SCOTUS Considers Standards for Government Dismissal of Qui Tam Cases Under the False Claims Act

SCOTUS Considers Standards for Government Dismissal of Qui Tam Cases Under the False Claims Act

Legal Sidebari

SCOTUS Considers Standards for
Government Dismissal of Qui Tam Cases
Under the False Claims Act
December 2, 2022
On December 6, 2022, the Supreme Court is scheduled to hear oral arguments in a case concerning
whether, and under what legal standard, the United States can dismiss a qui tam action brought in its
name under the False Claims Act (FCA) after initially declining to take over that action. United States ex
rel. Polansky v. Executive Health Resources, Inc. presents an issue that has divided the circuit courts for
almost 20 years and that Congress potentially could clarify through amendments to the FCA.
Background on FCA Litigation and the Circuit Split
The FCA prohibits any person from defrauding the United States by knowingly presenting “a false or
fraudulent claim for payment or approval.” Violators face up to “treble damages and a civil penalty of up
to $10,000 per claim,” as adjusted for inflation. In addition to authorizing enforcement by the Attorney
General, the FCA authorizes a private individual, called a relator, to bring a civil action against a person
or entity that has allegedly violated the statute. Referred to as a qui tam action, the lawsuit is brought in
the government’s name, on behalf of the relator and the government. When a qui tam action is initiated,
the FCA gives the government 60 days, plus any judicial extensions, to investigate the allegations while
the complaint remains under seal—that is, unavailable to the defendant or to the public. By the end of the
seal period, the government must elect to either: (1) “proceed with the action,” in which case the
government “conduct[s]” the action; or (2) “decline[] to take over the action,” in which case the relator
has “the right to conduct the action.” The relator’s share of the proceeds in a successful qui tam action
increases if the government declines to intervene.
Central to the Polansky case, the FCA also provides that the government “may dismiss the action
notwithstanding the [relator’s] objections” if the government notifies the relator of its motion to dismiss
and the court has provided the relator with “an opportunity for a hearing on the motion.” Circuit courts
are divided over the application of this provision in circumstances where the government initially
declined to take over the action.
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As a threshold matter, the federal appellate courts disagree over whether the government must first
intervene in the action in order to seek dismissal. In general, if the government declines to proceed with a
qui tam action, the FCA allows the government to “intervene at a later date upon a showing of good
cause.” The Seventh Circuit has held that good-cause intervention is required before the government may
seek to dismiss an FCA action that it had initially declined to litigate. However, in that case the court
construed the government’s motion to dismiss as including a motion to intervene. The Third Circuit took
the same approach in Polansky, as discussed below. In contrast, the D.C. Circuit has suggested, and the
Tenth Circuit has held, that the FCA does not require the government to intervene for good cause before
moving to dismiss a qui tam action.
The appellate courts are also divided over the proper legal standard for evaluating the government’s post-
declination motion to dismiss, with lower courts currently following at least three different approaches.
The Ninth and Tenth Circuits have applied the “rational relation” test announced in the Ninth Circuit’s
1998 decision in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp. In Sequoia
Orange, the Ninth Circuit held that although the FCA “does not create a particular standard for
dismissal,” constitutional due process principles and legislative history suggest that the government must
show that dismissal bears a “rational relation” to a “valid government purpose.” The relator can rebut this
showing by demonstrating that dismissal is “fraudulent, arbitrary and capricious, or illegal.”
In contrast, the D.C. Circuit has held that the government possesses “an unfettered right to dismiss” a qui
tam action, regardless of whether it initially declined to take over the action. Analogizing government
dismissal to prosecutorial discretion, the court reasoned that a court has no role in balancing the parties’
interests in a qui tam case. According to the D.C. Circuit, the relator’s statutory right to notice and a
hearing functions “simply to give the relator a formal opportunity to convince the government not to end
the case.” While agreeing that this is “one purpose of the hearing,” the First Circuit has concluded that
“the government must always provide its reasons for seeking dismissal when it so moves,” and that the
court should grant dismissal unless the relator proves a constitutional violation or “fraud on the court.”
By comparison, the Seventh Circuit has ruled that dismissal of an FCA qui tam action is governed by
Federal Rule of Civil Procedure 41(a), which provides the default rules for a plaintiff’s “voluntary
dismissal” of a civil action. Specifically, Rule 41(a)(1) allows a plaintiff to dismiss an action without a
court order before the defendant files an answer to the complaint or a motion for summary judgment.
Rule 41(a)(2) provides that after that time, the plaintiff may move to dismiss the action, and the court may
do so “on terms that the court considers proper.” Because the Seventh Circuit treated the government as
an intervenor-plaintiff for purposes of dismissal, and because the defendant had not yet filed an answer or
summary judgment motion, the Seventh Circuit held that Rule 41(a)(1) applies “as limited by any more
specific provision” of the FCA and “any applicable background constraints on executive conduct.” The
court found no limit within the FCA’s text apart from the “procedural” requirement to provide the relator
with notice and a hearing. As far as constraints on executive conduct, the court found no evidence of a
constitutional violation or fraud on the court that might otherwise call into question the government’s
dismissal authority. This Rule 41(a) approach was later adopted by the Third Circuit (in Polansky, as
discussed below) and a panel of the Eleventh Circuit—though the panel decision was vacated when the
full Eleventh Circuit agreed to rehear that case.
Summary of the Polansky Case and Arguments
The Polansky case began in 2012 as a qui tam action against the relator’s former employer, a company
that provides billing services to hospitals participating in the federal Medicare program. The relator
alleged that the defendant was causing hospitals to seek reimbursement from the federal government for
inpatient services that should have been billed as outpatient services, thereby submitting false
certifications and claims in violation of the FCA. After two years, the government elected not to proceed
with the action, and the court unsealed the complaint. By 2019, the case had proceeded past the motion-

