Enforcement Trends: Granston Memo Whistleblower Dismissals May Be Tougher Than DOJ Thought

In 2018, the Justice Department sent an internal memorandum ordering US Attorneys to aggressively seek to dismiss False Claims Act (FCA) whistleblower qui tam lawsuits that lack merit or don’t serve the government’s interests. But a new case from federal appeals court for the Ninth Circuit suggests that targeting whistleblower suits for dismissal won’t be as easy as the DOJ might have expected. 

The FCA’s Little Used Liquidation Provision

Under the FCA, whistleblowers (aka “relators”) suing companies for submitting false claims to the federal government must be filed under seal to give the DOJ time to decide whether to intervene in the case. Relators can still go forward with the case if the DOJ declines to intervene. But at that point, their leverage in settlement negotiations significantly declines and their risks in taking the case to court significantly increases.

But it could get a lot worse for relators. That’s because the government has the authority to do more than simply decline to intervene in the case. Section 3170(c)(2)(A) of the FCA allows the government to actually seek to have the case dismissed if it thinks the suit doesn’t serve its interests. Historically, though, the DOJ rarely seeks dismissal under Section 3170(c)(2)(A).

The Granston Memo

But that all changed in January 2018, when DOJ Civil Fraud Section Director Michael Granston issued an internal memorandum instructing US Attorneys to be more aggressive in exercising their Section 3170(c)(2)(A) powers, which the Memo describes as crucial in enabling the agency to perform its “gatekeeper role” in preserving enforcement resources, protecting government interests and preventing weak cases from resulting in adverse judgments that weaken government enforcement powers. The Memo goes on to outline seven kinds of problematic qui tam claims that US Attorneys should target for dismissal:

1. Meritless Claims, i.e., where a qui tam complaint appears to be lacking in merit because the relator’s legal theory is “inherently defective,” or because his/her “factual allegations are frivolous.”

 2. Parasitic or Opportunistic Claims, i.e., qui tam actions that duplicate pre-existing government investigations and add no useful information to the investigation and bestow the relator with an unwarranted windfall in taxpayer dollars for providing merely duplicative information.

 3. Threats to Policies or Programs, i.e., qui tam actions that threaten to interfere with a government agency’s policies or programs.

 4. Actions Interfering with Other FCA Cases, e.g., a separate qui tam case in which the government has already chosen to intervene.

 5. Cases Threatening Harm to National Security, e.g., qui tam actions that may compromise classified information, involve intelligence agency operations or military contracts.

 6. Cases Where Costs Will Exceed Gain, the calculation of which should include the “opportunity cost” of utilizing resources on other matters of higher priority with a surer probability of recovery.

 7. Claims that May Frustrate an Investigation, i.e., whether there are issues, such as procedural errors, with the relator’s action that frustrate the government’s effort to conduct a proper investigation.

New Case Tosses Cold Water on Qui Tam Dismissals

For the past two years, US Attorneys have been following their marching orders and seeking dismissals of qui tam cases under Section 3170(c)(2)(A). Even though it’s not a healthcare case, the Ninth Circuit ruling is significant because it’s among the first to test the limits of the Granston Memo policy.

The case reached the Ninth Circuit after the lower court denied the government’s motion to dismiss the qui tam suit of a relator accusing a mortgage lender of submitting false claims to the Federal Housing Administration (FHA). Denial was unwarranted, the Northern District of California court held, because the government failed to: 

• Demonstrate a valid governmental purpose for dismissal; and
• Fully investigate the allegations of the complaint.  

The government appealed the ruling on technical jurisdictional grounds, but the Ninth Circuit wouldn’t budge. (United States v. United States ex rel. Thrower, No. 18-16408 (9^th Cir. 2020).

What It Means

For better or for worse, the Thrower case represents a setback to the Granston Memo policy to the extent it indicates that courts may not be so willing to give the government unfettered discretion to get qui tam cases tossed out under Section 3170(c)(2)(A). The really troubling part for prosecutors is the “fully investigate” requirement, which imposes a new and potentially costly administrative burden on enforcement resources, precisely what the Granston Memo “gatekeeping” mandate seeks to avoid.

Takeaway

What makes the “fully investigate” pill even harder for prosecutors to swallow is how the case actually unfolded. At first, the DOJ just declined to intervene. The decision to seek dismissal came later after the relator amended her claim. In other words, the claim the DOJ wanted tossed out of the court wasn’t the same claim it reviewed in declining to intervene. So, now it would have to do a new investigation. The concern is that relators with lousy or harmful cases will be able to tie the DOJ in knots and evade Section 3170(c)(2)(A) dismissal simply by amending their claims. But while this is the first challenge to the Granston Memo policy, the Thrower case will definitely not be the last. So, stay tuned for further developments.       

**************

This article originally appeared in G2 Intelligence, Lab Compliance Advisor, September 2020