False Claims Act Granston Memo

Criminal Law & Procedure Practice Group and Litigation Practice Group Teleforum

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On January 10th,  Michael Granston, the Director of the Commercial Litigation Branch within the United States Department of Justice’s Fraud Section, issued a memo that establishes an outline for DOJ attorneys to utilize when deciding whether or not to dismiss a False Claims Act qui tam case.

The memo affirms statements Granston made at a health care compliance conference in 2017, in which Granston indicated the DOJ might start dismissing qui tam causes of action brought by False Claims Act relators when it is determined the actions lack merit. 31 U.S.C. § 3730(c)(2)(A) provides that the government has a right to dismiss a qui tam action “notwithstanding the objections of the person initiating the action” by filing a motion with the court and provided the relator has had an opportunity to be heard. This ability in the past has been rarely used, and this memo could signify a significant shift in future DOJ practices.

Brandon J. Moss will join us to discuss the memo and its implications. 

Featuring

Brandon J. Moss, Associate, Wiley Rein

Event Transcript

Announcer:                        Welcome to The Federalist Society's Practice Group podcast. The following podcast, hosted by The Federalist Society's Criminal Law and Procedure Practice Group and Litigation Practice Group, was recorded on Friday, February 1st, 2018, during a live Tele Forum conference call, held exclusively for Federalist Society members.

Laura Flint:                          Welcome to the Federalist Society's Tele Forum conference call. This afternoon's topic is a False Claims Act, Granston Memo. My name is Laura Flint, I'm the Deputy Director of Practice Groups, here at the Federalist Society.

                                                As always, please note that all expressions of opinion are those of the expert on today's call. Today, we are happy to have with us, Brandon J. Moss, associate at Wiley Rein. After our speaker's remarks, we'll open the floor for audience questions.

                                                Thank you for sticking with us, Brandon, the floor is yours.

Brandon Moss:                  Hi everyone. Well as Laura nicely said, the goal for today is to share a little bit about the so called Granston Memo, which is the latest development in the False Claims Act world.

                                                First, after a very short background bit on the False Claims Act, I'm going to talk about the substance of the memo for a bit. Then we can turn to possible implications and what people said about the memo, focusing of course, on the key question, "How much has the memo really moved the needle on the status quo?".

                                                First, and very quickly about the F.C.A. The False Claims Act is also know as "Lincoln's Law" it dates back to the Civil War when it was originally passed by Congress as a way to prevent fraud against the Union Army. It's a primary tool of the Department of Justice, for fighting fraud against the government.

                                                It generally prohibits the knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval. But it does come in a couple of different varieties. For example, there's reverse False Claims Act provision, there's also a provision of the False Claims Act that prevents retaliation against whistleblowers.

                                                Therefore, key fault ... therefore, key elements of the False Claims Act first has to be a claim or statement for payment, or approval of payment. The statement or claim has to be false or fraudulent, has to be done with knowledge of the falsehood. So, actual knowledge, reckless disregard, or deliberate ignorance, and the claim has to be material.

                                                The biggest thing to keep in mind with False Claims Act, is it has to be an intentionally false claim for payment. Fraud is really what separates and F.C.A. action from a typical contract dispute with government.

                                                The signature of the F.C.A. is that it can be brought by the government or it can be brought by someone called a relator. A relator is a civilian person who has independent knowledge of the potential false [inaudible 00:02:30], and can bring this case himself. Almost anyone with original knowledge of a fraud, so called, can be a whistle-blower and bring the case. This includes people who know something because they were a part of it, or because they know of something who knows someone who does it. Most of the time, these are employees or former employees.

                                                What happens is the whistleblower can file a case, under seal, and then they have to deliver the copy of the complaint to the U.S. Attorney's Office for the district in which they filed, and the Department of Justice. The case remains under seal, until the government decides whether or not it wants to intervene, or take over the case. If the government declines intervention, the relator can continue without the government's assistance.

                                                False Claims Act strikes fear in the hearts of those who do business with government because it provides treble damages and penalties. It's a heavy hammer, so there's an added incentive to settle, regardless of the case's merits.

                                                Now, about the memo. The memo, which of course, was not publicly released, it was actually picked up by the National Law Journal, query how they got it, but it is marked for internal use only, was put out last was ... actually it was issued on January 10th and it came to light last week. The memo is titled, "Factors for Evaluating Dismissal Pursuant to 31 U.S.C. § 3730(c)(2)(A)"

                                                That provision provides, that the government may dismiss an action notwithstanding the objection 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 hearing on the motion. Essentially, if the government decides, not to intervene in a case, it can also decide to affirmatively decline a relator's case, and move for dismissal.

