On June 16, 2023, the U.S. Supreme Court decided United States ex rel. Polansky v. Executive Health Resources, Inc. The Court’s opinion settles two outstanding questions about the authority of the Government to dismiss FCA actions in which it first declines to intervene but that whistleblowers continue to pursue on the Government’s behalf. First, the Government may seek dismissal of a False Claims Act (“FCA”) case at any point “so long as it intervened sometime in the litigation.” [1] Failing to do so during the seal period does not close the door on later intervention and dismissal. Second, the proper standard to be applied by a court reviewing a motion to dismiss is the good-cause standard [2] embedded in Federal Rule of Civil Procedure 41(a).
The Court’s ruling affirmed the Third Circuit’s opinion, including that a motion to dismiss was “reasonably construed to include a motion to intervene.” And in doing so, resolved a Circuit split as to the scope of the Government’s authority to dismiss FCA actions.
Background
The physician-relator—and former employee of defendant—filed an FCA action alleging that the defendant helped hospitals overbill Medicare. The alleged scheme involved purportedly allowing clients to charge the Government higher inpatient rates for outpatient services. At first, the Government declined to intervene, but the relator pursued the action on his own, as permitted under the FCA.
The litigation, which continued for seven years, included extensive discovery being served on the Government for documents and testimony about the alleged conduct. Under the weight of such discovery costs, and contested issues of privilege, the Government determined dismissal more prudent and moved to dismiss on the grounds that the “varied burdens of the suit outweighed its potential value.”
The relator argued before the District Court and on appeal that the Government may only dismiss an action during the seal period but that once it declines intervention, its window for dismissal has closed under the FCA. The District Court, applying Rule 41’s good-cause standard, dismissed the suit over the relator’s objection, and the Third Circuit affirmed.
The Court’s Analysis
In the 8-1 opinion, Justice Kagan reiterated the Third Circuit’s analysis that a plain reading of the FCA [3] allows the Government to seek a motion to dismiss at any time of the case, whether inside or outside of the seal period. Doing so reinforces the FCA’s structure, history and purpose as the Government remains the ultimate party in interest whether it intervenes or not. And, the Government—not a whistleblower—holds the ultimate authority to weigh changing circumstances during litigation. In doing so, it may reassess the litigation landscape and “change its mind” without having to “take a back seat to its co-party relator.”
On the question of what standard applies, the Court adopted the prevailing standard from the Seventh Circuit and the middle ground. The Government and Defendants favored the broadest authority permitted in the D.C. Circuit: that the Government was allowed effectively unfettered power to dismiss an action. Contrastingly, the Ninth and Tenth Circuits permitted a more restrictive standard: that the Government’s dismissal required a “rational relation” standard showing a valid Government purpose connected to the dismissal. The Supreme Court affirmed the Third Circuit’s choice.
Today, Rule 41’s good-cause standard applies to the Government’s motion to dismiss an FCA action. As such, it is subject to an abuse-of-discretion review on appeal. The Supreme Court took pains to note that here the District Court “got it right” and laid the path for the Government. It did so by noting that the Government listed “significant costs of future discovery…including the possible disclosure of privileged documents” and took the time to explain in detail “why it had come to believe that the suit had little chance of success on the merits.” That logic, even though deeply contrary to the relator’s view of the case, was sufficient cause to dismiss the action and “absent some extraordinary circumstance, that sort of showing is all that is needed” for the Government to dismiss over the relator’s objection.
Practical Takeaways
Throughout the life of an FCA action, defendants are well counseled to consider meaningful and active communications with the Government. This strategy remains critical even when the Government initially declines intervention in a matter. Paired with an active defense, there may come a time when the evidence, the law and the potential costs simply outweigh further pursuit of an action. And, as the Supreme Court laid out, that calculus is properly on the Government’s radar and all that is needed to end an FCA action over a whistleblower’s objection.
If you have questions or would like additional information about this topic, please contact:
- Drew Howk at (317) 429-3607 or dhowk@hallrender.com;
- David Honig at (317) 977-1447 or dhonig@hallrender.com; or
- Your primary Hall Render contact.
Special thanks to Summer Associate, Antoine Neumann, for his help with this article.
[1] United States Polansky v. Exec. Health Res., Inc., No. 21-1052, 2023 WL 4034314 (U.S. June 16, 2023) at 3
[2] 31 U.S.C.A. § 3730(c)(3) (West)
[3] Id. at (c)(1)-(3) (West)
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
