United States: U.S. Supreme Court Clarifies DOJ's Authority To Dismiss Whistleblowers' False Claims Act Suits, Questions Constitutionality Of Qui Tam Provisions

In United States ex rel. Polansky v. Executive Health Resources, Inc., the U.S. Supreme Court recently resolved a circuit split¹ by holding that in a False Claims Act ("FCA") action (1) the Government may seek dismissal of a qui tam case that the government initially declined to intervene in over the relator's objection so long as it later intervened in the litigation, and (2) that in considering such a motion, district courts should apply the rule generally governing voluntary dismissal of suits: Federal Rule of Civil Procedure 41(a). Under Rule 41(a), the Court explained that the Government has broad latitude to seek dismissal; although that discretion is not unfettered, such "motions will satisfy Rule 41 in all but the most exceptional cases." The decision is an important one for the government and FCA defendants. But perhaps as important as the Court's central holding in the Polansky case (and certainly more surprising), was the view expressed by Justice Thomas in dissent (and echoed by Justice Kavanaugh in a concurring opinion joined by Justice Barrett) that the FCA's qui tam provision permitting a private citizen to litigate a case on behalf of the United States may be unconstitutional.

The FCA authorizes private parties (known as relators) to file civil actions "in the name of the government."² When a relator files a complaint, they do so under seal and initially serve it only on the Attorney General. DOJ then has 60 days as an initial opportunity (often subject to multiple extensions for longer periods) to investigate the allegations and determine whether it will intervene in and take over prosecution of the case. If the Government declines to intervene, the relator has "the right to conduct the action."³ But even when the Government declines to intervene, it remains a real party in interest, and it retains certain rights, including the right to intervene later "upon a showing of good cause."⁴ The FCA also authorizes the Government to dismiss an "action notwithstanding the objections of the [relator]" subject to their being provided notice and a hearing.⁵

In Polansky, the relator, a doctor who worked for Executive Health Resources ("EHR"), alleged that EHR had helped hospitals overbill for Medicare-covered services. Polansky filed (under seal, as required) a qui tam action against EHR. After conducting an investigation, the Government declined to intervene during the seal period, enabling Polansky to proceed with the lawsuit. The case then spent years in discovery, with EHR demanding both documents and deposition testimony from the Government. As its discovery obligations mounted, the Government decided that the varied burdens of the suit outweighed its potential value, and it filed a motion to dismiss the action over Polansky's objection.

The District Court granted the (c)(2)(A) motion, finding that the Government had "thoroughly investigated the costs and benefits of allowing [Polansky's] case to proceed and ha[d] come to a valid conclusion based on the results of its investigation," and the U.S. Court of Appeals for the Third Circuit upheld the ruling. The Third Circuit concluded that Rule 41, which establishes different standards for evaluating a motion to dismiss depending on the procedural posture of the case, provides the applicable standard for granting dismissals under 13 U.S.C. § 3730(c)(2)(A).⁶ If the (c)(2)(A) motion to dismiss is filed before the defendant files an answer or summary judgment motion, "the plaintiff may dismiss an action without a court order simply by filing a notice of dismissal."⁷ Those dismissals are subject only to the constitutional bar on arbitrary government action.⁸ Once an answer or summary judgment motion has been served, however, dismissal requires a court order "on terms that the court considers proper."⁹ The Third Circuit reasoned that, in FCA cases, a court's evaluation whether dismissal is proper, "as a practical matter . . . may well converge" with the evaluation of whether the government has "good cause" to intervene pursuant to § 3730(c)(3).¹⁰

The Supreme Court granted certiorari to review two questions: (1) does the Government have authority to dismiss an action under the FCA if it declined to intervene initially and (2) what standard should a district court use in ruling on a (c)(2)(A) motion to dismiss? After review, the Supreme Court affirmed "the Third Circuit across the board."¹¹ In answering the first question, the Court held that the Government has the authority to dismiss under the FCA so long as it intervened at some point. The Court found that the Government had satisfied that condition in Polansky because its motion to dismiss was reasonably construed to include a motion to intervene, which the District Court had implicitly granted.¹² In answering the second question, the Court again agreed with the Third Circuit that the proper standard comes from Federal Rule 41(a)—the rule governing voluntary dismissals in ordinary civil litigation. And here, the Court found that the District Court's decision, which was based on a "thorough examination" of the interests that Rule 41 makes relevant, was not an abuse of discretion.¹³

Writing for the majority, Justice Kagan noted that there are two ways that the application of Rule 41 in the FCA context will "defer from the norm."¹⁴ The first is that the FCA procedural framework requires the Government to provide a relator notice and an opportunity for a hearing before a (c)(2)(A) dismissal. The second is that the district court must consider the relator's interests when conducting a Rule 42(a)(2) "proper terms" analysis because the relator likely has already committed substantial resources to the suit.¹⁵ Justice Kagan stressed, however, that government motions to dismiss "will satisfy Rule 41 in all but the most exceptional cases," and the government's views are entitled to substantial deference.¹⁶ Because qui tam suits allege injury to the government alone, she made clear that "a district court should think several times over before denying a motion to dismiss. 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."¹⁷

The Supreme Court's decision is a win for defendants facing non-intervened FCA cases and the Government's authority to control suits filed on behalf of the United States. The ruling protects the Government's ability to intervene in FCA cases and to obtain dismissal after the seal period with relatively minimal judicial scrutiny.

