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Law360 (March 3, 2021, 5:00 PM EST )
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| Natalia Sorgente |
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| Brendan Quigley |
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| Leslie Couvillion |
The statute, however, contains a provision, codified at Title 31 of the U.S. Code, Section 3730(c)(2)(A), empowering the DOJ to dismiss a qui tam action over the relator's objection, if the relator has been notified and the court has provided the relator with an opportunity for a hearing on the DOJ's motion.[1]
The FCA is silent on the appropriate standard of review of the government's decision to dismiss, and federal courts of appeal have split on this question, setting forth two different standards — with the U.S. Court of Appeals for the Seventh Circuit adding a third in the 2020 case, CIMZNHCA v. UCB Inc.
On Dec. 1, 2020, the U.S. Court of Appeals for the Second Circuit, in Borzilleri v. AbbVie Inc., weighed in on these issues without adopting a standard of review, finding that the relator failed under any standard.[2] Along with CIMZNHCA, the decision adds to a recent line of cases in which courts defer to the DOJ's dismissal authority.[3]
Additional appeals are pending in the U.S. Court of Appeals for the First Circuit,[4] the U.S. Court of Appeals for the Third Circuit,[5] and the U.S. Court of Appeals for the Fifth Circuit[6] in which relators argue for approaches more stringent than those under existing standards. These cases could deepen the circuit split or clarify issues surrounding the DOJ's dismissal power.
In addition to the standard of review for the decision to dismiss itself, key related issues pending include: (1) what the relator's "opportunity for a hearing" entails; and (2) the nature of any cost-benefit analysis the DOJ must perform to justify its dismissal decision.
This case law is significant because of (1) the DOJ's more frequent use of its dismissal power in recent years, following the January 2018 Granston memorandum,[7] although it remains to be seen if the Biden administration will continue this trend; and (2) an expected uptick in FCA cases following the COVID-19 pandemic and related government spending.
A Three-Way Circuit Split?
There are at least three standards for assessing the government's decision to move to dismiss under Section 3730(c)(2)(A):
The Ninth and Tenth Circuits' Rational Relation Test
The U.S. Court of Appeals for the Ninth Circuit and the U.S. Court of Appeals for the Tenth Circuit use a two-step "rational relation" test, set forth by the Ninth Circuit in 1998, in Sequoia Orange Co. v. Baird-Neece Packing Corp., under which the DOJ must show: (1) "a valid government purpose" for dismissal; and (2) "a rational relation between dismissal and accomplishment of the purpose."[8]
If the DOJ satisfies this test, "the burden switches to the relator to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal."[9]
The Sequoia Orange court indicated that a hearing "is appropriate if the relator presents a colorable claim that the settlement or dismissal is unreasonable in light of existing evidence, that the Government has not fully investigated the allegations, or that the Government's decision was based on arbitrary or improper considerations."[10]
The D.C. Circuit's Unfettered Right to Dismiss
The U.S. Court of Appeals for the District of Columbia Circuit rejected the Ninth Circuit's standard in its 2003 decision in Swift v. U.S., in which it held that the DOJ has an unfettered right to dismiss, at least when it files its motion before an answer or summary judgment.[11] The Fifth Circuit has also at least suggested it would adopt a similar standard.[12]
Under Swift, the function of the hearing "is simply to give the relator a formal opportunity to convince the government not to end the case."[13] A court is unlikely to interfere with the DOJ's decision, unless presented with evidence of serious government misconduct, such as fraud on the court.[14]
The Seventh Circuit's Rules-Based Standard
On Aug.17, 2020, the Seventh Circuit in CIMZNHCA[15] adopted a rules-based standard that is much nearer to the Swift unfettered right to dismiss than to the Sequoia Orange rational-relation test.[16]
The court held that the standard is "provided by the Federal Rules of Civil Procedure, as limited by any more specific provision of the [FCA] and any applicable background constraints on executive conduct in general."[17]
In line with Swift, the court observed that, in cases where the conditions of Rule 41(a)(1)(i) apply,[18] the hearing might be nothing more than a mechanism for ensuring the parties have "communicate[d] in some way to attempt to resolve the dispute without court action."[19] The court also remarked that in exceptional cases a relator's allegations of fraud on the court or a breach of constitutional rights could supply grist for a hearing.[20]
Questions Loom in the Courts of Appeal
The Sequoia Orange/Swift circuit split was longstanding at the time of the January 2018 Granston memorandum. While the Sequoia Orange standard is more relator-friendly, both are generally viewed as highly deferential to the DOJ and its ability to end a case over a relator's objection.[21]
The big question is: Will courts continue to defer to the DOJ if the DOJ continues the post-Granston memorandum trend of flexing its dismissal muscle more often? The recent Second Circuit AbbVie decision indicates the answer may be yes.
