False Claims Act: Prediction on Supreme Court Ruling on Government Dismissal Authority

On December 6, 2022, the Supreme Court heard argument in United States ex rel. Polansky v. Executive Health Resources, Inc., a case with potential implications on the cost and longevity of certain False Claims Act (FCA) cases. The case asks whether the government has authority to dismiss an FCA suit after initially declining to proceed with the action, and if so, what standard would apply.

FCA litigation is of great interest to the health care industry. Of the FCA settlements and judgments reported by the Department of Justice last fiscal year, almost 90% related to matters that involved the health care industry, including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories and physicians. Empowering the government to exercise dismissal authority provides the government with greater discretion over which FCA cases are pursued in court and gives the government the authority to insert itself between a relator looking for a bounty and a defendant who, in the government’s estimation, should not be pursued for FCA violations.

In our assessment, the Court seems poised to hand a victory to the government and allow it to continue to dismiss cases, even if it declined to intervene initially, but it is unclear what standard the Court will deem applies to such dismissals. Pertinent questions the Justices may be considering are whether the government needs a good reason to dismiss the case, how to evaluate what constitutes a good reason for dismissal, and the extent to which—if at all—a relator can obtain discovery on the government’s asserted reason for dismissal.

Once an FCA case is dismissed, even if it is dismissed without prejudice, a defendant is unlikely to face a new FCA case by a new relator based on the same alleged facts given the government already has moved to dismiss once and also due to the FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4)(A).

The Case Backdrop

Petitioner-Relator Polansky is a doctor and former consultant for Executive Health Resources (EHR), a company that submits claims to Medicare on behalf of health care providers. The Petitioner-Relator filed an FCA case against EHR on July 26, 2012 which the government investigated for about two years before declining to intervene on June 27, 2014. However, the government moved to dismiss the case later, in August 2019. The government’s reasons for desiring dismissal included a “tremendous, ongoing burden on the government” if the case were to continue—including the hiring of government attorneys to represent the United States and hiring other professionals to assemble and produce documents sought from the government in discovery; the need to guard privileged information; the government’s doubts about Petitioner-Relator’s ability to prove an FCA violation; and the government’s concerns about Petitioner-Relator’s credibility.

The district court granted the government’s motion to dismiss, and the Third Circuit affirmed, citing Federal Rule of Civil Procedure 41(a), which sets forth different standards for dismissal based on the posture of the case. Under Rule 41(a), if the plaintiff files the motion to dismiss before the defendant files its answer or a motion for summary judgment, then the plaintiff can dismiss immediately, without a court order. Fed. R. Civ. P. 41(a)(2). Conversely, if the motion is filed after the defendant responds, then the plaintiff can only dismiss the suit with a court order. Fed. R. Civ. P. 41(a)(2). The Third Circuit reasoned that these rules should apply in the FCA context in basically the same way as they do in ordinary civil suits, as Congress intended for lawsuits brought under the FCA to comply with the Federal Rules of Civil Procedure.

The Third Circuit reasoned the district court properly examined the interests of all parties and acted within its discretion in dismissing the action. The district court examined the prejudice to non-governmental parties and concluded that, while the litigation had advanced considerably, the defendant would not be prejudiced by the dismissal. It also considered the relator’s concerns and concluded that the potential benefits of the suit did not outweigh its significant cost for all parties involved. The relator sought Supreme Court review, and the Supreme Court granted the request.

The Supreme Court Hearing

In oral argument last week, the Petitioner-Relator argued the text, history, and intent of the FCA gives the relator the authority to choose whether or not to proceed with the action after the government declines to intervene. Petitioner-Relator argued if the government initially declines to intervene and then chooses to intervene at a later date, under the FCA, the government must show good cause and cannot limit “the status and rights of the person initiating the action” including, under Petitioner-Relator’s reading, the government cannot limit the relator’s “right to conduct the action.” 31 U.S.C. § 3730(b)(4)(B), (c)(3). Under this argument, the government should not have dismissal authority after declining to intervene at the outset.

