Given the financial stakes, it is no surprise that the issue of which party is authorized to control these suits has come into play. 31 U.S.C. § 3730 generally outlines the rights of the parties involved in such actions, but questions remain. Specifically, the petitioner in United States ex rel. Polansky v. Executive Health Resources, Inc. raises the question: “Whether the government has authority to dismiss an FCA suit after initially declining to proceed with the action, and what standard applies if the government has that authority.” How the court rules on these questions will have broad implications for the government and relators alike.
The History of the False Claims Act and Qui Tam Litigation
The FCA was originally enacted in 1863 to address defense contractor fraud during the American Civil War. In general, the Act imposes civil liability on anyone who knowingly submits false or fraudulent claims for payment or approval to the government. Where a person is found liable for violations of the Act, they are subject to a statutory civil penalty (adjusted for inflation), plus treble damages.
A unique feature of the FCA is the ability for private persons, known as “relators,” to stand in the shoes of the United States, and bring suit in the name of the U.S. government under § 3730(b). These suits are referred to as qui tam actions. To bring a qui tam action, a relator must serve the government with a copy of the complaint and written disclosure of substantially all material evidence and information in their possession (31 U.S.C. § 3730(b)(2)). The complaint is filed in camera and remains under seal for at least 60 days and is not to be served on the defendant until the seal is lifted. (The government may request extensions of the seal period, and courts routinely grant those requests. 31 U.S.C. § 3730(b)(3)). While the complaint is under seal, the government may investigate the relator’s claims and elect whether to intervene and proceed with the action or decline to intervene and allow the relator to prosecute the case. If the government chooses to intervene, it has the primary responsibility for prosecuting the action, though the relator is entitled to continue as a party to the action subject to some limitations (31 U.S.C. § 3730(c)(1)-(c)(2)). Where the government declines to intervene, the relator has the right to conduct the action (31 U.S.C. § 3730(c)(3)), though the government may later intervene upon a showing of good cause (Id).
The question raised in Polansky focuses on § 3730(c)(2)(a), which states: “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.” Historically, the government rarely sought to dismiss qui tam actions under § 3730(c)(2)(a). That changed, however, with the January 2018 issuance and subsequent leak of an internal DOJ memorandum, referred to as the “Granston Memo,” which directed DOJ prosecutors to more seriously consider dismissing meritless qui tam cases.
The Granston Memo raised the prospect that DOJ would be more active in seeking to dismiss meritless qui tam cases. And while there was a marked uptick in the number of voluntary dismissals by the government after the memo was leaked, DOJ dismissals remained relatively infrequent.
The Present Case: United States ex rel. Polansky v. Executive Health Resources, Inc.
The petitioner (and relator) in this case, Dr. Jesse Polansky, filed an qui tam action in 2012 after allegedly discovering that respondent Executive Health Resources, a “physician advisor” company, was systematically enabling its client hospitals to misclassify patients, certifying treatment as “inpatient services” that should have been certified as “outpatient services.” Due to the different reimbursement rates for inpatient and outpatient services, Dr. Polansky alleged that the respondent was significantly overbilling the Medicare program.
After completing a two-year investigation of Dr. Polansky’s claims, the government declined to intervene. Dr. Polansky subsequently continued to pursue the litigation for several more years, incurring approximately $20 million in attorney’s fees and costs in the hopes of a potential billion-dollar recovery. In 2019, however, as the case was nearing summary judgment, the government notified the parties that it intended to dismiss the entire action under § 3730(c)(2)(a), over Dr. Polansky’s objections. In justifying the dismissal, the government explained that “the potential benefits of permitting relator’s case to proceed are outweighed by both the actual and potential costs to the United States,” including the cost of cooperating with petitioner’s discovery demands (U.S. Government Mot. to Dismiss at 3, DC Dkt. 526 (Aug. 20, 2019)). The district court granted the dismissal, and the Third Circuit affirmed.
In affirming the dismissal, the Third Circuit identified two questions on which the Circuit Courts of Appeals have split: 1) whether the government can move for dismissal without first intervening, and 2) if the government properly moves for dismissal, what, if any, standard must it meet for its motion to be granted. The split on these issues can be summarized as follows:
- Ninth and Tenth Circuits: The government can dismiss a qui tam action under the FCA where it identifies “a valid government purpose” and “a rational relation between dismissal and accomplishment of that purpose.” It need not intervene prior to seeking dismissal.
