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Morris Manning & Martin, LLP

New Ruling Deepens Circuit Split for False Claims Act Dismissals

09.17.2020

Under Section 3730(c)(2)(A) of the False Claims Act (FCA), “[t]he Government may dismiss [an FCA qui tam] action notwithstanding the objections of the person initiating the action.”[1] Further, the Attorney General may dismiss the action over the relator’s objection “if the person 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.”[2] This authority stems from the fact that the government is the real party in interest in FCA qui tam actions.

In the last couple of years, there has been a sharp increase in the number of such dismissal motions being filed by the government. The increase started as a result of the U.S. Department of Justice’s instruction (the Granston Memo) directing its attorneys to actively consider dismissal of cases they deem to be without merit or otherwise problematic. The resulting issue, however, is that while the statute provides the government with the power to dismiss, it fails to provide the standard of review for dismissal. As a result, a longstanding circuit split has existed over the standard for a court's review of the government's motion to dismiss under 31 U.S.C. § 3730(c)(2)(A); between the "unfettered right" approach and the "rational relation" approach. To complicate things more, in August 2020 the Seventh Circuit issued a third approach when it construed the government's motion to dismiss as both a motion to dismiss and motion to intervene. Each of these approaches is detailed below.

In April 2020, the U.S. Supreme Court had the opportunity to settle this dispute and provide guidance on the standard of dismissal in United States ex rel. Schneider v. JPMorgan Chase Bank, N.A.(No. 19-678); however, it denied a petition for certiorari. In that case, the central question was whether the government is entitled to absolute deference when it moves to dismiss a suit over the relator’s objections.[4] In response to the petition, the government argued that the slight difference between the unfettered right approach and rational relation approach did not merit the Supreme Court’s review.[5] The Supreme Court offered no explanation for rejecting the request for review.

Approach 1: Unfettered Right

In some courts, the government is viewed as having an unfettered right to use its dismissal authority.[6] In these districts, there is a general presumption of the government’s right to end a prosecution and the court must have some sort of a role to play in the government’s decision in order to act.[7] The only exception to such unfettered authority is an exceptional circumstance, such as fraud on the court, and the door to such exception is “only barely ajar.”[8] This view is premised on four principles:

  1. The separation of powers doctrine,
  2. The Government’s broad discretion in initiating or continuing a criminal prosecution,
  3. Federal Rule of Civil Procedure 41(a)(1)(i), which permits a plaintiff to dismiss a civil action “without order of the court,” and
  4. The language of 31 U.S.C. § 3730(c)(2)(A) itself, which grants to “[t]he Government (not the court) unilateral authority to ‘dismiss the action notwithstanding the objections of the person initiating the action.’”[9]

In these circuits, the Executive Branch is viewed as having a “historical prerogative to decide which cases should go forward in the name of the United States.”[10]

Approach 2: Rational Relation

On the other hand, some courts require the government to demonstrate that the dismissal is rationally related to a valid government purpose.[11] If the government is able to satisfy that threshold, the burden then shifts to the relator to demonstrate that the dismissal is fraudulent, arbitrary and capricious, or illegal.[12] This approach provides courts with a limited review determination of whether the government is “enforc[ing] the FCA in accordance with the intent of Congress…that FCA claims be dismissed for legitimate government purposes, and not as the result of fraud, illegality, or lack of political will.”[13] Ordinarily, the rational relation is easily met unless the government was derelict and failed to investigate a particular allegation.

Approach 3: Linked Motion to Dismiss and Motion to Intervene

Most recently, the Seventh Circuit created a third standard when it construed the government’s motion to dismiss as both a motion to dismiss under 31 U.S.C. § 3730(c)(2)(A) and a motion to intervene under 31 U.S.C. § 3730(c)(3)(8).[14] As a result, the Seventh Circuit evaluated the government’s unfiled but implied motion to intervene along with its filed motion to dismiss.[15] The court held that, based on the Federal Rules of Civil Procedure, intervention is required prior to the exercise of a § 3730(c)(2)(A) dismissal.[16] Specifically, the Seventh Circuit explained that Federal Rule of Civil Procedure 41(a)(1) provides an absolute right of voluntary dismissal before an answer is served, and after that point, the court must determine what terms of dismissal are proper under Federal Rule of Civil Procedure 41(a)(2).[17] The Seventh Circuit noted that it “agree[d] in principle” that the government’s dismissal could not work a fraud on the court or violate the Equal Protection Clause, those items are grist for the hearing and not bars to dismissal.[18]

