FCA Cases: Convincing DOJ to Move to Dismiss

During the nomination hearing before the Senate Judiciary Committee on January 15^th, then United States Attorney General nominee William Barr backpedaled on earlier statements he had made about the False Claims Act being “an abomination.” Instead he testified that, with Barr at its helm, the Department of Justice would continue to vigorously enforce the statute. But recent actions by the DOJ suggest that although the DOJ may continue to prosecute certain relators' FCA cases, other relators may find themselves on the other side of a government motion to dismiss. For corporations facing not only treble damages but millions of dollars in attorneys' fees spent on defending against FCA cases, this may be viewed as welcome relief. In FY 2018 alone the DOJ collected over $2 billion from qui tams. Indeed, many companies find themselves embroiled in multiple FCA cases at a time. Most of the qui tams over the last few years have been in the healthcare industry. Now that military spending is ramping up, the expectation is qui tams in the defense industry will also increase.

The reason FCA cases are so popular is because once the plaintiff — or “relator” — files the complaint in the shoes of the United States, the DOJ steps in and investigates. The relator is in the enviable position of being able to walk off with his or her share of a potential treble damage award without having had to engage in all the investigative work or expend significant monies.  The DOJ will have taken care of all that.

Since a 1986 amendment, the DOJ has had the right to move to dismiss an FCA case pursuant to See, 31 USC 3730(c)(2)(A). The statute does not provide any factors or guidance the DOJ must use, but it does provide DOJ the right to dismiss over the objections of the relator. Even though DOJ has had this right, generally, it has not exercised it, but instead, simply decided not to intervene. Historically, such a decision was often the death knell for the case, the monetary and emotional expenses entailed in bringing such a case alone, being prohibitive to most relators. In recent years, however, relators have been more likely to continue litigating their cases without the backing of the DOJ. Qui tam lawyers have amassed plenty of templates on which to rely, making the bringing of qui tams a commodity business and, hence, more affordable to bring with a greater potential for recovery. These days, therefore, convincing DOJ not to intervene only gets the defending company so far. The company will likely still have to spend significant time and money litigating against the private party or, at the very least, paying a nuisance amount to get the matter settled.

On Jan. 10, 2018, Michael Granston, Director of the Commercial Litigation Branch, Fraud Section of the Department of Justice, issued an internal memorandum to DOJ attorneys in the Fraud Section and to Assistant United States Attorneys handling False Claims Act cases, entitled “Factors for Evaluating Dismissal Pursuant to 31 USC 3730(c)(2)(A).” The eight-page memorandum recognizes that even though the FCA has provided DOJ with the right to move to dismiss an FCA case, as it is technically the party bringing the suit, the DOJ has rarely exercised that power. The Granston memorandum suggests DOJ exercise its right under the FCA and consider moving to dismiss certain FCA actions, as early as possible so as to avoid wasting government resources. And the government appears to be making good on Granston's suggestion. According to Deputy Associate Attorney General Cox: “In the past years, in a given year, the Department might have dismissed a few cases — if it dismissed any at all — but since 2017, the Department has moved to dismiss about two dozen cases.”

This article considers what and how a company may want to present to DOJ to convince the government that both a declination and a government motion to dismiss are warranted.

Seven Factors for Dismissal

The Granston memo sets forth the key issues motivating the DOJ to move to dismiss an FCA case: “advance the government's interests, preserve limited resources and avoid adverse precedent.” It then proceeds to describe the seven non-exhaustive factors it will consider.

Essentially the factors are the following: 1) the complaint is without legal or factual merit; 2) the complaint duplicates a pending government investigation; 3) the action would “interfere with an agency's policies or the administration of its program”; 4) the case impacts negatively on another case being brought by the government; 5) proceeding with the case creates a risk that classified information may be disclosed or U.S. national security interests impacted; 6) if successful, the cost of pursuing the case will outweigh the expected return; and 7) the relator is engaging in egregious procedural errors imperiling the government's ability to prosecute the case.

