November 11, 2021 - Kenneth M. Abell / Katherine Kulkarni
*** This article was originally published in the Expert Analysis section of Law360 on November 10, 2021 ***
There has long been a circuit court split over the standard that applies to Government-initiated motions to dismiss qui tam actions under the False Claims Act (FCA). Until last year, there were two approaches: the Swift standard, which derives from the D.C. Circuit’s ruling in Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003), and the Sequoia Orange standard, which stems from the Ninth Circuit’s ruling in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp, 151 F.3d 1139 (9th Cir. 1998).
While the Swift standard affords the Government an “unfettered right” to dismiss a qui tam FCA action, see Swift, 318 F.3d at 252, the Sequoia Orange standard requires the Government to identify a “valid government purpose” and then show a “rational relation” between its purpose and the dismissal of the case, see Sequoia Orange, 151 F.3d at 1145-46.
Last year, the Seventh Circuit carved out a third standard that treats the Government like any private party plaintiff under the Federal Rules of Civil Procedure. See United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835, 845 (7th Cir. 2020). The Court determined that the standard applicable to Government-initiated dismissal motions is the one provided by Rule 41(a), which governs voluntary dismissal of a plaintiff’s claims in garden-variety civil practice. Id. at 849-50.
The Third Circuit Weighs In
On October 28, 2021, the Third Circuit added its view to the circuit split. In Polansky v. Executive Health Resources, Inc., No. 19-3810, 2021 WL 4999092 (3d Cir. 2021), the Third Circuit unanimously declined to follow either of the two more established standards – Swift and Sequoia Orange – and elected instead to adopt the recently-articulated approach of the Seventh Circuit. In doing so, it issued two significant holdings.
First, the Third Circuit held that, when the Government declines to move forward with a relator’s FCA action, and the relator elects to proceed on his or her own, the Government must intervene before it can move to dismiss. The Court held that the Government can seek leave to intervene at any point in the litigation upon a showing of good cause. Notably, the Government in Polansky did not actually file a separate motion to intervene; the Court construed the Government’s motion to dismiss “as including a motion to intervene” and deemed that sufficient to allow the Government to be heard in the case. Polansky, 2021 WL 4999092 at *11. Thus, although going forward it will be safer for the Government to file a separate motion to intervene before or alongside a motion to dismiss, a free-standing motion to dismiss seeking intervention and showing good cause will likely suffice. As the Court in Polansky noted, good cause is a “uniquely flexible and capacious concept,” which simply means a “legally sufficient reason.” Id. at *7, quoting Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 934-35 (10th Cir. 2005).
Second, the Court held that a government-initiated dismissal motion in a qui tam action should be governed by Rule 41(a) of the Federal Rules of Civil Procedure. Polansky, 2021 WL 4999092 at *7. In so holding, the Court determined that the Government should be treated the same as any private party plaintiff would be treated when seeking to dismiss a civil case. The Court reasoned that because Rule 41(a) functions “[s]ubject to . . . any applicable federal statute,” Fed. R. Civ. P. 41(a)(1)(A), the governing standard should be a blend of Rule 41(a) and the provisions of the FCA.
Traditional Rule 41(a) analysis turns on whether the defendant has already filed a responsive pleading when the plaintiff seeks to dismiss the action. If a responsive pleading has not yet been filed, the plaintiff may move to dismiss the action as of right and without a court order. Fed. R. Civ. P 41(a)(1). On the other hand, if the defendant has already filed a responsive pleading, the plaintiff may only dismiss the action “by court order, on terms that the court considers proper.” Fed. R. Civ. P. 41(a)(2).
In FCA actions, the analysis will operate as follows: the relator must receive notice of the Government’s motion to dismiss and an opportunity for a hearing, regardless of when the Government’s motion is filed. See 31 U.S.C. § 3730(c)(2)(A). If the Government moves to dismiss a relator’s FCA case before the defendant has filed a responsive pleading, and the relator has had the opportunity to be heard, the Government is entitled to dismissal unless it has engaged in unconstitutionally arbitrary conduct. See Fed. R. Civ. P. 41(a)(1)(A); 31 U.S.C. § 3730(c)(2)(A). Of course, very few cases will rise to the level of unconstitutionally arbitrary government conduct. After all, “only the most egregious official conduct can be said to be arbitrary in the constitutional sense,” and such conduct must amount to an “executive abuse of power” that “shocks the conscience.” Polansky, 2021 WL 4999092 at *9 n.17, quoting Cnty. of Sacramento v. Lewis, 523 U.S. 833, 846 (1998) (internal quotation omitted).
