January 29, 2018 - False Claims Act

DOJ Takes On Meritless Qui Tam Actions

FCAA recently leaked internal memorandum (“Memorandum”) suggests the end is near for the Department of Justice (DOJ) practice of sitting idly by while relators use meritless qui tam actions to shake down companies unwilling to risk their reputations to fight False Claims Act (FCA) allegations.  While the FCA has long explicitly authorized DOJ to seek dismissal of any qui tam action – notwithstanding the objections of the relator who initiates the suit – so long as the relator is notified of the dismissal request and afforded a hearing, DOJ now appears ready to actually exercise its rights.  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.”).  The Memorandum provides rare insights into the current administration’s view of FCA enforcement, the factors DOJ is to consider when contemplating dismissal, and DOJ’s litigation strategy.

Factors for Dismissal

The Memorandum states that meritless qui tam complaints drain government resources (even where DOJ declines intervention) and lead to potential adverse decisions that affect DOJ’s ability to enforce the FCA down the line.  The Memorandum outlines seven non-exhaustive factors that DOJ attorneys should assess when declining intervention in a particular case to determine whether also requesting dismissal is in the best interests of the United States.  These factors are intended to introduce consistency in how DOJ evaluates qui tam complaints and to encourage seeking dismissal when warranted to preserve government resources.

1. Curbing Meritless Qui Tam Actions. DOJ should consider dismissal where a qui tam complaint is “facially lacking in merit—either because relator’s legal theory is inherently defective, or the relator’s factual allegations are frivolous.”  See, e.g., United States ex rel. Hoyte v. American National Red Cross, 518 F.3d 61 (D.C. Cir. 2008) (holding relator failed to allege defendant had obligation to pay or transmit money or property to government to support reverse false claim violation).

2. Preventing Parasitic or Opportunistic Qui Tam Actions. DOJ should consider dismissal where a qui tam action “duplicates a pre-existing government investigation and adds no useful information to the investigation.”  See, e.g., United States ex rel. Piacentile v. Amgen Inc., No. 04-cv-3983-SJ-RML, 2013 WL 5460640, at *4 (E.D.N.Y. Sept. 30, 2013) (granting government’s motion to dismiss qui tam complaint filed by repeat relator who filed multiple suits alleging similar wrongdoing by same defendant).

3. Preventing Interference with Agency Policies and Programs. DOJ should consider dismissal where “an agency has determined that a qui tam action threatens to interfere with an agency’s policies or the administration of its programs and has recommended dismissal to avoid these effects.”  See, e.g., United States ex rel. Ridenour v. Kaiser-Hill Co., LLC, 397 F.3d 925 (10th Cir. 2005) (granting government’s motion to dismiss where litigation would delay clean-up and closure of radiologically contaminated facility).

4. Controlling Litigation Brought on Behalf of the United States. DOJ should consider dismissal where necessary to protect DOJ’s “litigation prerogatives.”  See, e.g., United States ex rel. Piacentile v. Amgen Inc., No. 04-cv-3983-SJ-RML, 2013 WL 5460640, at *4 (E.D.N.Y. Sept. 30, 2013) (granting government’s motion to dismiss where case presented obstacle to government’s settlement of actions in which it intervened).

5. Safeguarding Classified Information and National Security Interests. DOJ should consider dismissal to safeguard classified information.  See, e.g., United States ex rel. Matseki v. Raytheon Co., 634 F. App’x 192, 193 (9th Cir. 2015) (per curiam) (holding government interest in “preventing the disclosure of classified information” was sufficient basis for dismissal).

6. Preserving Government Resources. DOJ should consider dismissal when the expected costs of litigation are likely to exceed any expected gain from the litigation.  See, e.g., Swift v. United States, 318 F.3d 250, 251 (D.C. Cir. 2003) (granting government’s motion to dismiss where amount in controversy did not justify expense of litigation).  Potential costs that may be incurred by the government and considered under this factor include the need to monitor or participate in ongoing litigation and the need to respond to discovery requests.

