DOJ policy shift in qui tam litigation?

Last week, a senior US Department of Justice official appeared to announce a surprising, and potentially significant, shift in policy regarding qui tam litigation. Michael Granston, director of the commercial litigation branch of the fraud section in the DOJ’s civil division, said during a speech that the DOJ will be moving to dismiss False Claims Act cases that it determines lack merit. The DOJ is yet to publish the text of this speech, but the announcement was reported last week by RAC monitor.

In a typical qui tam suit, if the DOJ decides not to intervene, the relator (or whistleblower) has the opportunity to continue the case without the government’s resources. Indeed, the FCA statute itself recognizes this possibility by allowing relators to recover a substantial bounty (up to 30%) of settlements or judgments for cases in which the government does not intervene (as compared to a 25% cap with government involvement). The recent announcement suggests that in some cases, instead of allowing the relator to continue with the litigation, the government will move to have the case dismissed.

The potentially confusing part of this “announcement” is that the government has always had the authority to dismiss a qui tam case over the objections of the relator. See 31 U.S.C. § 3730(c)(2)(A). In practice, however, the government rarely if ever dismisses the case. This makes sense because the government has—seemingly—nothing to lose by allowing the suit to continue. However, the public is not able to deduce much, if anything, from the government’s failure to intervene as DOJ has authority to decline to intervene for reasons other than merit. See, e.g. United States ex rel. Williams v. Bell Helicopters Textron Inc., 417 F.3d 450, 455 (5th Cir. 2005) (acknowledging that a cost-benefit analysis can weigh on the government’s decision to enter the case).

We suspect one of the reasons for the change could be the amount of “bad law” these relator suits are producing from the government’s perspective. Precedent is constantly being set in these cases, especially in light of Supreme Court opinion’s such as Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S.Ct 1989 (2016). Every one of these suits that proceeds without the government has a chance to create binding authority for district courts that DOJ is not going to want to litigate against. As such, it is likely in the government’s interest to start dismissing meritless cases as opposed to continuing to allow bad case law to stack up against them.

In the future, we would expect FCA defendants to put pressure on the government to dismiss meritless suits when it decides not to intervene. It appears to us that in the right case, working with the government early in the investigation could save hundreds of thousands of dollars for our clients if the government is now willing to acknowledge too many of these cases are being permitted to continue past the point of the government’s withdrawal.