Thank you, Kip, for that introduction.
I want to thank the Federal Bar Association for organizing this event and for inviting me to speak to you all. I also want to acknowledge our Director of Civil-Frauds, Michael Granston, and our U.S. Attorney here in DC, Jessie Liu, for the hard work they do on behalf of the taxpayer.
Let me also extend our regrets that Rachel Brand could not be here, as originally planned. I was privileged to work alongside our former Associate Attorney General for the past year, so it’s an honor to take her place here to talk about the importance of the False Claims Act in our fight against fraud on the taxpayer, as well as a couple new developments designed to focus our resources on the most worthy fraud investigations.
When someone commits fraud on the taxpayer, we take that very seriously. The False Claims Act is our most important civil enforcement tool to protect the taxpayer from fraud, and using this tool effectively is very important to this Administration and our Department of Justice.
This past fiscal year, the Department recovered more than $3.4 billion for the Treasury using the False Claims Act. Since the 1986 amendments, the Department has recovered a total of $56 billion. These cases are not only about protecting the public fisc through financial recoveries. There are victims of fraud other than the taxpayer, and the False Claims Act protects these potential victims by deterring bad actors. When a company falsely certifies the quality of military equipment, it sends our brave men and women into harm’s way with less protection. When medical providers submit false claims to Medicare, they often fail to provide adequate medical care to their patients. Kick-back schemes not only defraud the government, they also drive up consumer costs, undermine competition, and may distort independent medical decision-making.
Let me pause here to say that it is particularly important to preserve independent medical decision-making in the context of controlled substances, such as opioids. As you know, opioid abuse and addiction have resulted in the loss of far too many lives across the United States, and the fight against this problem is a top priority for the Attorney General. The False Claims Act provides the government with a powerful tool to pursue all of those in the opioid distribution chain that are responsible for the improper marketing, distribution, prescription and diversion of opioids – from pharmaceutical manufacturers to physicians, and everyone in between.
I’ll just mention a couple examples. Last year, we settled a case against Galena Biopharma, a manufacturer of a particularly potent opioid called Abstral, where we alleged that the company paid multiple types of kickbacks to induce doctors to prescribe this drug. As you may know, the Department places great importance on its enforcement of the Anti-kickback Statute since, in addition to undermining the integrity of government health care programs, illegal kickbacks can incentivize doctors to over-prescribe highly addictive opioids. In fact, two of the doctors who received remuneration from Galena were tried, convicted, and sentenced to prison for numerous criminal violations, including prescribing opioids, such as Abstral, outside the usual course of professional practice.
The False Claims Act is a tool we are increasingly using to address the opioid crisis.
Before I turn to a couple new developments in False Claims Act enforcement, I want to talk about our perspective. First of all, it is always worth bearing in mind that the False Claims Act “is not an all-purpose anti-fraud statute, or a vehicle for punishing garden-variety breaches of contract or regulatory violations,” as the Supreme Court recently said in Escobar. There is no shortage of FCA allegations that we can pursue, so we want to focus our attention on the most worthy of cases.
It’s also worth understanding the Department’s role. As the Associate Attorney General put it a couple weeks ago, “we are not your typical litigator or litigant: We don’t represent individual clients in the usual sense... We represent the United States. And when you represent the United States, it’s not just about winning.”
Instead, we have to consider what is fair, and what is in the best interests of the American people. And, as Rachel Brand put it, “We have to think about whether the outcome [we] are seeking is appropriate, not only whether it’s achievable. We … have to think about whether the arguments we make are consistent with law – not just whether we could convince a court to buy them in order to win the case.”
The Acting Director of the Consumer Financial Protection Bureau articulated similar principles last month when he said, “We don’t just work for the government, we work for the people.” At his agency, he called for an end to “pushing the envelope” and an end to “regulation by enforcement” at CFPB.
On this front, I know that we at the Department of Justice remain cognizant that our role is to enforce the rule of law as enacted by Congress and interpreted by courts and avoid any attempts to push the envelope by seeking to regulate through our enforcement efforts.
With that in mind, I’ll turn to the Brand Memo curtailing enforcement of nonbinding guidance documents, and then I’ll discuss the Granston Memo on the Department’s dismissal authority.
The Brand Memo describes the limitations on how government litigators can use sub-regulatory guidance documents in affirmative civil enforcement actions. But before I get into the details, I’d like to give the history and background that led to the Brand Memo. It begins with regulatory reform.