Going forward in the Seventh Circuit, government motions to dismiss under § 3730(c)(2)(A) will need to be accompanied by a motion to intervene under § 3730(c)(3).[19] However, some courts have already addressed this issue and determined that the FCA does not require intervention for cause before dismissal.[20] For example, in Ridenour v. Kaiser Hill Co., Inc. the Tenth Circuit held this view based on the premise that “the statute does not require it, canons of statutory construction do not support such a result, and in our view, such a reading would render the FCA constitutionally infirm.”[21]

Undecided Circuits

Some circuits, including the Eleventh Circuit, have not directly decided which of the dismissal approaches to adopt. The Eleventh Circuit has noted that the government’s decision to dismiss is “a choice committed to the discretion of the Executive Branch,” but “the statute does not prescribe a judicial determination of reasonableness.”[22] As a result, the Eleventh Circuit provides “substantial deference to the Government’s decision to dismiss” while also providing the relator “with an opportunity for a hearing on the motion” that allows the relator to be “meaningfully heard.”[23] Based on this interpretation, the Government’s discretion to dismiss is not entirely “unfettered” as viewed in the D.C. Circuit; however, the court need not decide which standard to apply if the government’s motion meets the less deferential rational basis review standard applied in Sequoia.[24] Despite being silent on the express issue of which approach to adopt, this line of reasoning and recognition of the Sequoia approach (rational relation) implies that the Eleventh Circuit is indeed a rational relation circuit.

Impact on Future Litigation

Since the Granston Memo, the government has exercised its right to seek dismissal in an unprecedented fashion. As a result, defense counsel should aggressively explore dismissal and be prepared to provide the government whatever factual and legal analysis is needed to help with that effort. We can also expect further challenges by relators, so it is important to stay abreast of developments until either the Supreme Court decides the issue or the FCA statute is amended by Congress.

Congress is already discussing changes to the FCA to address this issue. On July 30, 2020, Senator Charles Grassley (R-IA) gave a speech at the National Whistleblower Day 2020 celebration where he announced proposed amendments to the FCA.[25] These amendments would reverse the Granston Memo and reverse a portion of the ruling in Universal Health Services, Inc. v. U.S. ex rel. Escobar which allows the dismissal of an FCA case if the government had knowledge of the fraud.[26] These changes are intended to strengthen the FCA and protect the rights of whistleblowers.

Please contact MMM’s healthcare group with any questions or for assistance.


[1] 31 U.S.C. § 3730(c)(2)(A).
[2] Id.
[3] DOJ, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. § 3730(c)(2)(A) (Jan. 10, 2018).
[4] United States ex rel. Schneider v. JPMorgan Chase Bank, N.A. (No. 19-678), Cert. Pet. at i.
[5] U.S. Br. in Opp. at 15–16. [6] Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003).
[7] Hoyte v. American Nat. Red Cross, 518 F.3d 61, 64-5 (D.C. Cir. 2008) (citing 4/27/06 Hr’g Tr. 41).
[8] Id. (citing 4/27/06 Hr’g Tr. 41).
[9] Id. (citing Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003)).
[10] Id. (citing Swift v. United States, 318 F.3d 250, 253 (D.C. Cir. 2003)).
[11] Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998).
[12] Id. at 1146.
[13] United States ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F.Supp 1325, 1340 (E.D. Cal. 1995).
[14] United States ex rel. Cimznhca, LLC v. UCB, Inc., 2020 WL 4743033 (7th Cir. 2020).
[15] Id. at *5.
[16] Id. at *9.
[17] Id. at *11.
[18] Id. at *12.
[19] Id. at *5.
[20] See e.g. Ridenour v. Kaiser Hill Co., Inc., 397 F.3d 925 (10th Cir. 2005).
[21] Id. at 932.
[22] United States v. Everglades Coll., Inc., 855 F.3d 1279, 1288 (11th Cir. 2017).
[23] United States ex rel. Graves v. Internet Corporation for Assigned Names and Numbers, Inc., 398 F.Supp. 3d 1307, 1310 (N.D. Ga. 2019).
[24] Id. at 1310-1311; Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998).
[25] Schweller, Senator Grassley Announces Proposed Amendments to Strengthen the False Claims Act against COVID-19 Fraud, Whistleblower News Network (Aug. 2020).
[26] Id.