The U.S. Supreme Court, in an 8-1 decision written by Justice Kagan, held on June 16 that the United States (“Government”), having initially chosen not to intervene in a False Claims Act (“FCA”) qui tam case, but having subsequently intervened via a showing of good cause, can then successfully move to dismiss the case over the qui tam relator’s objections provided the Government can meet the “good cause” requirements in Rule 41 of the Federal Rules of Civil Procedure (“FRCP”). As further explained below, Justice Thomas dissented and Justices Kavanaugh and Barrett, while joining in Justice Kagan’s opinion in full, agreed with Justice Thomas that there are constitutional questions relating to qui tam actions generally that need to be addressed in an appropriate case.
The FCA imposes civil liability on any person who presents false or fraudulent claims for payment to the Government. Among other things, it authorizes private parties – relators – to sue on the Government’s behalf. Those suits, qui tam suits, are brought in the name of the Government. The injury they allege is injury to the Government alone, but the relator may receive up to 30% of the total damages recovered.
Procedurally, the qui tam relator files suit under seal and the Government then has 60 days (often extended for “good cause”) to decide whether to intervene and proceed with the action. If the Government elects to intervene during the seal period, the suit is then conducted by the Government; otherwise, the relator is given the right to conduct the action. However, even if the Government does not intervene, it remains a “real party in interest” and retains certain continuing rights. These include the right to subsequently intervene provided it shows good cause to do so.
In this case, the relator, Jesse Polansky, filed a qui tam action alleging that Executive Health Resources (“EHR”) helped hospitals overbill Medicare. The Government declined to intervene during the seal period and the case then spent many years in discovery.
Eventually, the Government decided that the various burdens of the suit outweighed its potential value. Accordingly, it filed a motion to dismiss the case under 31 U.S.C. §3730(c)(2)(A) (what Justice Kagan in her opinion refers to as “Subparagraph (2)(A)” for short). This subparagraph provides that “[t]he Government may dismiss the action notwithstanding the objections of the [relator],” provided the relator receives notice and an opportunity for a hearing.
The U.S. District Court granted the Government’s request, finding that the Government had thoroughly investigated the costs and benefits and come to a valid conclusion. The Third Circuit Court of Appeals affirmed after considering two questions.
First, does the Government have authority to dismiss an action under Subparagraph (2)(A) if it declined to intervene during the seal period?
The court concluded that it has that power provided it intervened sometime later, and in this case the court found that the Government had satisfied that condition because its motion to dismiss was reasonably construed to include a motion to intervene, which the District Court had implicitly granted.
Second, what standard should a district court use in ruling on a Subparagraph (2)(A) motion?
The court held that the proper standard comes from Section 41(a) of the FRCP, which is the rule governing voluntary dismissals in ordinary civil litigation. The court then ruled that the District Court had not abused its discretion in granting the Government’s motion.
In affirming the Third Circuit’s decision, Justice Kagan’s reasoning, in very summary form, proceeded as follows:
With respect to the question whether the Government has authority to dismiss after the seal period:
- The FCA in Subparagraph (2)(A) gives the Government unilateral authority to dismiss a realtor’s suit over the relator’s objection if there has been notice and an opportunity for a hearing.
- Nothing in the statute expressly states whether (or when) that authority survives the Government’s decision to let the seal period lapse without intervening.
- None of the parties agrees with the Third Circuit’s conclusion. On the one side, the Government and EHR contend that a Subparagraph (2)(A) motion is always permissible, even if the Government has never intervened. On the other side, Polansky (joined by Justice Thomas in dissent) contends that the Government can make a Subparagraph (2)(A) motion only if it has intervened during the seal period.
- The competing arguments on that score hinge significantly on surrounding provisions of the FCA —more precisely, on how Subparagraph (2)(A) fits into the rest of 31 U.S.C. §3730(c).
- Analysis of §3730(c) leads to the following conclusions:
- When the Government has chosen not to intervene in a qui tam suit, it is (by definition) not a party. And non-parties typically cannot do much of anything in a lawsuit.
