Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On June 16, 2023, in United States ex rel. Polansky v. Executive Health Resources, Inc., the U.S. Supreme Court resolved a circuit split in favor of a broad interpretation of the federal government’s ability to dismiss False Claims Act (FCA) actions over a relator’s objection. In affirming the Third Circuit’s 2021 decision, the Supreme Court found that the federal government can exercise its authority to dismiss an FCA case so long as it intervened in the case at some point in the litigation. The Court also clarified that the rule for voluntary dismissal of ordinary actions, Federal Rule of Civil Procedure 41(a), governs the dismissal standard for FCA actions.
Otherwise known as the “Lincoln Law,” Congress enacted the FCA in 1863 in response to rampant fraud and war profiteering during the Civil War. The FCA deputizes private citizens—referred to as “relators”—to bring suit on the government’s behalf to prosecute those defrauding the government through the knowing1 submission of false claims for payment. These actions are called “qui tam” suits, meaning they are brought in the name of the federal government. While the injury prosecuted in these qui tam cases is the federal government’s, relators are incentivized to bring these cases due to the possibility of an award equal to up to 30% of the total recovery by the government.
Due to the unique nature of the qui tam action, the relator must initially file their complaint under seal and serve a copy of the complaint and supporting material evidence on the government. The government then decides whether it wants to intervene while the complaint is under seal (often referred to as the “seal-period”).2 Even if the government declines to intervene, it retains continuing rights in the litigation, including the right to “the lion’s share of recovery” and to “intervene after the seal period ends.”
In this case, a physician sued his employer, a company that helped hospitals bill the United States for Medicare-covered services. The physician filed a complaint under seal in 2012. The physician alleged that his employer helped hospitals overbill Medicare. After conducting its investigation while the case was under seal, the government declined to intervene. As permitted by statute, the physician proceeded with the lawsuit, and the matter spent years in discovery, which became costly and time-consuming. While the government had not intervened in the case, the defendant sought documents and deposition testimony from the government in discovery. As its discovery obligations grew and “weighty privilege issues emerged,” the government claimed it decided that these discovery burdens outweighed the potential value of the case. The government thus filed a motion under 31 U.S.C. §3730 (c)(2)(A)3 to dismiss the action over the physician’s objection. The district court granted the request, and the physician appealed the decision to the Third Circuit.
The Third Circuit considered two specific legal questions: (1) Does the government have authority to dismiss an action under Subparagraph (2)(A) of the FCA if it declined to intervene during the seal period? (2) What standard should a district court use in ruling on a Subparagraph (2)(A) motion?
The Third Circuit held that the government had the power to seek dismissal under Subparagraph (2)(A), provided it sought to intervene in the action at some point, even if it did so after the seal period.4 The Third Circuit also held that Federal Rule of Civil Procedure 41(a), which governs voluntary dismissals in ordinary civil litigation, was the proper standard to evaluate the government’s motion to dismiss. The physician appealed.
The Supreme Court agreed to review the case to resolve circuit splits over both questions.5 The government argued that it has the right to seek dismissal under (2)(A) even if it has not intervened in the action. Meanwhile, the physician argued that the government can make a (2)(A) motion to dismiss only if it has intervened during the seal period.
Supreme Court’s Rationale
In the Court’s majority opinion, Justice Kagan rejected the arguments set forth by both parties. The Court declined to adopt the government’s interpretation that it could seek dismissal even when it did not intervene because Paragraph 2 of the FCA does not say that it applies when the government is not a party. The Court noted that Paragraph 2 is the only subsection that does not expressly state when it applies. Looking at the immediately preceding subsection (c)(1), the Court noted that subsection (c)(1) applies “[i]f the government proceeds with the action,” which the Court determined applied only when the government intervened and became a party to the suit. In addition, this same subsection (c)(1) states that the relator may continue as a party, “subject to the limitations set forth in paragraph (2).” Accordingly, the Court found that the government’s ability to move for dismissal under Subparagraph (2)(A) requires the government to first intervene in the action. The Court went on to find that the government’s motion to dismiss was reasonably construed by the district court to include a motion to intervene, and that the district court implicitly granted the motion to intervene when it granted the motion to dismiss.