Justice Thomas's dissent, however, may be the most notable decision in the case. There, Justice Thomas suggests that the FCA's qui tam provisions may be unconstitutional under Article II, Section 1 of the Constitution, which provides that "[t]he executive Power shall be vested in a President of the United States." Justice Thomas explained that, in his view, the FCA does not permit the Government to move to dismiss a qui tam suit after it declines to intervene. So, he would have reversed the Third Circuit's decision. Justice Thomas further explained, however, that he would have remanded the case for the Third Circuit to consider whether the case nevertheless should be dismissed on the ground that it was inconsistent with Article II of the U.S. Constitution. Under Article II, he explained, the "entire 'executive power' belongs to the President alone," and "conducting civil litigation . . . for vindicating public rights of the United States is an 'executive functio[n].'"¹⁸ "It thus appears to follow that Congress cannot authorize a private relator to wield executive authority to represent the United States' interests in civil litigation." ¹⁹

Notably, Justice Kavanaugh issued a concurring opinion, joined by Justice Barrett, in which he agreed with Justice Thomas that "[t]here are substantial arguments that the qui tam device is inconsistent with Article II and that private litigators may not represent the interests of the United States in litigation. In my view, the Court should consider the competing arguments on the Article II issues in an appropriate case."²⁰

It thus appears that there are at least three Justices prepared to seriously consider whether qui tam actions are constitutional. Defendants facing qui tam complaints in cases that have been declined by the DOJ therefore should consider arguing that such qui tam actions are unconstitutional. But current and potential defendants should not celebrate prematurely. It requires the agreement of four Justices for the Court to even agree to hear a case on the merits. And, of course, it would then require a majority of the Court (i.e., five Justices barring recusals) to actually hold unconstitutional the well-established qui tam procedures that enjoy bipartisan support in Congress. Such a major decision may eventually come from the Court, but it is not likely around the corner.

Please contact the authors if you have any questions regarding the FCA and other government-contractor or healthcare-related enforcement or compliance concerns.²¹

About McGuireWoods' Government Investigations & White Collar Litigation Department

McGuireWoods' Government Investigations & White Collar Litigation Department is a nationally recognized team of more than 80 attorneys representing Fortune 100 and other companies and individuals in the full range of civil and criminal investigations and enforcement matters, including litigation and actions under the False Claims Act. Our False Claims Act team includes former federal prosecutors, and experienced civil and white collar litigators with experience in this unique area of law. We also tap attorneys from the firm's other practice groups and our subsidiary McGuireWoods Consulting LLC. Strategically centered in Washington, D.C., our Government Investigations & White Collar Litigation Department has been honored as a Law360 Practice Group of the Year and earned the trust of international companies and individuals through our representation in some of the most notable enforcement matters over the past decade.

Footnotes

1. David Pivnick, Brett Barnett, Timothy Fry & Michael Podberesky, Another Circuit Weighs in on the Standard for Evaluating Government Motions to Dismiss False Claims Act Actions (Dec. 22,2021) https://www.thefcainsider.com/2021/12/another-circuit-weighs-in-on-the-standard-for-evaluating-government-motions-to-dismiss-false-claims-act-actions/#_ftn1.

2. 31 U.S.C. § 3730(b)(1).

3. 31 U.S.C. §§ 3730(b)(4)(A)–(B).

4. See § 3730(c)(3).

5. 31 U.S.C. § 3730(c)(2)(A) (note: motions to dismiss over the objections of a relator are commonly referred to as "(c)(2)(A) motions").

6. Polansky v. Exec. Health Resources Inc, 17 F.4th 376, 383 (3d Cir. 2021), cert. granted sub nom. U.S. ex rel. Polansky v. Exec. Health Resources, Inc., 213 L. Ed. 2d 1063 (June 21, 2022), and aff'd sub nom. U.S., ex rel. Polansky v. Exec. Health Resources, Inc., 143 S. Ct. 1720 (2023).

7. Id. at 389.

8. Id. at 390.

9. Federal Rule of Civil Procedure 41(a)(2).

10. Polansky v. Exec. Health Resources Inc, 17 F.4th 376, 390 at n.14 (3d Cir. 2021), cert. granted sub nom. U.S. ex rel. Polansky v. Exec. Health Resources, Inc., 213 L. Ed. 2d 1063 (June 21, 2022), and aff'd sub nom. U.S., ex rel. Polansky v. Exec. Health Resources, Inc., 143 S. Ct. 1720 (2023).

11. U.S., ex rel. Polansky v. Exec. Health Resources, Inc., 143 S. Ct. 1720, 1730 (2023).

12. Id. at 1732.

13. Id. at 1730.

14. Id. at 1734.

15. Id.

16. Id.

17. Id.

18. David Pivnick, Brett Barnett, Timothy Fry & Michael Podberesky, Another Circuit Weighs in on the Standard for Evaluating Government Motions to Dismiss False Claims Act Actions (Dec. 22,2021) https://www.thefcainsider.com/2021/12/another-circuit-weighs-in-on-the-standard-for-evaluating-government-motions-to-dismiss-false-claims-act-actions/#_ftn1.

19. Id.

20. U.S., ex rel. Polansky v. Exec. Health Resources, Inc., 143 S. Ct. 1720, 1737 (2023).

21. This article features significant contributions from McGuireWoods Summer Associate James R. Hornsby.