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FCA Qui Notes
October 23, 2018

The Continuing Saga of "Granston Dismissals" Over Relator Objection

Qui Notes: Unlocking the False Claims Act

As we reported earlier this month, courts continue to reach mixed results about how to assess government motions to dismiss False Claims Act (FCA) cases over relator objections following the infamous "Granston Memo," which encouraged such motions under appropriate circumstances. A recent decision from the Idaho US District Court appears to be the fourth decision since the Granston Memo and provides another exemplary framework where the Department of Justice will seek dismissal despite a relator's wish to continue prosecuting the case.

In U.S. ex rel. Toomer v. Terrapower, LLC et al, No. 16-cv-00226, 2018 WL 4934070 (Oct. 10, 2018), the relator alleged that defendants, working under a cooperative research and development grant, had failed to disclose a newly developed invention to the government, as required per the agreement. The government chose not to intervene, and further, moved to dismiss, arguing that the benefits of dismissal outweighed any benefits of proceeding.

First, the government noted that it had not yet lost any property rights or suffered any damages, and retained the opportunity to lay claim to the new invention if and when it was ever declared patentable (proceedings on that question were still pending before the US Patent and Trademark Office). This stands in somewhat ironic contrast with the many times the United States has maintained that actual damages or loss are not required in order to establish FCA liability. Here, of course, the government did not disclaim liability, but rather said that the FCA case was not worth pursuing at this time. At the government's insistence, the case was dismissed with prejudice only as to the relator, not to the government's ability to reinstitute the case later if warranted.

Second, the government argued that continued litigation would "waste substantial government time and resources," given the inevitable involvement of government employees and contractors even if the United States did not intervene. Substantial government expenditures even absent intervention is, of course, frequently experienced in FCA cases litigated by relators, but here the government observed that these expenses would be wasted if the defendant never obtained a patent, meaning that the FCA case expenses would be for naught if there never was a valuable invention rights not disclosed.

Third, the government was concerned that continuing with the FCA case would disrupt important continuing work under the collaboration agreement and discourage others from engaging in future collaborative pursuits. It is surely an encouraging sign for the government to be educating courts that dismissal is warranted because allowing meritless FCA cases to proceed has the adverse public impact of discouraging contractors from supporting important government needs.

Finally, the government, having investigated the FCA allegations, argued that they were not viable. "Curbing meritless qui tams" is the first reason for seeking dismissal discussed in the Granston Memo. The court ignored this argument, however, observing that the motion could be granted even if the FCA claims are viable. While this is consistent with the low bar established for granting such motions, it might be hoped that courts would be even more comfortable dismissing an FCA case where the government's own lawyers conclude it lacks merit.

Not surprisingly, the Idaho court followed the analytical framework for such motions established by its controlling circuit in Sequoia Orange Co. v. Gaird-Neece Packing Corp., 151 F.3d 1139, (9th Cir. 1998). That decision permits dismissal over the relator's objection once the government shows (1) a valid government purpose and (2) a rational relation between that purpose and the requested dismissal. That test, now also followed in the 2nd and 10th Circuits, remains in conflict with the more lenient test adopted in Swift v. United States, 318 F.3d. 250 (D.C. Cir. 2003), which rejected Sequoia and held that government requests to dismiss are free from judicial constraint, just as decisions not to prosecute are unreviewable. The Swift view has been given favorable (but not binding) treatment in the 4th and 5th Circuits.

In both Sequoia and Swift, the government conceded that the FCA contentions were meritorious, and the courts treated the dismissal motions as analogous to prosecutorial discretion. But, an important principle distinguishes the cases. In Sequoia, absent any guidance in the FCA, the court approved a two-part test developed by the district court and relied on legislative history for support. In Swift, by contrast, the court held that government decisions to seek FCA dismissal are unreviewable because the decision whether to bring an action on behalf of the United States is committed to the government's "absolute discretion." 318 F.3d. at 253 (rejecting as inapposite the legislative history cited in Sequoia which related to an unenacted version of the 1986 FCA amendments).

The Toomer decision is good news for defendants who have been waiting all year to see whether or not the Granston Memo would actually pay dividends. It models the government's willingness to make Granston dismissal motions and provides a roadmap to follow in pitching such dismissals in the future. Though there has been no torrent of dismissals by any measure, opinions such as this one give the FCA defense bar reason to remain optimistic for the future.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.