DOJ Announces Significant Shift Towards Affirmative Dismissal Of “Frivolous” Qui Tam Complaints: A New Exit Strategy For Defendants?
Attendees at the Health Care Compliance Association’s Health Care Enforcement Compliance Institute are reporting that, Michael Granston, Director, Civil Frauds, Commercial Litigation Branch of the Civil Division of the US Department of Justice (DOJ), announced a significant shift in policy for the DOJ in dealing with False Claims Act (FCA) complaints that are deemed “frivolous” on the merits. Acknowledging the burden on the resources of all parties caused by the litigation of frivolous FCA matters, Mr. Granston reportedly stated that, going forward, once it has determined that the allegations of a qui tam complaint lack merit, the DOJ will more aggressively exercise its discretion to move to dismiss the case rather than leave to the qui tam relator in every instance the option of whether to continue the litigation. Senior management—including boards of directors, in-house corporate counsel and chief compliance officers—should take notice of this new, potentially meaningful, opportunity to extricate FCA defendants from burdensome qui tams pursued by relators purely for settlement value.
The United States has long had the statutory authority to dismiss FCA complaints pursuant to 31 U.S.C. § 3730(c)(2)(A), but rarely exercises this authority. This inaction has historically—and frustratingly for qui tam defendants—allowed costly and often meandering litigation with relators to ensue after the court unseals the complaint. More important, in such litigation, important questions of fact and law with potentially wide-ranging impact are often determined with only limited or no direct participation by the United States, including the DOJ or the relevant government agencies affected by the allegations.
It is unclear how the DOJ will determine whether a case falls into the category of “frivolous” litigation—as compared to cases where the United States declines intervention but willingly defers to relators to pursue further prosecution and recovery. Such assessments may obviously turn on statutory or regulatory deficiencies that are fatal to the allegations or mixed questions of fact and law that could be dispositive of questions of materiality or government knowledge. In the event that the DOJ issues explicit guidance on how this policy will be implemented, plaintiffs and defendants will need to be prepared to adjust their respective strategies to account for this new contingency.
Open questions prompted by this policy shift include, but are certainly not limited to: (1) will defendants be invited (or should they affirmatively seek) to present to the DOJ on the benefits of a DOJ dismissal motion; (2) will qui tam relators be invited to present to the DOJ to dissuade a dismissal motion; (3) if a DOJ motion to dismiss is filed, how will the briefing of the motion be handled; (4) will the DOJ only move to dismiss entire qui tam complaints or will it consider moving to dismiss individual counts for particularized deficiencies; and (5) how will defendants formulate early defense strategies knowing that the possibility of a DOJ motion to dismiss exists?
As relators are increasingly using the “kitchen sink” approach to their qui tam complaints—alleging a variety of purportedly fraudulent activities across an entire company or group of defendants—in order to drive up the potential “settlement value” of their allegations, this new DOJ policy appears to acknowledge that not all qui tam litigation serves the public interest.
At this point, there are more questions than answers, but we will continue to monitor this issue and report back.