Declining to adopt either standard, the court found that "the relator fail[ed] even the more stringent Sequoia standard" and thus could not overcome the DOJ's decision to dismiss the case.[22] The court also weighed in on two key issues common to the other pending appeals, both times adopting approaches that defer to the DOJ's dismissal authority.
Issue One: What the Relator's Right to an Opportunity for a Hearing Entails
Under the DOJ's view, the hearing does not require anything more than Swift's formal opportunity for the relator "to convince the government not to end the case."[23]
In practice, this might mean a hearing that is little more than a formality, with the court providing "a forum for the government to articulate some basis for dismissal and place that rationale on the public record," while giving the relator "an opportunity to surface any plausible allegations of fraud on the court or any other extraordinary circumstance."[24]
Relators contend that this relatively summary procedure is inconsistent with Section 3730(c)(2)(A).[25] As the relator in Polansky v. Executive Health Resources Inc. in the Eastern District of Pennsylvania asserted, "Congress does not ordinarily provide hearings in order for courts to do nothing."[25]
Relators in at least one pending case, Health Choice Alliance LLC v. Eli Lilly and Co. in the Third Circuit, advocate for an arbitrary and capricious standard of review by the court, wherein the DOJ "must not only give a reasoned explanation for its case-ending action, but under the totality of the circumstances must demonstrate that its actions do not constitute arbitrary conduct."[26] This appears to go beyond what either Swift or Sequoia Orange require.[27]
In AbbVie, the Second Circuit, in line with Sequoia Orange, ruled that "a hearing is to be granted if the relator presents a 'colorable claim' that the dismissal is unreasonable in light of existing evidence."[28]
However, the court found that, in the case before it, "the relator has failed to make a colorable showing."[29] As a result, no hearing at all was required — the opportunity to be heard was satisfied by the parties' briefing alone.[30]
If other courts adopt a similar approach, it could continue to pave the way for the DOJ to dismiss actions over relators' objections without much judicial scrutiny, regardless of which standard applies.
Courts following Swift already act as little more than a convening forum for the parties, unless relators can show evidence of egregious government misconduct.
Even courts adopting the ostensibly more stringent Sequoia Orange standard might not hold a hearing at all unless the relators first allege a colorable claim that dismissal is unreasonable, as evidenced by AbbVie.[31]
On the other hand, if courts adopt the arbitrary and capricious review standard advocated by some relators, it could subject the DOJ's decision-making process to greater judicial and public review.
Issue Two: The Nature of Any Cost-Benefit Analysis the DOJ Must Perform to Justify Its Dismissal Decision
The FCA does not explicitly require the DOJ to perform a formal cost-benefit analysis to support its decision to dismiss a qui tam action, although the Granston memorandum lists a balancing of expected costs and gains among the factors that the DOJ may consider in seeking dismissal.[32]
In a brief submitted by the DOJ in Health Choice Alliance, it defends its "wide discretion to balance its priorities and choose which actions warrant the expenditure of its limited resources."[33]
Relators counter that the DOJ must provide a "reasoned explanation for its dismissal decision" that includes "a two-sided cost-benefit analysis"[34] — one that meaningfully considers the potential benefits, not just the costs, of allowing the cases to continue.[35]
Again, these arguments appear to go beyond what either Swift or Sequoia Orange require. Both of those cases observed that avoiding litigation costs is a legitimate objective that can justify dismissal, without expressly requiring the DOJ to balance those costs against potential benefits.[36]
The Second Circuit's AbbVie decision supports the DOJ's broad discretion to determine which actions to pursue or dismiss. In line with Swift and Sequoia Orange, the court found that avoiding "the costs and burdens of further investigation so that it may expend its finite resources elsewhere [was] ... a valid government purpose for seeking dismissal."[37] The court made no mention of a need for a corresponding consideration of benefits.
As above, if other courts follow this approach, it would support the DOJ's continued ability to secure dismissals by relying on its own expertise and discretion, without much second-guessing from the courts.
But if courts adopt a requirement for a more explicit weighing of costs and benefits, it would heighten the DOJ's burden and potentially create a window for relators to rebut the DOJ's analysis with their own analysis and arguments — such as to potential recovery and other benefits.
Possible Resolutions
Possible resolutions of these issues exist in each branch of government.
