Earlier this month, the Supreme Court denied certiorari in United States ex rel. Laurence Schneider, et al. v. JPMorgan Chase Bank, refusing to decide whether the federal government is entitled to absolute deference regarding its decision to dismiss an action brought pursuant to the False Claims Act (“FCA”).
The FCA deputizes private citizens to stand in the place of the federal government and bring a civil suit for fraud perpetuated against the federal government. For example, if a whistleblower has information regarding a company submitting fraudulent claims for reimbursement to the federal government, that whistleblower may bring suit on behalf of the government as a “relator.” If a relator is successful in their action, he/she is entitled to a percentage of the damages owed to the government.
The FCA provides that the government may intervene in an action brought by a relator within 60 days of receiving both the complaint and material evidence and information. Also, the government may dismiss an action brought by a relator, regardless of the relator’s objections, as long as the relator is provided with an opportunity for a hearing on the government’s attempted dismissal. In January of 2018, Michael Granston, Director of the Commercial Litigation Branch of the Department of Justice (“DOJ”), released a memorandum instructing United States attorneys to consider dismissal of legally or factually insufficient FCA cases when making a determination about whether the government should intervene. He indicated that the dismissal of meritless cases can will help in freeing up governmental resources, prevent the creation of adverse precedent, and preventing parasitic or opportunistic FCA actions. Since the issuance of Granston’s memorandum, the DOJ has dismissed numerous FCA cases, citing the preservation of the preservation of government resources or protecting conduct which the government does not view as fraudulent.
In the Schneider case, the government stepped in and dismissed the relator’s case, and after D.C. Circuit sustained the dismissal, the relator asked the Supreme Court to clarify the limits of the government’s ability to dismiss FCA suits brought by relators. The issue seemed ripe for review because a split has emerged among federal circuit courts. Namely, the Ninth and Tenth Circuits have adopted a two-step analysis to test the adequacy of the government’s justification for dismissal, under which a court is to determine if (1) there exists a valid governmental purpose and (2) a rational relation between the dismissal and the accomplishment of the established governmental purpose. Other courts, such as the appellate court for the District of Columbia, have held that the government has an unfettered right to dismiss an action, unless there has been fraud on the court.
Unfortunately, the Court declined Schneider’s petition for writ of certiorari, allowing lower federal courts to continue to grapple with the issue for the time being. However, if the DOJ continues to systematically dismiss FCA cases brought by relators, the Court may have to eventually decide the issue. On one hand, it stands to reason that, since an FCA relator is functionally bringing the United States’ claim, the government should be able to exercise discretion in dismissing FCA cases. However, the interests of the decision-makers in the DOJ may not always match those of the United States government as a whole and the limited resources of the government in preventing and seeking redress for fraud is precisely why Congress deputized relators to bring FCA claims. Moreover, relators take big risks in blowing the whistle on fraud, and if their claims can be dismissed at the DOJ’s discretion, it may deter future others from bringing cases in the future.
The legal team at SFMS has significant experience litigating FCA matters. If you have any questions regarding this subject or this posting, please contact John Roberts (firstname.lastname@example.org) or Alec Berin (email@example.com). We can also be reached toll-free at (866) 540-5505. Shepherd, Finkelman, Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, And Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iag.global), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us online.
Author: Michael Ols