A recent dismissal of a qui tam action demonstrates there exists an affirmative approach for disposing of wasteful and meritless non-intervened qui tam claims without the time and expense of protracted litigation with relators.
The Department of Justice (DOJ) maintains authority under 31 U.S.C. § 3730(c)(2)(A) to seek dismissal of qui tam cases filed under the False Claims Act (FCA), even over the relator's objection. Historically DOJ has avoided exercising its authority, recognizing the FCA's statutory provisions that expressly allow relators to proceed despite DOJ's decision to decline intervention. DOJ has also stressed that declination may be based on a number of factors unrelated to the merits of the complaint.
Yet in January 2018, DOJ's Director of Civil Fraud Section, Michael Granston, issued a memo outlining the factors for evaluating dismissal of qui tam cases. The memo identifies the following types of cases as candidates for dismissal: (1) non-meritorious cases, (2) cases that are duplicative of preexisting investigations or cases, (3) cases that interfere with agency policies or programs, (4) cases that may interfere with ongoing governmental litigation, (5) cases involving potential adverse impact on protection of classified information, (6) burdensome cases where, for example, the costs of monitoring outweigh the potential recoveries, and (7) cases involving egregious procedural errors or interference by the relator.
Industry questioned whether the memo would result in DOJ exploring dismissal of unworthy qui tam cases with more frequency. Since the memo's issuance, DOJ has sought dismissal in only a handful of currently-unsealed cases, and with mixed results. Fueling the disparity is a circuit split between the Ninth Circuit and the D.C. Circuit, both hotbeds for qui tam actions. The D.C. Circuit recognizes the government has an "unfettered right" to seek dismissal of a FCA case. Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003). The Ninth Circuit, however, requires a more stringent showing by the government, applying a two-part due process analysis to test the justification for dismissal: "(1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose…If the government satisfies the two-step test, the burden switches to the relator ‘to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal." United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998).
Perhaps the recent dismissal in United States ex rel. Toomer v. TerraPower LLC et al, Case No. 4:16-cv-00226 (D. Idaho Oct. 10, 2018) will advance DOJ's use of its § 3730(c)(2)(A) authority. The complaint alleged that TerraPower, LLC and Battelle Energy Alliance, LLC conspired to submit false claims by failing to disclose to the government inventions that TerraPower developed using government funds. TerraPower held a research and development vehicle, known as a Cooperative Research and Development Agreement (CRADA), with Battelle, the Department of Energy (DOE) Management & Operating (M&O) contractor at Idaho National Laboratory. The relator alleged TerraPower developed a "duplex liner" using funding from a 2012 CRADA but never disclosed the invention to DOE as required by the agreement. TerraPower claimed the invention was background intellectual property in a 2014 disclosure to Battelle. In support of the conspiracy charge against Battelle, the relator alleged Battelle failed to pursue the issue and withheld the information from DOE. The relator theorized that the United States was deprived of property in which it had an interest and that manufacturing this technology overseas deprived the United States of valuable jobs and taxes.
DOJ filed a motion to dismiss the relator's complaint, citing three primary reasons in support. The cited bases align with the Granston memo, although notably DOJ filed the motion to dismiss prior to the memo's issuance. In a compelling and straightforward brief, DOJ urged dismissal because:
1. Further litigation was contrary to the United States' interest for several reasons:
First, DOJ asserted that the government had lost no rights and had not been damaged. No patent had yet been issued and even if a patent were to issue, the government maintains waiver rights under the Atomic Energy Act (AEA). Further, the product had yet to be manufactured so DOJ's non-exclusive license in a non-patentable invention that had yet to be practiced had no value.
Second, DOJ said its resources would be wasted monitoring the litigation by having to aid in the court's deliberations with statements of interest given the relator's "misconceptions" about the CRADA and AEA and supporting requests for discovery. DOJ also reminded the court that Battelle's costs to defend against the case, assuming they were ultimately successful, may be considered allowable costs under the M&O contract.
Third, allowing the case to proceed could impact collaboration between the government and private industry by creating a perceived barrier to entry for new research partners.
Fourth, DOJ objected to the relator's attempt to force DOE to make premature determinations regarding the subject invention inquiry, an endeavor DOE had purposefully avoided for the time being.
Finally, and perhaps most relevant, the relator failed to identify a viable case. His case was based on "a fundamental misunderstanding of the patent process for nuclear inventions under the CRADA and the [AEA], and the government's rights in the process." DOJ pointed out there had been no claim for payment and scienter was questionable given (a) the government's knowledge of the issue based on Battelle's disclosure to DOE, and (b) the potential that TerraPower made a reasonable interpretation of the subject invention analysis.
2. The United States had received substantial benefits under the CRADA in the form of access to research, equipment and other in-kind exchanges provided by TerraPower.
3. The relator's federal common law claims were meritless and he lacked the standing to bring non-False Claims Act cause of action on behalf of the United States. The DOJ also noted that a relator may not seek a declaratory judgment when the United States is not seeking such declaration and a third party may not do so on its behalf.
The United States District Court for the District of Idaho agreed and, applying the more stringent two-step test articulated in Sequoia Orange Co., granted the government's motion to dismiss the relator's complaint with prejudice. The court left open the possibility that the government could itself file at a later point.
The DOJ's request for dismissal is consistent with the principles expressed in the Granston Memo, notably that: (1) the qui tam action is lacking in merit; (2) the claim threaten agency policy or programs; and (3) the cost of pursuing the litigation outweigh any benefits of allowing it proceed.
It should be noted that DOJ's request occurred while the case was still under seal and prior to the intervention decision. This procedural posture highlights the need for early and earnest discussions with DOJ by defense counsel on behalf of their client.