In contrast, the Respondent-Defendant contended that the government retains the right to dismiss a qui tam action at any time because Article II gives the Executive Branch oversight over the execution of laws. According to the Respondent-Defendant, if a relator can pursue an FCA claim despite the Executive Branch’s objections, that would deprive the Executive Branch of its oversight authority. The government did not press an Article II argument, but agreed that it retained the right to dismiss an FCA case even after declining intervention. The government pointed out that the text of the FCA does not constrain the government in moving to dismiss, so long as the relator is notified of the motion to dismiss and has an opportunity for hearing pursuant to 31 U.S.C. § 3730(c)(2)(A). Specifically, the FCA provides: “The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” Id. Under the government’s reading, if the government has notified the relator of the motion to dismiss, and the relator has an opportunity to be heard, the government’s motion to dismiss should be granted unless the government’s dismissal is unconstitutional. That is all, says the government, that is required.

Justices Jackson, Kagan, Sotomayor, Barrett, and Chief Justice Roberts all questioned the Petitioner-Relator’s reliance on the history of the FCA and whether that history really supports the government’s lack of ability to dismiss past the initial review stage. All seemed concerned a ruling in the Petitioner-Relator’s favor would not give the government enough flexibility to dismiss in the presence of new facts or other circumstances that warrant dismissal. Justice Kavanaugh pointed to the statute’s text and said it is clear that 31 U.S.C. § 3730(c)(4) preserves the government’s ability to come in later with good cause. Justice Jackson asserted the text is “totally inconsistent” with the Petitioner-Relator’s argument that the government cannot move to dismiss or direct other action that may be incompatible with the relator’s intentions. In short, based on their questions, the Justices all seemed to come to the consensus that this part of the Petitioner-Relator’s argument fails– and appeared to side with the government’s ability to move to dismiss an FCA case at any time.

The parties also addressed what standard they believe a court must use to evaluate dismissal, particularly in the event that the Court disagrees with the Petitioner-Relator’s argument that the relator has full control over the action after the government declines intervention. The Petitioner-Relator argued dismissals must satisfy at least a rational basis review standard, as the relator possesses a property interest in the action and the government cannot deprive a relator of that right without scrutiny. Justice Gorsuch challenged the Petitioner-Relator on his definition of rational basis review and stated Petitioner’s version is “pretty aggressive.” Justice Barrett commented Petitioner-Relator’s standard sounds more like intermediate scrutiny. Justice Gorsuch questioned the government on the standard the government has to meet to overcome the relator’s property interest. The government explained the dismissal is not subject to any standard of judicial review other than that it must meet the constitutional baseline. The government agreed with the assertion that the relator does have a property interest in the claim (assigned by statute), which is why compliance with the constitutional baseline is necessary, but that no other standard applies as the FCA does not provide one.

The Prediction

While nothing is certain, we predict the Supreme Court will hold the government can intervene after declination, and the government will have to meet either a constitutional or rational basis baseline to support its motion to dismiss. Given the Court’s questions, it seems unlikely that the Court will impose a demanding standard for the government, although the actual standard the Court will settle on is unclear. If the government is successful with its argument that it retains the right to dismiss after declining to do so initially, and the standard for dismissal is not rigorous and does not provide much or any opportunity for discovery by the relator, the government will be rightfully empowered to move to dismiss cases brought on its behalf. Placing this power with the government also helps protect defendants, who should not be forced to defend actions—at great financial and reputational cost—brought on behalf of the government that the government itself does not think should proceed.

We will continue to monitor this case, and will provide an update once the Supreme Court has published its decision.

Foley is here to help you address the short- and long-term impacts in the wake of changes. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to the authors, your Foley relationship partner, or to our Government Enforcement Defense and Investigations Group or Health Care Practice Group with any questions.

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