DOJ False Claims Act Policy Memo

Chicago – The Department of Justice issued an internal memorandum on January 10, 2018, which was soon released publicly and can be found here. The memorandum was quickly praised by the False Claims Act defense bar, but a reasoned review of the memorandum shows that the plaintiff bar should also welcome the policy statements outlined in the memorandum.

First, let’s establish a little background. The FCA is a statute that allows people to file a lawsuit on behalf of the government alleging that someone submitted a false claim or false or fraudulent demand for payment. These are typically Medicare or Medicaid claims, Department of Defense claims, or infrastructure projects. A person filing the lawsuit is known as a “relator” and is eligible to receive an award if the claim is successful. A relator is generally entitled to an award of between 15 and 30% of the amount the government recovers.

After a claim is filed the government conducts an investigation and decides whether to join the lawsuit by intervening or not join the lawsuit and file a declination in which case the person who filed the lawsuit can pursue the lawsuit on the government’s behalf without the government’s assistance. Either way, the government is always the real party in interest and must approve all settlements or dismissals and has the ability to seek dismissal of a case under 31 U.S.C. 3730(c)(2)(A).

This brings us to the memorandum which addresses the government’s authority to seek the dismissal of a FCA case. While Section 3730(c)(2)(A) of the False Claims Act, has been rarely been used, it is available to the government. According to the memorandum, the annual total of new FCA cases is close to 600. Although not stated in the memorandum, the government intervenes in under 25% of all cases filed. The memorandum emphasizes that the government spends resources monitoring even declined cases and that weak cases result in bad case law.

What I do, the way I conduct my practice, and what all responsible FCA lawyers do is have a discussion with the government if the government signals that they are going to decline and determine the reason for the declination. I have never pursed as case after the government told me the case lacked merit. In fact, if a case lacks merit I am obligated to dismiss it. I have on the other hand pursued declined cases because the government was incorrect on the interpretation of the law or the facts, see Tyson v. Amerigroup, which ultimately settled for $225 million.

The policy behind the memorandum advances the position of relators by setting forth several factors that the government should look to in seeking a dismissal.

1. Curbing meritless qui tams. If a case is filed and after investigation, it is determined that it lacks merit the case should be voluntarily dismissed by relator’s counsel. Some relators, however, do not want to dismiss the case. I cannot tell you how many times I have pursued a declined FCA case to have a defense counsel tell the judge that the government declined which is supposed to signal to the judge that the case lacks merit. But judges who should know better, often assume that a case lacks merit because the government has declined. This memorandum, therefore, helps the FCA plaintiffs bar by letting the court know if the government truly thought the case lacked merit they would according to the memorandum move to dismiss it.
2. The second reason the government may seek a dismissal is to prevent parasitic lawsuits. Although defendants usually file such motions the government’s additional support would likely cause a voluntary dismissal. These dismissals are based on the False Claims Act’s public disclosure bar. The public disclosure bar is however not straightforward.
3. Interfering with a policy or program. In a case cited in the memorandum, a FCA case would delay the clean-up of a radiologically-contaminated nuclear facility.
4. Controlling litigation on behalf of the government is another factor discussed. Here the government used the example of a relator who filed over 300 FCA cases accusing the defendants of underpaying natural gas royalties. Here the government sought dismissal and the court granted dismissal because the number of claims filed would interfere with pursuing the claims the government elected to intervene in.
   • This position seems unreasonable. If the non-intervene claims have merit, the relator should be allowed to pursue them as there are less drastic measures to dismissal including staying the non-intervened cases, which is a common practice when there is a pending criminal case against a defendant.
5. Safeguarding classified information. Here the government sought dismissal of cases that would likely risk the disclosure of classified information. Again, there should be a less drastic measure than a dismissal of a meritorious case.
6. Preserving resources. Here the government recommends dismissal because the amount of money involved does not justify the expense of litigation. If such were the case, how could a relator and her counsel justify pursuing the case? Here a relator would get at most 30% of the award, and a court is unlikely to award attorneys’ fees and costs that vastly exceed the recovery. Here again, a sensible relator would voluntarily dismiss after learning of the limited damages.
7. Egregious procedural errors. Finally, the government points to a failure to follow the rules. This is generally reasonable. A relator must file the case under seal and produce the material evidence to the government.

Conclusion

Although the memorandum had some flaws, its overall policy statements would benefit the False Claims Act’s plaintiff’s bar. This memorandum could be used to show the courts that the government, based on this policy memorandum would file a motion to dismiss if it believed that the case lacked merit, and by not doing so, the government has determined that the case has merit and it pursuit is justified in both the amount of damages and the allocation of resources.

If you are aware of a violation of the False Claims Act, contact me at mike@ Rosenblatlaw.com, for a consultation or learn more about the False Claims Act and my firm at www.RosenblatLaw.com.

The information and articles on this website are for general information only and are not intended and should not be taken as legal advice.