Circuit Split
SCOTUS to Address Government’s Authority to Dismiss FCA Cases
The United States Supreme Court recently granted review of a decision from the Third Circuit that affirmed the dismissal of an FCA case at the government’s request. Polansky v. Exec. Health Res., 17 F.4th 376, 393 (3d Cir. 2021); Polansky v. Exec. Health Res., 21-1052 (June 21, 2022). Polansky resisted the government’s request to dismiss his case, arguing that the government had no authority to dismiss without intervention and that it lacked a basis for seeking dismissal. 17 F.4th 376 at 382. Although the Third Circuit held the government must intervene to be able to dismiss a case and the government did not file a motion to intervene, the Third Circuit held that the government’s motion to dismiss could be read as including an implicit request to intervene in the case. Id. at 392. Next, on the government’s authority to seek dismissal, the Third Circuit held that the standard was the same as applied in every civil case: “[A]n action may be dismissed at the plaintiff’s request only by court order, on terms that the court considers proper.” Fed. R. Civ. P. 41(a)(2). The standard to apply when the government moves to dismiss has received renewed attention in recent years. That attention is likely traceable to the Granston Memo, authored in January 2018, and since adopted as formal DOJ policy. The Granston Memo encourages prosecutors to dismiss declined qui tam actions, pointing to a waste of government resources and the risk of bad cases making bad law. The Memo explains: “Even in non-intervened cases, the government expends significant resources in monitoring these cases and sometimes must produce discovery or otherwise participate. In cases that lack substantial merit, they can generate adverse decisions that affect the government’s ability to enforce the FCA.” Until recently, there were generally two standards—an unfettered right to dismiss or a rational-basis framework. See Swift v. United States, 318 F.3d 250, 253 (D.C. Cir. 2003) (holding the government has an unfettered right to dismiss under the FCA); United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (requiring the government to identify a valid governmental purpose and relationship between the purpose and dismissal, and allowing a relator to resist the dismissal by demonstrating dismissal is arbitrary and capricious); Ridenour v. Kaiser-Hill Co., Ltd. Liab. Co., 397 F.3d 925 (10th Cir. 2005) (same). But in recent years the circuits have split in other ways on what standard applies to government requests to dismiss FCA cases. The Second Circuit recently noted the split between the Ninth and D.C. Circuits, but declined to adopt either standard. United States ex rel. Borzilleri v. Abbvie, Inc., 837 F. App’x 813, 816 (2d. Cir. 2020). Last year, as we reported previously, the United States Supreme Court denied review of a Seventh Circuit decision reversing a district court’s denial of DOJ’s request to dismiss. See Cimznhca LLC v. United States, No. 20-1138, 141 S. Ct. 2878 (June 28, 2021); Cimznhca, LLC v. UCB, Inc., 970 F.3d 835, 839-40 (7th Cir. 2020). The Seventh Circuit declined to adopt either Sequoia Orange or Swift, applying instead Rule 41(a). Id. The Third Circuit had previously declined to adopt either the Sequoia Orange or Swift standard. See, e.g., Chang v. Children’s Advocacy Ctr., 938 F.3d 384 (3d Cir. 2019). But in Polanksy, the Third Circuit followed the Seventh Circuit’s decision in Cimznhca, concluding that the government’s request to dismiss must simply follow Rule 41(a). Notably, the appellate standard of review on dismissals can shift dramatically based on the test applied. Under Sequoia Orange, appellate courts often review de novo. Schwartz v. Raytheon Co., 150 Fed. Appx. 627, 628 (9th Cir. 2005). If the dismissal authority is based on Rule 41(a), an appellate court would review the dismissal for abuse of discretion. Polansky, 17 F.4th at 392. Uniformity in the standard will bring welcome clarity to the government and relators. But there is reason for both to be concerned with the outcome. For relators, the Supreme Court may decide that the D.C. Circuit’s unfettered-right standard is appropriate, which is what the government asked the Third Circuit to apply. For the government, the Supreme Court may decide that dismissal requests require a rational-basis, formal intervention, and/or that dismissal was inappropriate in this particular case.
