing potentially worthwhile matters, and to ensure that dismissal is utilized only where truly warranted." Nonetheless, the memorandum also recognizes the "record increase" in the number of qui tam filings and that this increase comes with a cost to the Department, even where the government declines to intervene. Those costs include the government's expenditure of resources on monitoring and providing discovery, or otherwise participating, in declined cases. The memorandum also essentially recognizes that bad facts make bad law and that meritless FCA cases have resulted in "adverse decisions that affect the government's ability to enforce the FCA." Recognizing the "gatekeeper" role played by the DOJ in "protecting" the FCA, the memorandum for the first time provides DOJ lawyers with written guidance that should be considered when evaluating whether a case should be dismissed pursuant to 3730(c)(2)(A).

Based on a review of every qui tam FCA case that the United States has moved to dismiss since 1986, the memorandum outlines seven factors that should be considered by its lawyers. Several of the factors are focused on the DOJ's internal policy prerogatives and priorities, but there are multiple factors that can be used as additional advocacy tools for qui tam defendants navigating whistleblower lawsuits in which the United States has declined to intervene:

  1. Curbing Meritless Qui Tams: The memorandum advises that DOJ lawyers should consider moving for dismissal where a qui tam complaint is facially lacking in merit, "either because the legal theory is inherently defective, or the relator's factual allegations are frivolous."

Of note, the memorandum includes the nuanced circumstances where the DOJ has concluded that declination is warranted, but does not equate the declination with a conclusion that no fraud could be proven. Here, the memorandum suggests that the DOJ lawyer may advise the relator that "dismissal will be considered if the relator us unable to obtain additional support for the relator's claim by a specified date." In circumstances where qui tam defendants have credibly rebutted the substance of the allegations to the satisfaction of the DOJ, the DOJ may be receptive to arguments that the relator should be pressed—outside the boundaries of the district court's case management schedule—to provide a further evidentiary basis for why the declined case should not be dismissed immediately under 3730(c)(2)(A).

This factor raises important procedural questions as to how it would be effectuated. For example, will the United States prefer to use this authority only in those case where an obvious jurisdictional or legal defect is present—for example, if a qui tam complaint alleges a violation of the Stark Law or the Anti-Kickback Statute, but the complaint is clearly defective due to the defendant's compliance with a statutory or regulatory exception or safe harbor? Or will the United States be willing to move to dismiss in situations that are more fact-specific and discovery prone, such as where the government's own knowledge of the conduct makes proof of defendant's knowledge, the falsity of the claims, or their materiality, difficult if not impossible for the United States?

With respect to timing, once the United States declines to intervene and the relator has made clear her intention to serve the qui tam complaint and pursue the litigation without the United States' participation, will the named defendant have the opportunity to advocate for a United States-initiated motion to dismiss before the complaint is served and, therefore, prior to the defendant's obligation to either answer or move to dismiss under the Federal Rules of Civil Procedure? Moreover, if the United States is willing to file the motion, will the DOJ move to dismiss with prejudice the entire qui tam complaint or only those portions of the complaint that it specifically investigated and determined to be meritless under this factor? While the United States' pre-intervention investigation of the allegations can often be comprehensive, the DOJ typically selects the allegations to which it will deploy its investigative resources. To what extent will defendants have to choose to make affirmative evidentiary and legal representations to the United States about allegations which were not the focus of the United States' investigation? This also raises the question of whether such affirmative disclosures will be shared with the relator should the United States choose not to file the motion to dismiss.

  1. Preventing Parasitic or Opportunistic Qui Tam Actions: Where qui tam cases duplicate pre-existing government investigations and "add no useful information," the memorandum advises that DOJ lawyers should consider seeking dismissal under 3730(c)(2)(A).
  2. Preventing Interference with Agency Policies and Programs: The memorandum advises that DOJ lawyers should consider seeking dismissal under 3730(c)(2)(A) when the qui tam action threatens an agency policy or the administration of its programs.
  3. Controlling Litigation Brought on Behalf of the United States: Dismissal of qui tam cases pursuant to 3730(c)(2)(A) should be considered where it is necessary to protect DOJ's litigation prerogatives. This may include avoidance of interference with non-FCA litigation pending between the same parties or dismissal of qui tams that are hindering settlements on intervened claims.
  4. Safeguarding Classified Information and National Security Interests: In cases involving military procurement or intelligence agencies, dismissal under 3730(c)(2)(A) may be appropriate to safeguard classified information.
  5. Preserving Government Resources: Dismissal pursuant to 3730(c)(2)(A) should be considered where the United States' expected costs are likely to exceed any expected gain. Notably, the memorandum identifies qui tams that were dismissed where—even if the relator were permitted to litigate the claims—the United States would continue to incur significant costs.
  6. Addressing Egregious Procedural Errors: Where the relator's actions (or inactions) frustrate the government's efforts to conduct a proper investigation, DOJ lawyers should consider dismissal via 3730(c)(2)(A). As an example, the memorandum noted that failure by the relator to serve the qui tam complaint and disclose material facts to the government has been a basis for dismissal. Violations of the seal, which have been independent bases for dismissal motions by defendants, could in the right circumstances weigh in favor of a dismissal under 3739(c)(2)(A), as well.

