Third Circuit deepens circuit split on government’s ability to dismiss qui tam complaints over relator’s objection

Persuading the government to intervene and then move to dismiss a relator’s complaint can be a home run for a qui tam defendant. But when is the government entitled to dismiss a relator’s complaint over the relator’s objection? The False Claims Act itself is silent, requiring only that the government provide notice to the qui tam relator and that the court hold a hearing before granting such a motion. See 31 U.S.C. § 3730(c)(2)(A).

With no clear statutory direction and no controlling Supreme Court decision, the circuit courts have split on the issue. On October 28, 2021, that divide deepened when the US Court of Appeals for the Third Circuit issued a precedential opinion in Polansky v. Executive Health Resources, Inc., applying Federal Rule of Civil Procedure 41(a) to such dismissals.

The Third Circuit expressly rejected both the DC Circuit’s “unfettered discretion” test, which is more deferential to the government, and the less deferential “rational relation” test adopted by the Ninth and Tenth Circuits. Instead, the court followed the middle path charted by the Seventh Circuit, applying Rule 41(a) of the Federal Rules of Civil Procedure when the government intervenes and then moves to dismiss a relator’s qui tam complaint.[1]

In Polansky, Relator Dr. Jesse Polansky worked for the Center for Medicare and Medicaid Services (CMS) before joining the defendant, Executive Health Resources, Inc. (EHR), a “physician advisor” that provides review and billing certification services to hospitals and physicians that bill Medicare. Polansky filed a qui tam complaint against EHR in 2012, which remained sealed for several years and then was in active litigation for several more. In 2019, the government moved to dismiss under § 3730(c)(2)(A). The district court granted the motion but refused to weigh in on the circuit split over the standard of review applicable to such a motion (reasoning that no matter what standard it applied, the government’s motion should be granted). Polansky appealed.

The Third Circuit concluded that a government motion to dismiss a qui tam complaint should be assessed under Rule 41(a), following the Seventh Circuit.

Rule 41(a), which governs voluntary dismissals, establishes three ways that plaintiffs can terminate their own case: (1) upon notice of dismissal prior to the service of an answer or motion for summary judgment; (2) by stipulation signed by all parties having appeared; and (3) by court order “on terms that the court considers proper.” In applying this framework to the qui tam context, the Third Circuit reasoned that, once the government intervenes, it “becomes a party, and like any party, it is subject to the Federal Rules of Civil Procedure, including the rule governing Voluntary Dismissal.” Applying Rule 41(a), the Third Circuit affirmed the lower court’s decision granting the government’s motion to dismiss Polansky’s claims, finding that dismissal was “proper” based on the district court’s examination of “the interests of the parties, their conduct over the course of the litigation, and the Government’s reasons for terminating the action.”

The Third Circuit took care to distinguish its decision from those of other circuits that have arrived at different conclusions, namely the deferential “unfettered discretion” test in the DC Circuit and the more relator-friendly “rational relation” standard adopted by the Ninth and Tenth Circuits.

In the DC Circuit, the government is afforded an “unfettered right” to terminate a qui tam complaint. The Third Circuit rejected this formulation, finding, among other things, that this rule was incompatible with § 3730(c)(2)(A)’s requirement for notice and hearing, which it concluded “implies some role for the Article III judge.”

The Ninth and Tenth Circuits apply a “rational relation” formulation – based upon substantive due process principles – under which the government is entitled to dismissal only where there is a “rational relation” between the dismissal and a “valid government purpose.” The Third Circuit rejected this construction as well, noting that due process forms “a constitutional floor, but the Federal Rules of Civil Procedure are built above it.” In sum, the Third Circuit – following the lead of the Seventh Circuit – appears to have charted a middle path between the wholly deferential judicial role envisioned by the DC Circuit and the more active one envisioned by the Ninth and Tenth.

Takeaway

The standard for government motions to dismiss qui tam complaints should be top of mind for every potential qui tam defendant. The reason is simple: if the government is afforded wide latitude in dismissing qui tam complaints it considers to be problematic (for whatever reason), it means a qui tam defendant need only persuade the government that dismissal is warranted.

Even though the Third Circuit’s middle ground does not provide unfettered discretion, it gives a qui tam defendant latitude to pursue with the government a dismissal of the case based on the concerns that animated the Granston Memorandum, including the high cost of discovery and monitoring, potential adverse effects on FCA enforcement, or possible interference with government policy.

By contrast, the more active role for the court contemplated by the reasonable relation standard means that a qui tam defendant lobbying the government to exercise its dismissal authority must also convince government attorneys that they can convince the presiding judge. In that way, greater court involvement would create an additional hurdle for a qui tam defendant and less certainty about the outcome of a government motion to dismiss.

Until the Supreme Court weighs in, however, qui tam defendants should carefully follow this developing split of authority.

The Third Circuit’s decision leaves open some significant questions about qui tam litigation in the Third Circuit and beyond. The Third Circuit did not identify what “proper” circumstances justify a voluntary dismissal, and so it will be up to the district courts to define the test’s precise contours. Time will tell whether these ambiguities will inure to defendants’ or relators’ benefit. What is clear, however, is that this decision deepens the three-way divide among the circuits and underscores the need for the Supreme Court to consider this issue.

Read the Third Circuit’s decision here. For more information about any aspect of this topic, please contact the authors.