Within the past few months, the Department of Justice (the “DOJ”) has released a series of memos that indicate a shift in its policy related to the treatment of agency guidance documents.  This memorandum seeks to explain this policy shift and analyze its potential impact in the area of False Claims Act (“FCA”) enforcement.

On November 16, 2017, Attorney General Jeff Sessions issued a memorandum (the “Guidance Policy”) prohibiting the DOJ, including its various divisions and personnel, from issuing guidance documents that “purport to create rights or obligations binding on persons or entities outside the Executive Branch” without first undergoing the notice-and-comment rulemaking process established in the Administrative Procedures Act (“APA”).[1]  The memorandum also prohibited the DOJ divisions from using such guidance documents to coerce regulated parties into certain behaviors beyond the requirements of the applicable regulation or statute.

As part of the Guidance Policy, Attorney General Sessions directed the Assistant Attorney General to work with the various DOJ divisions to identify particular guidance documents that ought to be replaced, repealed, or modified.  On January 25, 2018, former Assistant Attorney General Rachel Brand expounded upon the Guidance Policy in a memorandum to the DOJ’s Civil Division (the “Brand Memo”), noting that while the Civil Division may continue to use agency guidance documents for “proper purposes,” such as to explain existing statutes or regulations, it may not use its enforcement authority to treat guidance documents as binding rules.[2]  Significantly, the Brand Memo indicated that the Guidance Policy should not only apply to the DOJ’s own guidance documents, but also to other agency guidance documents in affirmative civil enforcement actions.  The Brand Memo noted that these affirmative civil enforcement actions include the DOJ’s filing of civil lawsuits related to federal health, safety, civil rights, or environmental laws.

The Brand Memo’s definition of a guidance document is broad, including “any agency statement of general applicability and future effect,” whether styled as such or not, “that is designed to advise parties outside the federal Executive Branch about legal rights and obligations.”[3]

One area in particular where the Guidance Policy and Brand Memo are likely to have influence is the DOJ’s attitudes on enforcement of the FCA.  The FCA’s qui tam provision permits whistleblowers, known as relators, to sue parties alleged to have engaged in fraud against the Government.  The Government can step into the place of the plaintiff in these matters at its discretion, and, if the Government chooses to intervene, defendants may be liable for fraud penalties as well as treble damages.[4]

The Brand Memo combined with other DOJ signals may indicate a shift in the way the current administration intends to approach FCA matters.  In sum, the DOJ’s recent guidance may be beneficial for defendants in FCA actions.

The Brand Memo specifically identifies the FCA as an area of enforcement contemplated by the DOJ in its issuance of the Guidance Policy.  Furthermore, the DOJ in a leaked January 10, 2018 memorandum (the “Granston Memo”) directed its attorneys to refrain from prosecuting “meritless” FCA cases brought by whistleblowers.[5]  Under 31 U.S.C. § 3730(c)(2), the Attorney General is authorized to dismiss a qui tam action over a relator’s objection—yet in the past, the Government has rarely taken such a step.[6]  Typically, if the Government declines to intervene in an FCA action the relator is permitted to proceed as the plaintiff in the matter.  Now, the Granston Memo encourages DOJ prosecutors to consider exercising the affirmative dismissal option if doing so would help to (1) curb meritless qui tam suits, (2) prevent parasitic or opportunistic qui tam actions, (3) prevent interference with agency policies and programs, (4) control litigation brought on behalf of the United States, (5) safeguard classified information and national security interests, (6) preserve Government resources, or (7) address egregious procedural errors.[7]  This message was echoed – this time publicly – on February 28, 2018 when Deputy Associate Attorney General Stephen Cox indicated that the DOJ was interested in focusing its FCA enforcement efforts on “the most worthy cases,” and would therefore “exercise its dismissal authority in appropriate cases.”[8]

The DOJ’s clarifying guidance regarding the use of the affirmative dismissal option, in conjunction with the Guidance Policy, suggests a shift in DOJ policy that is favorable to defendants involved in FCA actions.  Specifically, in cases in which the Government opts not to intervene on the relator’s behalf, the Granston Memo provides defendants with a checklist they can use to proactively petition the Government for dismissal of the action pursuant to 31 U.S.C. § 3730(c)(2).

Furthermore, defendants may see a decrease in the amount of civil enforcement actions filed – particularly in the field of health care law – as the Guidance Policy limits prosecutors’ ability to rely on guidance documents from the Centers for Medicare & Medicaid Services or the HHS Office of Inspector General.  Enforcement in the health care field is particularly susceptible to change because these agencies have historically depended heavily on the use of guidance documents.[9]  In recent years, for example, these federal agencies had issued high volumes of guidance documents following the passage of the Affordable Care Act in order to advise health insurance companies and employers on how to comply with the new law.[10]  With the implementation of the DOJ’s new Guidance Policy, potential targets of DOJ investigations can argue that an enforcement action is either unwarranted or unlikely to succeed now that the Government is unable to rely on the agencies’ internal guidance documents to support their claims.

However, while signs point to a DOJ policy shift more sympathetic to the interests and rights of defendants named in private FCA actions, the Guidance Policy may result in less clarity for companies trying to understand how to best comply with regulations.  Now that the DOJ has expressly disavowed the influence of guidance documents, agencies may have less of an incentive to issue guidance documents in the future.  In some cases, companies may be better off free from the influence of guidance documents more onerous than the actual rules and regulations; in others cases, companies may find themselves navigating in murkier waters.

[1] November 16, 2017 DOJ Memorandum at 1, https://www.justice.gov/opa/press-release/file/1012271/download [hereinafter “the Guidance Policy”].

[2] January 25, 2018 DOJ Memorandum at 1, https://www.justice.gov/file/1028756/download [hereinafter “the Brand Memo”].

[3] Id. at 1 n.1.

[4] See 31 U.S.C. §§ 3729(a), 3730(b).

[5] See January 10, 2018 DOJ Memorandum at 1, https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf [hereinafter “the Granston Memo”].

[6] See 31 U.S.C. § 3770(c)(2); see also Granston Memo at 1 (“Historically, the Department has utilized section 3730(c)(2)(A) sparingly . . . .”); Eric W. Sitarchuck et al., DOJ Memorandum Supports Government Dismissal of Qui Tam False Claims Act Cases, National Law Review (Jan. 25, 2018), https://www.natlawreview.com/article/doj-memorandum-supports-government-dismissal-qui-tam-false-claims-act-cases.

[7] See Granston Memo at 3-7.

[8] Wilson, Daniel, DOJ Leaning More on FCA in Fight Against Opioid Abuse, Law360 (Mar. 8, 2018), https://www.law360.com/articles/1020218/doj-leaning-more-on-fca-in-fight-against-opioid-abuse.

[9] Pear, Robert, Administration Imposes Sweeping Limits on Federal Action Against Companies, The New York Times (Feb. 10, 2018), https://www.nytimes.com/2018/02/10/us/politics/legal-violations-federal-rules.html?mtrref=undefined&mtrref=undefined.

[10] Id.