Note that as the Granston memorandum itself recognizes, although DOJ takes the position that it has “unfettered” discretion to dismiss an FCA case since the U.S. is the ultimate plaintiff, not all courts agree. As to those circuits that have considered the issue, the D.C. and Eleventh Circuits have agreed with DOJ, and the Fifth has agreed provided DOJ has already declined to intervene, but the Ninth and Tenth Circuits have imposed a burden on DOJ to establish “a valid government purpose” underlying the motion — presumably one of the seven factors above would suffice — and a rational relationship between dismissal and the purpose. If the government can do that, the burden shifts to the relator to show that dismissal would be “fraudulent, arbitrary and capricious or illegal.”

A defendant presenting to DOJ must, therefore, not only provide information to DOJ to support one or more of the seven factors warranting dismissal but, depending on where the complaint was filed, sufficient information to overcome an argument by the relator that, without discovery, it is too early to determine whether dismissal will, in fact, accomplish the government's stated purpose.  Indeed, this is precisely what happened in United States v. Academy Mortgage Corp., No. 16-cv-02120, 2018 WL 3208157 (N.D. Cal. June 29, 2018), when the court refused to grant DOJ's motion to dismiss, siding with the relator who pointed out that DOJ could not possibly have determined in the span of six weeks — the time DOJ allegedly investigated the bona fides of the matter — that the costs would outweigh the return. The government established a legitimate purpose. But because the government could not show that it even investigated the allegations in the complaint, it could not show that the dismissal of the qui tam was rationally connected to that purpose.

Nevertheless, in spite of this 2018 loss, the DOJ has become more aggressive in affirmatively moving to dismiss FCA cases.

Be Proactive

In December of last year, DOJ moved to dismiss 11 FCA cases brought by one relator across multiple jurisdictions alleging that pharmaceutical companies' patient assistance programs — access to nurses, for example — are a form of kickbacks under the anti-kickback statute, and any prescriptions paid by government funds for drugs tied to such programs fall under the FCA. See, e.g., U.S. ex rel. Health Choice Group LLC v. Bayer Corp. et al., No. 5:17-cv-00126-RWS-LMC (E.D. Tex. Dec. 17, 2018). DOJ had declined to intervene in October 2017. The complaints were, thereafter, unsealed. The complaints were then dismissed, without prejudice, following the defendants' motions to dismiss. The relator naturally then filed a Second Amended Complaint. DOJ then moved to dismiss. DOJ argued several of the seven factors: 1) the allegations lacked legal and factual merit; 2) the cost, implicating over 73 million prescriptions, outweighed the expected return; and 3) the complaint was contrary to the public interest; that is, it interfered with an agency's policies; to wit, “a strong interest in ensuring that … patients have access to basic product support … such as a toll free assistance line ….” The relator has fought back and at this time we don't know the outcome. But what is clear is that DOJ made a big point describing the “tens of thousands of documents” reviewed and “numerous” witnesses interviewed to support its decision to dismiss to rationally accomplish the purposes outlined.

The defendant seeking to avoid the cost of defending a meritless suit should consider, therefore, engaging in a significant investigation of the relator's charges on its own and present to DOJ the evidence of the results of that investigation — presumably establishing at least one of the seven factors — as soon as possible, rather than viewing the DOJ's investigation in a purely reactive light (e.g., responding to CIDs with rolling productions but not conducting interviews or searching documents beyond the CID).

In addition to providing evidence undercutting the “facts” alleged in the complaint, researching the relevant agency's policy statements and guidelines may be a worthwhile avenue to pursue. Also, if there are claims in the qui tam that the defendants would be willing to pay out to settle but not others, an early approach to DOJ noting that the company won't settle unless other claims are dismissed, could support the fourth Granston factor.

Another point worth considering: the Granston Memo reminds DOJ attorneys that other motions to dismiss outside of §3730(c)(2)(A) are available, including even the public disclosure bar and first to file — defenses that do not apply to the United States but that are usually raised, when applicable, by defendants after the government declines to intervene. Imagine the power of such a motion now coming from the United States, rather than just the accused.

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Jacqueline C. Wolff, a member of this newsletter's Board of Editors, is a partner in Manatt, Phelps and Phillips LLP's New York office and is Co-Chair of the firm's Corporate Investigations and White Collar Defense group.