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Jennifer A. Short, Tjasse L. Fritz, and Bridget Mayer Briggs
In its upcoming term, the U.S. Supreme Court is poised to address the issue of whether the United States can seek to dismiss a whistleblower’s False Claims Act (“FCA”) lawsuit after it has elected not to participate in the case. And, if it can seek dismissal, what standard should apply?
On June 21, 2022, the Court agreed to consider the matter of United States ex rel. Polansky v. Executive Health Resources, Inc. (Case No. 19-3810). In his cert petition, the whistleblower presses the theory that after the United States declines to intervene in an FCA qui tam case, it lacks any authority to dismiss the action. At a minimum, the petitioner argues that the Court should resolve a long-standing split among the Circuit Courts regarding the standard that applies to such a motion—a split that has splintered even further in response to an uptick in such motions since 2018.
I. Dismissal under Section 3730(c)(2)(A) of the False Claims Act
The FCA does not specifically address the Government’s authority to dismiss a qui tam after declining to intervene. The FCA provision on Government dismissal, 31 U.S.C. § 3730(c)(2)(A), simply provides that the Government may dismiss a qui tam action despite the objections of the whistleblower so long as the whistleblower is notified of the filing of a motion to dismiss and provided an opportunity for a hearing.
II. History of Polansky
Dr. Polansky filed his case on behalf of the United States in 2012, alleging that Executive Health Resources, a healthcare consulting company, had systematically advised its client physicians and hospitals to misclassify patients for inpatient procedures so that they could seek higher reimbursements from Medicare. The government investigated the claims for two years before declining to intervene. Dr. Polansky, however, chose to litigate without the government’s assistance. The litigation continued for the next several years—with Dr. Polansky allegedly accruing approximately $20 million in legal fees—until the government reappeared and sought to dismiss the action. The Pennsylvania Federal District Court dismissed the case, reasoning that the government could satisfy either of the two standards that had been adopted by the Circuit Courts in this circumstance. Dr. Polansky appealed, and the Third Circuit upheld the dismissal.
III. The Traditional, Two-Way Circuit “Split”
When confronted with a government motion to dismiss an FCA case after declining intervention, circuit courts generally have taken two approaches. The first follows the standard set by United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), which adopted a “rational basis” test: the government need only cite a rational basis to dismiss any qui tam FCA case consistent with the Constitution. The second group has followed the standard set by the D.C. Circuit in Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003), which maintains that the government has “unfettered discretion” to dismiss an FCA case because the claims are brought on behalf of, and for the benefit of, the United States, the real party in interest. Although these standards differ, a different result would be rare, with the Government generally obtaining dismissal.
IV. The Split Splinters
While most circuits have chosen to adopt either the Sequoia Orange or Swift approach, a handful of decisions in the last few years have wrestled with the FCA’s (c)(2)(A) procedural intricacies.
For instance, in United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835 (7th Cir. 2020), the Seventh Circuit essentially decided that, despite previously declining intervention, the Government had intended to file a motion to intervene. Once the Government had joined the lawsuit, it could have sought a voluntary dismissal pursuant to Federal Rule of Civil Procedure 41. Accordingly, the CIMZNHCA court held that the Rule 41 standards for voluntary dismissals applied.
V. Polansky’s Position
The Relator in Polansky argues that “the government lacks any FCA dismissal authority after initially declining to intervene and instead vested the relator with ‘the right to conduct the action’—a statutory right framed in unitary terms that this Court has recognized as ‘exclusive.’” Petition for Writ of Certiorari at 4 (citing Vermont Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 769 (2000)) (emphasis in original). In other words, Polansky contends that once the Government declines intervention, it has no dismissal authority at all. Although the Supreme Court has declined in the past to examine the circuit split, the novelty of Polansky’s theory seems to have caught the Justices’ attention.
VI. What Could Happen?
This case will have one of four outcomes with potentially significant implications for how FCA dismissals are handled in the future:
1. SCOTUS selects either the Swift or Sequoia standard
What happens if this is the basis of the ruling? Not much. Current Department of Justice (“DOJ”) guidance is to meet either standard. A ruling will simply clarify the standard and provide more consistency among the circuits.
2. Adoption of a Rule 41 inquiry
A Supreme Court decision to adopt a Rule 41 approach would add another procedural step to a DOJ dismissal, at additional cost to all parties. This result would have few practical implications, with Government-sought dismissals generally approved. It is somewhat unlikely that the Court will latch on to the Rule 41 approach, as it denied certiorari in CIMZNHCA.
3. Adoption of a new standard
The Court could, of course, adopt an entirely new standard couched in constitutional norms or the language of the FCA. For example, the Court could hold that the Government should proceed pursuant to 31 U.S.C. § 3730(c)(3) by filing a post-declination motion to intervene for “good cause” and later dismiss under § 3730(c)(2)(A). Such a result would likely mean that the Government will continue to have fairly broad authority to dismiss cases over a relator’s objection.
4. Adoption of Polansky’s theory
Complete rejection of the government’s authority to dismiss a qui tam FCA case would mark a shift in reasoning behind qui tam litigation in general. In such a case, the Relator would no longer stand in the place of the government but would act on their own behalf with what amounts to a stipulated 2/3 tax on any potential award.
This outcome would force a major shift in DOJ strategy. Specifically, if declination automatically ties its hands, DOJ may decide to be more proactive with its dismissal authority, rather than allowing the relator to proceed. Alternatively, a court-imposed restriction on the government’s rights in any qui tam action may lead agencies to protract pre-claim investigations even further. Either option would have a significant impact on the defendant’s costs—either a reprieve with a quicker dismissal or a heavy burden with continual commercial restrictions and negotiation.
While there are clear policy reasons for permitting the Government to dismiss cases brought on its behalf, it seems unfair to a relator who has spent time, money, and effort if the Government’s ability to dismiss is absolute. Such a regime might discourage whistleblowers to file suit in the first place. These are interests the Supreme Court is likely to try to balance in addressing this issue.
Regardless of the outcome of Polansky, the morass involved in post-declination dismissals demonstrates that defendants should aim to convince the Government to dismiss a case that lacks merit before making an intervention decision. However, should the Government decline to intervene and a relator pursues a case, a qui tam defendant should continue efforts to demonstrate a lack of merit to the Government.