The “Granston Memo” has proven to be a boon again in 2019 for False Claims Act (“FCA”) defendants.  In a January 15, 2019 Sheppard Mullin FCA Defense Blog article, we highlighted a growing movement by the Department of Justice (“DOJ”) to utilize its dismissal power on meritless and burdensome qui tam FCA cases following an internal policy memorandum issued in early 2018, now dubbed the “Granston Memo.”  The Granston Memo encouraged DOJ attorneys to seek dismissal of such cases where it served one or more important policy objectives.  The DOJ has met with almost uniform success in its continued focus on this effort: since the Memo issued, the DOJ has sought dismissal in 36 cases and been unsuccessful only twice. 

The FCA allows DOJ to seek dismissal of FCA cases over objections by qui tam relators, even of cases in which DOJ elects not to intervene.  See 31 U.S.C. § 3730(c)(2)(A).  The FCA does not state what standard of review courts should use in deciding whether to grant dismissal, however.  This has led to a circuit split among the DC Circuit, which gives DOJ “unfettered discretion” in dismissal, and the 9th and 10th Circuits, which require a “rational relation” between dismissal and a “valid governmental purpose.”  Most courts hearing dismissal motions in 2019 declined to adopt officially either standard of review, instead opting to hold that DOJ’s motions met both standards.

Such was the case in United States ex rel. NHCA-TEV, LLC, et al. v. Teva Pharmaceutical Products Ltd., et al., where the court noted “the significant amount of deference that both standards give the Government.”  Case No. 17-02040 (E.D. Pa. Nov. 25, 2019), at 5.  In Teva, the Eastern District of Pennsylvania granted DOJ’s motion to dismiss a qui tam complaint against Teva Pharmaceuticals and related entities brought by a professional relator, NHCA-TEV, LLC.  NHCA claimed in Teva and 11 nearly identical cases brought in various district courts that drug manufacturers had provided illegal kickbacks in the form of free nursing and reimbursement assistance associated with particular drug prescriptions.  NHCA alleged that these complimentary services violated the Federal Health Care Program Anti-Kickback Statute and resulted in false claims for payment by the receiving providers.  In considering DOJ’s motion to dismiss, the court held that DOJ had identified two valid governmental purposes served by dismissal: (1) preserving government resources, and (2) protecting policy prerogatives of Medicare and Medicaid.  The court found a rational relation between dismissal and both stated reasons and noted that “[t]his is not a rigorous test.”  In April, upon motion by the DOJ, the Eastern District of Pennsylvania dismissed a similar case by NHCA against EMD Serono and Pfizer.  See United States ex rel. SMSPF, LLC, et al. v. EMD Serono, Inc., et al., Case No. 16-5594 (E.D. Pa. Apr. 3, 2019).

The January 15, 2019 Sheppard Mullin FCA Defense Blog article (see above) reported on the DOJ’s efforts to dispose of Teva and the other cases brought by NHCA and its related shell companies.  Teva was the last of the 12 to be decided.  All but one of those cases were either dismissed upon motion by DOJ or voluntarily dismissed by relators, though several appeals by the relators are pending.  The one exception is the Southern District of Illinois in United States ex rel. CIMZNHCA, LLC, et al. v. UCB, Inc., et al., Case No. 17-CV-765 (S.D. Ill. Apr. 15, 2019).  The relator in UCB alleged illegal kickbacks through nursing and reimbursement services in connection with prescriptions of UCB’s drug, Cimzia.  However, the Southern District of Illinois diverged completely from the other district courts, holding that DOJ’s review of the allegations fell short of a “minimally adequate investigation” to support its dismissal request, and also noting that DOJ had not done an adequate cost-benefit analysis to support its stated purpose of conserving public resources.  The court even suggested that the DOJ’s proffered reasons for dismissal were pretext for DOJ’s apparent “animus” toward professional relators, citing the more than six pages of DOJ’s brief devoted to criticizing NHCA.  DOJ’s appeal of this decision is pending before the 7th Circuit.

DOJ previously met with a similar setback in the Northern District of California in a case related to mortgage fraud, where the court held that DOJ had not done an adequate investigation of relator’s allegations before seeking dismissal.  The DOJ appealed the court’s denial of its motion, but the 9th Circuit cast doubt on DOJ’s right to even appeal its failed motion.  See United States v. United States ex rel. Gwen Thrower, Case No. 18-16408 (9th Cir. Nov. 14, 2019).

These are minor blemishes on a near-perfect record, however.  The DOJ has been so successful at getting cases dismissed that some Congress members are taking notice.  Senator Chuck Grassley (R-Iowa) wrote a letter to the Attorney General in September of this year expressing concern that the Granston Memo could “undermine the purpose of the False Claims Act by discouraging whistleblowers and dismissing potentially serious fraud on the taxpayers.”  Regardless, if there is a lesson to be learned from the two instances in which DOJ failed to procure dismissal, it is that FCA defendants should be prepared to provide enough information to the DOJ so that, if need be when seeking dismissal, DOJ can show that it conducted more than a cursory investigation of the relator’s allegations and be able to explain the associated cost-benefit analysis to support dismissal.