First, the U.S. Supreme Court could grant certiorari to resolve some or all of the issues. But the court has already denied two recent petitions — one in April 2020[38] and one in October 2020[39] — that would have allowed it to weigh in on the circuit split.
Second, Congress could act. Last July, Sen. Chuck Grassley, R-Iowa, — a longtime supporter of whistleblowers and an architect of the 1986 FCA amendments that established the DOJ's dismissal right under Section 3730(c)(2)(A) — announced plans to propose legislation that would clarify "ambiguities created by the courts and reign[] in [DOJ's] ... recent practice of dismissing charges in many of the [FCA] cases brought by whistleblowers without stating its reasons."[40]
No such legislation has yet been introduced in Congress this session.[41] But in Feb. 17 remarks, Grassley reiterated "concerns about the department's use of its dismissal authority" under the — in his view — incorrect interpretation that Section 3730(c)(2)(A) provides DOJ unfettered discretion to dismiss.[42]
Finally, it remains to be seen if the executive branch under the Biden administration will take action to rescind, modify or informally shift away from the Granston memorandum, which would likely lead to the DOJ using its dismissal power in fewer cases. It could also be a harbinger of the executive branch's more general views about enforcement.
In Feb. 17 remarks, Acting Assistant Attorney General Brian Boynton outlined the DOJ's current FCA enforcement priorities, including pandemic-related fraud. While Boynton did not directly address the Granston memorandum or the DOJ's dismissal authority, he observed that the department "will continue to rely on whistleblowers to help root out the misuse and abuse of taxpayer funds."[43]
Conclusion
With FCA cases likely on the rise, the DOJ's dismissal power — and the willingness of courts or Congress to be a check on that power — is an important issue. Both before and after the Granston memorandum, courts have generally been highly deferential to the DOJ, even as they split on the standard for reviewing government dismissal motions.
But questions remain on key issues, with several cases pending in the courts of appeal in which relators advocate approaches more stringent than those under existing standards. However, recent case law indicates that, absent intervention from Congress, courts will continue to defer to the DOJ's dismissal authority.
Entities doing business with the government would be well advised to stay abreast of these developments, including any actions Congress or the Biden administration may take to clarify or limit the DOJ's dismissal authority.
Natalia Sorgente and Brendan Quigley are partners, and Leslie Couvillion is a senior associate, at Baker Botts LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] 28 U.S.C. § 3730(c)(2)(A).
[2] U.S. ex rel. Borzilleri v. AbbVie Inc., No. 19-2947 (2d Cir.)("AbbVie Summary Order"), at 7.
[3] See Chang v. Children's Advocacy Ctr. of Delaware Weih Steve Chang
, 938 F.3d 384, 387 (3d Cir. 2019) (declining to adopt a standard after finding that the DOJ prevailed under either approach), cert. denied sub nom. Chang v. Children's Advocacy Ctr. of Delaware , 141 S.Ct. 243, 2020 WL 5882268 (U.S. 2020).[4] U.S. ex rel. Borzilleri v. Bayer Healthcare Pharmaceuticals Inc.
, No. 20-1066 (1st Cir.).[5] Polansky v. Executive Health Resources Inc.
, No. 19-3810 (3d Cir.).[6] U.S. ex rel. Health Choice Alliance, LLC v. Eli Lilly and Co., Inc., No. 19-40906 (5th Cir.) ("Health Choice Alliance").
[7] The Granston memorandum, now codified in the DOJ's Justice Manual, directs the DOJ attorneys to consider exercising their dismissal authority to "advance the government's interests, preserve limited resources, and avoid adverse precedent." Justice Manual, §4-4.111. In the two and half years after the Granston Memorandum, the government moved to dismiss approximately 45-50 qui tam actions—about the same amount it had sought to dismiss in the roughly 30 years before the Memorandum was issued. Principal Deputy Assistant Attorney General Ethan P. Davis delivers remarks on the False Claims Act at the U.S. Chamber of Commerce's Institute for Legal Reform (June 26, 2020), https://www.justice.gov/civil/speech/principal-deputy-assistant-attorney-general-ethan-p-davis-delivers-remarks-false-claims.
[8]
, 151 F.3d 1139, 1145 (9th Cir. 1998) (citations and quotations omitted).[9] Id. (citations and quotations omitted). The Tenth Circuit also adopted this standard. Ridenour v. Kaiser-Hill Co.
, 397 F.3d 925, 936 (10th Cir. 2005).[10] Sequoia Orange, 151 F.3d at 1145 (citations and quotations omitted).
[11] Swift v. U.S.