- D.C. Circuit: The FCA “give[s] the government an unfettered right to dismiss a [qui tam] action.” Intervention is not required before the government can seek dismissal.
- Seventh Circuit: The government cannot seek dismissal without first intervening. Any subsequent dismissal must satisfy the standard under Federal Rule of Civil Procedure 41(a), which allows a dismissal only “on terms that the court considers proper.”
- First Circuit: Courts should grant the government’s dismissal “unless the relator can show that, in seeking dismissal, the government is transgressing constitutional limitations or perpetrating a fraud on the court.”
Ultimately the Third Circuit adopted the Seventh Circuit’s standard. In doing so, the Court treated the government’s motion to dismiss as a combined motion to intervene and dismiss and found that the government’s reasons for dismissal were “proper.” Dr. Polansky subsequently filed a petition for certiorari, which Executive Health and the United States opposed. The parties’ briefs can be found here:
Potential Implications of Supreme Court Review on FCA Litigation
In his petition for certiorari, Dr. Polansky argued for resolving the circuit split by advocating an approach that no circuit court has adopted. That is, § 3730(c)(2)(a) should only apply in cases where the government has intervened and assumed primary responsibility for prosecuting the action during the initial review of the claim. Under this approach, the government would not be permitted to voluntarily dismiss an action after it initially declined to intervene. Executive Health and the United States in response have both asserted that the “circuit split” is mainly “academic,” a distinction without a difference as all courts of appeals that have considered these issues hold that the government should receive “substantial deference” and the difference between standards is “rarely if ever . . . outcome-determinative.” That said, the United States has already advocated for the adoption of the D.C. Circuit’s “unfettered right to dismiss” approach.
The Court’s decision should bring clarity to the government, relators and defendants, but it may also create new burdens. If the Court adopts the petitioner’s approach, the government’s initial determination regarding whether to intervene will become even more crucial and may also require far more investigation and analysis than is the case now. The government may need more time to evaluate a relator’s claim and theory, and to consider whether to dismiss a particular case to preserve government policy or litigation interests. Relators and defendants may also be required to take on a more activist role in shaping the course of the government’s intervention decision. On the other hand, if the Court instead adopts the standard used by the Third and Seventh Circuits, while the government would still be forced to intervene to dismiss a case, on the merits the government would only need to show that the dismissal is proper. The other circuits’ standards are generally much more deferential, with the D.C. Circuit’s standard granting the government an “unfettered” right to dismiss a qui tam action (at essentially any point in the process).
For relators, how the Court rules will greatly impact the risk assessment involved in deciding to pursue a qui tam action through litigation. If the Court adopts the petitioner’s preferred approach, and the government chooses not to intervene, relators will be empowered to prosecute claims without any fear that the government will later step in and undercut their efforts. Relators like Dr. Polansky, who may spend significant sums on litigation, would argue that such an approach is the most equitable. Then again, where discovery reveals that a relator’s claim is meritless, handcuffing DOJ’s ability to seek dismissal will impose significant costs and risks on defendants and create an increased incentive to settle cases that should never have been brought. Alternately, if the Court rejects the petitioner’s and Third Circuit’s approach and opts for one of the other Circuits’ more deferential formulations, defendants may be in a better position to engage DOJ to step in to dismiss meritless cases. An increase in dismissals of meritless cases could result in fewer relators willing to take the risk of prosecuting marginal FCA claims.
Finally, the outcome of this case could open the door to further litigation regarding the government’s authority to settle cases where it initially declined to intervene. Section 3730(b)(1) provides that qui tam actions can only be dismissed if the court and the Attorney General provide written consent. Courts have split as to whether this means that a relator can settle a case without the government’s consent. The Ninth Circuit holds that § 3730(b)(1) does not give the government absolute veto power over settlements, while the Fifth and Sixth Circuits hold that the government can block settlements even where it declines to intervene. If the Court ultimately adopts the petitioner’s approach denying the government the right to dismiss an action after declination, this may be expanded to deny the government the right to block settlements where it declines to intervene as well.
The case will be briefed during the next term, with a decision likely to be made before June 2023. Either way, the Court’s ruling has the potential to transform enforcement of the FCA by either broadening or narrowing the government’s power over qui tam actions.
