Bar Bulletin

Bar Bulletin

The Federal False Claims Act and Regulatory Reform

March 2020 Bar Bulletin

By Matthew Diggs and Benjamin Robbins

False Claims Act Overview

The federal False Claims Act (FCA), 31 U.S.C. § 3729, et seq., creates civil liability for any person who knowingly defrauds a federal program. Originally enacted by Congress in 1863 to address corruption and fraudulent claims submitted to the Union Army during the Civil War, the FCA is sometimes known as the “Lincoln Law.”

An FCA case can arise in any situation involving a federal program or grant. FCA claims frequently arise in the healthcare and pharmaceutical industries, government contracts, or procurement.

The FCA’s qui tam provision permits a whistleblower or “relator” to file an FCA claim on behalf of the United States.1 In exchange for bringing an FCA suit, a qui tam relator is entitled to receive up to 30 percent of the recovered funds.2 Under the FCA, the federal government has the authority to either intervene in or dismiss an FCA action filed by a whistleblower.3 The government intervenes in approximately 20 percent of FCA cases filed.4

The FCA is a common tool employed by relators and Department of Justice (DOJ) attorneys alike to recover funds on behalf of the government, and damages under the FCA may be significant. The statute provides for a civil penalty of up to $11,000 for each false claim, and permits the government to recover up to treble damages under certain circumstances.

The DOJ obtained more than $3 billion in settlements and judgments from FCA cases involving fraud and false claims against the government in the fiscal year ending September 30, 2019. The large majority of these suits involved the healthcare industry.5 Not surprisingly, the number of qui tam cases filed each year is significant, leveling out at more than 600 such lawsuits filed in each of the last nine fiscal years.6

Recent Developments

The last two years have seen a number of new developments in the government’s treatment of FCA litigation. These announced policies have been geared toward ensuring the statute remains a key component of the government’s fight against fraud, while at the same time promoting the current administration’s push to deregulate the industries that are most often targeted with FCA litigation.

A January 2018 DOJ Memo written by the Director of the Commercial Litigation Branch of the Fraud Section, Michael Granston, outlined a non-exhaustive list of factors for government lawyers to evaluate when determining whether to dismiss a qui tam action under 31 U.S.C. § 3730(c)(2)(A). Chief among these are: (1) curbing meritless qui tams, (2) preventing parasitic or opportunistic qui tams, (3) preventing interference with agency policies and programs, and (4) preserving government resources. The Granston Memo encouraged government lawyers to dismiss cases lacking substantial merit if doing so would “advance the government’s interests, preserve limited resources and avoid adverse precedent.”

Historically, the government has rarely exercised its power to dismiss FCA qui tam actions, dismissing only 45 cases between 1986 and 2018. The government has moved to dismiss about the same number of actions since the Granston Memo was issued just two years ago. Courts disagree on the standard to apply to the government’s motion to dismiss a filed qui tam complaint.7 Under either standard however, the filing of a motion to dismiss by the government is a likely death knell for a qui tam lawsuit.

Courts have granted the government’s motions to dismiss in all but two instances, and appeals of these two orders are pending before the Seventh and Ninth Circuits.8 It remains to be seen whether the increased prospect of a government motion to dismiss a qui tam complaint will lead to a meaningful decrease in the number of filed actions.

Another significant development in 2019 was the promulgation of the FCA Cooperation Policy, which built upon other DOJ policies designed to incentivize cooperation. Under the policy, FCA defendants can earn a reduction in penalties and damages by voluntarily disclosing misconduct, cooperating with investigations, and/or taking remedial measures. The policy offers defendants and targets of investigations a useful roadmap when anticipating or facing FCA litigation.9 The FCA Cooperation Policy has benefited the healthcare industry and other frequent industry targets of FCA litigation by inserting a level of predictability and uniformity in how the government views and credits cooperation.

Qui Tam Litigation and Regulatory Reform

In prepared remarks delivered in January of this year to the Advanced Forum on False Claims and Qui Tam Enforcement, Deputy Associate Attorney General Stephen Cox addressed trends in FCA litigation through the prism of regulatory reform. Both of the recent developments discussed above — increased government motions to dismiss qui tams and cooperation credit — were among the policies highlighted and expressly tied to the Trump Administration’s push for regulatory reform.10

Cox pointed to motions to dismiss qui tams as consistent with de-regulation, citing a number of examples where dismissals were necessary to “rein in overreach in whistleblower litigation,” including “copycat complaints” funded by a for-profit private investment group against healthcare-related companies across the country. The likely take-away is that the government will increasingly rely on motions to dismiss to (a) protect scarce resources and (b) lessen the burden on regulated industry in responding to unmeritorious or frivolous qui tam cases.

Cox also highlighted that government attorneys will continue to have discretion to credit companies’ cooperation in the FCA arena, making clear that robust compliance programs may be considered by DOJ in evaluating whether to pursue FCA action at all. He linked DOJ’s FCA cooperation policy to the administration’s regulatory reform agenda, stating that “good corporate citizens that effectively police themselves should not be subjected to unnecessary enforcement costs.”

As evidenced by recent statistics on FCA recoveries and qui tam filings, the FCA remains an important tool for the government in responding to a wide variety of fraud targeting its programs and tax-payer dollars, and enforcing the FCA remains a top priority for DOJ. It remains to be seen whether and how a continued emphasis on FCA litigation will co-exist with the government’s current over-arching goal of reducing costs and burdens on regulated industry.

Matthew Diggs is a partner at Davis Wright Tremaine in the firm’s White Collar, Investigations & Government Controversies practice in the Seattle office. He’s a former Assistant U.S. Attorney for the Western District of Washington with a particular focus on healthcare fraud. Benjamin Robbins is an associate at DWT where he represents clients in complex commercial litigation, focusing on intellectual property disputes, class action defense, and government investigations. They can be reached at DWT at 206-622-3150.

1 31 U.S.C. § 3730(b)

2 See id. at (d)

3 See id. at (c)

4 https://www.justice.gov/opa/speech/acting-assistant-attorney-general-stuart-f-delery-speaks-american-bar-association-s-ninth

5 https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019

6 https://www.justice.gov/opa/press-release/file/1233201/download

7 Compare Ridenour v. Kaiser-Hill Co., L.L.C., 397 F.3d 925 (10th Cir. 2005) (applying “rational relation to a valid government purpose” test) and U.S. ex rel., Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (same), with Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003) (government has “unfettered right” to dismiss FCA action).

8 See United States ex rel. CIMZNHCA, LLC v. UCB, INC., No. 17-CV-765-SMY-MAB, 2019 WL 1598109 (S.D. Ill. Apr. 15, 2019); United States v. Acad. Mortg. Corp., No. 16-CV-02120-EMC, 2018 WL 3208157 (N.D. Cal. June 29, 2018).

9 See DOJ Manual § 4-4.112.

10 https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-provides-keynote-remarks-2020-advanced.

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