One unique aspect of qui tam suits under the federal False Claims Act (“FCA”) is that they involve a private plaintiff (a “relator”) standing in the shoes of the Department of Justice (“DOJ”) to bring claims on behalf of the federal government.
The statute, however, explicitly empowers DOJ to “dismiss the action notwithstanding” the relator’s objections, if the relator “has been notified” and “the court has provided the person with an opportunity for a hearing on” DOJ’s motion.1
In recent years, federal courts of appeal have split on the standard of review when the government exercises this dismissal power. Relatedly, multiple circuits are considering what the “opportunity for a hearing” must entail.
This case law is significant because of (i) DOJ’s more frequent use of its dismissal power in recent years and (ii) an expected uptick in FCA cases following the COVID-19 pandemic and related government spending.
Background: The Uptick in Government Dismissals Under § 3730(c)(2)(A)
While there are several different theories of liability under the FCA, at its core, the statute prohibits presenting a false claim for payment to the U.S. government, or causing such a claim to be made.2
Before 2018, the government rarely exercised its power to dismiss a qui tam relator’s suit. But early that year, Michael Granston, the Director of the Fraud Section in DOJ’s Civil Division, issued a memorandum (the “Granston Memo”3) encouraging DOJ attorneys to consider exercising their dismissal authority to “advance the government’s interests, preserve limited resources, and avoid adverse precedent.”4 Factors that “can serve as a basis for dismissal,” include “[c]urbing meritless qui tams,” “[p]reventing interference with an agency’s policies,” and “[p]reserving government resources, particularly where the government’s costs (including the opportunity costs of expending resources on other matters) are likely to exceed any expected gain.”5
In the 30 years before the Granston Memo, the government had moved to dismiss only about 45 qui tam actions. In the two and half years after, the government moved to dismiss approximately 50 such actions.6
A Three-Way Circuit Split?
The increase in government dismissals has highlighted a circuit split that pre-dated the Granston Memo and has only deepened since. Currently, there are at least three different standards for assessing a government motion to dismiss under Section 3730(c)(2)(A):
- The Ninth and Tenth Circuits’ Less Deferential “Rational Relation” Test: The Ninth Circuit uses a two-step “rational relation” test, put forward in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., under which the government must show: (1) “a valid government purpose” for dismissal and (2) “a rational relation between dismissal and accomplishment of the purpose.”7 If the government satisfies this test, “the burden switches to the relator to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.”8 The Tenth Circuit also adopted this standard.9
- The D.C. Circuit’s More Deferential “Unfettered Right to Dismiss”: The D.C. Circuit rejected the Ninth Circuit’s standard in Swift v. U.S., and held that the government has an “unfettered right to dismiss,” at least when the government files its motion before the defendant answers or before summary judgment.10 For guidance, the court looked to Federal Rule of Civil Procedure 41(a)(1)(i), which “permits a plaintiff to dismiss a civil action without order of the court if the adverse party has not yet filed an answer or a motion for summary judgment.”11 Under this standard, a court is unlikely to interfere with the government’s decision, unless presented with evidence of serious government misconduct such as fraud on the court.12 The Fifth Circuit has also at least suggested it would adopt this standard.13
- The Seventh Circuit’s Rules-Based Standard: Most recently, the Seventh Circuit adopted a rules-based standard that is “much nearer” to the “unfettered right to dismiss” Swift standard than the “rational relation” Sequoia Orange test.14 On August 17, 2020, in United States ex rel. CIMZNHCA, LLC v. UCB, Inc., the court held that the standard is “provided by the Federal Rules of Civil Procedure, as limited by any more specific provision of the [FCA] and any applicable background constraints on executive conduct in general.”15
As noted above, the Federal Rules give a plaintiff an essentially unfettered right to dismiss a case before the filing of an answer or summary judgment motion.16 The court indicated that the FCA-specific limits on this power included the relator’s right to notice and an opportunity for a hearing.17 The court did not elaborate on the contours of the “background constraints on executive power,” stating “[w]herever the limits of the government’s power lie, this case is not close to them.”18
At least four cases are pending in courts of appeals that could deepen the circuit split or clarify issues surrounding the government’s dismissal power.19 These cases generally involve two common issues:
- What the relator’s right to notice and an opportunity for a hearing entails.
In a case pending before the Fifth Circuit,20 for example, the government argues that it does not require anything more than Swift’s “formal opportunity [for the relator] to convince the government not to end the case,” and “does not authorize judicial scrutiny of the government’s reasons for dismissing an action or require any particular showing.”21 The relators, in contrast, argue that “a meaningful judicial inquiry” in the form of an “arbitrary and capricious review” in line with Sequoia Orange is required.22
- The nature of any cost-benefit analysis the government must perform to support its dismissal decision.23
The government takes the position, as articulated in its Fifth Circuit briefs, that no “quantitative analysis” of costs and benefits is required, citing its “wide discretion to balance its priorities and choose which actions warrant the expenditure of its limited resources,” as well as the impracticalities associated with monetizing the costs of qui tam actions.24 The relators, on the other hand, claim “the record is devoid of anything to suggest that the government considered the potential benefits of allowing Relators’ cases to continue, much less that it did so meaningfully.”25
Possible resolutions of these issues exists in each branch of government.