Both the President and Attorney General have prioritized regulatory reform. I have had the privilege of serving as executive director of the Attorney General’s Regulatory Reform Task Force. Our goal is to improve the regulatory process overall and to lead other agencies by example. The first area we thought was ripe for reform was “regulation by guidance document.”
When an agency has statutory authority to regulate and seeks to impose obligations binding on the public, the proper way to exercise that authority is through the formal processes developed by Congress and the President, such as the Administrative Procedure Act’s rulemaking process.
Rulemaking can be cumbersome and slow, of course, and sometimes agencies have used guidance as a short-cut to effectively make new rules when they should have undertaken notice-and-comment rulemaking instead.
In November of last year, the Attorney General announced a new Department of Justice policy, making clear that we will no longer issue guidance documents that effectively bind the public without undergoing the notice-and-comment rulemaking process.
The policy recognizes that guidance documents can sometimes serve as an appropriate, and important, source of transparency. Indeed, there are some statutes that require agencies to issue guidance documents to educate regulated entities. For example, the Small Business Regulatory Enforcement Fairness Act requires agencies to publish compliance guides with plain language likely to be understood by small businesses.
In that light, the Attorney General’s policy articulates several principles that the Department must follow when issuing guidance documents to avoid circumventing our commitment to the rulemaking process. For example, guidance documents should never be used to coerce regulated parties into taking any action beyond what is required by the terms of the applicable statute or regulation. And when guidance documents suggest standards that go beyond what the law requires, they should be clear that compliance with those standards is voluntary and noncompliance should not, by itself, result in an enforcement action.
We hope we can serve as an example for other agencies to follow, and we were proud to learn that the Chairman of the Senate Judiciary Committee, Charles Grassley, sent a letter to the President praising the Attorney General’s policy and suggesting that other agencies follow its commonsense principles.
Some of these same commonsense principles are also reflected in recent recommendations from the Administrative Conference of the United States or “ACUS”, which has been studying the issue of subregulatory guidance documents for decades. ACUS recommended in December that all agencies avoid using guidance “to create a standard binding on the public, that is, as a standard with which noncompliance may form an independent basis for [enforcement] action,” and to make clear that “the public may take a lawful approach different from the one set forth in” a guidance document.
The Brand Memo puts those principles to work in our affirmative civil enforcement actions, including False Claims Act cases. The Brand Memo makes clear that we won’t be using noncompliance with a guidance document to prove a violation of the applicable statute or regulation. In other words, we won’t use our affirmative civil enforcement authority to effectively convert a nonbinding guidance document into a requirement that has the force or effect of law. On the other hand, the Brand Memo acknowledges that there may be circumstances when a guidance document can be used properly without undermining the policy.
So what do we mean by that? Let’s talk about how this may play out in the False Claims Act context.
Suppose the Department is pursuing a case based on the theory that a party falsely certified to the government that it complied with a particular regulatory requirement when submitting a claim for payment, and the party knew that the regulatory requirement was material to the government’s decision to pay claims. Further suppose there are multiple nonbinding agency guidance documents about that regulatory requirement.
Let’s take an easy example first. There may be an agency alert that simply paraphrases and explains, in layman’s terms, the requirements to comply with the regulation. If there’s evidence that a regulated party received the alert, reviewed and understood the alert, and then refused to do what the regulation requires, then the guidance document could be relevant to scienter or reckless disregard.
On the other hand, if there’s a guidance document that expands upon that regulatory requirement – by suggesting that there are additional requirements or prohibitions that go beyond what the regulation actually says – then we’re not going to use noncompliance with those supposed “requirements” to show that a party violated the regulation.
To take a slightly more complicated example, suppose there is a guidance document offering the agency’s nonbinding interpretation of an ambiguity in the law. What a regulated party does with that guidance document in some circumstances may be relevant to the party’s knowledge—for example, if the party gets legal advice confirming that the guidance is reflective of binding judicial precedent. But just because someone receives the guidance document does not necessarily mean that he knew that the agency’s interpretation was correct or that a different interpretation of the law would be unreasonable or unlawful. Sometimes a statute or regulation can be reasonably interpreted in different ways, and if an agency wants to make its own interpretation binding on the public, it should do so through the requisite rulemaking process.
These are just examples, and the devil is always in the details. Our office is working with the Department’s litigators to make sure they understand where the lines are. But hopefully this is a useful illustration of what the policy means in the False Claims Act context. The bottom line is that the Department is being careful about its use of nonbinding guidance documents in False Claims Act enforcement. As I mentioned earlier, the Supreme Court has emphasized that the False Claims Act “is not a vehicle for punishing garden-variety … regulatory violations.” The Brand Memo makes clear that the False Claims Act is also not a vehicle for punishing noncompliance with nonbinding guidance documents.
