UPDATE: Supreme Court to review government’s ability to dismiss qui tam complaints

On June 21, 2022, the Supreme Court agreed to resolve the current disagreement among federal courts regarding when and how the federal government can dismiss a qui tam action brought under the False Claims Act (FCA). In United States ex rel. Polansky v Executive Health Resources, Inc., the petitioner asked the Court to decide whether – and under what standard – the FCA allows the federal government to dismiss a qui tam action over a relator’s objection if the government initially declined to intervene.

As we noted in a prior alert found here, there currently exists a three-way split on this issue (with variations still within each adopted standard): the DC Circuit has held the government has an “unfettered right” to dismiss FCA actions; the Ninth and Tenth Circuits allow dismissal only if the government shows a “rational relation” between dismissal and a valid government purpose; and the Seventh Circuit rejected both tests, ruling instead that the government must meet the requirements for a voluntary dismissal under Federal Rule of Civil Procedure 41(a), just like any other plaintiff.

And, as an example of the growing divide, the First Circuit recently created yet another standard, finding the government need only state its reasons for seeking dismissal, whereby the relator must then show the dismissal exceeds constitutional limitations or constitutes a fraud on the court.

The Third Circuit joined this debate in Polansky. There, the qui tam relator filed suit in 2012, and the complaint was then unsealed in 2014 after the government declined to intervene. In 2019, however, the government changed course and notified the parties that it intended to dismiss the entire action under its authority granted by 31 U.S.C. § 3730(c)(2)(A). The district court granted the government’s motion to dismiss over Polansky’s objections that the government lost its right to dismiss when it initially declined to intervene in the case.

The Third Circuit affirmed. Looking first to the circuit split, the court addressed each existing standard and then adopted the rationale of the Seventh Circuit. Applying that test and Rule 41(a), the court found that the district court properly granted the government’s motion to dismiss in light of “the interests of the parties, their conduct over the course of the litigation, and the government’s reasons for terminating the action.”

The Supreme Court will now address this conflict and determine the proper standard to evaluate a government’s motion to dismiss during its next term. The Court likely decided to weigh in on these issues not only because the confusion among the courts is growing, but also because the volume of FCA actions year after year continues to rise.

The Department of Justice announced recently that it recovered (through settlements and judgments) approximately $5.6 billion from FCA actions during Fiscal Year 2021 – an amount that was the second largest in history and was also more than double the amount recovered the prior year. And one of the most effective tools of defense for any FCA defendant is the ability to persuade the government to move to dismiss a qui tam action.  To the extent the Supreme Court’s forthcoming decision makes the procedural requirements for and the standard of review applicable to such motions more demanding, it will be that much more difficult for defendants to convince the government to make use of this tool.