DOJ Memo and Court Opinion Show Trend in Damming Flood of False Claims Act Suits

11th CircuitBusinesses that routinely contract with the government know that while the relationship comes with high financial rewards, it also can expose those companies to massive civil liability.  Under the False Claims Act (FCA), government contractors can find themselves sued for hundreds of millions of dollars based on mere technical violations of complex regulatory schemes.

Luckily, as highlighted in several of our previous posts, the U.S. Supreme Court has recently reinforced the high evidentiary threshold FCA plaintiffs need to meet to bring a successful claim under the most common theory of FCA liability.  A recently disclosed U.S. Department of Justice (DOJ) memo and a recent opinion from the U.S. Court of Appeals for the Eleventh Circuit might similarly lead to fewer baseless claims against government contractors.

We have previously discussed efforts by some state attorneys general to clamp down on frivolous lawsuits brought under state false claims acts.  Because relators bring FCA claims on behalf of the government, those laws allow the government, after conducting its own investigation, to intervene in a private plaintiff’s (known as a realtor) case.  If attorneys general decide not to allow relators to lead the case, FCA and most of its state counterparts give the government the option to directly litigate the lawsuit, settle with the defendant (often for far less than the treble damages the statute allows), or outright dismiss the case.

Some state attorneys general, like Florida’s Pam Bondi, have used their authority to crack down on frivolous FCA lawsuits by intervening and dismissing any meritless claims.  Until recently, however, the federal government has not acted similarly.

A January 10, 2018 DOJ memo, recently made available to the public, might change that trend.  In it, Michael Granston, Director of the Commercial Litigation Branch, Fraud Section, outlined a framework for DOJ attorneys to use when evaluating when to intervene and dismiss a relator-initiated FCA action.  Granston began by noting that the record increases in FCA actions filed in the last several years did not correspond with an increase in DOJ intervention—in fact federal intervention in FCA cases remained static.

The memo recognized that the government “plays an important gatekeeper role in protecting the False Claims Act” from abuse and thus DOJ ought to intervene and dismiss FCA actions in order to “advance the government’s interests, preserve limited resources, and avoid adverse precedent” that arises from frivolous claims.

Granston’s memo then lists a non-exhaustive list of factors DOJ attorneys should use as a basis for determining whether to dismiss future FCA cases.  First among them is whether the subject FCA claim is meritless.  The memo emphasizes that government attorneys should consider intervening to dismiss FCA claims in cases where the allegations lack factual or legal merit.  Relatedly, Granston’s second factor asks DOJ attorneys to consider whether the subject case is parasitic or opportunistic.

When relators bring no new information to the case and merely latch on to a preexisting federal investigation, the government should step in and dismiss the case.  The memo listed several other factors including the need to preserve governmental resources and maintain uniform agency policies that should weigh in favor of dismissing relator’s lawsuits.

It is almost axiomatic that the quicker a lawsuit is dismissed, the less expensive it is for defendants.  Even obviously meritless claims force defendants to invest resources in seeking dismissals from the district court and often lead to time-consuming and expensive appeals.  But government intervention and dismissal of FCA actions can be a uniquely cost effective method for defendants, as the FCA requires that qui tam lawsuits be sealed for at least 60 days while the government conducts an investigation.  Thus, if DOJ acts swiftly to dismiss the case, an FCA defendant’s first notice of the lawsuit could be a dismissal petition from the government, costing the contractor nothing.

In more good news for FCA defendants, the Eleventh Circuit recently buoyed the federal government’s ability to intervene and dismiss FCA lawsuits.  In King v. United States, relator John King brought a qui tam action in which the government declined to intervene.  After King committed several discovery violations, the district court dismissed his action with prejudice.

Thereafter, the federal government reached a settlement with the defendant corporations to resolve the allegations underlying King’s initial complaint.  King then filed a lawsuit against the U.S. government alleging that, as a relator, he was owed part of the settlement.

But to paraphrase Judge William Pryor, King cannot sue the king without permission—sovereign immunity protects the government from suit absent waiver of that immunity.  The False Claims Act provides no such waiver in any of its provisions and offers no remedy for relators whose FCA claim was dismissed because of their own discovery violations.  Without a waiver of sovereign immunity, King’s claim was barred.

The opinion reinforces the government’s clear authority to independently resolve FCA allegations.  Further, while government intervention to dismiss FCA claims is subject to court review, the case demonstrates that those settlements or dismissals cannot be collaterally attacked once approved.  It also reminds us that relators file FCA actions on behalf of the government and thus have no rights over the lawsuit or to recovery not specifically granted by the statute.  The decision, and others like it, should encourage DOJ and state attorneys general to increase their dismissals of frivolous FCA lawsuits.

Taken together, the DOJ memo, King v. United States, and recent U.S. Supreme Court case law indicate a national trend toward reigning in FCA liability.  This no doubt should come as a relief to the multitude of businesses that routinely submit claims to the federal government.  The Supreme Court has a chance to continue this trend when it considers once again weighing the FCA’s materiality requirement in a cert. petition by pharmaceutical manufacturer Gilead in Gilead v. US ex rel. Campie next month.

Hopefully the both the courts and DOJ will properly play their roles at “gatekeepers” in FCA litigation and help bring an end to the explosion of FCA actions that have the plaguing government contractors in recent years.

Also published by Forbes.com on WLF’s contributor page.

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