By: Andrew C. Nickel
On June 16, 2023, the United States Supreme Court handed down its decision in U.S. ex rel. Polansky v. Executive Health Resources, No. 21-1052. The decision may have a lasting impact on the quickly growing False Claims Act (“FCA”) qui tam litigation throughout the United States.
In Polansky, the Supreme Court held that the federal government has the authority to dismiss an FCA suit in which it initially declined to intervene, resolving a circuit split among lower courts. The Supreme Court held that the Government has authority to dismiss an FCA action at any point in the case so long as it first intervenes in the action, even if it intervenes after the seal period. The Court further held that the standard for dismissal is Fed. R. Civ. P. 41(a). The standard set for government intervention after the seal period and the standard for voluntary dismissal are easy burdens for the government to meet in nearly all cases.
The FCA imposes civil liability on any person who presents false or fraudulent claims for payment to the Federal Government. See 31 U.S.C. §§ 3729-3733. The statute authorizes private whistleblowers (called “relators” under the statute) to sue on behalf of the Government to recover funds and penalties on behalf of the Government. Such cases are known as qui tam actions. § 3730(b)(1). While the injury asserted is to the Government alone, the “relator” in a qui tam action may receive up to 30% of the total recovery if successful at trial. §§ 3730(b)(1), (d)(1)-(2).
Relators in FCA qui tam actions are subject to various restrictions. They must file their complaint “under seal” and must serve a copy and supporting evidence on the Government. See § 3730(b)(2). The Government then has 60 days – which, is often extended – to investigate the allegations and decide whether to intervene. §§ 3730(b)(2)-(3). If the Government intervenes, the Government takes over the action. If the Government declines to intervene, “the person who initiated the action shall have the right to conduct the action” and the government can later seek leave from the court to intervene “upon a showing of good cause.” Importantly, however, even if the Government declines to intervene, it remains a “real party in interest” and it retains certain continuing rights. United States ex rel. Einstein v. City of New York, 556 U.S. 928, 930 (2009). For example, the Government has the right to intervene after the end of the seal period, so long as it can show good cause for doing so.
The FCA is silent as to a description of the hearing on the motion or a standard for dismissal that the government must satisfy. This resulted in a split among the lower circuits. The D.C. Circuit, for instance, has held that the government has an “unfettered right to dismiss [a qui tam] action.” The Ninth Circuit, on the other end of the spectrum, has applied a comparatively more demanding two-step burden-shifting analysis. Compare Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003), with United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998). Under the standard adopted by the Ninth Circuit, the Government must show “(1) identification of valid government purpose and (2) a rational relation between dismissal and accomplishment of purpose, and, if government satisfies two-step test, burden switches to relator to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.” Sequoia Orange Co., 151 F.3d. at 1145.
In Polansky, Jesse Polansky was the “relator.” Mr. Polansky filed a qui tam action alleging that Executive Health Resources helped hospitals overbill Medicare by providing false Medicare billing certifications. The Government declined to intervene during an extended two-year seal period. Thereafter, Polansky continued with the case. The case spent years in discovery until, in 2019, the Government decided to file a a motion to dismiss the case pursuant to § 3730(c)(2)(A), which provides that “the Government may dismiss the action notwithstanding the objections of the relator” so long as the relator has received notice and an opportunity for a hearing. Mr. Polansky objected to the dismissal, arguing that the Government did not have authority to move to dismiss the case since it declined to intervene and pointing out that counsel had already incurred an estimated $20 million in attorney fees to that point in the litigation. The District Court granted the Government’s request to dismiss, over Mr. Polansky’s objections, and Mr. Polansky appealed.
The Third Circuit affirmed the District Court’s decision, finding that the Government had the authority to dismiss even if it declined to intervene during the initial seal period. The Third Circuit held that the standard for dismissal is that of Fed. R. Civ. P. 41(a) – the rule governing voluntary dismissal.
The Supreme Court affirmed the Third Circuit’s decision in its entirety. According to the Supreme Court the government’s interest in a qui tam action is “the predominant one.” The Court found that the FCA does not remove the government’s authority to dismiss an action brought on its behalf “so long as it intervened sometime in the litigation, whether at the outset or afterward.” In cases where the government initially declines to pursue the action, it may intervene at a later time “upon a showing of good cause.” A showing of good cause, however, is “neither a burdensome nor unfamiliar obligation.” Polansky v. Exec. Health Res., 17 F.4th 376, 387 (3d Cir. 2021); United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835, 848–9 (7th Cir. 2020).
Once the Government intervenes, it has the right to move to dismiss the suit since, as the Court noted, a qui tam action is brought “to vindicate the Government’s interests” and, in some cases, the “interest is to obtain dismissal of the suit because it will likely cost the Government more than it is worth. Either way, that interest does not diminish in importance because the Government waited to intervene.”
The Court also agreed with the Third Circuit that the appropriate standard for dismissal is Fed. R. Civ .P. 41(a). The Court declined to adopt the Government’s position that it had “essentially unfettered discretion to dismiss” and also declined to impose a more demanding standard in cases where the Government declines to intervene during the seal period. The Court reasoned that nothing in the FCA “suggests that Congress meant to except qui tam actions from the usual voluntary dismissal rule.” Thus, “dismissal requires a ‘court order, on terms that the court considers proper.’”
The Court noted that the Government’s motion to dismiss a qui tam action, regardless of when the Government intervened, “will satisfy Rule 41 in all but the most exceptional cases.” The Court pointed out that the Government’s position is “entitled to substantial deference.” “If the Government offers a reasonable argument for why the burdens of continued litigation outweigh its benefits, the court should grant the motion. And that is so even if the relator presents a credible assessment to the contrary.” Because the Government met that low bar in this case, dismissal was appropriate.
Justice Kagan delivered the opinion of the Court, in which Chief Justice Roberts and Justices Alito, Sotomayor, Gorsuch, Kavanaugh, Barrett, and Jackson joined. Justice Kavanaugh filed a concurring opinion, in which Justice Barrett joined. Justice Thomas filed a dissenting opinion, questioning the constitutionality of the FCA’s provisions allowing private relators to bring False Claims Act actions on behalf of the federal government, and pointing to potential inconsistencies between Article II and qui tam suits. Justices Kavanaugh and Barrett’s concurring opinion agreed with Justice Thomas’s position that there are “substantial arguments” that permitting private relators to represent the government is “inconsistent” with Article II.
The decision could present opportunities for defendants facing FCA litigation to enlist the support of the Government, regardless of the stage of the litigation and regardless of whether or not the Government decided to intervene during the seal period. Defendants may continue to press the Government to intervene even if it initially declined to do so as the Polansky decision will provide the Government with the confidence it needs to seek dismissal of FCA it considers to be costly and frivolous, now that the Court has confirmed its authority to do so at any stage. Moreover, the separate opinions of Justice Thomas and Justices Kavanaugh and Barret may present future opportunities for FCA Defendants to challenge the Article II constitutionality of allowing private citizens to represent the Government.
The Court’s opinion is available here.