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to-dismiss stage and the parties were conducting discovery in preparation for the first phase of trial. In
August 2019, the government, which had not intervened, moved to dismiss the case after signaling its
intent to do so earlier in the year. The district court granted the government’s motion, reasoning that
dismissal was appropriate under either the Ninth’s Circuit’s rational relation test or the D.C. Circuit’s
unfettered discretion standard.
On appeal, the Third Circuit first considered whether, as the relator argued, the FCA barred the
government from seeking dismissal after initially declining to proceed with the action. The court rejected
that argument, holding that the government may move to dismiss at any time as long as it first intervenes
in the action “upon a showing of good cause.” As for the legal standard governing dismissal, the Third
Circuit adopted the Seventh’s Circuit’s Rule 41(a) approach. The court added the “important caveat” that
a court should grant dismissal absent “extraordinary prejudice” to one of the parties because the
government is “seeking to dismiss a matter brought in its name.” On the facts of the case, the court
construed the government’s motion to dismiss as including a motion to intervene and held that, by
examining the government’s basis for dismissal, the district court “necessarily” found good cause for
intervention. The court then upheld the district court’s decision to dismiss based on Rule 41(a)(2)’s
“broad grant of discretion” for courts to define the “proper” terms of dismissal and the district court’s
“thorough examination and weighing of the interests of all the parties.”
Before the Supreme Court, the relator maintains that the FCA bars the government from seeking dismissal
once the government has declined to conduct the action. In the alternative, the relator urges the Court to
adopt the Ninth Circuit’s rational relation test for evaluating the government’s motion to dismiss.
Accordingly, the relator asks the Court to “outright reverse” the Third Circuit’s decision or remand the
case for consideration under the appropriate dismissal standard. In contrast, the federal government
essentially advocates for the D.C. Circuit’s unfettered discretion standard. The government argues that
nothing in the FCA requires the government to intervene before dismissing a qui tam action. It also
contends that a court has “no substantive basis” to reject the government’s decision to dismiss unless the
relator proves a constitutional violation, such as executive action “so egregious” that it “shocks the
conscience” (a higher bar than the Ninth Circuit’s rational relation test). In the government’s view, the
Court could affirm the Third Circuit’s judgment even if it determines that intervention is required or
adopts the rational relation test, because the lower courts made the requisite findings under those
standards. Executive Health Resources (the respondent and the defendant below) also asks the Court to
affirm the Third Circuit’s judgment, arguing that barring the executive branch from making the “policy
judgment[]” to dismiss a qui tam action would violate the constitutional separation of powers. Like the
government, the respondent argues that the “FCA is best read to permit the Government to dismiss at any
time, whether or not it has intervened,” and without judicial review.
Considerations for Congress
FCA qui tam actions have a long history and are a prevalent form of litigation today. Congress enacted the
FCA in 1863 “to combat rampant fraud in Civil War defense contracts.” Earlier versions of the statute did
not permit the government to intervene in an FCA action after an initial 60-day period. If, however, the
government chose to proceed with the action, the action was “conducted only by the Government.”
Congress amended the FCA in 1986 to allow the government to intervene after the seal period upon a
showing of good cause and to allow the relator to remain a party after the government’s intervention,
subject to certain limits on the relator’s participation. According to a May 2020 letter to the Department of
Justice (DOJ) from Senator Charles E. Grassley, the sponsor of the 1986 amendments, the FCA is “the
government’s most powerful tool in deterring fraud” and has helped the government to “reclaim more
than $60 billion.” More than 3,000 new qui tam matters were referred to DOJ, investigated, or filed over
the five-year period from 2017 through 2021.

