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Uptick in DOJ Motions to Dismiss FCA Cases Spurs Courts to Evaluate Dismissal Authority

As Department of Justice (DOJ) motions to dismiss False Claims Act (FCA) cases brought by whistleblowers have surged, the department’s dismissal authority is coming under increased scrutiny. A circuit court split had established two standards for determining whether the DOJ could dismiss a case without the whistleblower’s consent, and a recent decision provided a third option. The spike in interest stems from a 2018 internal memo encouraging DOJ attorneys to invoke the government’s right to move to dismiss these cases under certain circumstances.

Most FCA cases are brought by whistleblowers

The False Claims Act, which prohibits fraud against federal government programs, has a qui tam provision in which whistleblowers, who are called relators, can bring a case on behalf of the government and share in any damages recovered. In FY 2019, 81 percent of the 782 FCA cases initiated were brought by qui tam relators. Even if the government declines to intervene in a qui tam lawsuit, the FCA authorizes relators to prosecute the litigation on their own, which entitles them to a bigger piece of any recovery. The vast majority of FCA cases – about 85 percent – occur in the health care sector and usually involve fraud against Medicare and Medicaid.

The impact of the Granston memo

In January 2018, an internal memo issued by Michael D. Granston, Director of the Commercial Litigation Branch of the DOJ’s Civil Fraud Section, encouraged DOJ attorneys to consider using the government’s existing authority to dismiss FCA qui tam cases that “lack substantial merit.” The memo, which was later leaked to the press, listed the seven factors for government attorneys to consider when evaluating whether to request dismissal of a qui tam case, including if the action is based on a defective legal theory or frivolous factual allegations; if it duplicates and would add no useful information to a pre-existing government investigation; and if the government’s expected costs would likely exceed any expected gains. Though authorized by statute in 1986 to dismiss qui tam actions over a relator’s objection if the relator “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,” the government rarely exercised its right prior to the Granston memo. From 1986 until 2018, the DOJ moved to dismiss only 45 qui tam cases. Since the memo, it has sought about 50 dismissals, in which it has been almost universally successful. Although this tally amounts to just 4 percent of the total cases brought by qui tam relators since the memo, it represents a substantial uptick that has caught the attention of industry and the defense bar, who applauded the effort to reduce frivolous lawsuits, as well as detractors, including Sen. Chuck Grassley (R-Iowa), who expressed concern about whistleblower rights and announced plans this summer to introduce legislation to check the DOJ’s authority in this area.

Standards used by the courts

Up until last month, there were two standards that courts used in evaluating government motions to dismiss FCA cases over relator objections. The Court of Appeals for the D.C. Circuit held in Swift v. United States that the government had an “unfettered right” to dismiss qui tam cases. The Ninth Circuit, by contrast, was less deferential to the government in opining in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp. that the DOJ must identify a valid government purpose for dismissing a case and rationally link it to the dismissal. If the government meets the standard, the relator then has the burden to establish that the dismissal is fraudulent, arbitrary and capricious, or illegal.

Seventh Circuit introduces third standard

On August 17, 2020, the Seventh Circuit put forth option No. 3 with its opinion in United States ex rel. CIMZNHCA, LLC v. UCB, Inc. In establishing a third standard, the Seventh Circuit rejected the more stringent Sequoia Orange test but fell short of adopting the more lenient Swift standard.

The Seventh Circuit Court of Appeals heard an appeal from the DOJ after a lower court, citing Sequoia Orange, denied the government’s motion to dismiss a case brought by qui tam relator CIMZNHCA, LLC, which had alleged pharmaceutical companies paid physicians kickbacks for prescribing certain drugs to Medicaid and Medicare patients.

The Seventh Circuit’s opinion suggests the government’s ability to dismiss a case over the objection of a relator is largely unrestricted if it’s done early in the case. However, if the defendant has already filed an answer or summary judgment motion, the government must provide proper grounds for dismissal under Federal Rule of Civil Procedure 41(a)(2). The court also said the government must intervene in a case in order to seek dismissal; in CIMZNHCA, however, the court treated the government’s motion to dismiss as a motion both to intervene and then to dismiss. Citing Rule 41(a)(1), the court said a plaintiff does not “need a good reason, or even a sane or any reason” to move for dismissal, and that when the government intervenes and files a motion to dismiss before the defendant has answered or moved for summary judgment, the right to dismiss is “absolute.”

Though there are now three standards by which courts can determine whether the government can dismiss FCA cases over the relator’s objections, all give fairly broad deference to the government. Even under the most stringent of the three, the Sequoia Orange test, courts have sided with the DOJ in the vast majority of cases.

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