                                                Despite the presence of this provision statute though, the government has only used this option, in less than one percent of the False Claims Act cases that they've declined. The memo lays out potential rationals for dismissal. Use of this provision, and directs that, "when evaluating a recommendation to decline intervention in a qui tam action," ... a qui tam, by the way, for those who might not know, is the action brought by the relator ... "attorneys should also consider whether the government's interests are served in addition by seeking dismissal."

                                                The memo sights a dismissal remains an important tool and to advance the government's interests, to preserve it's limited resources, and avoid adverse precedent. The memo talks a little bit about the things that bring this into light now, as opposed to before. For example, there's been a record increase in False Claims Act cases brought, annual totals of more than 600 at this point, and even when the government doesn't intervene, it expends significant resources monitoring non intervene cases, and in just responding to reasonable discovery requests of the parties.

                                                Also, cases that lack merit, can generate bad law. Adverse decisions that could affect the government's ability to enforce the F.C.A. in meritorious cases down the road. The memo describes seven factors, attorneys should look at when making these decisions. I'm going to go through these factors quickly and then we can talk a little bit about what all this means.

                                                The first one is an obvious one but extremely important. It's attorneys should consider, whether or not dismissing would result in curbing meritless qui tam claims. There are two ways that cases can be seen as meritless.

                                                First, it can be facially lacking in merit, the complaint itself shows that there is no merit to the case. It could be that there is a legal defect that is obvious on it's face, for example, a case that failed to allege the submission of a false claim or an actionable obligation to support a reverse false claim in a reverse false claim case. Or it could be that the factual obligations on the face of the complaint are frivolous. For example, there's not allegation the defendant was in a position to receive Federal funds, or associated with a Federal program. Or the government can make this conclusion after it has done it's intervention investigation.

                                                Interestingly, the memo does make the obvious point here, or what might not be obvious, but is very important, that these cases in which it could be declined after the investigation, shows that the case is meritless, have been rare historically. In part, because to maximize the government's resources, it typically will investigate a qui tam action only to the point where it concludes that the declination is warranted. This may not equate to a conclusion that the fraud did not occur. If the department is concerned that the case lacks any merit, but elects to afford the relator an opportunity to further develop the case, the department attorney may consider advising the relator the dismissal will be considered if the realtor is unable to obtain additional support for the relator's complaint by a specified date.

                                                Significantly, obviously this is the thing you think of most when you think of reasons to affirm or dismiss a case, the case has no merit. But it's not a baseline for the memo. The memo points out that all the seven factors, are both non exclusive, nor are they inclusive. You can move to dismiss for any one of the reasons, for multiple reasons, or even for reasons that aren't listed in the memo.

                                                The second factor to consider, is preventing parasitic or opportunistic qui tam actions. These are cases that either clearly duplicate an existing government investigation, and that do not bring new information to the table. For example, it would be reasonable to dismiss a case that is duplicative of an existing government investigation that's been going on for years, and years, and they have plenty of evidence to bring forward, but they haven't yet. Especially if the relator doesn't bring anything new to the table. They don't want the relator to bring an unwarranted windfall because the government has already done the leg-work. The rational for this is because Congress created the whistle-blower provision to incentivize and reward the provision of meaningful information and assistance instead of merely providing duplicave ... duplicative information already known to the government.

                                                The third factor is preventing interference with agency policies and programs. When and agency determines that a qui tam action threatens to interfere with it's own policies and administration of it's programs the government, the D.O.J. might consider declining the case, and moving for dismissal. It could be that the action would delay projects, or programs via diversion of agency personnel or resources, it could be that the allegations in the suit would hinder the flow of information in a public private partnership or it could be a situation where the case both lacks merit and raises the risk of significant economic harm that could cause a critical supplier to exit the government program or industry. The respect to that last theory, the government actually sited the guardrail case down in Texas on the theory that yes, while the claims put in weren't exactly what was asked for, the Highway Administration already knew that and had decided that the guardrails provided were acceptable, and it had no interest in that moving forward. And they wanted to keep the ... that ... the Trinity as a supplier.

                                                The fourth is controlling litigation brought on behalf of the United States. There's a considered dismissal when it would protect the department's litigation prograf. There are a couple of examples given. For example, a situation where a relator brought a case against 300 different defendants, and the government wants to intervene in just a few. It might want to dismiss the others, so that it doesn't cause an impediment to the meritorious litigations. Also, a big one here that they didn't flesh out that I think is pretty significant, is that they want to avoid the risk of unfavorable precedents. Just last year, the Supreme Court decided Escobar, which implies False Claims Act case which verified that that was a plausible way to go forward, but also brings up the question of materiality, especially with respect to government knowledge. There's been a split on the circuits as to whether or not a claim can be material if the government knew about it and accepted payment anyway. The government is not interested in more cases that make that point more clearly for a defendant. So, if it can avoid that kind of materiality decision by dismissing, it might consider doing that.

