False Claims Act: Prediction On Supreme Court Ruling On Government Dismissal Authority

[Gunnar Larson]

https://www.mondaq.com/unitedstates/healthcare/1262644/false-claims-act-prediction-on-supreme-court-ruling-on-government-dismissal-authority?email_access=on


United States: False Claims Act: Prediction On Supreme Court Ruling On
Government Dismissal Authority
20 December 2022
by Lori Rubin , Pauline R. Wizig and Kara (Schoonover) Sweet
Foley & Lardner
Your LinkedIn Connections
with the authors

On December 6, 2022, the Supreme Court heard argument in United States ex
rel. Polansky v. Executive Health Resources, Inc., a case with potential
implications on the cost and longevity of certain False Claims Act (FCA)
cases. The case asks whether the government has authority to dismiss an FCA
suit after initially declining to proceed with the action, and if so, what
standard would apply.

FCA litigation is of great interest to the health care industry. Of the FCA
settlements and judgments reported by the Department of Justice last fiscal
year, almost 90% related to matters that involved the health care industry,
including drug and medical device manufacturers, managed care providers,
hospitals, pharmacies, hospice organizations, laboratories and physicians.
Empowering the government to exercise dismissal authority provides the
government with greater discretion over which FCA cases are pursued in
court and gives the government the authority to insert itself between a
relator looking for a bounty and a defendant who, in the government's
estimation, should not be pursued for FCA violations.

In our assessment, the Court seems poised to hand a victory to the
government and allow it to continue to dismiss cases, even if it declined
to intervene initially, but it is unclear what standard the Court will deem
applies to such dismissals. Pertinent questions the Justices may be
considering are whether the government needs a good reason to dismiss the
case, how to evaluate what constitutes a good reason for dismissal, and the
extent to which—if at all—a relator can obtain discovery on the
government's asserted reason for dismissal.

Once an FCA case is dismissed, even if it is dismissed without prejudice, a
defendant is unlikely to face a new FCA case by a new relator based on the
same alleged facts given the government already has moved to dismiss once
and also due to the FCA's public disclosure bar, 31 U.S.C. § 3730(e)(4)(A).

The Case Backdrop
Petitioner-Relator Polansky is a doctor and former consultant for Executive
Health Resources (EHR), a company that submits claims to Medicare on behalf
of health care providers. The Petitioner-Relator filed an FCA case against
EHR on July 26, 2012 which the government investigated for about two years
before declining to intervene on June 27, 2014. However, the government
moved to dismiss the case later, in August 2019. The government's reasons
for desiring dismissal included a "tremendous, ongoing burden on the
government" if the case were to continue—including the hiring of government
attorneys to represent the United States and hiring other professionals to
assemble and produce documents sought from the government in discovery; the
need to guard privileged information; the government's doubts about
Petitioner-Relator's ability to prove an FCA violation; and the
government's concerns about Petitioner-Relator's credibility.

The district court granted the government's motion to dismiss, and the
Third Circuit affirmed, citing Federal Rule of Civil Procedure 41(a), which
sets forth different standards for dismissal based on the posture of the
case. Under Rule 41(a), if the plaintiff files the motion to dismiss before
the defendant files its answer or a motion for summary judgment, then the
plaintiff can dismiss immediately, without a court order. Fed. R. Civ. P.
41(a)(2). Conversely, if the motion is filed after the defendant responds,
then the plaintiff can only dismiss the suit with a court order. Fed. R.
Civ. P. 41(a)(2). The Third Circuit reasoned that these rules should apply
in the FCA context in basically the same way as they do in ordinary civil
suits, as Congress intended for lawsuits brought under the FCA to comply
with the Federal Rules of Civil Procedure.

The Third Circuit reasoned the district court properly examined the
interests of all parties and acted within its discretion in dismissing the
action. The district court examined the prejudice to non-governmental
parties and concluded that, while the litigation had advanced considerably,
the defendant would not be prejudiced by the dismissal. It also considered
the relator's concerns and concluded that the potential benefits of the
suit did not outweigh its significant cost for all parties involved. The
relator sought Supreme Court review, and the Supreme Court granted the
request.

