Federal Appeals Court Tosses Cold Water on DOJ’s Crackdown on Weak Whistleblower Suits

It’s fair to say that when it comes to False Claims Act (FCA) whistleblower qui tam lawsuits, the current U.S. Department of Justice (DOJ) is less enthusiastic than its predecessor. In fact, the DOJ has pursued a policy of actually seeking to dismiss qui tam claims it deems weak or not in the public interest. On Aug. 4, that policy came under challenge in the federal appeals court for the Ninth Circuit.

Spoiler alert: The court denied the government’s motion to dismiss a qui tam suit. Here’s a rundown and an explanation of how all of this may affect you.

 Granston Memo, 101

Under the FCA, whistleblowers (aka “relators”) suing companies for ripping off the federal government must be filed under seal to give the DOJ time to decide whether to intervene. Relators can still go forward with the case; but if the DOJ declines their leverage decreases and risks increase.

The government can do more than simply decline to intervene in the case. The FCA (Section 3170(c)(2)(A)) allows it to actually seek to have the case dismissed if it thinks the suit doesn’t serve its interests. Historically, though, the DOJ rarely seeks dismissal under Section 3170(c)(2)(A).

But that all changed in January 2018, when DOJ Civil Fraud Section Director Michael Granston issued an internal memorandum instructing U.S. Attorneys to be more aggressive in exercising their Section 3170(c)(2)(A) powers, which the Memo describes as crucial in enabling the agency to perform its “gatekeeper role” in preserving enforcement resources, protecting government interests and preventing weak cases from resulting in adverse judgments that weaken government enforcement powers. The Memo goes on to outline seven kinds of problematic qui tam claims that U.S. Attorneys should target for dismissal. (For more details, see, NIR, March 19, 2018.)

The Ninth Circuit Case

Sure enough, U.S. Attorneys have been following their marching orders and seeking dismissals of qui tam cases under Section 3170(c)(2)(A). Even though it’s not a healthcare case, the Ninth Circuit ruling is significant because it’s among the first to test the limits of the Granston Memo policy. The case reached the Ninth Circuit after the lower court denied the government’s motion to dismiss the qui tam of a relator accusing a mortgage lender of submitting false claims to the Federal Housing Administration (FHA). Denial was unwarranted, the Northern District of California court held, because the government failed to:

• Demonstrate a valid governmental purpose for dismissal; and
• Fully investigate the allegations of the complaint.

The government appealed the ruling on technical jurisdictional grounds, but the Ninth Circuit wouldn’t budge. (United States v. United States ex rel. Thrower, No. 18-16408 (9^th Cir. 2020).

Takeaway: Getting Qui Tam Cases Dismissed May Not Be So Easy

For better or for worse, the Thrower case represents a setback to the Granston Memo policy to the extent it indicates that courts may not be so willing to give the government unfettered discretion to get qui tam cases tossed out under Section 3170(c)(2)(A). The really troubling part for prosecutors is the “fully investigate” requirement, which imposes a new and potentially costly administrative burden on enforcement resources, precisely what the Granston Memo “gatekeeping” mandate seeks to avoid.

 What makes the “fully investigate” pill even harder for the DOJ to swallow is how the case actually unfolded. At first, the DOJ just declined to intervene. The decision to seek dismissal came later after the relator amended her claim. In other words, the claim the DOJ wanted tossed out of the court wasn’t the same claim it reviewed in declining to intervene. So, now it would have to do a new investigation. The concern is that relators with lousy or harmful cases will be able to tie the DOJ in knots and evade Section 3170(c)(2)(A) dismissal simply by amending their claims.

 But while this is the first challenge to the Granston Memo policy, the Thrower case will definitely not be the last. So, stay tuned for further developments.