In January 2018, the U.S. Department of Justice (“DOJ”) circulated an internal memo directing government attorneys to consider whether the government’s interests are served by seeking the dismissal of non-intervened qui tam actions brought under the False Claims Act (“FCA”). The public release of the Granston Memo, the document outlining this guidance, immediately led to speculation regarding the ultimate impact of this new policy. Developments over the course of the last year have provided some insight. Although the DOJ continues to vigorously pursue potential violations of the FCA, it appears willing to consider the dismissal of qui tam actions that are meritless, unduly burdensome to the government, and/or counterproductive. This article explores the policy announced by the Granston Memo, its application in practice, and what contractors facing qui tam actions need to know about this important policy development.
The Granston Memo
The FCA authorizes the Attorney General to bring suit against any person who knowingly submits a false claim to the federal government. 31 U.S.C. § 3730(a). However, the FCA also permits a private person (a “Relator”) to bring a qui tam action on behalf of the United States. 31 U.S.C. § 3730(b). The DOJ reviews all such qui tam actions and elects to intervene and conduct the litigation or declines to intervene and permits the Relator to conduct the litigation. 31 U.S.C. § 3730(c). Even if the DOJ declines to intervene, it still frequently must monitor and sometimes participate in the litigation.
Significantly, the DOJ is expressly authorized to dismiss qui tam actions “notwithstanding the objections” of the Relator. 31 U.S.C. § 3730(c)(2)(A). Prior to the issuance of the Granston Memo, this section was used only sparingly. Granston Memo at p. 1. Although the Relator is entitled to a hearing, the FCA fails to set forth either a standard or specific circumstance for when dismissal under 31 U.S.C. § 3730(c)(2)(A) should be granted. Courts are divided as to whether the DOJ has an “unfettered right” to dismiss a qui tam action under 31 U.S.C. § 3730(c)(2)(A) or whether it must show that dismissal is rationally related to the accomplishment of a valid government purpose. Cf. Swift v. U.S., 318 F.3d 250, 252 (D.C. Cir. 2003) with U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998).
Noting the significant increase in qui tam complaints and the demands of such cases on the government’s limited resources, the Granston Memo encourages government attorneys to consider seeking the dismissal of non-intervened FCA actions when consistent with the government’s interest. Envisioning the DOJ as the FCA’s “gatekeeper,” the Granston Memo casts 31 U.S.C. 3730(c)(2)(A) as an “important tool to advance the government’s interest, preserve limited resources, and avoid adverse precedent.” Granston Memo at p. 2.
Although noting that dismissal could be sought based on factors other than merit, the Granston Memo cautioned government attorneys to be “judicious” in utilizing 31 U.S.C. § 3730(c)(2)(A). Nevertheless, the Granston Memo identified a non-exhaustive list of seven factors / circumstances supporting the potential dismissal of a qui tam action including:
(1) curbing meritless qui tams;
(2) preventing parasitic or opportunistic qui tam actions;
(3) preventing interference with agency policies and programs;
(4) controlling litigation brought on behalf of the United States;
(5) safeguarding classified information and national security interest;
(6) preserving government resources; and
(7) addressing egregious procedural errors.
Although noting that dismissal under 31 U.S.C. § 3730(c)(2)(A) should generally be sought close to the time of declination, the Granston Memo recognizes that such a motion may also be justified at a “later stage” particularly where there is an “intervening change” in the law or the evidence. Granston Memo at p. 8. The Granston Memo further emphasized that DOJ attorneys should consult with affected agencies and obtain their recommendation prior to seeking dismissal. Id.
The Granston Memo Applied
After releasing the Granston Memo, the DOJ shiftily moved to incorporate its guidance into other key agency documents. On September 25, 2018, the DOJ released the new U.S. Attorney’s Manual (renamed the Justice Manual) which echoed the Granston Memo in urging government attorneys to consider seeking dismissal of qui tam actions when consistent with the government’s interest. See Justice Manual 4-4.111. The re-issued Justice Manual restated the Granston Memo factors and also noted that a single factor may be sufficient to justify dismissal.
The DOJ has further signaled its intention to implement the Granston Memo through its actions in several high-profile cases. For example, in November 2018, the DOJ filed an amicus brief in U.S. ex. rel. Campie v. Gilead advising the U.S. Supreme Court of its intention to seek dismissal of the relator’s suit pursuant to 31 U.S.C. § 3730(c)(2)(A) if certiorari was granted and if the case was remanded. The DOJ explained in its brief that this determination was based on its investigation and a desire to avoid burdensome discovery which could distract the affected agency from its responsibilities. In December 2018, the DOJ further sought to dismiss ten major FCA actions filed by a network of professional corporate relators alleging a fraudulent healthcare kickback scheme. See, e.g. U.S. ex rel. Health Choice Group LLC v. Bayer Corp. et al., Case No. 5:17-CV-126-RWS-CMC (E.D. Tex.). After spending over 1,500 hours investigating relators’ claims, the government concluded such claims lacked factual and legal support and would impose a substantial litigation burden on the United States. See Mot. To Dismiss at p. 7 & 15.
