The Seventh Circuit’s recent decision in U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc. widens the Circuit split on the standard of review applicable when the government seeks to dismiss a qui tam case under the False Claims Act (“FCA”). The FCA, 31 U.S.C. § 3730(c)(2)(A), provides that the government may dismiss a qui tam case without the relator’s consent if the relator is given notice and an opportunity to be heard. Although the Department of Justice (“DOJ”) has increasingly exercised its dismissal authority since issuance of the “Granston Memo” in January 2018—which encouraged DOJ attorneys to consider seeking dismissal if in the best interests of the government—as the Seventh Circuit noted, the FCA does not indicate “how, if at all,” courts are “to review the government’s decision to dismiss.” Circuit Courts have taken divergent views in answering that question.
Circuit Court Decisions
The D.C. Circuit, in Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003), decided that the government has an “unfettered right” to dismiss based on the Executive branch’s “historical prerogative” to decline to prosecute a case. The Ninth Circuit, in U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), and the Tenth Circuit in Ridenour v. KaiserHill Co., LLC, 397 F.3d 925 (10th Cir. 2005), imposed a rational-relation test: the government must establish a rational relation between dismissal and the accomplishment of a valid government purpose. If the government satisfies this test, the burden shifts to relator to show that dismissal is fraudulent, arbitrary and capricious, or illegal. So far, the Supreme Court has declined to step in, denying certiorari in April 2020 in United States ex rel. Schneider v. JP Morgan Chase Bank on the question of whether the government’s dismissal decisions constitute an “unreviewable exercise of prosecutorial authority.” Now, however, the Seventh Circuit has articulated a new standard, relying on Federal Rule of Civil Procedure 41(a) governing voluntary dismissals by plaintiffs.
The CIMZNHCA Decision
The relator in CIMZNHCA was one of several companies formed for the purpose of prosecuting 11 qui tam actions alleging defendants violated the Anti-Kickback Act by providing free education services and assistance with completing insurance paperwork to doctors who prescribed Cimzia to patients. The government moved to dismiss, without intervening in the action, on the grounds that the case lacked merit, but also that it would be too costly to monitor and respond to discovery requests. During the hearing on the motion, the government conceded that relator’s claims alleged a “classic violation” of the law, but that it did not review materials relevant to the case aside from the complaint and attached disclosure materials, or conduct a cost-benefit analysis. The district court denied the government’s motion to dismiss, holding that its decision did not satisfy the rational-relation test, was “arbitrary and capricious,” and likely motivated by animus towards the relator.
The Seventh Circuit reversed. It held that Federal Rule of Civil Procedure 41(a) was “the beginning and the end” of its analysis. Rule 41(a)(1)(A)(i) provides that subject to “any applicable federal statute, the plaintiff may dismiss an action without a court order” by serving a notice of dismissal any time “before the opposing party serves either an answer or a motion for summary judgment.” Recognizing that the language of Rule 41(a)(1)(A)(i) did not authorize an intervenor-plaintiff, such as the government, to effect the involuntary dismissal of the original plaintiff, the court held that § 3730(c)(2)(A) of the FCA, which allows the government to seek dismissal over the objections of the relator, bridged the gap. The court stated that this was the only authorized statutory deviation from Rule 41. If the government’s time to dismiss the action under Rule 41(a)(1)(A)(i) had passed, the court held that Rule 42(a)(2) would apply, which provides that “an action may be dismissed at the plaintiff’s request only by court order, on terms that the court considers proper.”
The court acknowledged that allowing the government to rely on Rule 41(a)(1) to dismiss a qui tam action, without any substantive standard for evaluating whether dismissal was appropriate, meant that that the FCA’s requirement for a hearing on the motion would often serve little purpose. Nevertheless, the court stated that this fact did not warrant imposing the Sequoia Orange rational-relation test on the government, where such a test was not supplied by Congress in the statute. The court also rejected the D.C. Circuit’s suggestion in Swift that the function of a hearing “is simply to give the relator a formal opportunity to convince the government not to end the case.” Instead, the court reasoned that a hearing may be needed in certain exceptional cases, such as to review the dismissal for potential fraud on the court. The court also left open possibility that the government’s conduct could be so arbitrary and egregious that it violates due process.
The court concluded that relator’s problem was that it had “no substantive case to make” against dismissal at the hearing. The court held that the government was not required to support its decision to dismiss with a “particularized dollar-figure estimate of the potential costs and benefits of” the relator’s lawsuit, rather than a general review of the relator’s activities. The court noted that the government had repeatedly determined, in various guidance documents, advisory opinions, and final rulemakings, that the type of conduct engaged in by defendants was lawful and beneficial to the public. The court agreed the government’s assessment that CIMZNHCA was created as an investment vehicle for “financial speculators” that had not acted in the best interests of the government.
Significantly, the CIMZNHCA case had previously caught the attention of Senator Grassley, a key sponsor of the FCA’s 1986 amendments. Senator Grassley highlighted the district court’s opinion in a letter to Attorney General Barr, asking DOJ to explain the cost-benefit analysis it used when seeking to dismiss qui tam cases based, at least in part, on preserving government resources. He urged DOJ to keep in mind that the FCA qui tam provision was intended to give “whistleblowers the ability to proceed with claims on their own precisely for situations in which DOJ either would not or could not pursue the case.” Senator Grassley has indicated that he plans to put forward a bill to curb DOJ dismissal efforts.
The DOJ’s increasing use of its authority to dismiss non-meritorious qui tam cases is a favorable development for defendants. It also means that more courts will likely grapple with construing § 3730(c)(2)(A) of the FCA and the standard of review applicable to government motions to dismiss, as the Seventh Circuit recently has. The Seventh Circuit’s decision in CIMZNHCA, relying on Rule 41(a), limited only by due process, widens the split between Swift’s absolute discretion standard and the Sequoia Orange rational-relation test. Legislative developments may also be on the horizon. Defendants should monitor these developments, and keep in mind the divergent standards when considering whether to broach the subject of dismissal with the government.