fraud photoHealthcare news and information site RACmonitor reported with some fanfare in early November of last year that DOJ Civil Fraud Section Director Michael Granston (a friend and former DOJ colleague) had announced at a conference on October 30 that DOJ would begin to seriously consider urging courts to dismiss meritless qui tam or whistleblower actions brought under the False Claims Act at or shortly after the government had reached its intervention decision.

On November 17, Law360 reported that DOJ, in response to RACmonitor’s reporting, had denied adopting a more aggressive stance towards seeking dismissal of qui tam actions it had determined to be lacking in merit.

Now we learn that DOJ’s denial of a policy change to Law360 back in November was not entirely accurate. Indeed, on January 10, the same Michael Granston quoted by RACmonitor issued an internal memorandum  marked “Privileged and Confidential; For Internal Government Use Only” announcing a general framework for evaluating when to seek dismissal of qui tam actions, pursuant to 31 USC § 3730(c)(2)(A)—something DOJ has only sparingly done over the last 30 years since the FCA was substantially amended.

Granston’s typically thoughtful and cogently-reasoned 8-page memo provides both a justification for more routine consideration of dismissal of meritless qui tam actions and, importantly, enumerates seven factors gleaned from the handful of dismissed qui tams since 1986 to guide and try to ensure consistency in DOJ Trial Attorney and AUSA decision-making.

I spent more than 6 years in the Civil Fraud Section at Main Justice, starting in 1988, shortly after the FCA was substantially amended and the dismissal language in § 3730(c)(2)(A) added to the statute. During that time, and before I departed Main Justice, I handled what I believe went on to be the first case DOJ decided to dismiss over the strenuous objections of the relator (whistleblower): United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp. I landed in Seattle, spending nearly 15 years as an AUSA, where I again handled many qui tam actions that investigation determined were objectively either legally or factually deficient, or both. It bothered me then, and bothers me now in private practice, that DOJ wouldn’t move to dismiss the cases and spare defendants—not all of whom are large well-heeled corporations—additional legal fees and further distraction during litigation with relators.

One reason we were always given as to why DOJ refused to support dismissal was that the FCA clearly contemplated relators proceeding with cases in which the government chose not to intervene. An important and related second reason was that Senator Grassley—who sat (and still sits) on the Senate Judiciary Committee with oversight and appropriations responsibility for DOJ—was a principal author of the amended FCA and a staunch champion of whistleblower lawsuits as a means of exposing waste, fraud, and abuse in government programs that government agencies might be slow or reluctant to expose themselves.

Senator Grassley remains on the Judiciary Committee—serving as the Chair, no less—so what gives? Why the change in willingness to consider dismissal of wayward qui tam cases despite relator objections? My guess is that since FCA enforcement and recoveries these days are undeniably driven by qui tams versus government-initiated cases, the burden on DOJ to keep track of the progress of declined qui tams proceeding to litigation around the country, at the same time as many new cases requiring investigation are filed, has finally resulted in an intolerable burden on lawyers at Main Justice and in USAOs.

Monitoring declined qui tams takes time and effort that could be better expended investigating, settling and litigating righteous qui tams. Moreover, poorly drafted qui tam complaints, ill-considered motion practice, and shortsighted tactical and/or strategic litigation decisions frequently result in bad FCA case law with which DOJ becomes saddled or must seek to reverse via amicus briefs in district and appellate courts. Although DOJ requests to be served with all filings in declined qui tams, the fact is that such cases rarely continue to receive much attention and potentially nettlesome issues often fly under the radar until they result in a troubling order or, as recently seen in Florida, reversal of a favorable $350 million judgment against a nursing home operator due to relator’s failure to adequately prove the materiality of the defendant’s alleged misconduct.

Regardless of the reason for DOJ’s willingness to more regularly consider moving to dismiss declined qui tam cases, the change in policy—and there’s no denying it’s a change in policy—is welcome news. It always seemed unconscionable (even from the perspective of this former Trial Attorney and AUSA) to require defendants who persuaded DOJ that a qui tam was meritless enough to warrant declination to then be forced to defend themselves anew against the relator in court.

Allowing relators to proceed to litigate close cases resulting in DOJ declination or cases where the alleged fraud loss is too insignificant to warrant the assignment of scarce government resources makes total sense and is consistent with the intent of § 3730(c)(2)(A). But allowing relators to essentially litigate all cases resulting in declination not only penalizes defendants who have already successfully demonstrated to DOJ that they likely lack culpability, but inevitably leads to defendants being forced to settle (usually on non-FCA grounds) for no reason other than to avoid the inconvenience and expense of having to tell their story a second time in an even more costly forum—judicial proceedings.

Kudos to DOJ’s Civil Fraud Section. Here’s hoping the Granston Memo is broadly and faithfully implemented and used to guide prosecutorial discretion in the direction of more dismissals of already thoroughly-vetted qui tam actions.

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Photo of Harold Malkin Harold Malkin

Harold Malkin is an experienced litigator and Chair of the firm’s Investigations, Compliance and White Collar Team. Before joining Lane Powell, Harold served more than 20 years at the U.S. Department of Justice, most recently as the Deputy Civil Chief and Chief of the Affirmative Civil Enforcement Unit of the U.S. Attorney’s Office in Seattle.

During his career in federal law enforcement, Harold led and successfully resolved numerous multi-million dollar civil and parallel civil/criminal investigations of government program and procurement fraud under the False Claims Act and its qui tam (whistleblower) provisions.

He has decades of experience counseling clients on issues related to:

  • Medicare and Medicaid fraud by institutional and individual providers,
  • Defense procurement and other types of government program fraud,
  • White collar crime, and
  • Schemes to obtain government contracts and grants set aside for small and minority-owned businesses and other targeted recipients.

Harold frequently defends corporations facing enforcement actions brought by the Washington State Attorney General’s Office under the Consumer Protection Act.

He also has broad experience with civil penalty matters involving drug diversion and other violations of the Controlled Substances Act by physicians, pharmacies, hospitals and other Drug Enforcement Administration registrants.

Harold interrupted his 15-year tenure with the U.S. Attorney’s Office from 2001-2007 to serve as a partner at a leading Seattle litigation firm, where he conducted internal corporate investigations and defended individuals and companies under civil and criminal investigation by state and federal authorities. He also served six years as a Trial Attorney in the Civil Fraud Section of the Civil Division of DOJ in Washington, D.C.