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DOJ Announces Policy Change; Will Seek Dismissal Of Qui Tam Actions Lacking Merit

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  • Posted on: Nov 22 2017

Following months of hinting that the Department of Justice (“DOJ” or “Department”) would change its qui tam policies, Michael Granston (“Granston”), Director of the Civil Fraud Section, announced that the DOJ will now move to dismiss qui tam actions brought under the False Claims Act when it concludes that the actions lack merit.  The announcement was made during a presentation at the Health Care Compliance Association’s Health Care Enforcement Compliance Institute on October 30, 2017, rather than through official channels. (The announcement was covered by the RAC Monitor, here.) This policy shift represents a significant departure from the government’s past practice, which typically involved allowing meritless cases to be litigated by the relator.

Under the False Claims Act (“FCA”), when a relator files a qui tam action, the government has 60 days to decide whether to intervene, decline to intervene, move to dismiss, or try to settle the action.  If the government intervenes, it controls the action and has the primary responsibility for prosecuting the case. Notably, the government intervenes in only a small percentage of qui tam actions. If the government declines to intervene, which it does in roughly 78 percent of the cases, the relator may continue to prosecute the action. However, the government may intervene at a later date upon a showing of good cause. The government typically declines to intervene if there is no merit to the case, or the action conflicts with the government’s statutory or policy interests.

A discussion of the process can be found here.

Over the years, defendants and trade groups have encouraged the DOJ to seek dismissal in declined cases, in an effort to avoid the costs associated with defending meritless qui tam lawsuits. These groups have argued that the government is not only in the best position to evaluate a qui tam case (e.g., it has myriad tools at its disposal to gather facts and evaluate evidence before deciding whether to intervene), it has the statutory authority to stop them. Given such authority, they argue, the government has a responsibility to seek dismissal of meritless cases, even when to do so occurs over the objections of the relator.

Although the DOJ has the statutory authority to seek dismissal of qui tam actions, the DOJ has rarely exercised this right. By choosing not to seek dismissal, the DOJ has allowed many questionable qui tam actions to go forward, costing companies millions of dollars in legal fees and over $2.2 billion in judgments and settlements.

At the conference, Director Granston explained that the government’s rationale for developing the new policy was to ease the burden created by frivolous litigation (in terms of time and resources) on the courts and the defendant companies.

Takeaway

Only time will tell whether the new policy will materially shift the Department’s decision making.  At this point in time, however, this Blog is skeptical.

First, aggressive implementation of the policy would bite the hand that feeds the government. Since the majority of qui tam recoveries come from cases initially brought by relators, the government has an economic interest in allowing relators to pursue their actions – even when the DOJ believes the merit of the claim to be dubious. Nearly 95 percent of the money recovered under the False Claims Act is obtained in cases initiated by a whistleblower. If the DOJ implements this policy, it is more likely the Department will do sparingly, reserving dismissal motions only for cases where it is clear that the relator’s allegations are baseless and sanctionable.

Second, while defendants will no doubt welcome the support of the DOJ, in cases where the absence of merit is abundantly clear (e.g., the type of cases Director Granston referred to), the DOJ’s intervention will be of little assistance – in such cases, defendants will likely achieve dismissal on their own. Under such circumstances, it raises the question why expend the resources to seek dismissal?

This Blog will monitor whether the DOJ increases the instances in which it moves to dismiss relator claims.

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