New DOJ Policy Changes Impact FCA Enforcement
What Happened?
The Department of Justice kicked off the year with a shift in its policy affecting the False Claims Act and other civil fraud enforcement. In two separate memoranda issued in January, DOJ addressed first its policy on FCA dismissals, and second, restricted the evidence on which it can rely to prove FCA and other fraud cases.
The Rundown
The Granston Memo – Reconsidering FCA dismissals
On January 10, 2018, DOJ issued a memorandum (dubbed the “Granston Memo”), that provided attorneys in the Fraud Section of the Commercial Litigation Branch, as well as all AUSAs handling FCA matters, with guidelines for dismissing FCA cases under 31 U.S.C. § 3730(c)(2)(A). That section allows the government to dismiss a qui tam action notwithstanding the objections of the person initiating the action if the person has been notified by the government of the filing of the motion to dismiss and the court has provided the person with an opportunity for a hearing on the motion. 31 U.S.C. § 3730(c)(2)(A). The government has used this provision sparingly in the past, often opting simply not to intervene rather than proactively move for dismissal. But this memo recognizes that the government often expends substantial resources even in non-intervened cases, as it must monitor them and at times produce discovery. And, because of the significant increase of FCA cases filed annually, the government’s expenditure of resources on what it sees as meritless FCA claims is increasing as well. This is particularly true in light of the fact that while the number of FCA claims filed has grown, the number of FCA matters in which the government has intervened has remained stable. The memo therefore directs attorneys to consider whether dismissal pursuant to 31 U.S.C. § 3730(c)(2)(A) rather than simple declination would better serve the government’s interests in preserving limited resources and avoiding adverse precedent.
The Brand Memo – Limiting Use of Agency Guidance Documents
On January 25, 2018, the Office of the Associate Attorney General issued a new policy relating to its attorneys’ enforcement of affirmative civil cases, which includes the False Claims Act as well as all other civil lawsuits to recover money lost to fraud or other misconduct or to impose penalties for violations of Federal health, safety, civil rights or environmental laws. The memorandum prohibits DOJ from using its enforcement authority to convert agency guidance documents into binding rules.
Department attorneys are not to use noncompliance with agency guidance, defined as “any agency statement of general applicability and future effect…that is designed to advise parties outside the federal Executive Branch about legal rights and obligations,” as a basis for proving violations of applicable law. While the Department may continue to use evidence that a party read an agency document that explained certain statutory provisions as a basis for proving requisite knowledge of the provision, the Department should not treat a party’s noncompliance with an agency document as establishing that the party violated the statute or regulation at issue. The memorandum emphasizes that agency guidance documents cannot create additional legal obligations and that a party failed to comply with agency guidance expanding upon statutory or regulatory requirements does not mean that the party violated those underlying laws.
The Takeaway
In sum, the memorandum provides valuable insight to both private defense attorneys and the relators’ bar. The Granston memo gives defense counsel talking points for meetings with DOJ attorneys who may not have had the opportunity to consider each of these factors, as well as a basis for advocating for dismissal in the case of government declination. On the plaintiffs’ side, the memo offers critical insight into case weaknesses that previous administrations may have overlooked, yet may now face heightened scrutiny through motions for dismissal under § 3730(c)(2)(A).
The Brand memo supplies guidance as well. Attorneys defending DOJ affirmative civil enforcement matters should challenge any assertion of wrongdoing based on agency guidance rather than on a strict interpretation or analysis of the statutory or regulatory language itself. Companies should also re-evaluate their policies to ensure that they are based on interpretation of the actual statutory provision instead of agency guidance that may ultimately be more restrictive. While agency guidance may remain a valuable source of assistance and clarification, it should no longer be considered binding authority. Overreliance on agency guidance that imposes stricter burdens than the statutory language may lead to policies that cut against a business’s best interests without any corresponding legal purpose.
The Pietragallo Law Firm has one of the leading Whistleblower Practices in the United States. We work with clients all over the US and the world. If you are aware of any person, corporation or entity that you think may be violating the Federal False Claims Act or a State False Claims Act, contact us today.