Supreme Court: U.S. Government Has Broad Discretion to Dismiss False Claims Act Suits

On June 16, 2023, the Supreme Court issued a decision in United States ex rel. Polansky v. Executive Health Resources, Inc., giving the United States government broad power to dismiss qui tam FCA lawsuits even when it has initially declined to intervene. We have been tracking this matter in our FCA Newsletter and our Government Contracts Insights as it raised important questions about the government’s power to dismiss such a suit. First, the Court held that the government may move to dismiss whenever, but only after it has intervened in the case. Second, the Court clarified that a court applies Federal Rule of Civil Procedure 41(a) to judge a motion to dismiss. Under this rule, the government will succeed in “all but the most exceptional cases.”

Takeaways

• The government may move to dismiss a qui tam FCA lawsuit only when it has intervened in the suit. But once it has intervened, whether 60 days or seven years after the suit was filed, the government may move to dismiss the suit.
• If the government initially declines to intervene, it may still do so later “upon a showing of good cause.”  The Supreme Court did not address “good cause” here, but the Third Circuit held that it was “neither a burdensome nor unfamiliar obligation.”
• District courts will evaluate the government’s motion to dismiss under the Rule 41(a) standard, which gives “substantial deference” to the government. Practically, courts will grant these motions to dismiss in “all but the most exceptional cases.”
• This case provides guidance for companies in requesting that the Department of Justice dismiss meritless FCA cases to avoid unnecessary litigation costs and other burdens.
• Justice Thomas’s dissent resurrected an old debate about whether the FCA’s qui tam procedures violate Article II of the Constitution, which may open the door to a constitutionality defense for defendants resisting qui tam suits.

Background & Discussion

The False Claims Act (FCA) allows private parties (“relators”) to bring lawsuits in the name of the United States (“qui tam” suits) against “any person” who knowingly presents false claims for payment to the government. A victorious relator wins a bounty of typically between 15% and 30% of the government’s total recovery.

When a relator sues under the FCA, the lawsuit remains under seal for 60 days (the “seal period”), which the court may extend. During that seal period, the government may intervene and take “primary responsibility” for litigating the case. If it declines, the government may still intervene later “upon a showing of good cause.” 31 U.S.C. § 3730(c)(3). The government may also “dismiss the action” under § 3730(c)(2)(A), which does not explicitly require the government first to intervene.

Under this scheme, in 2012, relator Jesse Polansky sued Executive Health Resources (EHR) under the FCA. He alleged that EHR, a billing company, had knowingly presented false claims by helping hospitals overbill Medicare. The government initially declined to intervene.

But in 2019—years later, and after much discovery—the government moved to dismiss the suit, concluding that the likely reward was not worth the future discovery costs and possible release of privileged documents. The District Court agreed and dismissed the case.

The Third Circuit affirmed, first holding that the government may move to dismiss if it has intervened in the case, even if it did so after the seal period. This holding agreed with the Sixth and Seventh Circuits and disagreed with the Ninth, Tenth, and D.C. Circuits. Second, the Third Circuit held that Federal Rule of Civil Procedure 41(a) governs the government’s motions to dismiss qui tam FCA suits. This holding agreed with the Seventh Circuit and disagreed with the Ninth, Tenth, and D.C. Circuits.

To resolve these circuit splits, the Supreme Court granted review on both of the Third Circuit’s holdings.

The Government May Move to Dismiss a qui tam FCA Lawsuit at Any Point, but Only After It Has Intervened

The Court first rejected the government’s position that it could dismiss a case without ever intervening. Allowing a non-party to dismiss the case “over the objection of the person who brought it” was “odd,” the Court noted. Statutory context also requires the government to intervene before it can dismiss, the Court explained. For example, the FCA elsewhere specifies when the government has rights regardless of intervention, but those rights do not include allowing the government to dismiss.

The Court then rejected Polansky’s argument that the government could dismiss a case only if it had intervened during the seal period. If the government intervenes, regardless of when, the FCA’s text gives it the “primary responsibility” over the case and the right to dismiss, the Court explained.

The Court thus held that the government may move to dismiss a qui tam FCA lawsuit whenever, but only after it has intervened. Here, the government had intervened, although years after the seal period. So the government could also move to dismiss the lawsuit, the Court held.

Courts Apply Federal Rule of Civil Procedure 41(a) to Decide Motions to Dismiss

The Supreme Court then instructed courts to apply Federal Rule of Civil Procedure 41(a) to judge motions to dismiss. The Court reasoned that “nothing warrants a departure from” the default rules.

Under Rule 41(a), after the defendant has filed an answer, a plaintiff may dismiss its case upon a “court order, on terms that the court considers proper.” In dismissing a qui tam FCA action, the government need only give “a reasonable argument” for why the litigation’s costs outweigh the benefits. Courts should give the government “substantial deference,” the Court instructed, and the government will succeed “in all but the most exceptional cases.”

Here, the District Court properly granted the government’s motion because the government had explained why the benefits were not worth the costs, the Court concluded. This was “all that [was] needed for the Government to prevail,” the Court explained.

Do the FCA’s Qui Tam Procedures Violate the Constitution?

In his dissent, Justice Thomas raised a long-dormant question about whether the FCA’s qui tam procedures violate Article II of the Constitution. Under this theory, the Act’s qui tam procedures improperly give a private party—the relator—authority to control the litigation on behalf of the United States, a responsibility that the Constitution exclusively vests in the Executive Branch. That theory has attracted little attention over the last 20 years but garnered support in a concurrence by Justices Kavanaugh and Barrett. Given this surprising turn of events, FCA defendants should consider raising a constitutionality defense in response to an FCA suit brought by a qui tam relator.

Conclusion

By affirming the dismissal of Polansky’s qui tam FCA lawsuit, and by clarifying two aspects about the government’s power to dismiss a qui tam FCA case, the Supreme Court’s recent Polansky decision gives the government broad discretion to dismiss qui tam FCA lawsuits. FCA defendants should keep this ruling in mind when requesting DOJ to intervene and dismiss meritless and unduly burdensome FCA matters.  And given the concerns Justices Thomas, Kavanaugh, and Barrett apparently have about the FCA’s qui tam procedures, defendants also should consider challenging the constitutionality of those procedures.

Justin Folk, a summer associate in Morrison Foerster’s San Diego office, contributed to this alert.