A pair of Justice Department memos have made waves in the past month and have the potential to significantly impact the way the federal government prosecutes civil enforcement cases, particularly those brought under the False Claims Act.
In the broader of the two memos, released Jan. 24 by Associate Attorney General Rachel Brand (and hence referred to as the "Brand Memo" (found at https://www.justice.gov/file/1028756/download) , the Department of Justice seeks to rein in the use of so-called "guidance documents" issued by regulatory agencies to establish violations in affirmative civil enforcement cases. In the past, the DOJ has occasionally used non-compliance with certain guidance documents in an attempt to establish non-compliance with specific regulations.
Those days are gone.
The Brand Memo is a clear extension of the Trump administration's desire to reduce regulation at the federal level, and expands on prior DOJ guidance prohibiting the Department itself from issuing such guidance documents. While it will take time to see the exact impact of the Brand Memo, it is clear that it will narrow the scope of regulatory guidance that will give rise to False Claims Act prosecutions.
What documents will fall under this restriction? The Brand Memo is silent on that point.
As the Brand Memo makes clear, the "Department should not treat a party's noncompliance with an agency guidance document as presumptively or conclusively establishing that the party violated the applicable statute or regulation. That a party fails to comply with agency guidance expanding upon statutory or regulatory requirements does not mean that the party violated those underlying legal requirements; agency guidance documents cannot create any additional legal obligations." While defendants will work to expand this new requirement as much as possible, there are two important caveats to keep in mind.
First, the Brand Memo may have limited application to currently pending FCA actions. Indeed, the "wherever practicable" language suggests that the further along a particular matter, the less impact it may have. Second, and perhaps more importantly, awareness of a guidance document can still be used to prove scienter -- or knowledge -- under the FCA. As such, the Brand Memo is not a license to ignore agency guidance, but rather a guidepost to its application as evidence of violations in affirmative civil matters brought by the DOJ.
The second memo, dated Jan. 10 (found at https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf), is in many ways more interesting and with a much more unknown impact.
This memo, authored by Michael Granston, head of the Commercial Litigation Branch's fraud section -- which is charged with enforcing the False Claims Act -- was never intended for public release. Rather, the leaked memo sets forth a detailed analysis of what situations the Department should consider dismissing qui tam actions brought under the FCA pursuant to 31 USC 3730(c)(2)(A).
For the uninitiated, this provision allows the department to dismiss -- sua sponte -- actions brought by a relator. Until now, it has been rarely exercised. As the Granston Memo suggests, that may be about to change, and cites this thus-far little used provision of the FCA as an "important tool to advance the government's interest, preserve limited resources, and avoid adverse precedent."
The Granston Memo lays out a series of situations in which the department may consider dismissing what it deems "meritless" qui tam actions, along with detailed examples of each situation. These include:
- Curbing meritless qui tams
- Preventing "parasitic" or "opportunistic" qui tam actions
- Preventing interference with agency policies and programs
- Controlling litigation brought on behalf of the United States
- Safeguarding classified information and national security interests
- Preserving government resources
- Addressing egregious procedural errors.
Obviously the memo would only apply in situations where the federal government has already made the decision to not intervene in a particular action. Nonetheless, the memo could be a powerful tool for defendants faced with non-intervened qui tams litigated by relators. This has been a much more common trend in recent years as the number of qui tam filings -- and the variety of relators' counsel bringing them -- have continued to expand.
As evident from the chart below, settlements and judgments in FCA actions have topped $35 billion over the last decade, with a large chunk of that coming from the health care industry -- at least $2 billion from the healthcare industry in each of the last eight years.
With the arrival of the Granston Memo, defendants faced with a qui tam where the United States chooses not to intervene would be well advised to carefully analyze the factors in this memo and consider whether or not to urge the government to take the additional step of dismissing the case pursuant to 31 USC 3730(c)(2)(A).
Bill Athanas is a partner with Waller law, practicing in the Birmingham office. He is a former federal prosecutor.