June 22, 2022
by Chris DeLong
Circuit Split
SCOTUS Denies Review of Dismissal at DOJ’s Request; Circuit Split Remains
On June 28, 2021, the United States Supreme Court denied review of a Seventh Circuit decision affirming the Department of Justice (“DOJ”)-requested dismissal of a False Claims Act (“FCA”) suit alleging a drug kickback scheme. Cimznhca LLC v. United States, No. 20-1138, 2021 U.S. LEXIS 3404 (June 28, 2021). As a result, the circuit split regarding the standard that applies to a Government’s motion to dismiss an FCA action remains unresolved. In the underlying case, relator Cimznhca, LLC filed an action against four defendants, UCB, Inc. RXC Acquisition Company, Omnicare Inc., and CVS Health Corporation, in July 2017. United States ex rel. Cimznhca, LLC v. UCB, Inc., 970 F.3d 835, 839-40 (7th Cir. 2020). Relator alleged that the defendants were engaged in a kickback scheme by providing physicians with incentives for prescribing a brand-name drug over other competitors. Id. The Government declined to intervene in December 2017, and Relator continued to prosecute the case. Id. However, the Government moved to dismiss under 31 U.S.C. § 3730(c)(2)(A) in December 2018. Id. at 840; see also Granston Memo (Jan. 10, 2018) (encouraging the DOJ to use its power to dismiss relators' claims more often). Relator objected to the dismissal. The district court held a hearing on the petition and applied the Sequoia Orange rational-basis test from the Ninth Circuit. Id. Under Sequoia Orange, when the government identifies a valid governmental purpose and a relationship between the purpose and dismissal, the court will dismiss unless the Relator can demonstrate that the dismissal is arbitrary and capricious. United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998). The district court determined the Government’s motion was arbitrary and capricious and denied it. Cimznhca, 970 F.3d at 840. The Government appealed the order. Id. The competing dismissal standard is the unfettered-right standard from Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003). Under the Swift standard, the Government may dismiss an action without judicial review in virtually all cases. Id. at 253. The Tenth Circuit has followed the Ninth, adopting the Sequoia Orange standard. See, e.g., Ridenour v. Kaiser-Hill Co., Ltd. Liab. Co., 397 F.3d 925 (10th Cir. 2005). The Second and Third Circuits have noted the split but declined to adopt either standard. See, e.g., Chang v. Children’s Advocacy Ctr., 938 F.3d 384 (3d Cir. 2019); United States ex rel. Borzilleri v. Abbvie, Inc., 837 F. App’x 813, 816 (2d. Cir. 2020). In this case, the Seventh Circuit reversed and directed the district court to dismiss. 970 F.3d at 854. The Seventh Circuit declined to decide whether Sequoia Orange or Swift was the proper standard, but suggested that something closer to Swift would apply in almost all cases, excepting, for example, a fraud on the court. Id. at 851-52. Relator petitioned for a writ of certiorari, noting the circuit split on the dismissal standard. With the Supreme Court’s denial of Relator’s petition for a writ of certiorari, the circuit split remains. Defendants embroiled in FCA cases should thus remain cognizant of the opportunity, under the right circumstances, for an early exit with the support of the DOJ, but note that the applicable standard will vary depending upon the circuit in which the case is filed.
