High Hopes, 1 Result From DOJ False Claims Memo (Corrected)

July 16, 2018, 5:08 PMUpdated: July 18, 2018, 6:46 PM

The Justice Department, six months after laying out steps to avoid meritless claims raised by whistleblowers, has weeded out just one case under the program designed to save resources and avoid bad legal precedents.

Whistleblowers acting on behalf of the government initiate more than 80 percent of new False Claims Act cases, according to the department. The government should be responsible for policing which cases move forward, and a January memorandumby Michael Granston, director of the Justice Department’s commercial litigation branch, provides such a tool without clarifying how it will work, said Mark Rush of K&L Gates LLP, Washington.

“Whether we will see such a shift remains a question,” Rush said. “What also remains unclear is what role defense counsel has, if any, in the process. Do we petition the government to file a Granston motion?” He questioned whether such matters should be handled by assistant U.S. attorneys or the Justice Department’s civil section. “In time, with practice, these issues will likely work themselves out,” Rush told Bloomberg Government.

In the six months since that memorandum became available, the department has successfully used its dismissal power only once, in a June 29 district court opinion.

Defense attorneys say they believe the Granston memorandum is supposed to lead to:

  • An increase in the number of department-pushed dismissals.
  • Defense attorneys being more aggressive in attempting to persuade the department to end cases.
  • The department focusing on the financial harm weaker cases can cause government agencies.

The memorandum might also help plaintiffs given how defendants often try to use the government’s decision against intervening in false claims cases to suggest that the government thinks those cases are invalid, according to plaintiffs’ attorney Stephen Hasegawa of Phillips & Cohen LLP.

Plaintiffs now can point to the Granston memorandum to show that if the government believed that the case lacked merit, it would have moved to dismiss it, he said.

The department’s false claims recovery for fiscal 2017 was $3.7 billion, $3.4 billion of which came from suits whistleblowers filed.

Stop Wasting Resources

The government may force a dismissal over a whistleblower’s objections if he or she receives notice and has received the opportunity for a hearing under the False Claims Act at section 3730(c)(2)(A).

Granston’s Jan. 10 memo refers to “record increases” in whistleblower-filed false claims cases with the department using its dismissal power “sparingly.” The memo recommends the department stop wasting significant resources monitoring cases or producing discovery in cases that “lack substantial merit.”

Pursuing dismissals can also reduce “adverse decisions” that affect False Claims Act enforcement, stop actions that duplicate a pre-existing government investigations, and prevent interference with an agency’s policies, the memo says.

Contractors Burdened

Deputy Associate Attorney General Stephen Cox echoed these sentiments in a Feb. 28 speech, adding that dismissal of a whistleblower’s assertions may be appropriate if the government doesn’t believe that it suffered harm.

Cox referred to how defendants have successfully evaded liability under Supreme Court standards when an agency knew about alleged wrongdoing but continued to pay anyway.

An appeals court, for example, threw out a $663 million jury verdict in September 2017 because the Federal Highway Administration didn’t think a highway guardrail provider defrauded it.

Dismissing false claim cases more consistently, but judiciously, will free up resources to cope with matters such as the opioid crisis and elderly fraud and abuse, Acting Assistant Attorney General Jesse Panuccio said in a June 14 speech.

Whistleblower cases impose a burden on contractors, which can in turn interfere with agency programs and cause contractors to raise prices, said Preston Pugh of Miller & Chevalier Chartered, Washington.

The Granston memorandum will get the department to refocus on costs and force it to consider whether allowing a whistleblower’s case to proceed will hurt government agencies by driving up contractors’ prices, he said.

So far, however, the Granston memorandum hasn’t made a noticeable difference in false claims litigation, Hasegawa said.

“The memorandum is really the formalization of a practice that DOJ has always followed and that we have taken into account for a long time. If the department says a case is wrong on the merits and facts, and the agency hates the case and will give you bad testimony, you have to factor that into whether to pursue a case,” he said.

Drain on Resources

Panuccio suggested in his speech that Granston’s memorandum was a department policy change, and defense attorneys would see a change in action, said Jeffrey A. Miller of Vorys, Sater, Seymour and Pease LLP, Cincinnati.

“In practice, I don’t think we’re suddenly going to see DOJ moving to dismiss a large percentage of whistleblower cases. But I think we’re going to see more dismissals than we have,” he said.

Defense attorneys long have been urging their department contacts to dismiss meritless cases, citing extensive fees defendants must incur, Monitoring cases where the government doesn’t intervene is a significant drain on the department’s resources, he said.

“This last factor has become an increasingly big deal. Over the last couple of years, DOJ has been filing far more statements of interest on legal issues in non-intervened cases. It has been taking up a lot of DOJ’s time,” Miller said. “The Granston memo is an acknowledgment that this is not sustainable.”

Miller added that in the past he hadn’t bothered making much of a pitch to the department to end a case unless there were exceptional circumstances, such as national security, but the Granston memorandum has opened the door for defense attorneys to be more aggressive.

“I anticipate that we’ll be making arguments for dismissal in non-intervened cases. In some cases, I could see asking to make a formal presentation to DOJ requesting dismissal,” he said.

How ‘Unfettered’?

The lone instance between Jan. 10 and July 10 when the department successfully pushed for a dismissal came June 29 in a U.S. District Court for the Eastern District of Kentucky opinion in United States ex rel. Maldonado v. Ball Homes LLC. The department has “virtually unfettered discretion” to dismiss, the opinion said, ending a case alleging housing fraud.

District courts issued three such dismissals in the same six-month period in 2017, all of which involved an alleged scheme to overbill a program providing public defender services in West Virginia, according to Bloomberg Law.

The Maldonado court noted that it followed a D.C. Circuit standard for government dismissal requests, which differs from a Ninth Circuit standard holding that the government must identify a valid purpose rationally related to dismissal.

That would explain another June 29 opinion issued by the U.S. District Court for the Northern District of California in United States v. Academy Mortgage Corp. declining a motion to dismiss because the department didn’t show that it sufficiently investigated the allegations in a complaint.

The U.S. Supreme Court has yet to issue an opinion on whether the department must meet a certain threshold for a proper dismissal request.

(Corrects attribution in fourth graph under third subhead )

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

To contact the editors responsible for this story: Paul Hendrie at phendrie@bgov.com; John R. Kirkland at jkirkland@bgov.com; Robin Meszoly at rmeszoly@bgov.com

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