When The United States Can’t Dismiss A Case By… The United States? New Rulings Limit Prosecutorial Discretion In False Claims Act Whistleblower Cases

In 2018, the Department of Justice issued internal guidance about when the United States should affirmatively seek dismissal of a qui tam action filed under the False Claims Act (the “Granston Memo,” now incorporated in the Justice Manual).  By the end of the year, the Department had filed more than a dozen motions to dismiss, a significant departure from its traditional practice of allowing qui tam relators to litigate cases after the government declined to intervene.  As decisions on those motions start to trickle in, courts are considering exactly how much discretion the government can exercise in dismissing a qui tam action over a relator’s objection.  So far, it appears that the United States’ right to dismiss a case that was filed in the name and for the benefit of the United States is not without limits.

The Whistleblower’s Role In False Claims Act Litigation

The False Claims Act allows a person – also referred to as a whistleblower or qui tam relator –to file a lawsuit on behalf of and in the name of the United States.  The relator alleges that a violation of the statute has occurred to the detriment of the United States.  The Department of Justice investigates the allegations and makes a decision whether to intervene and take over the lawsuit.  About eighty percent of the time, the government declines to intervene; in those cases, the whistleblower can decide to keep litigating the case for the United States.

The False Claims Act also says, however, that the government can dismiss the case “notwithstanding the objections” of the whistleblower, if the government gives notice of the motion to dismiss, and the court provides “an opportunity for a hearing on the motion.”

The question raised by a government motion to dismiss in this circumstance is whether the United States has an unfettered right to dismiss a lawsuit in which it is the real party in interest.

The Sequoia Rational Relationship Test Versus Swift’s Separation Of Powers View

The 9th Circuit first addressed the issue in 1998, in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp.  Under the Sequoia test, a qui tam case will be dismissed over the relator’s objection if the government shows that dismissal is rationally related to a valid purpose and the relator fails to show that the government’s decision was fraudulent, illegal, or arbitrary and capricious.  This two-part approach, while granting substantial deference to the government, also provides a judicial check on prosecution decisions that are unfounded or arbitrary.  The 10th Circuit followed this reasoning in 2005 with its decision in Ridenour v. Kaiser–Hill Co., L.L.C.

The D.C. Circuit, however, rejected the Sequoia analysis with its 2003 decision in Swift v. United States.  The Swift court reasoned that the Constitution charges the Executive Branch alone with executing the laws, and therefore the Department of Justice has absolute discretion in deciding whether to bring an action on behalf of the United States.  Even though the False Claims Act specifically provides for a hearing in the event the United States chooses to dismiss a qui tam action, the D.C. Circuit found that the purpose of the hearing is not to grant judicial review of an Executive Branch decision, but “simply to give the relator a formal opportunity to convince the government not to end the case.”

District Courts In Pennsylvania And Illinois Follow Sequoia – And Reach Different Results

In December 2018, the Department of Justice filed motions to dismiss in eleven separate cases brought by the same or related qui tam relator against various pharmaceutical companies.  The first two decisions were announced in April 2019; in both cases, the district courts chose to evaluate the motions under the Sequoia rational relationship test.  The Eastern District of Pennsylvania court found that the government had satisfied the test, and granted the motion to dismiss.  The Southern District of Illinois considered the same arguments but found that the government’s decision was arbitrary and denied the motion – keeping the case alive, for now, despite the United States’ express opposition to the case on both resource and policy grounds.

In United States ex rel. SMSPF, LLC v. EMD Sorono, Judge Savage of the Eastern District of Pennsylvania noted the circuit split (and the lack of 3rd Circuit authority) on the standards to be applied to a government motion to dismiss over the relator’s objection.  The court concluded that Sequoia’s “rational relationship standard accords with statutory interpretation and fosters transparency. It is consistent with the constitutional scheme of checks and balances.”  Applying that standard to the motion before him, though, the court held that the government met the test.  Specifically, the government articulated its analysis that the resources that it would be required to expend if the case were litigated exceeded any likely recovery.  The government also noted that the relator’s allegations were inconsistent with the government’s views and policies regarding the programs and conduct at issue.  The relator contended that the government had not conducted a sufficient investigation, but the court rejected that argument and granted the motion to dismiss.

In a related case, United States ex rel. CIMZNHCA v. UCB, Inc., Judge Yandle of the Southern District of Illinois also chose to apply the Sequoia test, but reached a very different result.  It denied the government’s motion to dismiss.

Indeed, the Illinois court rejected the same government arguments that the judge in Pennsylvania found sufficient to grant dismissal.  The government’s argument that the resources need to sustain the litigation would exceed a potential recovery was not a rational basis for dismissal, Judge Yandle found, because the government had not conducted a cost-benefit analysis.  The court also agreed with the relator that the decision to dismiss was arbitrary because the government had not investigated the allegations made against each defendant, but had opted instead to investigate the cases collectively.  Further, the court was not persuaded by the government’s claim that the relator’s theory of liability conflicted with the government’s policy and enforcement priorities.  Instead, the court credited the relator’s argument that the policy arguments were pretextual, motivated by animus against the relator.  Accordingly, the court found that the government’s motion to dismiss was not rationally related to a valid government purpose and denied the motion.

Under the Swift prosecutorial discretion approach, none of these issues would be relevant – the United States would be afforded an absolute right to decide whether a particular case should be pursued.  As additional government motions to dismiss are decided in courts across the country, though, the D.C. Circuit may find itself standing alone in this view.  One potential repercussion could be increased scrutiny of the Constitutional role of whistleblowers under the False Claims Act – e.g., whether the statute’s qui tam provisions inappropriately vest a core prosecutorial function in private citizens.

Denying a government motion to dismiss has practical implications for the relator, the defendant, and the government. For one, parties litigating declined cases almost always seek discovery from the affected agency of the United States.  That effort can be difficult even in routine cases, and is likely to be more so where the government has overtly expressed its reluctance to participate in discovery.  The government’s burden will also increase if it is forced to oversee cases with which it fundamentally disagrees.  It can anticipate intervening or filing comments on any motion or decision that could undermine the United States’ policy or enforcement objectives.  And, realistically, the chance that a case the government opposes will succeed on its merits seems exceedingly slim.  Even if a motion to dismiss is initially unsuccessful under the Sequoia standard, the courts should entertain a renewed motion by the government that articulates a rational, good faith basis for declining to pursue the matter.

April 21, 2019