In United States ex rel. Polansky v. Executive Health Resources, Inc., the Supreme Court answered two questions about the government power to dismiss a qui tam action under subsection 3730(c)(2)(A) of the Act. First, it held that the government may dismiss after it has intervened in the case – regardless whether it intervenes during the initial seal period, or intervenes later, upon a showing of good cause, after initially declining to take over the action. Second, the Court clarified the standards to be followed in deciding such a motion: when evaluating a government motion to dismiss, district courts should apply the standards governing voluntary dismissal of suits in ordinary civil litigation – i.e., those set forth Rule 41(a) of the Federal Rules of Civil Procedure.

In rejecting both parties’ more extreme positions on these issues, the Court affirmed the Third Circuit’s “Goldilocks” approach to the timing and standard of review of Government motions to dismiss qui tam claims.

Background

The FCA’s qui tam provisions allow private parties to sue on behalf of the government for the knowing presentation of false claims to the United States. The private party, or “relator,” files the complaint under seal, and the Department of Justice is served with the complaint and provided an initial 60 day period (routinely extended upon a showing of good cause) during which the complaint remains sealed and the United States may decide whether to intervene and take over principal responsibility for prosecuting the case. If it declines, the relator assumes that responsibility.

The Act incorporates a provision, subsection 3730(c)(2)(A) of the Act, that allows the government to dismiss the action notwithstanding the objections of the relator, if the relator has been notified of the filing of the motion, and the court has provided the relator with an opportunity for a hearing. As a practical matter, such motions have been filed relatively sparingly by the government since subsection 3730(c)(2)(A) was adopted in 1986. That notwithstanding, the Courts of Appeals had split on the appropriate standard for deciding such a motion. Some courts had required that the government identify a “valid government purpose” supporting dismissal, and a “rational relation between dismissal and accomplishment of that purpose;” other courts held that the government has “unfettered discretion” to dismiss.¹

In this case, the relator, Dr. Jesse Polansky, had worked as a doctor for Executive Health Resources (EHR), a company that provided physician advisory and compliance solutions to help payers and providers collaborate. In 2012, Polansky filed a qui tam action alleging that EHR conducted coding reviews that improperly designated patients as inpatient instead of outpatient to “exploit[] the difference in reimbursement rates for inpatient and outpatient services” under the Medicare program.² The government declined to intervene and the case proceeded through several years of motions and discovery.

As the case progressed, the parties requested discovery from the government that impinged upon deliberative process and attorney-client privilege concerns at the Centers for Medicare and Medicaid Services. By 2019, the government had reassessed the suit and determined that the burdens and risks associated with the potential disclosure of internal agency deliberations on the applicable Medicare coverage rule outweighed any potential value of the case. Consequently, the government filed a motion to dismiss the action under subsection 3730(c)(2)(A). The district court granted dismissal over Polansky’s objection, and the Third Circuit Court of Appeals affirmed.³

The majority opinion

The Supreme Court’s 8-1 ruling upholds the district court’s dismissal, and largely upholds the Third Circuit’s reasons for affirmance. Justice Kagan, writing for the Court, charted a middle course between more extreme positions advocated by both the Government and the Relator, rejecting the relator’s position that the government is barred from filing a motion to dismiss if it initially declines to intervene, but also rejecting the Government’s position that it retains “unfettered discretion” to dismiss a qui tam complaint at any time.

The effect of the Court’s ruling clarifies that the Government has broad latitude to dismiss qui tam cases in all but the most exceptional circumstances. Because the Government had adduced good grounds for believing that this suit would not vindicate the Government’s interests, the Court held that the Third Circuit had applied the correct framework for considering the motion and that dismissal by the government was appropriate.

The Court’s reasoning

The Court began by rejecting the relator’s position that the right to exercise the dismissal power granted under subsection 3730(c)(2)(A) extends to the United States only when it intervenes during the initial seal period. The Court first observed that the plain language and structure of the Act support the conclusion that the government must intervene to exercise the dismissal authority, and noted that until it has intervened, the government is not a party and “non-parties typically cannot do much of anything in a lawsuit.”⁴