                                                They also might dismiss an unintervened case to the extent that that case is an obstacle to settling an intervened case. For example, there could be multiple cases brought against single defendant, that defendant wants a universal ruling, but you can't get that if there's an unintervened case out there. Excuse me, universal settlement.

                                                Fifth factor is safeguarding classified information, and National Security interests. This is particularly in cases involving intelligence agencies and military procurement. There are meritless cases that pose an undue risk of exposing classified material and that generally an unacceptable risk to National Security if prosecuted in public.

                                                Also, number six, they want to preserve government resources, key question here right now is do the expected costs exceed any expected gain. The amount of money involved doesn't justify litigation that would mitigate in favor of dismissal.

                                                The memo also interestingly gives a nod to the [inaudible 00:12:50], specifically, provision 31.QF5-47c, which allows successful defendants to recover a portion of their litigation expenses connected with certain types of contracts. In other words, if the defense contractor wins, they could get, I think it's up to 80 percent of their litigation costs back.

                                                The seventh and final factor listed, is addressed ... is addressing aggregate procedural errors. These are problems with the relator's action that frustrates the government's efforts to conduct a proper investigation. The example given here is a relator who refused to serve the complaint on the government and then wouldn't cooperate with the government's investigation. He basically wouldn't give them key information that would enable them to make a determination. The government thought that that was not worthy of moving forward, and worthy of dismissal.

                                                All this said, it's important to note that the government's dismissal motion, if it chooses to file one, is not necessarily the end of the case. Right now there's a circuit split regarding the standard review. The ninth and tenth circuit man ... mandate that the government show a valid government purpose for the dismissal. Other circuits, like the D.C. circuit, the government only needs to ... has an unfettered right. So, basically there's no showing whatsoever required for the dismissal. However, in either, the key is that if the government can show one of these seven factors, one more, even something else, they'll more than likely meet either bar.

                                                Obviously, given that ... given the devastating damages attributable to the False Claims Act, give defendants a great incentive to settle them for a nuisance no matter how meritless the claims might be. Having the D.O.J. act as a filter could go a long way to leveling the playing field and honoring the rule of law. However, the question remains, what changes, if any, will this memo actually precipitate.

                                                I was at a conference earlier this week, where there were a couple of D.O.J. attorneys talking about this, and the D.O. ... and the course the defense bar has been very active in talking about the memo too. So, here's kind of what people are saying and where we think this might be going.

                                                The memo does a great thing, regardless of whether or not people actually move for more dismissals in that it increases the settlement that a dismissal is a good conversation to at least have. Notably one thing that's really not tracked in the public and to which defense counsel are generally not privy, are discussions D.O.J. has with relator's counsels behind the scenes. The idea generally is that if D.O.J. knows that the relator doesn't have it, or that the case could result in bad law, they're going to engage the relator's counsel and encourage them not to go forward.

                                                Relator's counsel of course, have some incentive not to take meritless cases forward, if D.O.J. says there isn't a case there. A lot of times relator's counsel are representing their clients on contingencies fees. If they know that they're not going to win at the end, then there's not a lot of incentive to move it forward. Interestingly enough under the F.C.A. you are not allowed to have pro se relators. All relators must be represented by counsel.

                                                Generally in these conversations, the D.O.J. tries to give the relator's counsel as much information as possible about the deficiencies of the case. Eventually even that the agency would not be supportive or that the agency doesn't agree with the theory led ... alleged.

                                                There is some evidence that this generally works, and that the number of cases filed under seal is lower than the cases that go forward without intervention. In fact, one stat that's in the memo, is that more than 700 cases have been dismissed by relators after the declination since 2012.

                                                The nice thing about this memo, is that, you know, while the government could always threaten dismissal, if the relator decided not to take ... if the ... if the relator decided to take the case forward, now if it makes that threat, it has more teeth. They can say, "Look, you know there's this memo out here, that we're supposed to be thinking about this more proactively. We might actually move to dismiss this case if you choose to go forward."

                                                Which could result in them not having to take that action, and the relator to go ahead and dropping the case. But, you know that's still one step short of the ultimate action, which, of course, has happened in less than one percent of these cases, is the government actually filing this motion.

                                                You know, we also talked a little bit about other things that would mitigate towards a dismissal or even increase discussions with relator's counsel about dropping a case. One of those, that we came up with, the idea of getting a just result. If D.O.J. gets a whiff of a meritless case that's being brought by a relator that doesn't attempt to extract a settlement, they're probably going to push pretty hard on the relator's counsel, and it might indeed mitigate towards filing a motion to dismiss. And even if they don't decide to file a motion to dismiss, under 20 ... Title One, as mentioned in the memo, D.O.J. can also look for other grounds of dismissal, the f ... that are not provided under Title 31, for example, the first to file bar, the public disclosure bar, the tax bar, ban and pro se relators, Rule 9B. Memo advises that all these should be asserted separately, so that there can be an independent legal basis for dismissal.

