A Government Win That FCA Defense Counsel Can Get Behind

In the past twenty or so years, the government (and creative relators) have sharpened and re-designed the False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA”), into a multi-functional tool to redress all sorts of conduct that allegedly “defrauded” the government. Theories abound as to how the government might be misled – including presentment of factually false claims, legally false claims, and “reverse” false claims (e.g., failing to return funds the government erroneously paid).

But with so many cases draining government resources in even non-intervened FCA suits, the government has with greater frequency begun to dismiss cases – over the objection of the relator – that it has declined to pursue. The FCA authorizes such dismissals, if the relator “has been notified by the [g]overnment” of the filing of a motion to dismiss “and the court has provided the [relator] with an opportunity for a hearing on the motion.” 31 U.S.C. § 3730(c)(2)(A).

But given that the government ordinarily has discretion to decide what cases it will pursue, what is the government’s burden to show that dismissal, over a relator’s objection, is warranted? What standard should the court use to evaluate whether the government has met that burden? What is the nature of the hearing provided for in Section 3730(c)(2)(A)?

The False Claims Act itself is silent on these questions. Around the country the federal appellate courts are grappling with them and have reached varying conclusions. A new decision by the Court of Appeals for the First Circuit clarifies an earlier decision from the D.C. Circuit and may serve as a model for the Supreme Court or Congress to adopt.

In an early case, the Ninth Circuit imposed a multi-step analysis for the district court to evaluate the government’s motion to dismiss. First, the government must identify a “valid government purpose” for the dismissal and demonstrate “a rational relation between dismissal and accomplishment of that purpose.” If the government does so, then the relator must show that the “dismissal is fraudulent, arbitrary, capricious, or illegal,” to prevent dismissal. See United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F. 3d 1139, 1145 (9th Cir. 1998).

In rejecting the Ninth Circuit’s test, the D.C. Circuit explained that the government has essentially “absolute discretion” to file an action on behalf of the United States, while noting that the constitution may impose an outer limit on the government’s discretion to dismiss an action it has already brought, and that the government’s discretion may not be used to perpetrate a fraud on the Court. See Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003). But these restraints were mostly theoretical. The purpose of the hearing requirement, the Court explained, “is simply to give the relator a formal opportunity to convince the government not to end the case.” Id. at 253.

The Seventh Circuit, while generally agreeing with the D.C. Circuit that the Ninth Circuit standard places too much of a burden on the government’s right to dismiss an action, has suggested that a district court could deny the government’s motion if dismissal would violate the constitution or perpetrate a fraud on the court. See United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835, 851-52 (7th Cir. 2020). But both the Seventh and Third Circuits, would tether the court’s involvement in the dismissal decision to Rule 41 of the Federal Rules of Civil Procedure. See id.; Polansky v. Exec. Health Res. Inc., 17 F.4th 376 (3d Cir. 2021).

The First Circuit’s recent decision in Borzilleri v. Bayer Healthcare Pharmaceuticals, Case No. 20-1066, __ F.4th ___ (2022), adopts the D.C. Circuit’s approach in Swift v. United States, 318 F.3d 205 (D.C. Cir. 2003), and expands it to clarify that unless the Court finds the government has committed a constitutional violation or a fraud on the court (the relator’s burden to show), it must dismiss the case. The First Circuit also rejected the Ninth Circuit’s approach, noting that there is “no basis in the statutory language for requiring the government to make a prima facie showing that its motion is rational, reasonable, or otherwise proper.”

Likewise, the Court rejected the Seventh Circuit’s approach founded upon Rule 41, which concerns voluntary dismissal of civil actions. Again, the First Circuit noted that this Rule 41-based approach departs from the FCA text, which provides for notice and a hearing independent of, and in addition to, the requirements of Rule 41.

Instead, affirming the dismissal of the qui tam suit below, the First Circuit adopted an approach consistent with the D.C. Circuit. This approach does not place any initial burden on the government to justify its motion to dismiss, other than to articulate the reasons therefor so the relator has an opportunity to convince the government not to dismiss at the hearing on the motion. Failing to so convince the government means the district court must dismiss the case unless the relator “can show that the government’s decision to seek dismissal transgresses constitutional limitations or that, in moving to dismiss, the government is perpetrating a fraud on the court.”

This second pronouncement cements (at least in the First Circuit) what the D.C. Circuit and other courts have considered “should be” the only limitations on the government’s otherwise “unfettered right to dismiss a [qui tam] action.”

This Circuit split will have to be resolved at some point. Congress could step in to amend the FCA to clarify the government’s burden, if any, to dismiss a qui tam action over the relator’s objection, and what role the Court must play in the hearing provided for the relator. Perhaps before that happens, the Supreme Court will address the issue, although it has already denied a petition for writ of certiorari from the Seventh Circuit’s decision in CIMZNHCA.

When it is resolved, I would bet the First Circuit approach will carry the day.  

• False Claims Act
• Civil Litigation