In its second False Claims Act decision of the term, the U.S. Supreme Court in U.S. ex rel. Polansky v. Executive Health Resources Inc. resolved two recurring questions regarding the government's authority to dismiss privately filed qui tam complaints. Litigation & enforcement partners Douglas Hallward-Driemeier, John Bueker and Andrew O’Connor examined the court’s decision in Law360.
High Court Underscores DOJ’s Role in Policing FCA Litigation
By Douglas Hallward-Driemeier, John Bueker, and Andrew O’Connor
June 20, 2023
In its second False Claims Act decision of the term, the U.S. Supreme Court in U.S. ex rel. Polansky v. Executive Health Resources Inc. resolved two recurring questions regarding the government's authority to dismiss privately filed qui tam complaints.
The case presented the questions: (1) whether the government retains the authority under Section 3730(c)(2)(A) of the FCA to dismiss a privately filed FCA suit after initially declining to intervene in the action, and (2) what standard a court should apply to a motion by the government seeking to exercise that authority.
An eight-member majority affirmed the government's authority to move to dismiss an FCA action whenever it intervenes — whether during the initial sealing period or later, even after the litigation has progressed into discovery. Affirming the U.S. Court of Appeals for the Third Circuit, Justice Elena Kagan's majority opinion further held that in assessing a government motion to exercise its authority, district courts must apply the ordinary voluntary dismissal standard found in Federal Rule of Civil Procedure 41(a).
Critically, the court recognized that, "in most FCA cases, as the Court of Appeals suggested, those standards will be readily satisfied" and that "(2)(A) motions will satisfy Rule 41 in all but the most exceptional cases," warning that "a district court should think several times over before denying a motion to dismiss."
As explained below, the Polansky decision reaffirms that the government has final say in FCA cases. That result is consistent with the government's congressionally mandated role not only in pursuing FCA claims, but in regulating industries, like health care, pharmaceutical and medical devices that are subject to complex regulatory schemes.
DOJ Authority to Police the Outer Boundaries of Private FCA Litigation
The FCA is a Civil War-era statute passed to incentivize private plaintiffs to alert the government to false claims for payment. Private plaintiffs called "relators" may bring FCA claims in the name of the U.S. by filing a sealed complaint in a federal district court — and receive up to 30% of any recovery.
The FCA's qui tam provisions effectively deputize citizens to pursue potential fraud against the government by suing on the government's behalf. The statute, however, does not confer on private plaintiffs the full, unchecked power of the federal government. Relators must serve the complaint on the U.S. attorney general and the U.S. attorney for the judicial district where the qui tam action is filed.
Upon being served with the complaint, the government has 60 days to investigate the claim and decide whether to intervene and take primary responsibility for prosecuting the action. If the government declines to intervene, the relator may proceed with the action in the "name" of the U.S.
The U.S. is not a party to the litigation if the relator pursues it after the U.S. has declined to intervene, yet Section 3730(c)(2)(A) of the statute reserves for the U.S. residual authority to dismiss a qui tam action, provided the relator has notice and an opportunity for a hearing. The Polansky decision addresses the potential tension between the U.S. and relators in that circumstance.
The relator in Polansky filed his qui tam suit in 2012. He alleged that Executive Health Resources, a company that assists hospitals and physicians in submitting bills to federal health care programs, overbilled the federal government by billing for inpatient medical services that should have been billed at lower outpatient rates.
Consistent with the qui tam provisions, the government investigated the claims and decided not to intervene. Polansky proceeded with the case until 2019 when the government moved to dismiss the case over Polansky's objection.
The U.S. had considered dismissal at an earlier stage, but was dissuaded from doing so when the relator promised to narrow the scope of the litigation. The government argued dismissal was warranted because (1) Polansky's likelihood of success was low, (2) the ongoing discovery demands wasted government resources, and (3) it needed to protect privileged information from disclosure.