                                                A couple of things to keep in mind as practice points, if you're a defense attorney in this field. The line attorney is probably not the one who's going to make the ultimate decision to dismiss, it's going to be either the U.S. Attorney or Main Justice who has to weigh in on that decision. So, when you're making your presentation based on these factors and a general declination presentation, it's a good idea to have at least some thoughts in writing, or a PowerPoint, or a detailed letter, so that that line attorney can convey it up the line, and you know if it's strong enough, then maybe that will help merit a motion to dismiss.

                                                Overall, the general sentiment is that this probably won't be a sea-change event in terms of these dismissals. However, I would expect to see more relators not bring ... either not bringing meritless cases, or independently deciding to release ... to release the case before it becomes public, because if they're told it's not meritless, because it's just a hanging thread out there. With that, I ... I think we're ready for some questions, hopefully.

Laura Flint:                          Let's go to audience questions. In a moment, you will hear a prompt indicating that the floor mode has been turned on. After that, to request the floor, enter star, then the pound key.

                                                When we get to your request, you will hear a prompt and then you may ask your question. We will answer questions in the order in which they are received. Again, to ask a question, please enter star, then the pound key on your telephone key pad.

                                                While we wait for our first question, I'll ask one of my own. Why do you think these dismissal provisions have been underutilized prior to this memo.

Brandon Moss:                  You know that's ... that's a really good question. There are a couple of things to keep in mind here.

                                                The first is that, the end result of these cases, if they were to go forward, and they're meritless, it's not a huge loss to the government in their minds. Yes, there's some monitoring fees, and yes, there could be discovery. Actually, discovery has become an increased cost recently after Escobar, because now we can look more into government knowledge, which is an expense to the government, so that's a shift that might have helped prece ... helped move this memo forward.

                                                Um ... one aspect of deterrents before, U.S. Attorneys offices stand to benefit from treating relators favorably. Successful relators counsels attract more relators, attracting more relators to a particular district, which helps them recover more money. So, if they are actively dismissing these cases, it's unlikely that relators are going to keep going to their district. Also, motion to dismisses are ... are a form of resource strain, they can only be filed with approval from Main Justice, to obtain approval they must submit a memo outlining the reasons the dismissal is warranted, then they must deliberate, discuss, and then they have to actually file the memo and then there could be appeals, etc. All those things require resources.

Laura Flint:                          Again, to ask a question, please enter star then the pound key on your telephone keypad.

                                                Our next telephone conference call is scheduled for Monday, February 5th, at 10:45 am Eastern. That call is at D.C. Circuit Courthouse steps on it's decision to uphold C.F.P.B Constitutionality. That'll be an R.T.P. Tele Forum.

                                                A reminder to keep an eye out for emails, announcing upcoming Tele Forum calls, and to consult the full schedule of our upcoming calls, by visiting The Federalist Society's website, Fedsoc.org Also available there are podcasts, previously recorded Tele Forum calls that you may have missed. I'll make a final call for questions, again to ask a question, please enter star, then the pound key on your telephone key pad.

                                                How long do you think it will be, before we have a good idea of how much this changes things, Brandon?

Brandon Moss:                  That's an excellent question. It's hard to tell, obviously the memo is out there now, and people in D.O.J. are actively looking at cases. It's not a situation where we have to wait for these things to filter all the way through from filing the qui tam to the investigation. That said, there is a deliberative process so it's not going to be next week. (laughs)

Laura Flint:                          I'll make a final call for questions, again to ask a question, please enter star then the pound key on your telephone key pad.

                                                I'll ask one final question. Was this an expected development, or did this ... was this unexpected?

Brandon Moss:                  So, interestingly enough, just last October, Michael Granston spoke at House Care Claims Conference, in which he said something that was reported later by industry as alluding to an increased desire to dismiss meritless False Claims Act cases. This got some media attention, a couple of people reported on it, which prompted D.O.J. to come out a couple ... maybe a week or so later, and say, "No, no, no. There's no policy shift, he didn't say that, that's not what was meant. Et cetera"

                                                So, it was little surprising to see this come out this January, only a month and a half or so after the denials. That said, you know we've known for awhile that the Trump Administration and the D.O.J. would be interested in curtailing this kind of meritless law suits that are harmful to businesses, so I, I think ... I think, yes and no, are ... might be the answers to your question.

Laura Flint:                          Not seeing any questions, on behalf of The Federalist Society, I want to thank our expert for the benefit of her valuable time, and expertise today. We welcome listener feedback by email at info@fedsoc.org, thank you all for joining us. We are adjourned.

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