In rejecting the physician’s (and the dissent’s) arguments, the Court found that the rights conferred to the government under §3730(c)(1) and (2) were not limited to FCA actions where the government intervened during the seal period. Attempting to refute this conclusion, the physician primarily relied on Paragraph 3 of the FCA, which provides that a court approving the government’s post-seal-period intervention motion may not “limit the status and rights” of the relator. the physician argued that this clause prevents the court from giving the government “primary responsibility” over the suit, including dismissal power. The Court reasoned that if the government did not retain this right when intervening after the seal period (as specifically permitted by §3730(c)(3)), the statute would be “at war with itself” due to the conflicting tensions between the subsections. Accordingly, the statute permitted the government to intervene after the seal period and move to dismiss the case.
Finally, the Court found that Rule 41(a) is the appropriate rule to evaluate a voluntary dismissal motion under Subparagraph (2)(A), as there was nothing to suggest that Congress meant to exclude qui tam actions from the typical standard. This is true even with the additional procedural requirements found in subsection (2)(A), such as the requirement for notice and an opportunity for a hearing before dismissal can take place. The Court reasoned that once the government intervenes, it assumes primary responsibility for the action and therefore, in seeking dismissal, “[i]f the government offers a reasonable argument for why the burdens of continued litigation outweigh its benefits, the court should grant the motion…even if the relator presents a credible assessment to the contrary.” This is because the government’s interest in the case remains—the relator has brought the suit on behalf of the government—so the government may determine that the burdens of the litigation outweigh the benefits and seek to dismiss the case.
Employers litigating qui tam actions should strategically consider pressure points that may result in government-initiated dismissal. On January 10, 2018, Michael D. Granston, the Director of the Commercial Litigation Branch, Fraud Section at the Department of Justice, issued a memo outlining seven non-exhaustive considerations that the government should look at in evaluating whether dismissal under 31 U.S.C. §3730 (c)(2)(A) is appropriate. Since issuing the 2018 “Granston Memo,” the government has actively sought to dismiss qui tam lawsuits brought under the FCA based upon the considerations outlined in the Memo. The Polansky decision provides the government further clarification that they can continuously evaluate whether qui tam actions brought on behalf of the government should be dismissed. One of the seven factors outlined in the Granston Memo, preservation of government resources, was at issue in the Polansky decision, as the Supreme Court noted that the government represented it had determined that the burden of the discovery process outweighed its potential benefit.
Additionally, employers should consider the practical implications of qui tam dismissal where the relator has initiated non-qui tam litigation, as well. In the employment context, relators may have initiated both a qui tam action and an action under section 3730(h) for retaliation. Claims under section 3730(h) are independent of those brought on behalf of the government and may survive the government’s request to dismiss the underlying FCA case. Nonetheless, the scope of discovery available to a relator in pursuing a retaliation claim would undoubtedly be affected if the qui tam claims were dismissed. In turn, the limitation would likewise decrease the overall value of the relator’s retaliation claim.
Finally, employers should watch out for a future decision on the constitutionality of the FCA in light of the dissent, as such a decision would likely have broad-reaching impact from a legal standpoint.
1 The Court recently defined a “knowing submission” in U.S. ex rel. Schutte, No. 21-1326 (June 1, 2023). See Sherry L. Travers, Alexa Laborda-Nelson, and Kelli Fuqua, Supreme Court: False Claims Act Liability Depends on Defendant’s Subjective Belief, Littler ASAP (June 7, 2023).
2 The government has 60 days to decide whether to “intervene and proceed with the action” but the 60-day period may be extended for “good cause.” 31 U.S.C. § 3730 (b)(2)-(3).
3 31 U.S.C. §3730 (c)(2)(A) provides that “[t]he 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.”
4 The Third Circuit affirmed the dismissal after finding the district court had implicitly granted the government’s motion to intervene, which the government sought in moving to dismiss.
5 Prior to the Polansky decision, the circuit courts were split into two camps. The first camp, occupied by the Third, Sixth, and Seventh Circuits, required the federal government to intervene prior to seeking dismissal. Additionally, unlike the other circuits, the Third and Seventh Circuits specifically applied Rule 41(b)’s requirements to the dismissal. The second camp, occupied by the Ninth and Tenth Circuits, held that the government may dismiss a qui tam action without intervention where it identifies “a valid government purpose” and there is a “rational relation between dismissal and accomplishment of that purposes.” Similar to the Ninth and Tenth Circuits, the D.C. Circuit permitted the federal government the broadest discretion, giving it the “unfettered right to dismiss a [qui tam] action” at any time with or without dismissal.