Now that we’ve discussed the Brand Memo and its application to the Department’s False Claims Act cases, let me now turn to qui tam cases brought by relators.
As we all know, the success of the False Claims Act is due in large part to the partnership between the federal government and whistleblowers. Since 1986, nearly 70% of all False Claims Act recoveries can be attributed to qui tam matters. And of the recoveries last year, more than $3 billion was recovered in qui tam cases. Relatedly, since 2011, more than 600 qui tam cases have been filed annually, and in many years the number of cases topped 700.
The numbers alone, however, do not fully capture the impact of qui tam cases. Whistleblowers are often uniquely situated to bring fraudulent practices to light. This is particularly true of whistleblower suits filed by corporate insiders, who have frequently disclosed complex corporate wrongdoing that the government would have been hard-pressed to understand and unearth without their assistance.
Despite the significant role that qui tam cases continue to play in the Department’s False Claims Act efforts, however, it remains the case that the Department intervenes in only about 1 in 5 cases that are filed. But even the other 4 in 5 cases consume Department time and resources – not only in investigating them initially, but also in terms of monitoring any ensuing litigation if the relator elects to proceed.
As False Claims Act filings continue to increase, it is incumbent on the Department to properly leverage our resources so we can stay on top of these filings and continue to effectively fight fraud.
It’s worth recalling that we litigate our cases in the interests of justice – this perspective also informs the way we view qui tam cases. That is because when relators litigate cases in which the Department declines to intervene, the relators essentially stand in the shoes of the Attorney General. Because relators may not always have the same interests as the United States, we take very seriously our responsibility to monitor False Claims Act cases when we decline to intervene. Indeed, the Department serves an important role as a gatekeeper. As such, in certain cases, the Department exercises its authority to dismiss False Claims Act cases when dismissal is in the best interests of the United States.
You may have heard about the Granston Memo, which contains internal guidelines for our litigators in determining when it is appropriate to exercise our dismissal authority. This authority is an important tool to protect the integrity of the False Claims Act and the interests of the United States.
There are a number of reasons why it might be appropriate for the Department to dismiss a False Claims Act case. I’ll just focus on a few. First, dismissal is appropriate where the underlying factual or legal theories clearly lack merit. Monitoring any meritless cases is not a good use of Department resources, litigating these cases is not a good use of judicial resources, and forcing defendants to defend these cases is not in the interests of justice, and thus not in the interests of the American people. And of course, bad cases can produce bad law, which can significantly impair the Department’s ability to combat fraud in meritorious cases.
Dismissal may also be warranted if the government does not believe that it suffered harm, regardless of whether a false claim was submitted. For example, the agency that administers a program might have the position that it was not defrauded or that the alleged false claim was immaterial to its payment. This point about materiality is consistent with the Supreme Court’s decision in Escobar, which emphasized that materiality is a demanding requirement of False Claims Act liability that “looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” The Court also said that strict enforcement of the materiality requirement (along with scienter) is what effectively addresses concerns about fair notice and open-ended liability. In that light, the Department is working to ensure that we fully understand our client agencies’ views on materiality or immateriality so that we can make the right judgment in determining when to seek dismissal.
Ultimately, it is in the interests of everyone – including the Federal Government and, importantly qui tam relators – for the United States to exercise its dismissal authority in appropriate cases. When we don’t exercise the dismissal authority in non-meritorious qui tam cases, this not only imposes obvious costs on defendants, but it results in substantial costs that the government must bare to monitor the enormous docket of declined qui tam cases and the costs incurred when an agency gets dragged into those cases through discovery.
Moreover, failing to exercise dismissal authority may result in courts lumping together close cases with frivolous ones, potentially causing courts to skeptically view all declined cases. The government takes its responsibility seriously, and we will use our dismissal authority where necessary to protect the long-term interests of both the government and relators in maintaining a vigorous and effective False Claims Act.
In conclusion, as I mentioned earlier, the False Claims Act is an important tool that the Government has to protect the public fisc and to protect the American people by deterring fraud. I hope today has helped you understand the Department’s prioritization of False Claims Act Enforcement and how our policies serve to protect the integrity of the Act by focusing our limited resources on the most meritorious cases and the most legally viable theories, which we think we will make our False Claims Act enforcement even more effective.
Thank you again for having me here today.
Thank you, Kip, for that introduction.