June 29, 2021
by Chris DeLong
Circuit Split
A New Circuit Split: FCA Protects Former Employees from Post-Employment Retaliation in the Sixth
Over a vigorous dissent last week, a panel of the U.S. Court of Appeals for the Sixth Circuit vacated a ruling from the U.S. District Court for the Eastern District of Michigan and held the False Claims Act’s anti-retaliation provision protects former employees alleging post-termination retaliation. United States ex rel. Felten v. William Beaumont Hosp., No. 20-1002, 2021 U.S. App. LEXIS 9387 (6th Cir. Mar. 31, 2021). The decision creates a circuit split with the Tenth Circuit. See Potts v. Center for Excellence in Higher Education, Inc., 908 F.3d 610 (10th Cir. 2018) (“We conclude that the False Claims Act’s anti-retaliation provision unambiguously excludes relief for retaliatory acts occurring after the employee has left employment.”). Relator David Felten alleged that William Beaumont Hospital violated the anti-retaliation provision of the FCA for retaliation during and after his employment with the hospital. Felten alleged the hospital retaliated against him by terminating his employment after he filed a qui tam complaint alleging the hospital paid illegal kickbacks to physicians and physicians’ groups in exchange for referrals of Medicare, Medicaid, and TRICARE patients. Felten amended his complaint and further alleged the hospital retaliated against him post-termination by undermining his employment applications to other institutions. In granting the hospital’s partial motion to dismiss the allegations in the relator’s amended complaint, the district court held that the FCA’s anti-retaliation provision does not extend to retaliatory conduct that occurs after termination. In so deciding, the district court relied on the statute’s “terms and conditions of employment” qualifier and concluded the provision applies only to alleged retaliatory conduct that occurs during employment. The district court also certified the question of whether the FCA applies to allegations of post-employment retaliatory conduct for interlocutory appeal. The Sixth Circuit granted the relator’s petition for permission to appeal, and on interlocutory appeal considered the temporal meaning of the word “employee” in the context of the FCA’s anti-retaliation provision. See 31 U.S.C. § 3730(h)(1). The court relied heavily on Robinson v. Shell Oil, 519 U.S. 337, 345 (1997), in which the Supreme Court analyzed the term “employees” in the context of § 704(a) of Title VII of the Civil Rights Act of 1964. The court applied the Robinson framework and concluded the term “employee” in the FCA is ambiguous. Specifically, the court reasoned that the FCA’s anti-retaliation provision has no temporal qualifier accompanying the term “employee,” that the dictionary definition of “employee” can include current and former employees, and that other aspects of the statutory framework—including the remedies and special damages provisions—support a reading that the FCA covers former employees. Because the definition of “employee” is ambiguous, the court continued with an analysis of the broader context and primary purpose of the statute. Analogizing to Robinson, the Sixth Circuit reasoned that the purpose of the statute is to encourage the reporting of fraud and facilitate the government’s ability to stymie crime by protecting those who report it. The court determined: “If employers can simply threaten, harass, and discriminate against employees without repercussion as long as they fire them first, potential whistleblowers could be dissuaded from reporting fraud against the government.” Felten, 2021 U.S. App. LEXIS 9387 at *14. For this reason, the court held that the anti-retaliation provision of the FCA protects former employees from post-termination retaliation. Judge Griffin dissented and voiced frustration at the majority’s creation of a circuit split and divergence from other district courts’ interpretations of the FCA’s anti-retaliation provision. In his dissent, Judge Griffin thoroughly analyzed the statute and considered the Robinson factors, but determined none were present. Finally, Judge Griffin concluded that nothing in the other sections of the FCA indicates the anti-retaliation provision extends to conduct against former employees. Rather, Judge Griffin concluded the statutory remedies are only available to former employees who experienced retaliation during their employment. Based on his analysis of precedent, specifically Vander Boegh v. EnergySolutions, Inc., 772 F.3d 1056, 1060 (6th Cir. 2014), and the statute’s plain meaning, Judge Griffin determined the term “employee” in the FCA is unambiguous and applies only to current employees. The majority decision represents a significant extension of employee—that is, current and former employee—protections under the FCA. As with any circuit split, this is an issue worth monitoring for further developments. To stay up-to-date on False Claims Act news, subscribe to Dorsey’s FCA Now Blog today.
April 5, 2021
by Briana Al Taqatqa