The Supreme Court Hearing
In oral argument last week, the Petitioner-Relator argued the text,
history, and intent of the FCA gives the relator the authority to choose
whether or not to proceed with the action after the government declines to
intervene. Petitioner-Relator argued if the government initially declines
to intervene and then chooses to intervene at a later date, under the FCA,
the government must show good cause and cannot limit "the status and rights
of the person initiating the action" including, under Petitioner-Relator's
reading, the government cannot limit the relator's "right to conduct the
action." 31 U.S.C. § 3730(b)(4)(B), (c)(3). Under this argument, the
government should not have dismissal authority after declining to intervene
at the outset.

In contrast, the Respondent-Defendant contended that the government retains
the right to dismiss a qui tam action at any time because Article II gives
the Executive Branch oversight over the execution of laws. According to the
Respondent-Defendant, if a relator can pursue an FCA claim despite the
Executive Branch's objections, that would deprive the Executive Branch of
its oversight authority. The government did not press an Article II
argument, but agreed that it retained the right to dismiss an FCA case even
after declining intervention. The government pointed out that the text of
the FCA does not constrain the government in moving to dismiss, so long as
the relator is notified of the motion to dismiss and has an opportunity for
hearing pursuant to 31 U.S.C. § 3730(c)(2)(A). Specifically, the FCA
provides: "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."
Id.Under the government's reading, if the government has notified the
relator of the motion to dismiss, and the relator has an opportunity to be
heard, the government's motion to dismiss should be granted unless the
government's dismissal is unconstitutional. That is all, says the
government, that is required.

Justices Jackson, Kagan, Sotomayor, Barrett, and Chief Justice Roberts all
questioned the Petitioner-Relator's reliance on the history of the FCA and
whether that history really supports the government's lack of ability to
dismiss past the initial review stage. All seemed concerned a ruling in the
Petitioner-Relator's favor would not give the government enough flexibility
to dismiss in the presence of new facts or other circumstances that warrant
dismissal. Justice Kavanaugh pointed to the statute's text and said it is
clear that 31 U.S.C. § 3730(c)(4) preserves the government's ability to
come in later with good cause. Justice Jackson asserted the text is
"totally inconsistent" with the Petitioner-Relator's argument that the
government cannot move to dismiss or direct other action that may be
incompatible with the relator's intentions. In short, based on their
questions, the Justices all seemed to come to the consensus that this part
of the Petitioner-Relator's argument fails– and appeared to side with the
government's ability to move to dismiss an FCA case at any time.

The parties also addressed what standard they believe a court must use to
evaluate dismissal, particularly in the event that the Court disagrees with
the Petitioner-Relator's argument that the relator has full control over
the action after the government declines intervention. The
Petitioner-Relator argued dismissals must satisfy at least a rational basis
review standard, as the relator possesses a property interest in the action
and the government cannot deprive a relator of that right without scrutiny.
Justice Gorsuch challenged the Petitioner-Relator on his definition of
rational basis review and stated Petitioner's version is "pretty
aggressive." Justice Barrett commented Petitioner-Relator's standard sounds
more like intermediate scrutiny. Justice Gorsuch questioned the government
on the standard the government has to meet to overcome the relator's
property interest. The government explained the dismissal is not subject to
any standard of judicial review other than that it must meet the
constitutional baseline. The government agreed with the assertion that the
relator does have a property interest in the claim (assigned by statute),
which is why compliance with the constitutional baseline is necessary, but
that no other standard applies as the FCA does not provide one.

The Prediction
While nothing is certain, we predict the Supreme Court will hold the
government can intervene after declination, and the government will have to
meet either a constitutional or rational basis baseline to support its
motion to dismiss. Given the Court's questions, it seems unlikely that the
Court will impose a demanding standard for the government, although the
actual standard the Court will settle on is unclear. If the government is
successful with its argument that it retains the right to dismiss after
declining to do so initially, and the standard for dismissal is not
rigorous and does not provide much or any opportunity for discovery by the
relator, the government will be rightfully empowered to move to dismiss
cases brought on its behalf. Placing this power with the government also
helps protect defendants, who should not be forced to defend actions—at
great financial and reputational cost—brought on behalf of the government
that the government itself does not think should proceed.

We will continue to monitor this case, and will provide an update once the
Supreme Court has published its decision.
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