Early this year, two memoranda issued by the United States Department of Justice (the Department) were made public. The first, outlining the Department’s new stance on dismissing a False Claims Act (FCA) case over a relator’s/whistleblower’s objection was leaked in January, despite being labeled “Privileged and Confidential; For Internal Government Use Only” (the Granston Memo). The second memorandum, related to the use of government guidance as a basis for enforcement actions was released by the Department (the Agency Guidance Memo).  Together, the memos may demonstrate a new, more business-friendly, direction for the Department.

Granston Memorandum

The Granston memo, authored by Michael D. Granston (the Director of the Fraud Section of the Department’s Commercial Litigation Branch), reiterates the Department’s ability to dismiss an FCA matter over the objection of a relator under 31 U.S.C. 3730(c)(2)(A) and lays out the situations in which such a dismissal could be warranted.

Under the FCA, after a relator files an FCA case under seal, the government has 60 days to intervene in the case and take over prosecution or decline to intervene and allow the relator to prosecute the case on behalf of the government. Under 31 U.S.C. 3730(c)(2)(A), however, the government may also move a court to dismiss the case over a relator’s objection – thereby ending the litigation. While this tool has historically been used “sparingly,”, the Granston Memo seems to indicate that the Department will be utilizing 31 U.S.C. 3730(c)(2)(A) more regularly, when one or more of the following factors are present:

  1. When an FCA complaint is facially lacking in merit because the relator’s legal theory is inherently defective or the relator’s factual allegations are frivolous.
  2. When the FCA complaint is parasitic, opportunistic, or duplicates a pre-existing government investigation and the relator would receive an unwarranted windfall.
  3. When dismissal would prevent interference with agency policies and programs. For example, if the complaint may cause a critical supplier to exit a government program.
  4. When dismissal is necessary to protect the Department’s ability to protect its “litigation prerogatives” such as avoiding bad precedent or ability to direct other cases.
  5. When prosecution of the litigation would risk the disclosure of classified information or would pose an unacceptable risk to national security.
  6. When the government’s potential costs to monitor or participate in the litigation are likely to exceed the government’s potential gain.
  7. When the relator has taken action that frustrate the government’s efforts to conduct an investigation

According to the Granston Memo, any one of these factors may be sufficient to warrant dismissal. Each can be argued separately or in combination. Further, the government may argue for dismissal on other grounds, such as failure to plead with particularity under Fed. R. Civ. P. 9(b), and full or partial dismissal may be sought.

The Agency Guidance Memorandum

In the Agency Guidance Memo, dated January 25, 2018 and drafted by the associate attorney general, the Department states that “Department litigators may not use noncompliance with [government agency] guidance documents as a basis for proving violations of applicable law in [Affirmative Civil Enforcement] cases.” Nor should the Department treat such agency guidance as “presumptively or conclusively establishing that the party violated applicable statute or regulation.” Affirmative Civil Enforcement cases, according the Agency Guidance Memo, include FCA cases. Furthermore, a guidance document is defined as “any agency statement of general applicability and future effect, whether styled as ‘guidance’ or otherwise, that is designed to advise parties outside the federal Executive Branch about legal rights or obligations.” To hold otherwise, the Department argued, would “effectively covert agency guidance documents into binding rules.”

Takeaways

  • The Granston Memo demonstrates a new, more business-friendly, approach in favor of dismissing FCA cases over a relator’s objection.
  • The Agency Guidance Memo will likely hamper the Department’s ability to argue that violation of a regulation is material in an implied certification case, as required under the FCA and the Supreme Court’s recent ruling in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). OIG Advisory Opinions, OIG Special Fraud Alerts, and other guidance from HHS or CMS may no longer be used by the Department to show that the government would or would not have paid claims in spite of a regulatory violation.
  • Together, both memoranda provide new tools for Defendants to combat unwarranted relator’s claims. FCA defendants should make the seven factors outlined in the Granston Memo a key part of any argument against liability and against intervention when communicating with the Department while under investigation. Further, an FCA defendant should push back at the first sign that a relator or the government is relying on any government guidance that was not issued through the notice and comment rule making process.

The Health Law Gurus will continue to monitor how these memos are used in practice in the context of FCA claims. Be sure to check back for updates.

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.