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DOJ Scrutiny of Whistleblower Suits Under Biden Unlikely to Stop

Nov. 19, 2020, 11:58 AM

President-elect Joe Biden’s Justice Department will likely stick with the nearly three-year-old policy of targeting for dismissal “meritless” False Claims Act suits despite some criticism that allegations of government fraud raised by whistleblowers aren’t being properly considered.

The January 2018 Granston memorandum, which provides guidelines for when the DOJ should use its authority under the False Claims Act to seek dismissals, has been the subject of dozens of court rulings, exacerbated an appeals court split, and caught the ire of Sen. Charles Grassley (R-Iowa).

The FCA provides that the government may dismiss a whistleblower’s action if it gives notice and the whistleblower has an opportunity for a hearing.

The memo said the DOJ shouldn’t monitor or produce discovery in cases that lack merit. It should pursue dismissals to reduce adverse actions that affect FCA enforcement and to prevent interference with federal policies.

Most attorneys for whistleblowers and contractors interviewed by Bloomberg Law say the Justice Department’s use of its power to stop FCA whistleblower suits hasn’t been so excessive or improper that whoever Biden names to lead the DOJ will rush to change course.

“DOJ’s had statutory dismissal authority since 1986 and, while there has been a slight uptick in dismissal motions in the past two years, the percentages are still very low—just a fraction of the qui tam cases filed each year,” said Douglas W. Baruch of Morgan Lewis in Washington, who represents contractors.

“Even if there’s some paring back of dismissal motions due to a more relator-friendly outlook at DOJ, that really wouldn’t affect the vast majority of qui tam cases,” he said.

The DOJ “takes the position that when it exercises its dismissal authority, it adequately explains its reasons and meets any standard for dismissal, such that potential changes aren’t necessary,” said Anne Hayes Hartman, who represents whistleblowers with Constantine Cannon LLP in San Francisco.

“The desire to avoid extra hurdles is non-partisan, and I would be surprised if new leadership were any more interested in changes,” she said.

Implementation, Impact Questioned

But some whistleblower attorneys expressed hope the new administration will consider the memo’s flaws and its potential to deter case filings.

Changes are needed because the memo is at odds with the FCA’s purpose of uncovering government fraud, and because of the increase in litigation over its implementation, said David Colapinto of Kohn, Kohn & Colapinto LLP in Washington, a law firm that represents whistleblowers.

The DOJ has been “advocating dismissal against the whistleblower under standards and policies that are far from clear,” he said.

“Whatever benefits the government derives from the increase in government-requested dismissals need to be evaluated against discouraging whistleblowers from filing qui tam actions,” Colapinto said.

John Kostyack, executive director of the National Whistleblower Center in Washington, agreed.

“There has been a great deal of hostility to the FCA the last few years, and we hope it has been a temporary blip,” said Kostyack.

“There has been a roughly ten-fold increase in dismissal actions since the Granston memo, which reflects an aggressive DOJ that will seek to dismiss regardless of the merits of cases,” he said.

Memo Sparks More Dismissals

An uptick in dismissals followed release of the Granston memo, including a Texas federal district court’s September 2019 approval of the Justice Department’s request to end kickback claims claims against pharmaceutical companies Bayer Corp. and Eli Lilly & Co.

The DOJ convinced the court that a dismissal would preserve scarce government resources and that a potential reward wasn’t worth the litigation’s costs. The whistleblower’s appeal is pending before the Fifth Circuit.

All told, federal district courts granted 25 DOJ motions to dismiss in the two years following the memo, according to December 2019 correspondence from the department to Senator Grassley.

In contrast, district courts issued such decisions only six times in the two years prior to the memo’s release, according to a Bloomberg Law analysis.

Grassley wrote to Attorney General William P. Barr in September 2019 to inquire about dismissal motions that cite litigation costs, expressing his dissatisfaction with the DOJ’s “vague” justifications.

The Justice Department told Grassley then that it had only sought dismissals in 4% of whistleblower cases since the issuance of the Granston memo.

Grassley said in July, however, that he intends to introduce legislation to make it more difficult for the DOJ to end an FCA case.

“This legislation requires the Justice Department to state its reasons. What is wrong with telling people why you are dropping the case?,” he said in a Senate floor speech.

A Grassley representative didn’t respond to a request for comment.

Judiciousness, Efficiencies Cited

Despite those criticisms, most attorneys said concerns about DOJ’s additional involvement in FCA suits are misplaced.

“While no one believes their case is bad when filed, I have not seen an abuse of the dismissal authority since the Granston memo was authored,” said whistleblower attorney David Chizewer of Goldberg Kohn in Chicago.

Whistleblowers’ counsel actually “should welcome the use of the government’s dismissal authority to stop bad cases from moving forward and making bad law,” he said.

The new administration may be inclined to reverse some Trump-era policies, but “the dismissal of cases that are frivolous or assert claims that are at odds with agency policies reflects a sensible governing policy that has been used sparingly,” said Mark Troy, who represents contractors with Crowell & Moring LLP in Los Angeles.

“Businesses have saved on defense costs. Agencies have been spared some burden in responding to discovery. And relators’ counsel, whether or not they would admit it, have been able to cut their losses sooner,” he said.

Troy said he once had a client accused by a whistleblower “of blowing up the World Trade Center on 9/11 using satellite-based laser beams.”

“DOJ lawyers laughed off my request that they step in to dismiss the action,” Troy said. “It took two years and hundreds of thousands of dollars in attorneys’ fees before the court dismissed the case on jurisdictional grounds,” he said.

“Ultimately most of the costs of defense were reimbursed by government under the terms of client’s government contracts. In that case, and in many other baseless qui tam actions, the taxpayers lose money,” said Troy.

Circuit Split Over Authority

Federal appeals courts have differed over how much justification the Justice Department must provide when it moves to end a whistleblower case, and a number of appeals are currently pending.

The U.S. Court of Appeals for the D.C. Circuit says the DOJ has an unfettered right to dismiss a whistleblower’s FCA suit. The Ninth Circuit, meanwhile, requires the department to show that a dismissal would serve a valid government purpose, and that a rational relationship exists between the dismissal and that purpose.

The Seventh Circuit in August declined to take sides, but nonetheless dismissed a suit accusing Omnicare Inc., CVS Health Corp., and others of engaging in a services-for-drug prescriptions kickback scheme because the DOJ’s decision to urge ending the case didn’t violate due process of law.

In addition to the Fifth Circuit case against Bayer and Eli Lilly, disputes over DOJ dismissal power are pending in the First and Third circuits, both of which allege improper Medicare billing.

In April, the U.S. Supreme Court declined to consider a whistleblower’s claim that the DOJ improperly sought dismissal of his suit accusing JPMorgan Chase Bank of mortgage fraud.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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