Memo suggests shift in DOJ’s qui tam approach

The Department of Justice issued an internal memorandum this month that signals a shift in its approach to qui tam actions, encouraging government attorneys to act more aggressively to dismiss certain False Claims Act cases. Whether this policy will actually result in more dismissals remains to be seen. But the policy is a welcome one, especially for qui tam defendants. It also has immediate and significant implications for all qui tam litigants, especially those in the pre-intervention stage.

In every qui tam action filed under the False Claims Act, 31 U.S. Section 3730, the government is authorized to investigate and decide whether to intervene -- that is, take over the litigation. About 75 percent of the time, the government declines to do so. But the scant 25 percent of cases in which it does intervene account for the overwhelming majority of qui tam recoveries. In 2017, more than 87% of total qui tam recoveries ($3,011,269,763) came from intervention cases. Non-intervention cases accounted for less than 13 percent of recoveries (or $425,767,335). In 2016, non-intervenors fared even worse, accounting for just 4 percent of total qui tam recoveries.

Despite the low success rate of non-intervention cases, the government seldom seeks their dismissal. Yet dismissal, according to the memo, is necessary if the DOJ is to perform its "important gatekeeper role in protecting the False Claims Act." And until this month, there have not been formal guidelines for seeking dismissals.

The memo, issued by Michael Granston, the DOJ Civil Fraud Section director, echoes a reported policy shift that Granston hinted at in a presentation last fall, when he suggested that the DOJ would dismiss qui tam claims it determined were frivolous. Although the DOJ denied any formal policy change at that time, and recently downplayed the significance of the leaked memo, the new directives clarify the department's policy.

The policy appears designed partly to conserve DOJ resources. Qui tam actions have almost doubled in the past 10 years, and as the memo notes, the number of new actions in a given year now regularly exceeds 600 and sometimes even 700. One apparent goal of a more aggressive dismissal strategy is to discourage spurious claims. But another is to thin the ranks of non-intervened cases. Such non-intervened cases are often viewed as damaged goods, with fairly minimal government upside. Yet, as the memo observes, the government spends significant resources monitoring non-intervened cases. And the cases pose numerous risks, including developing bad precedent and undermining the FCA. Making efforts to reduce such cases makes sense.

To that end, the policy shift may also help to reduce the kind of zombie litigation that is often the aftermath of non-intervention. As the recovery statistics above demonstrate, a government decision not to intervene in a case creates significant problems for the continued viability of the claim. There are at least a few reasons why. First, the DOJ tends to intervene only in the cases it thinks are most likely to succeed. It has the privilege of picking the winners. Second, the DOJ's declination creates a practical obstacle for the relator and relator's counsel in that, when the government does not intervene, it does not fund the ongoing litigation. In fact, many engagement letters stipulate that non-intervention triggers dismissal of the case or withdrawal of counsel. Third, the declination holds (or held, anyway) symbolic significance, suggesting weakness in the underlying claims to the court, the relator, and others.

The policy shift also recognizes the value of the DOJ's pre-intervention investigation--a service that has long been undervalued by the DOJ itself. In a perfect world, the DOJ would perform quick, efficient investigations, and would issue intervention decisions within 60 days, as the FCA statute requires. But in the real world, the government almost always obtains at least one extension, and often several. In our experience, the typical qui tam case remains under investigation -- and under seal -- for at least two years. Three and even four year investigations are not unheard of. Such indecision creates a cloud of uncertainty that hurts individual defendants, companies, industries, witnesses and even relators. After all, delay can discourage meritorious qui tam actions just as much as it can drag out frivolous ones.

But if quicker government decisions on intervention is a pipe dream -- and it probably is -- then the government's lengthy and costly investigation should at least be meaningful. By the time the government reaches an intervention decision, it has usually conducted an investigation spanning multiple years and consuming significant resources. It has issued subpoenas, reviewed thousands of documents, and interviewed many witnesses -- all at significant time and expense to the government and the parties. The policy shift seems to reflect a growing recognition by the government that its investment should have significance on the underlying claim. If the investigation reveals that the case lacks merit, fairness dictates that the government dismiss. This is not only a matter of reducing frivolous qui tam actions, but a function of the government's confidence in its own decision-making process. After all, there can be little justification for permitting a qui tam relator to continue pursuing a meritless case on behalf of the U.S. that the U.S. itself thinks meritless.

The memo provides litigants with invaluable insight into the government's strategy. It identifies seven "factors" -- departmental goals, really -- that constitute a basis for dismissing a qui tam matter. They are:

1. Reducing meritless qui tam actions, including those that are meritless on their face and those that lack factual support. The memo even recognizes that where an investigation is non-determinative, but yields little support for the qui tam claim, government attorneys may put the relator on a ticking clock and issue a deadline for additional supporting evidence.

2. Preventing parasitic or opportunistic qui tam actions, particularly those that duplicate or add nothing to existing government investigations.

3. Preventing qui tam actions that interfere with agency policies and programs, such as by drawing resources away from other more pressing agency projects.

4. Controlling litigation that threatens to create negative precedent or interfere with proposed settlement of related claims;

5. Safeguarding classified information and national security interests, including to protect against a mere "risk of disclosure, alone";

6. Preserving government resources, such as when the costs of monitoring and responding to discovery potentially exceed the case's expected value; and

7. Addressing egregious procedural errors committed by the relator.

Any party involved in a qui tam investigation should use these factors as a roadmap for interactions with government attorneys. At least four points are worth emphasizing. First, the seven factors are non-exhaustive and none of the factors is mandatory, leaving broad discretion to Assistant U.S. Attorneys. Though the memo bears the legend that it is "Privileged, Confidential and Reserved for Internal Government Use Only," this view into the DOJ's strategic thinking is a gift. At the outset, defense counsel should highlight and be prepared to articulate the applicability of the relevant factors to the applicable investigation.

Second, not all of the factors concern the strength of the underlying qui tam action. In fact, all but the first factor could favor dismissal even of substantively meritorious claims. Attorneys for defendants and relators should think creatively about issues outside the four corners of the case that may give government attorneys pause. In particular, counsel should consider how the case fits -- or better yet for defense counsel, doesn't fit -- into broader agency policies and programs.

Third, defendants in qui tam actions where the government has already declined to intervene should consider whether the factors described in the memo apply to their case. If so, they should explore requesting retrospective dismissal.

Finally, the factors for dismissal are not all that different than the factors the government considers in deciding whether to intervene. The norm has long been for the government to decline to intervene, but also to decline to dismiss. Now that dismissal is a more plausible option, the set of circumstances that justify mere non-intervention is narrower. In the past, when relators pursued claims after non-intervention, a common refrain from relator's counsel was that the declination did not necessarily signal weakness in the case, but might instead reflect a lack of resources. In the future, when relators pursue claims after non-intervention, this refrain could actually be true. And relator's counsel will undoubtedly point to the fact that the government did not seek dismissal as evidence that the case must have some merit. Whether this is true remains to be seen.