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In 2018, DOJ identified seven factors that may warrant dismissal of qui tam actions that the government
initially declined to litigate. The guidance instructs government attorneys to be “judicious” in pursuing
dismissals in declined cases, but posits that “such dismissals also provide an important tool to advance the
government’s interests, preserve limited resources, and avoid adverse precedent.” This enforcement
guidance reportedly resulted in a “significant spike” in motions to dismiss.
The pending Supreme Court decision in Polansky has the potential to transform the relationship between
the government and relators in FCA cases. Although the United States is the “real party in interest” in an
FCA qui tam action, the Supreme Court has held that it is a “party,” for litigation purposes, “only if it
intervenes in accordance with the procedures established by federal law.” If the Court were to conclude
that the government need not intervene in an FCA case before dismissing the action over the relator’s
objection, that decision would recognize a power of a non-party that, according to the Seventh Circuit, is
“otherwise unheard of in our law.” On the other hand, an amicus brief filed by the Chamber of
Commerce, the American Health Care Association, and the American Hospital Association asserts that a
decision precluding or limiting the government’s ability to dismiss declined actions could allow
“meritless qui tam actions” to proceed, imposing “enormous costs on courts, entities that do business with
the government, and the government itself.”
According to the Polansky parties, a decision in the case could also change the incentives for the
government and relators to participate in FCA cases. The relator argues that if the government could
dismiss a qui tam action conducted by a relator at any time, “few [people] will devote the time and effort
necessary to prosecute actions essential to redressing fraud and protecting the federal fisc.” The
government contends that limiting its dismissal authority would make it more difficult for the government
“to respond to changed circumstances as qui tam litigation unfolds” and consequently increase its
“incentives to dismiss qui tam suits during the seal period.”
If the Supreme Court were to rest its decision on statutory interpretation grounds, then Congress could
amend the FCA if it disagreed with the Court’s interpretation—for instance, clarifying whether
intervention is a prerequisite to seeking dismissal and what standard, if any, a court should use to evaluate
the government’s motion to dismiss. If, however, the Court were to adopt the rational relation or “shocks-
the-conscience” test as a constitutional floor, or reason, as the respondent argues, that limits on the
government’s dismissal authority would violate the constitutional separation of powers, then any
legislative response from Congress would need to conform to those constitutional constraints.

Author Information

Victoria L. Killion

Legislative Attorney

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