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FCA Qui Notes
October 5, 2018

Will the "Granston Memo" Bring to a Head the Split Between Circuits Rooted in Sequoia and Those Making Swift Work of Meritless Qui Tams?

Qui Notes: Unlocking the False Claims Act

It has now been nine months since a memo authored by Michael Granston of the Department of Justice (DOJ) was leaked in which he encouraged DOJ to make use of the False Claims Act (FCA) provision permitting dismissal over relator objections, when appropriate. That memo was met with jubilation by some and measured skepticism by others. Meanwhile, the FCA bar has spent much of the past year waiting to see whether it would have any appreciable effect on DOJ's behavior. Thus far, the skeptics have carried the day. We are aware of only three post-Granston Memo dismissal decisions, although two of them have been successful.

The Granston Memo draws attention to a circuit split that was cast into sharp relief with dueling June decisions, issued the same day and involving the same HUD Federal Housing Administration program. A district court in California refused to grant the government dismissal on the basis that the government had not sufficiently investigated the underlying investigations or the cost to the government of continued litigation. U.S. v. Academy Mortgage Corporation, No. 16-cv-02120, 2018 WL 3208157 (N.D. Cal. June 29, 2018). In contrast, a district court in Kentucky held the opposite, granting dismissal and noting that the statutorily mandated hearing prior to granting such motions was merely to give the relator an opportunity only to "convince the government not to end the case"—not to allow courts to override DOJ's judgment in deciding to dismiss. U.S. ex rel. Maldonado v. Ball Homes, LLC, No. 5:17-cv-379, 2018 WL 3213614 (E.D. Ky. June 29, 2018). Later, in August, a district court in South Carolina likewise granted the government dismissal. U.S. ex rel. Stovall v. Webster University, No. 3:15-cv-03530, 2018 WL 3756888 (D.S.C. Aug. 8, 2018).

The contrasting results in the two June cases can be traced back to 1998, when the Ninth Circuit required the government to show a "valid government purpose" before a qui tam could be dismissed over the relator's objection. U.S. ex rel. Sequoia Orange Co. v Baird-Neece Packing Corp. (9th Cir. 1998). The Tenth Circuit followed suit (see United States ex rel. Ridenour v. Kaiser-Hill Co. (10th Cir. 2005)), while the Second Circuit read Sequoia to mean that although the relator must be given a hearing prior to dismissal, the court need not determine that the government's decision to dismiss is actually "reasonable" (U.S. ex rel. Stevens v. State of Vt. Agency of Nat. Res. (2d Cir. 1998)). In stark contrast to the Ninth, Tenth, and Second Circuits, the D.C. Circuit rejected the Sequoia test, characterizing the government's right to dismiss as virtually "unfettered." Swift v. United States (D.C. Cir. 2003). Subsequently, the Fourth and Fifth Circuits appear to have adopted the D.C. Circuit approach from Swift, albeit only in dicta. See Speed Mining, Inc. v. Fed. Mine Safety & Health Review Comm'n (4th Cir. 2008); Riley v. St. Luke's Episcopal Hosp. (5th Cir. 2001) (en banc). Neither the Sixth Circuit nor the Supreme Court has weighed in on this split, though another district court in Kentucky had joined the Swift camp prior to the recent Maldonado decision. See U.S. ex rel. Levine v. Avnet, Inc., No. 2:14-CV-17-WOB, 2015 WL 1499519, *4 (E.D. Ky. Apr. 1, 2015). Interestingly, the Stovall court ruled that dismissal would be appropriate under either Sequoia or Swift, but failed to cite Speed Mining as circuit-level authority. At *3.

In another recent case that remains pending, DOJ moved to dismiss on public disclosure, standing and a third redacted ground. U.S. ex re. Manchester v. Purdue Pharma, L.P., No. 1:16-cv-10947-MLW (D. Mass.). In a footnote citing Swift, DOJ noted that a qui tam could be dismissed over the relator's objection but that the court need not reach the issue since "other strong grounds exist to dismiss."

With this muddled history as a backdrop and, of course, DOJ's likely reluctance to bite the (relators') hands that feed it too assertively, it is perhaps unsurprising that DOJ's efforts to follow through on Granston's instructions have not been entirely successful. Neither Academy Mortgage, Maldonado, nor Stovall addressed the Granston Memo by name, but if more cases like these are in the pipeline, it may bring the Sequoia/Swift debate to a head sooner rather than later and force circuits like the Fourth and Fifth to clarify what is controlling.

© 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.