Qui Tam Relators Beware: The Federal Government Can Flip-Flop on Control of False Claims Act Cases

If the federal government declines to intervene and control the prosecution of a qui tam False Claims Act (“FCA”) action at the outset, can it intervene later and seek dismissal of the relator’s lawsuit? The Supreme Court has answered this question in another recent opinion concerning civil FCA litigation. The Court’s decision in United States ex rel. Polansky v. Executive Health Resources, Inc. resolves some thorny statutory construction issues, avoids some complex Constitutional questions, and highlights substantial risks for whistleblower plaintiffs.

On June 16, 2023, the U.S. Supreme Court decided United States ex rel. Polansky v. Executive Health Res. Inc., No. 21-1052, 2023 WL 4034314 (U.S. June 16, 2023), holding that the Government may intervene and move to dismiss a FCA suit at any time in the life of the case. The Court further directed District Courts to evaluate such motions under the general Rule 41(a) voluntary dismissal standard. Fed. R. Civ. P. 41(a).

Case Background

The case arose in a familiar setting—allegations of Medicare billing fraud in violation of the FCA. The FCA imposes civil liability on any person who presents false or fraudulent claims for payment to the federal government. 31 U.S.C. §§ 3729-3733. Dr. Jesse Polansky accused Executive Resources (“EHR”), his former employer, of facilitating hospital clients’ overbilling Medicare by charging inpatient rates for outpatient medical services. Polansky filed a sealed qui tam complaint in 2012, and the Government declined to intervene within the sixty-day seal period (as extended for two years).

Vigorous litigation ensued. Dr. Polansky opted to proceed with the case on his own dime as a relator for the Government. To defend itself, EHR pursued extensive document and deposition discovery from the Government.

The FCA imposes liability on entities and individuals who defraud the United States, through a “qui tam” enforcement mechanism. Under this procedure, private whistleblowers can initiate lawsuits under the FCA on behalf of the Government under seal. The Government then has sixty days (subject to routinely granted extension) to decide whether to “intervene” and take control of the case or to allow the whistleblower to proceed on their own. But the Government retains the right to seek intervention later if necessary. 31 U.S.C. § 3730(c)(3). If the whistleblower prevails, the FCA allows them to receive between 25-30% of the recovery plus attorneys’ fees. The Government keeps the rest. Notably, if the Government intervenes (initially, and now presumably later) the relator is entitled to 15-25% of the recovery.

After five years, the Government determined that Polansky’s suit was imposing significant discovery and other costs on the Government and was not likely to succeed. Accordingly, the Government moved to intervene and dismiss Polansky’s suit in 2019, over Polansky’s strenuous objection. The district court granted the Government’s motion and the Third Circuit affirmed. See Polansky, M.D. v. Executive Health Resources Inc., 17 F. 4th 376 (3d Cir. 2021).

U.S. Supreme Court Decision

The Supreme Court affirmed the Third Circuit and clarified the legal standard for resolving a contested motion to dismiss a qui tam suit. Justice Kagan delivered the opinion of the Court, in which Chief Justice Roberts and Justices Alito, Sotomayor, Gorsuch, Kavanaugh, Barrett, and Jackson joined. Justice Kavanaugh filed a brief concurring opinion, in which Justice Barrett joined. Justice Thomas filed a dissenting opinion.

Emphasizing the primacy of the “FCA’s Government-centered purposes” in cases brought in the Government’s name, the majority confirmed that the Government may intervene and move to dismiss a qui tam suit at any point in the case’s life. Even when, as here, the Government waits years to intervene, “the Government’s interest in the suit is the same . . . to redress injuries against the Government.” Thus, the Government does not forego the right to “reassess [a] qui tam action and change its mind” about whether the suit should go forward, even if it initially passes on taking over the case. And district courts may dismiss the case “'‘notwithstanding the objections of the [relator],’ so long as the relator has received notice of the motion and an opportunity for a hearing.” § 3730(c)(2)(A). If allowed to intervene, The Government is then a party and assumes primary responsibility for the FCA claim. The parties will then be in the same position as if the Government had intervened during the seal period.

The majority and dissent spar over statutory construction. In dissent, Justice Thomas urged that the provisions of the FCA “do not permit the Government to seize the reins from the relator to unilaterally dismiss the suit after declining to proceed …during the seal period.” § 3730(c)(3). The Government must make “a binary choice” to proceed with the case or allow the relator to conduct the action. § 3730(b)(4). Any later intervention by the Government “may not ‘limi[t] the status and rights of the [relator].’” § 3730(c)(3). While an interesting exchange, the majority view prevailed.

The majority noted that Polansky did not raise any constitutional due process or equal protection arguments. Justice Thomas urged remand for consideration of whether litigation to vindicate public rights is solely an executive function, and qui tam suits, notwithstanding their history back to Civil War days, may violate Article II of the Constitution. Those questions await another day.

The Court next turned to the standard to assess a government motion to terminate the litigation over the relator’s objection, after a late intervention. When evaluating a motion to dismiss, the Court held that district courts should apply the rule generally governing voluntary dismissals of suits in ordinary civil litigation — Fed. R. Civ. P. 41(a). This standard permits actions to be dismissed “by court order, on terms that the court considers proper.” If it “offers a reasonable argument for why the burdens of continued litigation outweigh its benefit” the Government will shoulder this relatively low burden. Dismissal was appropriate. A dismissal order is reviewable for abuse of discretion.

The Practical Implications

The case provides clarity on when the Government may seek to intervene and dismiss a qui tam suit. In this case the burden on the Government imposed by the litigation convinced the majority, that dismissal was reasonably justified. However, the breadth of the discretion afforded to the Government creates a heightened risk that a whistleblower pursuing an FCA case, inevitably a costly endeavor, may risk losing not only substantial funds but years of effort pursuing a case in good faith. It is conceivable a defendant could raise the stakes by making a case expensive for the Government and seek to persuade the Government to drop the claim. Further, the relator stands to lose a substantial percentage of the proceeds if the Government may intervene late and control the outcome.

Time will tell how this balancing act between the interests of the Government which, after all, declined to control the case initially, and the individual seeking to vindicate the Government’s interests plays out. Relators—proceed at your peril.

  • Glenn E. Davis

    Glenn E. Davis handles complex litigation and business counseling issues in a broad range of contexts:

    • Antitrust, distribution & franchise litigation
    • Antitrust business counseling & compliance
    • Business, corporate, and ...

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