On January 10, 2018, citing costs associated with record increases in the number of qui tam actions filed under the False Claims Act, the Department of Justice issued a memorandum[1] to certain DOJ attorneys, strongly signaling the Department’s intent to liberalize its use of section 3730(c)(2)(A) to seek dismissal of qui tam actions.

In the recently leaked memo, Michael Granston, Director of the Fraud Section of DOJ’s Commercial Litigation Branch, outlines “a general framework for evaluating when to seek dismissal” by identifying seven factors that have supported DOJ’s previous successful dismissal requests and emphasizes that the Department views its dismissal authority as one subject only to “highly deferential” review by the courts. The memo suggests DOJ will seek dismissal of these actions more often, making use of its authority to seek dismissal as “an important tool to advance the government’s interests, preserve limited resources, and avoid adverse precedent.” As further indication that the Department intends to pursue aggressively any available means of dismissal of these cases, the Director also recommends asserting in the alternative other independently available grounds for dismissal or requesting partial dismissal where appropriate, and the memo reminds attorneys that dismissal may occur at any stage of the proceedings, depending on the circumstances. The Director also stresses the importance of communication between the DOJ, the affected agency, and relators as a means of encouraging voluntary dismissal.

Section 3730(c)(2)(A) of the False Claims Act provides that “[t]he Government may dismiss [a qui tam] 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.”[2] The 9th and 10th Circuits have interpreted this provision to require that the government show a rational relation between dismissal and accomplishment of a valid government purpose.[3] The D.C. Circuit interprets the provision more liberally, holding that the government has an “unfettered right” to dismiss a qui tam action.[4] The Director recommends that government attorneys identify one or more specific grounds for dismissal and argue that those grounds satisfy either standard.

The memo lists the following as specific grounds for dismissal:

  1. “Curbing Meritless Qui Tams”

The Department continues its practice of seeking dismissal where it has determined that a claim is legally or factually meritless either because the deficiencies appear on the face of the complaint or because the government’s investigation reveals that no fraud has occurred. For certain marginal cases, where the Department is concerned that the case lacks merit but there is insufficient evidence to warrant an immediate request for dismissal, the Director recommends that the Department attorney advise the relator to obtain additional support for his claim and that, if the relator is unable to further develop the case by a specified date, dismissal will be considered.

  1. “Preventing Parasitic or Opportunistic Qui Tam Actions”

The Director also cites Congress’s intent to award a relator’s share of qui tam judgments only as a means to incentivize the “whistleblowing” function of these actions and recommends Department attorneys move to dismiss where a relator’s action “duplicates a pre-existing government investigation and adds no useful information to the investigation.”

  1. “Preventing Interference with Agency Policies and Programs”

Perhaps the most nebulous factor included in the memo is the recommendation to seek dismissal where “a qui tam action threatens to interfere with an agency’s policies or the administration of its programs.” The memo lists several examples of cases in which a strategy asserting these grounds was successful in achieving dismissal, including cases where courts agreed that the action would divert personnel and resources from an important project, that a relator’s allegations might stifle an agency’s ability to work with the private sector, or that a substantial judgment could cause a supplier to exit a critical market.[5]

  1. “Controlling Litigation Brought on Behalf of the United States”

The Director also indicated intent to seek dismissal where “necessary to protect the Department’s litigation prerogatives.” The cases cited to support the Director’s recommendation suggest that, as support for this justification for dismissal, courts may require there be ongoing litigation regarding the same or closely related facts,[6] and the memo includes a footnote pointing out that the cited cases each involved a determination that the relator’s claims lacked substantial merit.

  1. “Safeguarding Classified Information and National Security Interests”

Though it is unlikely to arise in a healthcare-related action, the government may seek dismissal where there is even a “theoretically minimal” risk of disclosure of classified information.

  1. “Preserving Government Resources”

Particularly important in the healthcare context is the Department’s intent to seek dismissal “when the government’s expected costs are likely to exceed any expected gain.” That is, dismissal may be appropriate where the estimated aggregate cost of monitoring or participating in litigation, including the often onerous cost of responding to discovery requests is likely to exceed estimated government losses, including statutory penalties and damages multipliers. The memo also notes that the Department should include in its estimate of costs to the government “the opportunity cost of expending resources on other matters with a higher and/or more certain recovery.”

  1. “Addressing Egregious Procedural Errors”

The Department also plans to seek dismissal where there are “problems with a relator’s action that frustrate the government’s efforts to conduct a proper investigation.” Case law suggests dismissal on these grounds would be granted only under extraordinary circumstances.[7]

Defendants who find themselves facing a meritless qui tam action under the False Claims Act may be well served to coordinate with DOJ prosecutors early to help facilitate a potential dismissal or defense counsel may consider arguing one or more of these grounds for dismissal independently. A Husch Blackwell attorney can provide additional insight on how DOJ’s new policy could affect your False Claims case.

[1] The full memo is available at https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf.

[2] 31 U.S.C. § 3730(c)(2)(A).

[3] United States ex rel. Ridenour v. Kaiser-Hill Company, LLC, 397.F.3d 925, 936 (10th Cir. 2005); United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998).

[4] Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003).

[5] United States ex rel. Harmon v. Trinity Indus., Inc., 872 F.3d 645 (5th Cir. 2017); United States ex rel. Sequoia Orange Co., 151 F.3d at 1146; United State ex rel. Toomer v. TerraPower, No. 4:16-cv-00226-BLW (D. Idaho).

[6] See e.g. United States ex rel. Wright v. Agip Petroleum Co., No. CV-F-02-5665-REC-LJO (E.D. Cal. Nov. 3, 2003).

[7] See State Farm Fire and Cas. Co. v. United States ex rel. Rigsby, 137 S.Ct. 436, 440 (2016).