The U.S. District Court for the Eastern District of Pennsylvania granted the dismissal, construing the motion to dismiss as a motion to intervene and to dismiss. In doing so, the court concluded the government would face a substantial burden if the litigation proceeded and that the government's reasons for dismissing the case were "[w]ell-reasoned and supported." The court did not articulate a dismissal standard, noting that the government's grounds for requesting dismissal would suffice under any standard. On appeal, the Third Circuit affirmed but expressly declined to grant the government unfettered dismissal authority. Rather, it held that the government would have to meet the voluntary dismissal standards outlined in Rule 41(a) of the Federal Rules of Civil Procedure.
At the Supreme Court, all parties — the government, Executive Health Resources and Polansky — argued against adopting the Third Circuit's approach.
The government and Executive Health Resources argued that dismissal is appropriate even if the government does not intervene and urged the court to adopt the "unfettered [dismissal] standard," constrained only by constitutional limitations.
Polansky contended that the government could no longer intervene, because it did not do so while the complaint was under seal, and argued for rational basis review of the government's dismissal authority if it persisted after nonintervention.
Polansky Decision — Key Takeaways
The court affirmed the Third Circuit, recognizing that the government retains authority to intervene in private actions brought by relators and to move for dismissal at any time, even in actions that have progressed through fact discovery.
The decision underscores the government's authority to enforce meaningful guardrails around cases brought by enterprising relators and their lawyers. That authority plays an important role in deterring private actors from seeking to regulate the conduct of actors in industries that Congress has determined should be regulated by expert administrative agencies.
The court's holding that the government must move to intervene in an action in order to move to dismiss will likely have little effect on the government's practical ability to dismiss improvident FCA cases. Although the ruling does not adopt the U.S. Department of Justice's position that it may unilaterally dismiss qui tam actions without having to intervene at all, the court took no issue with the Third Circuit's view that Rule 41(a)'s standard of "'good cause' is neither ... burdensome nor unfamiliar" and is "a uniquely flexible ... concept, meaning simply a legally sufficient reason."
In the case of meritless or improvident qui tams, the government should be able to argue successfully that further litigation and discovery — and the government's interest in ensuring that qui tam provisions are not misused — satisfy that standard.
Similarly, the court's adoption of the Rule 41 standards for dismissal — rather than the unfettered, standardless authority advocated by the DOJ — is unlikely to present a significant barrier to government dismissal.
The court noted that Rule 41(a)(2)'s requirement that an action may be dismissed at the plaintiff's request only by "court order on terms that the court considers proper" will require courts to consider the relator's interest in pursuing the claim — not just the government's interest in having the action dismissed.
But, Justice Kagan made clear that "in most FCA cases ... those standards will be readily satisfied," and "(2)(A) motions will satisfy Rule 41 in all but the most exceptional cases." Tellingly, she admonished the lower courts to "think several times over before denying a motion to dismiss."
The broad scope of the government's authority to dismiss private qui tam actions that have progressed through civil litigation has potentially significant policy implications. Perhaps most importantly, the government's ability to dismiss allows it to police the outer boundaries of FCA liability, including when the agency in question disagrees with the relator's interpretation of an ambiguous regulation. By dismissing in such circumstances, the DOJ can protect the congressionally mandated role of expert agencies such as the U.S. Food and Drug Administration in regulating certain industries.
Notably, Polansky also sows the seeds for future litigation over the scope and nature of private FCA qui tam litigation more generally. Justice Clarence Thomas, in dissent, observed that "[t]here are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation."
Justices Brett Kavanaugh and Amy Coney Barrett concurred with Justice Kagan's majority opinion but wrote separately to indicate their agreement with Justice Thomas' statement, which draws into question the constitutionality of the entire private relator scheme. This suggests there are at least three votes to grant a writ of certiorari in an appropriate case that squarely addresses the constitutionality of the FCA's qui tam provisions — an indication that there are likely more high-stakes FCA showdowns before the high court yet to come.
This article was first published on Law360.
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