Rumors of a significant shift in U.S. Department of Justice (DOJ) policy were confirmed last week when a privileged and confidential internal DOJ memo was leaked to the press. The memo outlines seven factors government attorneys should use for evaluating whether the government should seek dismissal of qui tam actions filed under the federal False Claims Act (FCA), possibly suggesting that such dismissal will—and should—occur more frequently than to date.
Authored by Michael Granston, Director of the Civil Fraud Section of DOJ, the memo was sent to DOJ attorneys and Assistant United States Attorneys across the country on January 10. Mr. Granston caused waves last November when he made surprising comments during a DC conference hinting at such changes in DOJ’s policy. DOJ denied those claims at the time.
DOJ’s authority to dismiss meritless FCA cases comes directly from the statute itself. 31 U.S.C. § 3730(c)(2)(A). Typically, the government first investigates a whistleblower’s FCA claims and either intervenes and pursues the case itself or declines to intervene, allowing the relator to proceed on his or her own. An affirmative dismissal is a more aggressive resolution, as it would end the relator’s journey as well. However, the government has historically utilized this authority “sparingly.”
The Granston Memo marks a possible sea change in that approach, insisting that the government’s interests may often be served by seeking dismissal instead of mere declination of intervention. The memo provides “a general framework” for evaluating when to seek dismissal and seeks “to ensure a consistent approach to this issue across the Department.”
Such a change could prove highly beneficial to defendants facing qui tam actions, particularly those with very little detail. Even thin FCA cases can drag on for years, as courts tend to liberally allow relators at least one opportunity to re-plead their case after an initial dismissal. Even if the defendant ultimately wins, it often is an expensive and distracting endeavor.
Some have expressed skepticism, noting that DOJ arrived at these 7 key factors by surveying cases since 1986 in which the government moved to dismiss a relator’s qui tam complaint, meaning that these factors may not represent anything new and that perhaps this memo’s aim is simply to ensure consistency, rather than to encourage more aggressive use of this authority.
Of course, the proof will be in the pudding. Whether this actually marks a sea change or merely represents a continuation of prior policy will be demonstrated in how cases play out over the next several years. Notably, the memo indicated that going forward, DOJ will collect and report annual data regarding the number of qui tam complaints dismissed on a government motion.
DOJ’s seven factors for evaluating dismissal of qui tam actions
The DOJ memo suggests that government attorneys should consider dismissing an FCA action for the following non-exhaustive list of reasons:
- Curbing Meritless Qui Tams: Where a complaint is “facially lacking in merit—either because relator’s legal theory is inherently defective, or the relator’s factual allegations are frivolous,” or the government concludes after investigation that the case otherwise lacks merit. According to the memo, examples of such cases include:
- Failure to allege an actionable obligation to support a reverse false claim violation
- Allegations not involving claims submitted to the federal government
- Preventing Parasitic or Opportunistic Qui Tam Actions: Cases that duplicate pre-existing government investigations but add no useful information, reasoning that the relator may “receive an unwarranted windfall at the expense of the public fisc.” According to the memo, examples of such cases include:
- Serial relators who file multiple lawsuits alleging similar wrongdoing by the same defendant
- Qui tam case filed after years of government investigation on the same subject
- Preventing Interference with Agency Policies and Programs: To avoid adverse effects where a qui tam action “threatens to interfere with an agency’s policies or the administration of its programs.” According to the memo, examples of such cases include:
- Litigation that would have delayed clean-up and closure of a radiologically-contaminated nuclear weapons manufacturing facility
- Where updated regulations replaced invalidated regulations upon which relator based his claims
- Risk of significant economic harm that could cause a critical supplier to exit the government program or industry
- Controlling Litigation Brought on Behalf of the United States: To protect the DOJ’s litigation prerogatives and avoid unfavorable precedent. According to the memo, examples of such cases include:
- Dismissal of non-intervened claims would avoid interference with the government’s ability to litigate or settle the intervened claims
- Safeguarding Classified Information and National Security Interests: Particularly in cases involving intelligence agencies or military procurement contracts, claims or defenses may be inextricably tied to classified information. According to the memo, examples of such cases include:
- Based on the “rational basis” test, where the government has a strong argument that the risk of disclosure alone justifies dismissal (the government need not show that continued litigation will result in disclosure of classified information)
- Preserving Government Resources: Where the government’s expected costs are likely to exceed any expected gain. According to the memo, examples of potential costs include:
- The need to monitor or participate in ongoing litigation, including responding to discovery requests
- Opportunity cost of expending resources on other matters with a higher and/or more certain recovery
- Where the government may be liable for defendant’s litigation costs if defendant prevails (e.g. FAR § 31.205-47(c))
- Addressing Egregious Procedural Errors: Where such errors frustrate the government’s efforts to conduct a proper investigation. According to the memo, examples of errors include:
- Relator who ignored repeated requests to serve the qui tam complaint and make necessary disclosures required by 31 U.S.C. § 3730(b)
The memo also raised several additional points, clarifying what DOJ believes is the appropriate standard for dismissal under § 3730(c)(2)(A) (some jurisdictions believe the government has “unfettered” discretion to dismiss, while others apply a “rational basis” test), and noting that there may be additional alternative grounds for dismissal beyond the 7 factors outlined above, such as the first to file bar, the public disclosure bar, the tax bar, the bar on pro se relators, or Federal Rule of Civil Procedure 9(b).
