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Saturday, October 19, 2019

DOJ memo addresses 'parasitic' whistleblower cases under False Claims Act

By Justin Stoltzfus | Feb 26, 2018

WASHINGTON (Legal Newsline) – The U.S. Department of Justice is changing its stance on procedure for actions under the False Claims Act, a law that targets companies that cheat government offices and is often used by whistleblowers who can be awarded a significant percentage of what is recovered.

A Jan. 10 memo from Michael Granston, director of the Fraud Section of the DOJ Commercial Litigation Branch, cites an increase in FCA cases of more than 600 per year and directs attorneys to consider dismissal under a provision of U.S. Code 3730.

"If the cases lack substantial merit, they can generate adverse decisions that affect the government's ability to enforce the FCA," Granston writes.

The majority of False Claims Act cases, records show, come from qui tam, or whistleblower, scenarios in which a party called a relator acts as a plaintiff.

In the brief, Granston refers to "meritless" and "parasitic" qui tam actions that should be evaluated according to the DOJ's option to dismiss.

Speaking to Legal Newsline Jan. 29, Richard Duvall, a senior partner of Government Contracts and Litigation at Holland & Knight LLP, explained some of the philosophy and likely outcomes of the DOJ memo.

“'Parasitic' qui tam actions are those where the relator, the person suing on behalf of the United States, brings little or nothing in terms of personal, first-hand or independent knowledge of the facts and is seeking to take advantage of information obtained by others in order to stake a claim to a share of the proceeds of the action," Duvall said.

Duvall suggested the change will not stop plaintiffs' lawyers from moving forward in most cases, although it may lead attorneys to look more closely at claims with less evident merit.

Duvall said it's unlikely the memo was politically motivated.

"The memo appears to be an honest, non-political exercise of the Commercial Litigation Branch's statutory duty to act as a gatekeeper," Duvall said. "It is in response not to political pressure, but to the underlying pressures of increased FCA litigation."

Duvall cited amendments to the FCA in 2009 under the Fraud Enforcement Recovery Act that opened the doors for larger numbers of claims.

However, he said, relators don't often win in FCA cases when the DOJ does not choose to intervene. He also explained that bad or meritless qui tam cases can actually cause the government to lose money if it has to pay costs to a defendant's legal counsel after the fact.

"FCA litigation imposes significant costs on defendants and directly or indirectly some of these costs are borne by the government," Duvall said, adding that because the change in FCA qui tam litigation makes sense, it's unlikely to be taken back under other leadership.

"Although a future administration could rescind the memo, it could not rescind the factors that rationally gave rise to the memo," Duvall said.

A statement to Legal Newsline from the DOJ the same day also clarifies the purpose of the memo.

"This internal DOJ memo provides DOJ litigators with a general framework for evaluating when to seek a dismissal under section 3730(c)(2)(A) and to ensure a consistent approach to this issue across the department," the DOJ statement reads. 

"The memo also makes clear that it is important to be judicious in utilizing section 3730(c)(2)(A). The False Claims Act makes clear that relators can proceed with certain qui tam actions following the government’s declination. Another purpose of the memo is to ensure that relators are not precluded from pursuing potentially worthwhile matters, and that dismissal should be utilized only where truly warranted."

Although many attorneys involved in FCA cases believe that the new enforcement rubric can help the government to save money, some have concerns.

"On one hand, the memo could be well-intentioned as a means to avoid weak cases creating bad precedent that would undermine the FCA and a means to conserve limited DOJ resources," attorney Jason Zuckerman told Legal Newsline Jan. 30. "But the memo is disconcerting for several reasons."

Zuckerman is principal at Zuckerman Law, a Washington, D.C. firm representing whistleblowers that handles its share of FCA cases. 

Zuckerman cited examples of agencies urging DOJ not to pursue a case, where subsequently, the relator prosecutes the case and recovers large amounts for taxpayers.

Then, he said, there are also special interests to consider.

"This option to dismiss non-intervened cases could be susceptible to political pressure and special interest lobbying," Zuckerman said. "For example, pharmaceutical industry lobbyists or elected officials that have received large donations from the industry could lean on DOJ to shut down a case that threatens to hold the industry accountable. It will be critical for DOJ to exercise this discretion free from undue political influence."

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