Last week, the Department of Justice (DOJ) issued two separate memoranda with potentially far-reaching consequences. While the practical effect of these documents remains to be seen, they may provide another avenue of argument to defendants facing—or trying to avoid facing—a False Claims Act (FCA) lawsuit. Below we outline the new memoranda and explain how defendants can best take advantage of this new guidance.
DOJ Memorandum on Dismissal of Qui Tam Suits
On January 24, 2018, an internal DOJ memo leaked to the public regarding the factors DOJ will consider in determining whether to seek dismissal of non-intervened qui tam suits. For context, under 31 U.S.C. § 3730(c)(2), the FCA authorizes the Attorney General to dismiss a qui tam action over a whistleblower’s (i.e., a relator’s) objection. But historically, DOJ has rarely used exercised that option. Instead, it usually decided whether to intervene and, then, in non-intervened cases, allowed the whistleblower to proceed with the matter. DOJ’s affirmative dismissal of qui tams, while authorized by statute, was very much the exception rather than the rule.
Despite the few past dismissals, DOJ has now articulated guidance to employees on when dismissal might be appropriate. In part, the memo indicates that DOJ recognized that guidance was needed in this area, given the record increases in the number of qui tam actions filed each year. Further, the memorandum notes that, while the number of actions filed has increased, the “rate of intervention has remained relatively static.”
Thus, DOJ articulated seven non-exhaustive factors to “serve as a basis for evaluating whether to seek to dismiss future [FCA] matters.” These factors included the desire to (1) curb meritless qui tam suits, (2) prevent parasitic or opportunistic qui tam actions that duplicate pre-existing government investigations, (3) prevent interference with agency policies and programs, (4) control litigation brought on behalf of the United States, (5) safeguard classified information and national security interests, (6) preserve government resources, and (7) address egregious procedural errors, such as when relators fail to properly serve the government or when relators breach the FCA’s seal requirement.
DOJ Memorandum on Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases
The next day, DOJ’s Associate Attorney General Rachel Brand issued a separate memorandum indicating that DOJ would no longer use “guidance documents” in civil enforcement cases, such as FCA lawsuits. As background, two months ago, Attorney General Jeff Sessions expressly indicated that DOJ would no longer issue informal “guidance documents” that bind the public, unless those documents underwent the normal notice-and-comment rulemaking process.
This disdain for informal guidance documents follows the administration’s repeated criticism of “regulation by guidance” and critiques of the prior administration’s efforts to circumvent more traditional rulemaking procedures. As such, in the January 25, 2018, policy statement, DOJ expressly indicated that “effective immediately,” DOJ “may not use its enforcement authority to effectively convert agency guidance documents into binding rules.”
The memorandum did caveat the broad prescriptions by indicating that DOJ may continue to use agency guidance documents for some purposes. For example, DOJ may use guidance documents to “simply explain or paraphrase legal mandates from existing statutes or regulations.” In addition, DOJ may use such informal guidance as evidence that “the party had the requisite knowledge of the [particular] mandate.” As such, it is premature to simply disregard these guidance documents as mere nullities. Moreover, an open question exists as to what effect—if any—these guidance documents will have when courts, as opposed to DOJ employees, apply the prescripts in the documents to FCA suits. Indeed, nothing in Brand’s memorandum bars courts from considering and applying these guidance documents. Further, nothing in Brand’s memorandum prevents whistleblowers from filing FCA suits predicated on the violation of agency guidance.
Discussion and Possible Defenses
While the two policy memoranda are still new, they do point to potential new defenses for companies and individuals facing FCA scrutiny.
First, perhaps most obviously, defendants should interpret these two new memoranda as at least a limited sign of DOJ’s broader receptivity to defendants’ rights in qui tam lawsuits. DOJ is embracing the rights of defendants by both expressly indicating its willingness to engage in the affirmative dismissal process, as well as indicating that it will not seek to hold defendants to informal guidance that lacks the full force of law. These are welcome messages for defendants and suggest a possible shift towards a more level playing field in FCA cases.
Second and more fundamentally, the memorandum on dismissal of qui tams opens a new avenue for defendants to argue not just against DOJ intervention, but for DOJ’s affirmative dismissal of a case. Thus, when negotiating with prosecutors prior to an intervention decision, defendants should avail themselves of the policy prescriptions in the January 24, 2018, memorandum and argue in favor of dismissal. Defendants can use the memorandum to suggest that DOJ has a far greater role than just a neutral arbitrator in a post non-intervened battle between relator and defendant and cite the specific factors that support dismissal in a specific case.
Third, defendants should use the later memorandum to argue that informal guidance should lose its aura of deference. For example, healthcare prosecutors have pointed to National and Local Coverage Determinations (NCDs and LCDs) by Medicare contractors as binding principles in healthcare prosecutions. Defendants can now persuasively argue that, to the extent those coverage determinations had any previous force, they are no longer binding and plainly do not carry the force of law. Similar arguments can be made to overcome prosecutors’ claims that defendants failed to comply with U.S. Food and Drug Administration guidance, fraud alert guidance from the Office of Inspector General for the U.S. Department of Health and Human Services, or provisions of the HUD Handbooks or Mortgagee Letters issued by the Department of Housing and Urban Development. These types of guidance documents have historically built many FCA cases. By attacking the very foundations of these cases for their reliance on non-binding guidance documents, defendants can undercut the thrust of many prosecutions.
Again, time will tell the ultimate meaning of these new memoranda. While they may or may not signal a major change in DOJ’s overall approach to FCA enforcement, they do provide defendants with new tools to help limit or even avoid FCA claims.