First, the Supreme Court could grant certiorari to resolve some or all of the issues. But the Court has already twice denied petitions this year—in April26 and in early October27—that would have allowed it to weigh in on the circuit split.
Second, this summer, Senator Chuck Grassley (R-IA)—a longtime supporter of whistleblowers and an architect of the 1986 FCA amendments that established the government’s dismissal right under Section 3730(c)(2)(A)—announced plans to propose legislation that would “clarif[y] ambiguities created by the courts and reign in” the government’s “recent practice of dismissing charges in many of the [FCA] cases brought by whistleblowers without stating its reasons.”28 But it appears unlikely any such legislation would be enacted until at least 2021, if at all.
Finally, it remains to be seen if a new Biden administration will take action to rescind, modify, or informally limit the Granston Memo, which would likely lead to the government using its dismissal power in fewer cases.
With FCA cases likely on the rise, the government’s dismissal power—and the willingness of courts or Congress to be a check on that power—is an important issue. Entities doing business with the government would be well advised to stay abreast of these developments—as well as any shifts away from the Granston Memo, which may be a harbinger of the executive branch’s more general views about enforcement.
1 28 U.S.C. § 3730(c)(2)(A).
2 31 U.S.C. § 3729(a)(1)(A)-(G) (defining different theories of FCA liability); § 3729(b)(2) (defining the term “claim”).
3 The Granston Memo has since been codified in DOJ’s Justice Manual. See Justice Manual, § 4-4.111.
6 Principal Deputy Assistant Attorney General Ethan P. Davis delivers remarks on the False Claims Act at the U.S. Chamber of Commerce’s Institute for Legal Reform, https://www.justice.gov/civil/speech/principal-deputy-assistant-attorney-general-ethan-p-davis-delivers-remarks-false-claims (June 26, 2020).
7 United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998).
8 Id. (citation and quotations omitted).
9 Ridenour v. Kaiser-Hill Co., 397 F.3d 925 (10th Cir. 2005).
10 Swift v. U.S., 318 F.3d 250, 252 (D.C. Cir. 2003).
11 Id. (citing Fed. R. Civ. Pr. 41(a)(1)(i)) (quotations omitted) (emphasis added). A dismissal under Rule 41(a)(1)(i) “is not subject to judicial review.” Id.
12 See id.
13 Riley v. St. Luke's Episcopal Hospital, 252 F.3d 749 (5th Cir. 2001) (en banc).
14 United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835, 840 (7th Cir. 2020).
15 Id. at 849.
16 Fed. R. Civ. P. 41(a)(1)(i).
17 CIMZNHCA, 970 F.3d at 850.
19 United States ex rel. Borzilleri v. AbbVie, Inc., No. 1:15-cv-7881, 2019 WL 3203000 (S.D.N.Y. July 16, 2019), appeal filed, No. 19-2947 (2d Cir. Sept. 13, 2019); United States ex rel. Health Choice Alliance, LLC v. Eli Lilly and Co., Inc., No. 5:17-cv-123 (E.D. Tex. Sept. 27, 2019), appeal filed, No. 19-40906 (5th Cir. Oct. 29, 2019); Polansky v. Executive Health Resources, Inc., No. 2:12-cv-4239 (E.D. Pa. Nov. 5, 2019), appeal filed, No. 19-3810 (3d Cir. Dec. 13, 2019); Borzilleri v. Bayer AG, No. 1:14-cv-31 (D.R.I. Nov. 20, 2019), appeal filed, No. 20-1066 (1st Cir. Jan. 16, 2020).
20 United States ex rel. Health Choice Alliance, No. 19-40906 (5th Cir.) (“Health Choice Alliance”).
21 Health Choice Alliance, Gov’t Br. at 11.
22 Health Choice Alliance, Reply Br. at 3.
23 Any such requirement appears to derive from the “foundational principle” that the government cannot engage in “arbitrary and capricious” conduct, as well as the Granston Memo’s list of factors (one of which is a balancing of expected costs and gains) that the government may consider in seeking dismissal. See id. at 36-37, 41-43 (citations omitted); see also Justice Manual, § 4-4.111.
24 Health Choice Alliance, Gov’t Br. at 46.
25 Health Choice Alliance, Reply Br. at 21 (internal citations and quotations omitted).
26 United States ex rel. Schneider v. JPMorgan Chase Bank Nat’l Ass’n, 140 S. Ct. 2660 (U.S. 2020).
27 Chang v. Children’s Advocacy Ctr. of Delaware, --- S.Ct. ----, 2020 WL 5882268 (U.S. Oct. 5, 2020).
28 Prepared Floor Remarks by U.S. Senator Chuck Grassley of Iowa Celebrating Whistleblower Appreciation Day, https://www.grassley.senate.gov/news/news-releases/grassley-celebrating-whistleblower-appreciation-day (July 30, 2020).
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