7. Addressing Egregious Procedural Errors. DOJ should consider dismissal where the relator’s suit may frustrate DOJ’s efforts to conduct a proper investigation.  See, e.g., United States ex rel. Surdovel v. Digirad Imaging Solutions, No. 07-cv-0458, 2013 WL 6178987, *4 (E.D. Pa. Nov. 25, 2013) (granting government’s motion to dismiss because “relator’s counsel’s egregious procedural errors completely frustrated the government’s ability to investigate the relator’s claims”).

DOJ’s Litigation Strategy

The Memorandum also offers insights into how DOJ intends to litigate requests for dismissal.

1. DOJ Will Argue in Favor of “Unfettered” Dismissal Authority. DOJ will argue that the appropriate standard for dismissal under 31 U.S.C. § 3730(c)(2)(A) is the “unfettered” discretion standard adopted by the D.C. Circuit, rather than the “rational basis” standard adopted by the Ninth and Tenth Circuits.  Moreover, to the extent the “rational basis” standard applies in a particular jurisdiction, DOJ will argue that the standard was intended to be highly deferential to DOJ.  Where a jurisdiction has not yet decided on the appropriate standard of review, DOJ will argue that its bases for dismissal satisfy any potential standard for dismissal under the statute.

2. DOJ Will Pursue Multiple Grounds of Dismissal: When possible, DOJ will argue that multiple grounds for dismissal exist.  DOJ also will think creatively about other bases for dismissal not outlined in the memorandum.

3. DOJ Will Pursue § 3730(c)(2)(A) Dismissal Separately. In cases where DOJ has grounds to seek dismissal of a claim under 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), DOJ will assert such grounds of dismissal separately from any dismissal request under 31 U.S.C. § 3730(c)(2)(A).

4. DOJ Will Pursue Partial Dismissal Where Necessary. Although DOJ may favor full dismissal of a complaint, DOJ will pursue partial dismissal where the facts require.

5. DOJ Will Consult with the Affected Agency. Before a request for dismissal is filed, DOJ will consult with officials from the affected agency regarding whether dismissal is warranted under the factors set forth in the Memorandum.

6. DOJ Will Favor Early Filing of Dismissal Requests. DOJ typically will file requests for dismissal at or near the time of declination, but DOJ also will be willing to file such requests at a later stage, such as when there is a significant intervening change in the law or evidentiary record.  However, DOJ will avoid waiting until the close of discovery or trial to seek dismissal, as a court may be less receptive to such delayed requests given the resources already committed to the action.

7. DOJ Will Encourage Voluntary Dismissal. To the extent possible, DOJ will advise relators about the deficiencies in their cases prior to requesting dismissal, thereby affording relators the opportunity to voluntarily dismiss the actions.

Key Takeaways

The Memorandum appears to represent a substantial shift away from allowing relators to pursue FCA claims following DOJ’s declination.  Although DOJ occasionally sought dismissal in the past, the Memorandum is a signal that DOJ is ready and willing to take more decisive action to seek dismissal of qui tam actions that are facially deficient, notwithstanding the slim chance that the relator may ultimately discover wrongdoing or win a recovery.

While it remains to be seen how DOJ will implement it, the Memorandum’s very existence should come as welcome news to companies doing business with the government.  Although this policy shift is intended to preserve government resources, companies also will benefit from more decisive action by DOJ.  Early requests for dismissal from DOJ will lead to earlier resolution of FCA litigation, sparing companies from the pressure to settle even frivolous cases and the substantial cost of protracted discovery and litigation.  DOJ’s requests for dismissal also could serve to discourage the filing of frivolous complaints in the first place, as relators seek to avoid the expense of filing a suit that ultimately may be dismissed.  The impact of the Memorandum will be a key issue to track in 2018.