4/6/18 Legal Intelligencer article by Lamb McErlane PC attorneys Vasilios (“Bill”) J. Kalogredis & Katherine E. LaDow*.

The U.S. Department of Justice (“DOJ”) issued two internal memoranda in January of 2018 which relate to the agency’s role in actions brought under the False Claims Act (“FCA”) 31 U.S.C. § 3729 et seq.  Generally speaking, the FCA allows a private individual, or a “whistleblower,” who possesses knowledge of a past or present fraud committed against the federal government to bring a suit on the government’s behalf.  These January 2018 memoranda are likely to have a large impact on the health care industry due to the numerous qui tam matters and heavy reliance on manuals and other sub-regulatory guidance in the industry.

The first memorandum, issued on January 10, 2018, emphasizes the DOJ’s “gatekeeping role” in protecting the FCA and encourages DOJ attorneys to consider not only their power to dismiss meritless actions brought under the FCA, but also their responsibility to do so.  While the FCA authorizes the Attorney General to dismiss a qui tam action (a lawsuit brought by a private citizen against a person or company who is believed to have violated the law in the performance of a contract with the government or in violation of a government regulation, when there is a statute which provides for a penalty for such violations) under 31 U.S.C. § 3730(c)(2)(A), the DOJ has historically been hesitant to exercise its dismissal authority.  The January 10, 2018 memorandum emphasizes that the DOJ must utilize its dismissal authority to advance government interests, preserve limited resources, and avoid adverse precedent.

The January 10, 2018 memorandum clarifies that since the FCA does not provide a standard of review for evaluating whether a qui tam claim should be dismissed under § 3730(c)(2)(A), the Courts have implemented two different standards relating to the DOJ’s authority to dismiss qui tam actions: compare United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 2003) (holding that the United States must identify a “valid government purpose” that is rationally related to dismissal) with Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003) (holding that the United States has an “unfettered right” to dismiss a qui tam action).  The January 10, 2018 memorandum further sets forth a list of non-exhaustive factors that the DOJ can use as a basis for dismissal:

1. Curbing Meritless Qui Tams: a case’s lack of legal or factual merit is appropriate grounds for dismissal – even if the DOJ extends the complainant or “relator” a grace period to come up with a stronger case.
2. Preventing Parasitic or Opportunistic Qui Tam Actions: the DOJ’s dismissal power may weed out claims that provide duplicative information on an already existing investigation – this will prevent a relator from receiving a windfall recovery.
3. Preventing Interference with Agency Policies and Programs: seeking dismissal is appropriate when the qui tam claim delays or interferes with a program or policy that the government wishes to promote or pursue.
4. Controlling Litigation Brought on Behalf of the United States: dismissal may prevent a weak qui tam case from prejudicing the DOJ’s efforts in other cases as a result of adverse precedents, contradictory rulings, or complicated settlements.
5. Safeguarding Classified Information or National Security Interests: the mere potential for or risk of inadvertent disclosure of classified information is a sound reason to seek dismissal.
6. Preserving Government Resources: dismissal may be based on the fact that the government’s expected recovery is less than the expected costs.
7. Addressing Egregious Procedural Efforts: where the relator has erred in fundamental procedural requirements in a way that prejudices the government’s enforcement efforts, the DOJ should consider dismissal.

The second memorandum, issued by the DOJ on January 25, 2018, similarly defines and limits the DOJ’s parameters and authority in FCA litigation which often arise in government health care contracts.  The January 25, 2018 memorandum builds on the Attorney General’s previous November 16, 2017 Guidance Policy and limits the use of agency guidance documents in civil enforcement actions, where the government seeks to impose penalties or to recover monetary damages from fraud or misconduct.  The November 16, 2017 Guidance Policy prohibited the DOJ from issuing guidance documents that effectively bind the public without undergoing the formal notice-and-comment rulemaking process.  The November 2017 Guidance Policy also prohibits the DOJ from using guidance documents to coerce regulated parties into taking action or refraining from taking action beyond that which is required by the terms of the applicable statute or lawful regulation.

The January 25, 2018 memorandum instructs that the DOJ may no longer rely on a defendant’s failure to comply with guidance documents as a means to prove that the defendant violated a statute or regulation discussed in those guidance documents.  A defendant’s failure to comply with agency guidance expanding upon statutory or regulatory requirements does not mean that the defendant violated those underlying legal requirements; agency guidance documents cannot create additional legal obligations not provided for under the terms of the applicable statute or regulation.  Simply put, the DOJ is prohibited from using its civil enforcement authority to convert agency guidance documents into binding rules.  The memorandum prevents the DOJ from evading the required rulemaking process by using guidance documents – or the noncompliance with guidance documents – to create de facto regulations.

To read the January 10, 2018 Memorandum visit: https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf.

To read the January 25, 2018 Memorandum visit:  https://www.justice.gov/file/1028756/download.

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Vasilios (“Bill”) J. Kalogredis, Esquire is Chairman of Lamb McErlane’s Health Law Department. Bill has been practicing health law for over 40 years, representing exclusively physicians, dentists, group practices, other health care professionals and health care-related entities.

*Katherine (“Katie”) E. LaDow, Esquire, an associate with Lamb McErlane PC., contributed to this article. Katie is an associate in the litigation department. She concentrates her practice in the areas of state civil litigation, family law and health law