Conversely, if the Government moves to dismiss a relator’s case after the defendant has filed a responsive pleading, then dismissal will only be granted on terms the court considers proper. Fed. R. Civ. P. 41(a)(2). The Court in Polansky offered no insight into the kinds of factors that would justify dismissal by court order under Rule 41(a)(2) but suggested that dismissal should be encouraged, even at this later stage, unless the defendant will suffer prejudice beyond the prospect of a second lawsuit. Polansky, 2021 WL 4999092 at *9. Insight can also be gleaned from the Court’s review of the District Court’s dismissal order. In that regard, the Court noted that the District Court had engaged in a “thorough examination and weighing of the interests of all parties,” and thus, “did not abuse its discretion in granting the Government’s motion to dismiss on the terms that it did.” Id. at *12. In particular, the Court noted that the District Court had “exhaustively examined the interests of the parties, their conduct over the course of the litigation, and the Government’s reasons for terminating the action,” which included the litigation costs that Polansky’s suit imposed on the Government. Id. Further, the Court found that the District Court had adequately considered the prejudice to the non-governmental parties, even though the “litigation was at an advanced stage and significant resources had been expended on it by both parties.” Id.
Takeaways From the Polansky Decision
Read as a whole, there can be no question that the Third Circuit recognized the right of the Government to dismiss an action brought in its name, especially in the early phases of litigation. Indeed, after Polansky, it is essentially a given that the Government will win on a dismissal motion if it files the motion before the defendant files a responsive pleading. The Third Circuit made clear that the Government has an absolute right to dismiss a qui tam action at that early stage of the litigation. Providing that the relator has had the opportunity to be heard, the Government will succeed on its dismissal motion unless it has engaged in unconstitutional misconduct. And it is worth noting that Government motions to dismiss will most often be filed when the case is unsealed and before the defendant has filed a responsive pleading. Thus, as a practical matter, most of these motions will be analyzed under the extremely deferential Rule 41(a)(1) standard.
Relators, however, will likely fare better in fending off government motions to dismiss if the Government files the dismissal motion after the defendant has already filed a responsive pleading. At that point, the Government no longer has an absolute right to dismissal and the court will have greater latitude to decide whether to grant the motion.
Ultimately, by following the standard promulgated by the Seventh Circuit, the Third Circuit chose the least Government-friendly approach to dismissal of a qui tam action under the FCA in cases where the motion is not filed right away. A motion seeking to dismiss pursuant to Rule 41(a)(2) will naturally face a greater hurdle to success than a dismissal motion filed by the Government under the Swift standard in the D.C. Circuit, which gives the Government an unfettered right to dismiss.
The governance of Rule 41(a)(2) over dismissal motions is also more restrictive than the rational relation standard in Sequoia Orange, which is grounded in constitutional principles. In fact, the Third Circuit in Polansky critiqued that approach, finding that the “right against arbitrary government action may provide a constitutional floor, but the Federal Rules of Civil Procedure are built above it, and the Ninth Circuit’s approach omits that structure entirely.” Polansky, 2021 WL 4999092 at *12. Because a Government-initiated motion to dismiss in the Third Circuit will be governed by both the Federal Rules of Civil Procedure and constitutional principles, it will be subject to greater scrutiny than motions to dismiss filed in the Ninth and Tenth Circuits.
In sum, the Third Circuit’s decision in Polansky further widens the long-standing circuit split over the standard to apply to Government-initiated motions to dismiss in qui tam actions. Although all three standards are largely deferential to the Government, the approach initially articulated by the Seventh, and recently adopted by the Third Circuit, evinces an increasing level of scrutiny for Government-initiated motions filed after the defendant has entered the fray.
More About AEL and the Authors
AEL is a boutique law firm that specializes in parallel criminal/civil healthcare fraud investigations, with a particular expertise in the False Claims Act (FCA) and Antikickback Statute (AKS), among others. Read more about our white collar practice, FCA expertise, and government investigations practice on this website. Ken Abell is a partner and co-founder of the Firm. Kate Kulkarni is an associate of the firm.