Enforcement Trends: Why Fending Off Whistleblowers Might Have Just Gotten Easier

Because government enforcers cannot be everywhere at once, the qui tam whistleblower lawsuit was invented. The result has been a proliferation of fraud cases against not just labs and health care providers but all firms that do business with the federal government. But what often goes overlooked is the burden that all of these cases, some of which lack merit, put on the enforcement infrastructure. And now a newly leaked internal Justice Department memo suggests that the government is determined to apply the brakes and discourage whistleblowers from bringing qui tam lawsuits—or at least those of dubious merit. Here is a look at the policy and why it may be good news for your lab and its compliance officers and attorneys.

Qui Tam, 101
The so called qui tam provisions of the False Claims Act (FCA) allow individual whistleblowers, known as "relators," to act as private attorneys general and sue companies for ripping off the government. In addition to being moral, whistleblowing can also be highly profitable. If the suit is ultimately successful, the government can collect triple damages and the relator can walk away with up to 35% of the recovery.

But there are also big risks. FCA cases must be filed under seal to give the DOJ time to investigate and decide whether it wants to intervene:

• If the government joins, pressure mounts on the defendant to settle the case; but
• If the government declines, the relator can still go forward with the case but with far less leverage and legal firepower.

There is also one other possible outcome, at least on paper. The FCA (Section 3170(c)(2)(A)) actually gives the government the right to seek dismissal over the relator's objection if it thinks its interests are not served by the suit. But while it is on the books, the DOJ almost never uses its Section 3170(c)(2)(A) dismissal powers.

The Granston Memo
An internal memo issued by DOJ Civil Fraud Section Director Michael Granston on Jan. 10 aims to change that. The so called Granston Memo instructs U.S. Attorneys to use Section 3170(c)(2)(A) more aggressively.  The right to seek dismissal is an important "tool" enabling the DOJ to exercise its "gatekeeper role" in preserving enforcement resources, protecting government interests and preventing weak cases from resulting in adverse judgments that weaken the government's enforcement powers.

The Seven Factors for Seeking Dismissal
The Memo sets out seven factors that U.S. Attorneys should consider in deciding whether to seek dismissal of a whistleblower suit under Section 3170(c)(2)(A):

1. Meritless Claims, i.e., where a qui tam complaint appears to be lacking in merit because the relator's legal theory is "inherently defective," or because his/her "factual allegations are frivolous."

2. Parasitic or Opportunistic Claims, i.e., qui tam actions that duplicate pre-existing government investigations and add no useful information to the investigation and bestow the relator with an unwarranted windfall in taxpayer dollars for providing merely duplicative information.

3. Threats to Policies or Programs, i.e., qui tam actions that threaten to interfere with a government agency's policies or programs.

4. Actions Interfering with Other FCA Cases, e.g., a separate qui tam case in which the government has already chosen to intervene.

5. Cases Threatening Harm to National Security Harm, e.g., qui tam actions that may compromise classified information, involve intelligence agency operations or military contracts.

6. Cases Where Costs Will Exceed Gain, the calculation of which should include the "opportunity cost" of utilizing resources on other matters of higher priority with a surer probability of recovery.

7. Claims that May Frustrate an Investigation, i.e., whether there are issues, such as procedural errors, with the relator's action that frustrate the government's effort to conduct a proper investigation.

Takeaway: It remains to be seen whether prosecutors actually follow the Granston Memo guidance. But if they do, it might lead to a reduction of qui tam suits by discouraging whistleblowers and their attorneys from asserting questionable claims. While such an impact would benefit all industries covered by the FCA, health care would reap the greatest benefit considering the disproportionate number of qui tam claims targeting that sector.

If it takes, the new Granston Memo policy may also strengthen the hand of attorneys defending your lab in a qui tam suit under seal by offering a new strategic option: Leveraging one or more of the seven Granston Memo factors to urge the US Attorney to seek a Section 3170(c)(2)(A) dismissal of the suit.