- At the same time, a straightforward reading of the FCA refutes the assertion that the right only applies when the Government’s intervention occurs during the seal period. The Government can intervene during the seal period – but so too it can intervene at a later date upon a showing of good cause.
- The consequence of a successful motion to intervene, in the FCA context as in any other, is to turn the movant into a party. And once the Government becomes a party, it does what parties do: it “proceeds with the action,” and as provided in 31 U.S.C. §3730(c)(1), having assumed “primary responsibility,” the right to dismiss applies notwithstanding [the relator’s] objections,” provided the court finds after a hearing that the settlement is fair and reasonable. §3730(c)(2)(B). (The relator still can “continue as a party”—file motions, conduct discovery and so forth—but subject to the Government’s right to dismiss.)
- Accordingly, the dismissal right applies only if the Government has intervened, but the timing of the intervention makes no difference.
With respect to the question of what standard applies in assessing a Government motion to dismiss:
- FRCP 41(a) should apply because the FRCP are the default rules in civil litigation.
- In considering a Government motion to dismiss in a qui tam case, the interests of the relator need to be considered along with those of the Government.
- The Third Circuit correctly noted that Subparagraph (2)(A) motions will satisfy Rule 41 in all but the most exceptional cases. The Supreme Court has never set out a grand theory of what that rule requires, and will not do so in this case.
- The inquiry here is necessarily “contextual” and the Government’s views are entitled to substantial deference since a qui tam suit is on behalf of and in the name of the Government, alleging injury to the Government alone.
- If the Government offers a reasonable argument as it has done in this case (i.e., the significant costs of future discovery in the suit, including the possible disclosure of privileged documents) for why the burdens of continued litigation outweigh its benefits (the possibility of a significant financial recovery), the court should grant the motion. And that is so even if the relator presents a credible assessment to the contrary.
- Given that, the present case is not a close case and the Third Circuit’s opinion is affirmed.
As explained above, it is important to take note of Justice Thomas’ dissent with respect to the dismissal question and also with respect to the points he makes concerning what he believes to be serious constitutional problems relating to qui tam suits generally, problems that have not been addressed by the majority and need to be addressed in the future.
With respect to the questions of statutory interpretation, he sets forth an extensive argument as to how the majority has misinterpreted and applied the statute. He reviews what he sees as the text, structure, and history of the FCA and states that they all point to the same conclusion — the FCA affords the Government no statutory right to unilaterally dismiss a declined action when it later intervenes.
With respect to the constitutional questions, he writes:
- The FCA’s qui tam provisions have long inhabited something of a constitutional twilight zone.
- There are substantial arguments that the qui tam device is inconsistent with Article II of the Constitution and that private relators may not represent the interests of the United States in litigation.
- This is because the entire executive power belongs to the President alone and accordingly can only be exercised by the President and those acting under him. Congress via legislation such as the FCA cannot authorize a private relator to wield executive authority to represent the Government’s interests in civil litigation.
- There is thus good reason to suspect that Article II does not permit private relators to represent the Government’s interests in FCA suits.
- That said, even if that is true, the follow-on implications may not be as straightforward as they appear at first glance.
- Under the FCA, the relator brings suit for himself as well as for the Government. In effect there has been a partial assignment and it is not immediately clear that the Government may dismiss the relator’s interest in a qui tam suit, even assuming that the relator’s representation of the Government’s interest in the suit is unconstitutional.
- In any event, these are complex questions which I would leave for the parties and the court below to consider after resolving the statutory issues that have been the focus of this case up to now.
- Therefore, I would vacate the judgment below granting the Government’s motion to dismiss and remand for the Third Circuit to consider the correct disposition of that motion in light of any applicable constitutional requirements.
Importantly, Justices Kavanaugh and Barrett, while joining in the majority opinion also concurred with Justice Thomas that “[t]here are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation.” In their view, the Court should consider the competing arguments on the Article II issue in an appropriate case.
That may or may not occur in the future, but the implications are obviously enormous.
