On Friday, June 16, 2023, the U.S. Supreme Court ruled in United States, ex rel. Polansky v. Executive Health Resources, Inc., that the federal government has authority to dismiss qui tam (or whistleblower) False Claims Act (FCA) cases it initially declines to intervene. The opinion will provide some protection for government and contractor interests in working towards ensuring that meritless claims are not pursued by whistleblowers who are attempting to force settlements due to the extensive costs associated with litigating FCA claims.
By way of background, the FCA’s qui tam provisions permit private citizens to act as whistleblowers and file lawsuits on behalf of the United States government where that whistleblower believes that a contractor has submitted false claims to the government.
Qui tam actions are first filed under seal. The whistleblower then must give the Department of Justice (DOJ) an opportunity to investigate the allegations, while under seal. Thereafter, the DOJ will determine whether to intervene and take over the case, decline to intervene, or ask a court to dismiss the whistleblower’s suit. If the DOJ declines to intervene, the private citizen can continue litigating the case with his or her own lawyers.
In the matter before the Supreme Court, the whistleblower filed a qui tam complaint in 2012, alleging that the medical service provider routinely certified inpatient care for services charged to government healthcare programs that should have been performed as less expensive outpatient care. The DOJ investigated the allegations, but ultimately decided not to intervene. The whistleblower continued to litigate the case, but in 2019, the DOJ re-evaluated the claims and determined that the government’s burdens from the action outweighed the potential benefits of the suit.
The DOJ moved to dismiss the case, arguing that the FCA gave it the right to seek dismissal even after the DOJ declined to intervene. The whistleblower disagreed and argued that the government had dispensed with its authority to seek dismissal when it declined to intervene. Both the district court for the Eastern District of Pennsylvania and the U.S. Court of Appeals for the Third Circuit sided with the DOJ. And on June 16, 2023, in an 8-1 decision, the Supreme Court ruled in favor of the government as well. Specifically, the Court held that there is nothing in the text of the FCA that prevents the government from moving to dismiss after its initial decision to decline intervention.
The Court also explained that the standard for dismissal should be that utilized for voluntary dismissal under Rule 41(a) of the Federal Rules of Civil Procedure. In other words, where a court reviews a requested dismissal and where the government offers a reasonable argument for why the burdens of continuing the case outweigh the benefits, the court should dismiss the case.
The Polansky ruling marks yet another decision giving even greater berth to the federal government in litigating FCA cases. Not only have the Supreme Court’s recent decisions lowered the bar with respect to what the government must show was the defendant’s intent, but they’ve created a clear path for the DOJ to terminate qui tam cases even after the government declines to intervene. However, Justice Thomas’s dissent in Polansky — arguing that Article II of the U.S. Constitution does not permit private citizens to represent the United States’ interests in FCA cases — may afford contractors a constitutional-based defense.
The slate of FCA decisions coming out of the Supreme Court this term has certainly reset the ground rules on how to address FCA cases – at both the investigation and litigation phases. Government contractors (e.g., anyone doing business with the government) should consider engaging with government programs and agencies to get a clearer sense of that agency’s interpretations of vague regulations or contract provisions. Advisory opinions from government agencies may be useful in this context.
Contractors may also want to consider hiring specific regulatory personnel or counsel who are charged with obtaining and documenting detailed regulatory advice from government entities in situations where there may be ambiguity in the contractor’s interpretation of guidelines. Contractors may also want to review and assess their internal compliance programs – including written policies, trainings, auditing, and voluntary disclosure processes – to determine where they may be subject to vulnerabilities with respect to the Court’s rulings over the past few months.
