Dismissal Standard
Third Circuit Confirms Expansion of Anti-Retaliation Standard Under the False Claims Act
On November 30, 2022, the Third Circuit Court of Appeals vacated dismissal of a retaliation action brought by Don Ascolese (“Ascolese”) under the False Claims Act (“FCA”). See United States ex rel. Don Ascolese v. Shoemaker Constr. Co., No. 21-2899, ECF No. 30 (3d Cir. 2022) (“3d Cir. Opinion”). In the complaint before the lower court, Ascolese alleged that Shoemaker Construction Co., McDonough Bolyard Peck (“MBP”), and Shoemaker Synterra JV falsely certified construction work in a public housing project for the Philadelphia Housing Authority (“PHA”) such that the project was not in compliance with build specifications or in accordance with established building and safety codes. See United States ex rel. Don Ascolese v. Shoemaker Constr. Co., No 2:18-cv-01864-MSG, ECF No. 26 (E.D. Penn. May 3, 2018). Ascolese also claimed he was fired for raising the issue internally, which allegedly violated the FCA’s anti-retaliation provisions because whistleblowing is a protected activity. Id. In response to the allegations, all three Defendants moved to dismiss all claims on the basis that Ascolese’s complaint failed to meet threshold-pleading requirements. On April 19, 2021, the District Court dismissed the vast majority of Ascolese’s claims against the Defendants, including dismissing all retaliation claims. Id. at ECF No. 42. In finding Ascolese’s retaliation claims were not plausibly plead, the District Court explained that Ascolese had not demonstrated that MBP had knowledge that Ascolese was engaging in protected conduct and that because Ascolese was not an employee of Shoemaker Construction or Shoemaker Synterra JV, as a matter of law Ascolese could not pursue a claim for retaliation against them. Id. at 22-24. Following dismissal of his claims for retaliation, Ascolese moved for leave to file a Second Amended Complaint, which MBP opposed. The District Court denied the motion, finding that Ascolese had failed to plead “reliable indicia” for the court to infer false claims were submitted to MBP, and that Ascolese had merely “re-package[d]” his previously deficient claims of retaliation. Id. at ECF No. 48. Ascolese appealed. In an opinion dated November 30, 2022, the Third Circuit Court of Appeals vacated the District Court’s decision to deny Ascolese the opportunity to file a Second Amended Complaint, explaining that the District Court did not take into consideration statutory changes to the FCA retaliation standard introduced by Congress in 2009 and 2010. 3d Cir. Opinion at 3-4. The Third Circuit explained that Congress had previously “expanded the universe of protected conduct to whistleblowers who lawfully try to stop one or more violations of the Act, without regard to whether their conduct advances a qui tam suit under the Act.” Id. at 4. In effect, Congress had taken steps not only to protect “potential or actual” qui tam actions, but also to remedy misconduct “whether or not such steps are clearly in furtherance of a potential or actual qui tam action.” Id. at 5. Therefore, the Third Circuit explained, the 2009 and 2010 FCA amendments expanded the anti-retaliation standard to protect “lawful acts in furtherance of either an action under the FCA or other efforts to stop 1 or more violations of the Act.” Id. at 12 (emphasis in the original). Under the new standard, the Third Circuit found that Ascolese had sufficiently plead that he engaged in “protected conduct” when he “went outside of his chain of command to report his concerns of fraudulent work to the PHA,” raised project “issues and safety concerns” with superiors at MBP and to PHA, and sufficiently plead that MBP was on notice of his protected conduct and retaliated against him because of it. Id. at 14-16. Accordingly, the Third Circuit vacated the District Court’s denial of Ascolese’s motion for leave to file a Second Amended Complaint and remanded to the District Court. Companies and practitioners should familiarize themselves with the ever-changing standards implemented by Congress and the courts, especially in jurisdictions that have not yet explicitly adopted the post-amendment standards for retaliation under the FCA. Understanding the scope of the amendments, and what is required to allege retaliation, will be vital for companies to ensure they are not running afoul of the expanded standards under the FCA.
December 20, 2022
Dismissal Standard
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
Dismissal Standard
"Shotgun Pleadings" Ineffective for FCA Claims
On April 21, 2022, the Northern District of Georgia granted a motion to dismiss a False Claims Act (“FCA”) suit brought against ERMI LLC (“ERMI”), a medical device manufacturer, describing the complaint as a “shotgun pleading.” This action was brought by Relator Elizabeth Cooley, ERMI’s former chief compliance officer. Cooley alleged that ERMI, its CEO Dr. Thomas P. Branch, and other defendants defrauded federal insurance programs in violation of the FCA by overbilling tens of millions of dollars. Specifically, Cooley’s complaint alleged that ERMI billed the Government for equipment that was not medically necessary, was priced above market rates, or otherwise did not conform to government standards across five different fraud schemes. In addition, Cooley alleged that ERMI regularly provided cash and free equipment to clinicians who agreed to prescribe ERMI products to patients covered by federal health care programs, in violation of federal anti-kickback statutes. Cooley alleged ERMI fired her in retaliation for her attempts to resolve these compliance issues. Cooley filed her initial complaint in October 2020, and the government declined to intervene in July 2021. Subsequently Cooley filed the amended complaint at issue in September 2021. Defendants in the case moved to dismiss on the basis that Cooley’s complaint had impermissibly bundled “multiple claims for relief and multiple theories of liability into single counts, and its allegations lump together multiple Defendants without distinguishing which ones engaged in what specific conduct.” Judge Thomas W. Thrash Jr. agreed, reasoning that Cooley’s amended complaint had all the cornerstones of a “shotgun pleading” making it “unclear which factual allegations are meant to support which legal theories, and which legal theories are meant to support which claims for relief.” Citing the higher pleadings standard for FCA claims found in Rule 9(b), the Court reasoned that to survive a motion to dismiss under the FCA, a plaintiff “must state with particularity the circumstances constituting fraud or mistake,” and instead of doing that, Cooley’s complaint “muddies the waters further by reciting the same conclusory, formulaic theories of liability” on at least eight counts. The court went on to add that “the shortcomings . . . do not end here. The Relator asserts all of her claims against multiple defendants but in some instances fails to differentiate the acts and omissions giving rise to each one’s liability.” The court’s order emphasized that in the Eleventh Circuit these types of pleadings are ineffective because they are an “undue burden not only on defendants but also on courts,” wasting resources, unnecessarily broadening discovery, and clogging court dockets and harming the “public’s respect for the courts.” Given this view, the Court went on to explain “there is thus little tolerance for shotgun pleadings in this circuit.” Despite this, the Court ruled that parties have a right to amend and ultimately gave Cooley 30 days from the April 21 order to cure the pleading deficiencies. The Court’s opinion reminds plaintiffs that FCA pleadings should make sure to explain claims with specificity, and defendants of such claims that they can object to such muddy causes of actions and allegations.
May 19, 2022
by Leyla Bari