The memorandum also provides DOJ lawyers with practical guidance that defense counsel should heed, as well. First, DOJ lawyers are advised to frame their motions to dismiss to meet the standard for dismissal under either the "unfettered" discretion standard adopted by the US Court of Appeals for the District of Columbia Circuit or the "rational basis" test adopted by the Ninth and Tenth Circuit Courts. Second, the memorandum advises the seven above-mentioned factors are not an exhaustive list and that there may be other factors that are considered in determining that the United States' interests are best served by dismissal pursuant to 3730(c)(2)(A). Third, the memorandum notes that other bases for dismissal can be used beyond 3730(c)(2)(A), including the first to file bar, the public disclosure bar, the tax bar, the bar on pro se relators, and interestingly, Federal Rule of Civil Procedure 9(b). Fourth, the memorandum reminds DOJ lawyers that 3730(c)(2)(A) permits partial dismissal of qui tam complaints; there is no requirement to proceed in an "all or nothing" manner by dismissing a qui tam case in its entirety. Fifth, DOJ lawyers are advised to coordinate closely with the affected agency to ensure that there is agreement to seek dismissal pursuant to 3730(c)(2)(A) or an understanding of the basis for any objections. Sixth, DOJ lawyers are advised to carefully consider when to seek dismissal under 3730(c)(2)(A). The memorandum advises that this would typically be at the time of declination, but that a later decision to seek dismissal may be appropriate. DOJ lawyers should consider whether the court may be less receptive to a motion to dismiss pursuant to 3730(c)(2)(A) at the close of discovery, after the parties have invested significant resources. Finally, the memorandum recommends that DOJ lawyers advise relators of their intentions to seek dismissal under 3730(c)(2)(A), along with the perceived deficiencies identified in the case, so that relators can make an informed decision about whether to voluntarily dismiss the action.

From the defense perspective, many of the seven enumerated factors and much of DOJ's practical guidance to its lawyers can be incorporated into defense counsel's presentation to the government. As suggested by the unwarranted increase in the volume of qui tam cases filed each year—particularly against health care providers, pharmaceutical companies and medical device manufacturers—arguments on the lack of factual and legal merit of relators' complaints will likely prove to be the most useful element for defense counsel. Other factors, including parasitic relators, interference with agency programs and preservation of government resources, will likely become arrows in the defense quiver as well.

Counsel should also focus on other issues highlighted by the DOJ guidance, such as relevant agency views of the materiality of the alleged conduct and the risk and burden to the government created by necessary discovery from government agencies on the subject of materiality (e.g., whether the government knew about the conduct at issue but continued to pay the defendant's claims anyway). Given the drumbeat of appellate decisions affirming dismissals under Escobar for lack of materiality, DOJ's sensitivity to this issue cannot be overstated.

It remains to be seen how the memorandum will be practically implemented by DOJ, but qui tam defendants should be alert to the opportunity to aggressively assert arguments and proactively lay the groundwork for the most effective presentation regarding dismissal. Defense counsel's knowledge of the existence and content of a relator's complaint is typically (absent a partial unsealing) largely speculative until the end of the government investigation. The government's area of inquiry is rarely a perfect overlap with the relator's allegations, so defense presentations to the government may not cover all the claims and allegations contained in a relator's complaint. While timing will vary from case to case, the most optimal time to advocate for dismissal will likely be at or around the time of declination and prior to relator's service of the complaint on the defendant. Accordingly, defendants should and be prepared to rapidly address issues raised by the complaint.

* * * * *

Based on the detailed analysis and extensive guidance in the memorandum, it appears that this may represent an inflection point in how certain frivolous qui tam FCA matters are handled going forward. As we have previously noted, any company impacted by the FCA should consider whether the factors outlined in the memorandum may present a pathway to extricate defendants from burdensome qui tams pursued by relators solely to extract a settlement.

DOJ Issues Memorandum Outlining Factors For Evaluating Dismissal Of Qui Tam FCA Cases In Which The Government Has Declined To Intervene

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