Additionally, government attorneys should consider seeking only partial dismissal of some defendants or claims, and must consult closely with affected agencies prior to filing motions to dismiss. Dismissal should be sought as early as possible and preferably before discovery has been completed or trial. Finally, government attorneys are encouraged to consult with relators regarding the deficiencies to allow the relator to “make an informed decision regarding whether to proceed with the action.”
Second DOJ memo also prohibits reliance upon agency guidance documents in civil cases
This was not the only new policy to be announced by DOJ last week. On January 25, DOJ announced a new prohibition on using its civil enforcement authority to convert agency guidance documents into binding rules. In other words, DOJ prosecutors are no longer permitted to use noncompliance with a guidance document to establish violations of law in civil enforcement actions, such as FCA actions. (Whether it applies equally to criminal prosecutions is uncertain, as discussed below.)
The memo was authored by Associate Attorney General Rachel Brand, who oversees DOJ’s Civil Division (among others). This new policy was foreshadowed by Attorney General Jeff Sessions’ November announcement of an end to DOJ’s “practice of regulation by guidance,” reasoning that guidance documents should not be used to change or write new law but rather merely to explain existing law. In December, Sessions took yet another step to curb the impact of DOJ’s own guidance documents, rescinding 25 guidance documents, many of which were released during the Obama administration and aimed at protecting marginalized populations.
Attorney General Sessions argued that by elevating guidance documents to the stature of “binding force or effect of law,” prosecutors had been blurring an important distinction. The new policy “helps restore the appropriate role of guidance documents and avoids rulemaking by enforcement,” according Associate Attorney General Brand.
From a healthcare litigation perspective, this could prove significant. The government often relies upon guidance documents as a tool to bolster allegations of FCA violations. Failure to comply with guidance documents such as Medicare billing guidelines, FDA guidance on off-label promotion, or OIG alerts and advisory opinions may no longer be wielded as per se evidence of an FCA violation. This is generally viewed as a positive development for defendants.
However, it is possible the Brand Memo could also have an adverse effect. Companies rely upon guidance documents to provide critical direction when the law is unclear. If the government can no longer use noncompliance with, e.g., an OIG Advisory Opinion regarding kickbacks, could a company use compliance with the same Advisory Opinion in its own defense?
The Brand Memo may also stifle digital health innovation. The FDA recently released several guidance documents outlining when it would consider certain digital products as “medical devices” and therefore subject to heavy regulation as such. Innovative companies may find themselves operating in a challenging grey area, unwilling to rely upon agency documents’ cold comfort. In short, although DOJ appears to be touting its new policy as a prohibition on using agency guidance as a sword, it may also (perhaps inadvertently) inhibit their use as a shield.
The true impact of the Brand Memo remains to be seen. At least some prosecutors in DOJ’s Criminal Division—which Brand does not oversee—have refused to cease relying upon agency documents, despite the Brand Memo. It appears the Criminal Division may view the legal effect of guidance document differently than the Civil Division, which seems to be an untenable position.
Both of last week’s announcements are likely to prove very significant for healthcare companies in 2018. On the one hand, the Granston Memo may deter FCA relators from filing shot-in-the-dark cases with the hope of extracting an early settlement. On the other hand, relators could theoretically argue that the absence of the government’s motion to dismiss indicates the government implicitly believes relator’s claims have merit.
And while the Brand Memo appears to have been aimed at offering greater predictability as to the status of the law, it is unclear whether all divisions of DOJ will abide by its directives equally.
Though the ultimate import of both documents remains to be seen, they surely provide much fodder for the defense bar and yet another tool in defendants’ toolbox to attack particularly weak and baseless FCA claims. Ultimately, only time will tell whether either new policy creates as big a splash as speculated.
The Health Law Pulse will continue to monitor both issues. Stay tuned!