Additionally, several decisions over the course of the last year illustrate when the government will seek (and obtain) dismissal under 31 U.S.C. § 3730(c)(2)(A). Recognizing the government’s “interest in reining in weak qui tam actions,” the court in United States ex rel. Maldonado v. Ball Homes, LLC, No. CV 5: 17-379-DCR, 2018 WL 3213614, at p. *5 (E.D. Ky. June 29, 2018) granted dismissal. In Maldonado, the relator alleged that the defendant builder falsely certified that a newly constructed home did not have any earth fill for purposes of obtaining an FHA-insured loan. Id. at p. *1-2. In addition to the likely burden of litigation, the government based its motion to dismiss on the weakness of the relator’s claim given the government’s position that the use of earth fill would not necessarily preclude the issuance of an FHA-insured loan. Id. at p. * 4. In United States ex rel. Toomer v. TerraPower, LLC, No. 4:16-CV-00226-DCN, 2018 WL 4934070, at *1 (D. Idaho Oct. 10, 2018), the court similarly granted dismissal. In Toomer, the relator alleged that the defendant contractor sought to obtain a patent on a subject invention without disclosing the same to the government as required by its Cooperative Research and Development Agreement. Id. at p. *1 -2. In addition to maintaining that the suit was premature, lacked merit, and would drain limited government resources, the government argued that, under the circumstances, litigation would impair or delay its work with the defendant and would discourage private companies from working collaboratively with the government in the future. Id. at *5.
The government has also suffered some reversals in its attempts to obtain dismissals under 31 U.S.C. § 3730(c)(2)(A). In United States v. Acad. Mortg. Corp., No. 16-CV-02120-EMC, 2018 WL 3208157, at p. *3 (N.D. Cal. June 29, 2018), the court, applying Sequoia Orange Co., denied the government’s motion to dismiss based on the government’s failure to perform a “minimally adequate investigation” of the relator’s amended complaint. The government has appealed this decision.
Takeaways For Contractors
Following the issuance of the Granston Memo, the DOJ continues to aggressively litigate potential FCA violations. The DOJ obtained over $2.8 billion in FCA verdicts and settlements in fiscal year 2018. (The Department of Justice, “Justice Department Recovers Over $2.8 Billion from False Claims Act Cases in Fiscal Year 2018,” December 21, 2018). Most of these recoveries originated from matters which the DOJ directly pursued or in which it intervened. Nevertheless, the DOJ appears to be taking an active role in attempting to curb the worst abuses of the qui tam process.
Contractors facing qui tam litigation must evaluate whether their case may be a candidate for dismissal based on the guidance provided by the Granston Memo. The Granston Memo’s author has recently cautioned that dismissal under 31 U.S.C. § 3730(c)(2)(A) will “remain the exception, not the new rule.” (C. Ryan Barber, “DOJ Fraud Leader Tempers Defense Dreams of More Whistleblower Dismissals,” The National Law Journal, March 4, 2019 (quoting comments by Michael Granston, Director of the Civil Fraud Section of the Civil Division of the U.S. Department of Justice)). However, cases generally lacking merit, which entail sweeping government discovery, and/or that will interfere with important agency objectives or public policies may, under appropriate circumstances, be considered by the DOJ for dismissal.
Contractors should act promptly to make their case to the DOJ for dismissal under 31 U.S.C. § 3730(c)(2)(A) since the Granston Memo cautions government attorneys against waiting until the later stages of a case to determine whether to seek a dismissal. Granston Memo at p. 8. Indeed, as discovery progresses, the potential benefit to the government of dismissal may decrease. Despite the other Granston Memo factors, lack of factual or legal merit appears to be critical to the government’s decision to seek dismissal. Similarly, the potential burden that litigation is likely to impose on the government seems to carry significant weight. Negative impacts on ongoing projects, contracts, or agency objectives are all also relevant. In addition to direct communications, contractors should be mindful that their own motion to dismiss (where appropriate) may be an important means of persuading the government to consider dismissal pursuant to 31 U.S.C. § 3730(c)(2)(A).
Since the release of the Granston Memo, the DOJ has demonstrated an increasing willingness to seek dismissal of qui tam actions which: are determined to lack merit; impose undue burden on the government; and/or interfere with agency objectives. The DOJ continues to actively enforce the FCA. However, over the course of the last year, the DOJ appears to have embraced the Granston Memo’s mandate to seek the dismissal of qui tam actions that are contrary to the government’s interests.