Posted March 2nd, 2018.
By Henry Cutter
Companies now have a better chance of quickly fighting back claims they defrauded the U.S. government, defense lawyers say.
Justice Department officials have issued two memos this year making it more likely that such fraud cases will be scuttled. The moves come as the department seeks to conserve resources and fights the idea that agencies can unilaterally create binding rules.
The two memoranda “reflect the Trump Administration’s first significant policy statements on False Claims Act enforcement” and present substantial arguments for defendants fighting claims under the act, Gibson Dunn & Crutcher LLP wrote in a February note.
A Justice Department official declined to comment on how the memos might affect litigation.
The False Claims Act is a Civil War-era law that allows whistleblowers who think they can prove the U.S. has been cheated to sue on the government’s behalf and take a share of whatever money is collected. The Justice Department reviews each claim and can take over suits it thinks are worthwhile. The whistleblower is—generally—permitted to keep pursuing the matter even if the department declines to intervene.
Now, fewer FCA claims may be allowed to go ahead. Michael D. Granston, director of the commercial litigation branch of the department’s civil fraud section, targeted what he called “meritless” suits in an internal document sent on Jan. 10 . The memo urged staff lawyers to consider invoking a rarely utilized provision of the law that lets the department seek dismissal of cases even when the whistleblower doesn’t agree.
Whistleblowers filed an average of nearly 700 False Claims cases in each of the past five fiscal years, up from the annual average of about 530 in the previous five years, Justice Department figures show. The new approach is a response to that mounting load, and the fact that the department spends time and money monitoring even those cases it doesn’t pursue, said Stephen Cox, deputy associate attorney general.
“The [dismissal] authority is an important tool to protect the integrity of the False Claims Act and the interest of the United States,” Mr. Cox told a conference of whistleblower lawyers in Washington, D.C., on Wednesday. “Monitoring meritless cases is not a good use of this department’s resources.”
The memo spelled out seven circumstances the government has used in the past in calling for dismissal. They range from cases that seem legally flawed or frivolous to those when a whistleblower is trying to piggyback on an existing government case, without adding new information. Another instance is when a government agency that supposedly was defrauded says a suit would interfere with its policies or programs.
“It’s a very helpful example of the Justice Department providing greater transparency about its decision-making,” said Jonathan Cedarbaum, head of the FCA group at Wilmer Cutler Pickering Hale and Dorr LLP.
Still, the Justice Department has long had the right to seek dismissal of FCA cases. Each of the seven conditions cited in the Granston memo is supported by existing law, said Vincent McKnight, co-chairman of the whistleblower practice group at the plaintiffs’ law firm Sanford Heisler Sharp LLP.
“I heard all this brouhaha about it and I thought, ‘This is a power they already had,” he said.
FCA cases are filed under seal, so companies may not know immediately if they are the target of a suit. They often can figure it out as requests for information roll in from the Justice Department, said Harry Sandick, a partner at Patterson Belknap Webb & Tyler LLP. If they do, lawyers for a firm can visit the department and explain why they believe a case should be dropped. The seven conditions could be ammunition for that discussion, he said.
“You may see [plaintiffs’] attorneys doing the same in reverse,” said Mr. Cedarbaum.
The second memo came Jan. 25 from Associate Attorney General Rachel Brand, who has since left the department. It follows up on a November ban by Attorney General Jeff Sessions, barring the Justice Department from issuing guidance documents that create requirements for the public without undergoing the notice-and-comment rulemaking process.
Under the Brand memo, department lawyers are barred from using a failure to comply with guidance issued by other agencies to prove False Claims cases.
That, too, is a potential tool for the defense bar, lawyers say. A significant number of healthcare-related FCA cases could be affected if the Medicare Benefit Policy Manual is considered a guidance document, the Gibson Dunn client note said. And some cases alleging kickbacks rely on guidance documents from the inspector general’s office at the Department of Health and Human Services,the note said.
“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 Justice Department brought in $2.4 billion via healthcare-related False Claims Act cases in the year ended Sept. 30, nearly two-thirds of the roughly $3.7 billion total.