Earlier this year, the Department of Justice (DOJ) issued two policy memos that will directly affect its civil enforcement priorities, particularly with regard to healthcare and life sciences companies. Companies now have a better chance of quickly fighting back claims that they defrauded the U.S. government. The move comes as the department seeks to conserve resources and fights the idea that agencies can unilaterally create binding rules. In the annual False Claims Act year-in-review for 2017, the Justice Department collected $2.4 billion via healthcare-related cases; nearly two-thirds of the roughly $3.7 billion total.
The Granston Memo
The False Claims Act (FCA) authorizes whistleblowers, who think they can prove the U.S. has been cheated, to sue on the government’s behalf as relators and act as private prosecutors in bringing civil fraud cases. The DOJ reviews each claim and can take over suits it thinks are worthwhile. Where the DOJ does not intervene, the private whistleblower may litigate the case independently on the Government’s behalf.
Now, however, fewer FCA claims may be allowed to go ahead. Michael D. Granston, Director of the DOJ’s Commercial Litigation Branch, Fraud Section, targeted what he called “meritless” suits in an internal document sent on January 10, 2018. The memo urged staff lawyers to consider invoking Title 31 United States Code §3730(c)(2)(A) – a rarely utilized provision – that grants the DOJ the ability to petition a judge to dismiss a qui tam action, even where private whistleblowers wish to litigate a case on their own. This new approach is a response to the FCA filings that have increased annually, and the fact that the DOJ spends time and money monitoring even those cases it does not pursue, said Deputy Associate Attorney General Stephen Cox.
The memo sets forth such factors by which the DOJ will consider dismissal in appropriate cases, including whether a claim: (1) is legally or factually meritless; (2) duplicates a pre-existing complaint or government investigation; (3) interferes with government priorities or programs; (4) threatens to create bad precedent for the government; (5) threatens national security; (6) would cost more to litigate than the government is likely to recover; or (7) threatens the government’s ability to conduct a proper investigation.
Still, the DOJ has long had the right to seek dismissal of FCA cases. Each of the seven criteria cited in the Granston memo is supported by existing law, which the government has used in the past in calling for dismissal. Nonetheless, the seven conditions could be ammunition for targeted companies arguing for dismissal.
The Brand Memo
On January 25, 2018, former Associate Attorney General Rachel Brand issued another “regulatory reform” memorandum, which prohibits DOJ litigators from using violations of agency “guidance documents” as the basis for civil enforcement actions. “Nonbinding guidance documents do not have the force of law, parties have always been able to make this argument in litigation, and the Brand memo makes clear that is DOJ’s position,” the Justice Department official said.
The DOJ’s move to limit the wide-ranging use of guidance documents in government enforcement started in November 16, 2017, when Attorney General Jeff Sessions issued a memo titled, “Prohibition on Improper Guidance Documents.” In the memo now known as the “Guidance Policy,” Sessions barred the DOJ from issuing guidance documents that create requirements for the parties without undergoing the notice-and-comment rulemaking process. The Brand Memo builds on the Guidance Policy, in that those principles should also be applied to the government’s civil litigators.
The memo gives private actors an asymmetrical advantage. It prohibits DOJ litigators from relying on someone’s non-compliance with a guidance document as the sole evidence that the private party intended not to comply with the underlying regulatory or statutory obligation. Private parties may use it as a shield to defend against FCA cases. A significant number of healthcare-related FCA cases could be affected if the Medicare Benefit Policy Manual is considered a guidance document. And some cases alleging kickbacks rely on guidance documents from the inspector general’s office at the Department of Health and Human Services.
Both policies taken together suggest that the Trump Administration may be trying to level the playing ground for companies facing costly FCA investigations.
Original articles can be viewed here:
Defending False Claims Act Cases: Two New Tools Under the Trump Administration,
Companies Get New Tools to Fight Whistleblower Claims, and
DOJ Gives Mixed Messages on False Claims Act Enforcement
By Bradley Byars
Co-Author Shairoz H. Virani