But the Court went on to say that there is no reason to qualify the party status of the government based on whether it intervenes during the initial seal period or later for good cause. Because a qui tam action alleges injury to the government alone, the Court held that the government has “primary responsibility” over the action regardless when it becomes a party to the litigation, and that status embraces the ability to dismiss the case over the relator’s objection. When the government intervenes for good cause, the parties “occupy the same positions as they would have if the Government had intervened in the seal period.”⁵ That “seal-agnostic” view of the effect and timing of intervention accords with what the Court described as the “FCA’s Government-centered purposes,” and rejects the notion that the government occupies a diminished role if it does not intervene during the seal period.⁶ The government’s interest is always predominant: To redress injuries against the government, or, as here, 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.”⁷

The Court then addressed the standard district courts should apply in deciding such motions, resolving the tension among the circuits’ varying approaches, and rejecting the government’s argument for “unfettered discretion” to dismiss. Adopting the Third Circuit’s middle path, the Court held that after the government has intervened, it may unilaterally dismiss the qui tam lawsuit as long as it meets the relatively modest requirements of Rule 41(a) of the Federal Rules of Civil Procedure. As Justice Kagan explained, “the Third Circuit’s Goldilocks position is the legally right one. A district court should assess a (2)(A) motion to dismiss using Rule 41’s standards. And in most FCA cases, as the Court of Appeals suggested, those standards will be readily satisfied.”⁸ Moreover, the government retains significant power to move for dismissal because “the Government’s views are entitled to substantial deference.”⁹

Together, the Court’s guidelines afford the Government wide latitude to dismiss when it demonstrates that further litigation of a qui tam suit is not in the Government’s interest.

The dissent

Justice Thomas dissented on the ground that the text, structure and history of the Act afford the government no power to unilaterally dismiss a pending qui tam action after it has declined to take over the action, even if it intervenes for good cause. But Justice Thomas did not stop there. After concluding that the government could not invoke the dismissal authority of subsection 3730(c)(2)(A), Justice Thomas explained that he would have remanded the case for the Third Circuit to consider whether the Constitution nevertheless requires dismissal of the relator’s suit. Noting the “substantial arguments that the qui tam device is inconsistent with Article II” of the Constitution (a point echoed in a brief concurring opinion authored by Justices Kavanaugh and Barrett), and the notion that the executive power belongs to the President alone, Justice Thomas contends that there may be good reason to suspect that the Constitution does not allow relators to represent the United States’ interests in FCA suits. Pointing out that the Court has never articulated the precise Constitutional grounds for Congress to effectuate the partial assignment of a Government claim to a private citizen to litigate on behalf of the United States, Justice Thomas explained that on remand he would ask the Third Circuit to consider the applicable constitutional requirements.

Implications for future litigation

In past practice, the Department of Justice has filed motions rarely to dismiss qui tam actions, even after the Department promulgated guidance (the so-called Granston memorandum) providing for Department attorneys to exercise that authority. The question now is whether, having a clear standard for the showing required to dismiss, the government will avail itself of the opportunity to exercise the power granted under subsection 3730(c)(2)(A) with any greater frequency.

Moreover, three members of the Court (in the concurring and dissenting opinions) appear to be tempting defendants in declined qui tam suits to assert that the Constitution bars private plaintiffs from proceeding with such claims. Although this ruling does not address the merits of any such constitutional challenges, the invitation for litigation of this point is clear.

For the government, the Court’s opinion recognizes the broad power of the Department of Justice to dismiss qui tam cases, which is consistent with a view that under the Constitution, the Executive Branch should retain control over litigation on behalf of the United States, and maintain a robust ability to exercise the Department’s prosecutorial discretion.

For defendants in declined qui tam cases, the Court’s opinion represents a largely favorable outcome. They can continue to press the government to dismiss meritless suits, even at later stages of litigation, knowing that the courts will require only a minimal showing by the government to overcome the objections of the relator.

Authored by Michael Theis and Stephanie Sandoval.

References

1 Cf., e.g., Sequoia Orange Co. v Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998), with Swift v. United States, 318 F.3d 250, 251 (D.C. Cir. 2003).

2 Polansky v. Exec. Health Res., Inc., 422 F.Supp.3d 916, 919 (E.D. Pa. 2019).

3 Id. at 930, aff’d, 17 F.4th 376 (3d Cir. 2021).

4 United States ex rel. Polansky v. Exec. Health Res., Inc., ___ S.Ct.___, Slip Op. at 8.

5 Id., Slip Op. at 12.

6 Id., Slip Op. at 12.

7 Id., Slip Op. at 12-13.

8 Id., Slip Op. at 14.

9 Id., Slip Op. at 15.