On July 7, 2021, a Fifth Circuit panel upheld a decision by the U.S. District Court for the Eastern District of Texas to grant the government’s dismissal of two qui tam actions under the False Claims Act (FCA) in Texas, despite the government’s initial decision to not intervene. The Fifth Circuit concluded that the government had authority over the lawsuits and could dismiss the claims upon meeting certain conditions and providing adequate reasons for seeking dismissal.

In the underlying FCA actions, two entities (Relators) accused two pharmaceutical companies of participating in a kickback scheme by offering free patient-education services to providers in return for the providers prescribing their products. Of note, the Relator entities were formed solely to file qui tam actions on behalf of their parent organization, National Health Care Analysis Group. The U.S. Attorney’s Office for the Eastern District of Texas initially declined to intervene in the FCA case. One year later, the government elected to exercise the government’s authority to dismiss the claims. The government cited its own two-year investigation and review of supplemental information provided by the Relators as its basis for seeking dismissal. The Fifth Circuit panel rejected the Relators’ contentions that the government acted “arbitrarily and capriciously” when moving to dismiss the case.

The Fifth Circuit panel explained that the government provided four valid arguments for dismissing the case, which include:

• Insufficient factual and legal support to prove violations of the Anti-Kickback Statute;

• The substantial costs of pursuing the claims;

• Certain policy interests of Medicare and other federal healthcare programs; and

• The investigative methods employed by the Relator’s parent organization to uncover the alleged kickback scheme.

U.S. Circuit Judge Jennifer Walker Elrod, writing for the panel, noted that the government may move to dismiss a qui tam action once two conditions have been met. First, the government must give notice to the qui tam relator of the government’s motion to dismiss. Second, the district court must provide the relator with an opportunity for a hearing on the motion. The panel concluded that the government satisfied both conditions.

The Relators argued that they were denied an evidentiary hearing prior to the dismissal of their claims. The Fifth Circuit, however, concluded that the record demonstrated that the Relators had opportunities to present evidence to the magistrate judge, including witness testimony. The Fifth Circuit further explained that the magistrate judge did not prevent the Relators from presenting the witness, and that the Relators made the strategic decision not to call the witness forward. The panel concluded that the Relators were afforded a hearing, and therefore, the second condition for dismissing a qui tam action had been met.

In a concurring opinion, U.S. Circuit Judge Patrick E. Higginbotham acknowledged the unique circumstances in which the claims were dismissed. Judge Higginbotham noted that under Congress’ qui tam regulatory scheme, the government may assume the prosecution of a claim filed by a relator or may allow the relator to pursue the claim alone. However, Judge Higginbotham stated that the government’s control over a qui tam claim is less certain, including its authority to file motions to dismiss, when it first decides not to intervene but returns to the litigation at a later stage. Judge Higginbotham ultimately determined that the government may dismiss the case given that (i) the Relators had the opportunity to challenge the government’s motions to dismiss in a hearing and (ii) the government provided legitimate reasons for dismissing the claims. Judge Higginbotham concluded that the government could have simply “prevented the relators from being involved at the start. . . [t]he government did neither here, but when it chose to dismiss it, it gave legitimate reasons for doing so, ones which sound mostly in policy choices.”

The Fifth Circuit’s opinion is available here.