On April 2, the United States District Court for the Eastern District of Virginia dismissed a whistleblower’s False Claims Act (FCA) action after the relator attempted to dismiss the government as a plaintiff-intervenor in the lawsuit.
The whistleblower, Roger Day, argued that the government’s role in the alleged fraudulent scheme created an unavoidable conflict of interest. However, Judge Payne of the Eastern District of Virginia disagreed that the whistleblower had statutory authority to do so finding the government has broad authority to dismiss an FCA action. This highlights that while private parties are authorized by the FCA qui tam provisions to bring such suits, FCA cases are brought on behalf of and in the name of the government, meaning the claims ultimately belong to the government, not the relator.
Further, while the government is entitled to most of any recovery even in cases in which it decides not to join the suit or “intervene,” the unique facts of this case resulted in the relatively rare occurrence where the government and the defendant’s interests were aligned in dismissing the case.
Background
Day accused five major defense contractors of price gouging by selling proprietary replacement parts to the military through a non-competitive procurement process. Day claimed that the Defense Logistics Agency (DLA) helped facilitate this process by ensuring no other distributors could compete for the parts, enabling the contractors, he alleged, to charge inflated prices and amass unwarranted profits in the billions of dollars annually since 2003.
In 2023, the government intervened and moved to dismiss the case citing its authority under 31 U.S.C. §3730(c)(2)(A) to dismiss FCA cases brought by relators “notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” Judge Payne almost immediately granted the government’s motion.
However, Judge Payne subsequently vacated his initial ruling in June 2024 after finding that Day’s complaint sufficiently alleged the government was “knowingly complicit” in the creation of false claims. Judge Payne conceded he had misapplied the Supreme Court precedent in U.S. ex rel. Polansky v. Executive Health Resources Inc., which held that owe “substantial deference” to the government when it moves to dismiss FCA cases and must, as the Supreme Court directed, grant such a motion “[i]f the Government offers a reasonable argument for why the burdens of continued litigation outweigh its benefits … even if the relator presents a credible assessment to the contrary” but still required the government provide enough evidence to support a dismissal.
Discussion
In a matter of first impression for the district court, Judge Payne ultimately came to the same conclusion finding that the FCA provides no statutory authority to the relator to remove the government as a plaintiff-intervenor.
While “Day contend[ed] the statutory history, purpose, and congressional intent do demonstrate a congressional will to grant private parties some power to vindicate the United States’ interests, there is no indication that the FCA grants relators unfettered power to bring qui tam cases alone when the United States thinks otherwise,” said Judge Payne.
In addition, Judge Payne found that Day failed to adequately prove the contractors acted with the required knowledge of wrongdoing—a critical element of any FCA claim. The judge concluded that the contractors may have simply been complying with the established procurement process, rather than engaging in fraud.
Going Forward
The dismissal underscores that, even in cases brought by relators, FCA claims are the government’s claims and, as the Supreme Court stated in Polansky, “the Government, once it has intervened, assumes primary responsibility for the action.” Indeed, as Judge Payne explained, “(1) the United States, not the relator is the primary victim of an FCA offense; (2) violators are liable to the United States, the relator, for an FCA offense; and (3) the United States, not the relator, receives the lion’s share of the damages awarded in an FCA lawsuit (at minimum, 70%).” (Emphasis in original.)
While the relator’s counsel may appeal the decision to the Fourth Circuit, the dismissal highlights the broad authority the U.S. government has over FCA cases. Importantly, while still rare and limited to unusual facts, in recent years the government has shown increased interest in exercising this authority.
In 2018, the Department of Justice (DOJ) issued guidance to attorneys in the Civil Division, Fraud Section, as well as Assistant U.S. Attorney handling FCA matters (the Granston Memo), stressing the importance of the dismissal authority and setting out a non-exhaustive list of factors DOJ can use to evaluate whether dismissal might be appropriate. These factors include where the qui tam suit:
- Is “facially lacking in merit.”
- Duplicates a “pre-existing government investigation and adds no useful information to the investigation.”
- “Threatens to interfere with an agency’s policies or the administration of its programs.”
The Granston Memo further explains dismissal may be appropriate:
- To “protect the Department’s litigation prerogatives.”
- To safeguard classified information.
- Where “the government’s expected costs are likely to exceed any expected gain.”
- Where egregious procedural errors by the relator frustrate the government’s ability to investigate the relator’s claims.
To the extent any of these factors are present in a declined qui tam action, defendants may consider urging the government to carefully consider whether to intervene for the purpose of dismissal.
That said, in practice, the government generally will not dismiss a suit where it has decided to decline intervention unless the case would create bad law or the DOJ has some other interest for the case not to continue. The FCA qui tam provisionsserve a vital function for the government, bringing to light fraud that the government otherwise would not be aware of, and in moving to dismiss such cases the government must carefully balance that interest against the risk that such a suit could harm more significant policy interests.
This case presented such a risk as the relator alleged that the government’s role in the alleged fraudulent scheme created an unavoidable conflict of interest. If ruled upon, this could have created bad law for the government. And, if litigated, it would have been challenging for the whistleblower, stepping into the shoes of the government, to allege that the government itself had engaged in fraud—a theory that was central to the relator’s case.