, 318 F.3d 250, 252 (D.C. Cir. 2003). For guidance, the court looked to Federal Rule of Civil Procedure 41(a)(1)(i), which "permits a plaintiff to dismiss a civil action 'without order of the court' if the adverse party has not yet filed an answer or a motion for summary judgment." Id. (citing Fed. R. Civ. Pr. 41(a)(1)(i)) (emphasis added). A dismissal under Rule 41(a)(1)(i) "is not subject to judicial review." Id.[12] See Riley v. St. Luke's Episcopal Hospital
, 252 F.3d 749, 753 (5th Cir. 2001) (en banc) (characterizing in dicta the government's Section 3730(c)(2)(A) authority as "the unilateral power to dismiss an action notwithstanding the objections of the person") (emphasis added) (quotations and citations omitted).[13] Swift, 318 F.3d at 253.
[14] See id.
[15] CIMZNHCA
, 970 F.3d 835 (7th Cir. 2020), involved a rare appeal by the DOJ (rather than a relator) of a district court order denying (rather than granting) a government motion to dismiss, raising unique jurisdictional questions. While the Seventh Circuit in CIMZNHCA ultimately found that it had jurisdiction over the DOJ's appeal, the Ninth Circuit reached the opposite conclusion in a decision issued just a couple weeks earlier. See United States ex rel. Thrower v. Academy Mort. Corp. , 968 F.3d 996 (9th Cir. 2020). The Ninth Circuit rejected the DOJ's appeal on procedural grounds without addressing the merits of the parties' arguments, and the case is now proceeding in the district court. See United States v. Academy Mort. Corp., No. 16-cv-02120 (N.D. Cal.).[16] CIMZNHCA, 970 F.3d at 840.
[17] Id. at 849.
[18] As noted above, Rule 41(a)(1)(i) gives a plaintiff an essentially unfettered right to dismiss a case before the filing of an answer or summary judgment motion. See Fed. R. Civ. P. 41(a)(1)(i).
[19] CIMZNHCA, 970 F.3d at 850 (quotations and citations omitted). But the court also emphasized that "[n]ot every case, though, will be like this one." Id. For example, if the government were to file its motion after an answer or summary judgment motion, then the conditions of Rule 41(a)(2) would apply. That Rule gives plaintiffs a more limited right to dismiss "only by court order, on terms that the court considers proper." Id. (citing Fed. R. Civ. Pr. 41(a)(2)). Under those circumstances, the hearing "could serve to air what terms of dismissal are proper." CIMZNHCA, 970 F.3d at 850-51 (quotations and citations omitted).
[20] Id. at 852.
[21] See, e.g., United States ex rel. Schneider v. JPMorgan Chase Bank Nat'l Ass'n
, Gov't Opp. Br., No. 19-678 (U.S. Mar. 2020), at 16 (arguing that "all the courts of appeals that have considered the issue agree that the court should give substantial deference to the government's dismissal decision . . . When the standards are properly applied, the slight difference between the courts' approaches will very rarely if ever be outcome determinative").[22] AbbVie Summary Order at 7.
[23] Health Choice Alliance, Gov't Resp. Br., Doc. No. 515334302 (Mar. 5, 2020) ("Health Choice Alliance DOJ Brief"), at 3.
[24] Id. at 31 (quotations and citations omitted); see also Borzilleri, Gov't Resp. Br., Doc. No. 117629683 (Aug. 17, 2020) ("Borzilleri DOJ Brief"), at 15; Health Choice Alliance DOJ Brief at 32-34; Polansky, Gov't Resp. Br., Doc. No. 47 (Aug. 13, 2020) ("Polansky DOJ Brief"), at 27-29.
[25] Polansky, Appellant Br., Doc. No. 35 (May 16, 2020) ("Polansky Relator Brief"), at 30; see also Health Choice Alliance, Appellant Br., Doc. No. 515262416 (Jan. 7, 2020) ("Health Choice Alliance Relator Brief"), at 34; Borzilleri, Appellant Reply Br., Doc. No. 117646521 (Sept. 23, 2020), at 23. In the alternative, relators generally argue that, even under Swift, they presented enough "extensive evidence of serious concerns" about the government's investigation or decision-making process in their respective cases to justify an evidentiary hearing. See, e.g., Borzilleri, Appellant Br., Doc. No. 117597774 (June 4, 2020) ("Borzilleri Relator Brief"), at 30-33; see also Health Choice Alliance Relator Brief at 44-54; Health Choice Alliance, Reply Br., Doc. No. 515361689 (Mar. 26, 2020) ("Health Choice Alliance Relator Reply Brief"), at 25-26; Polansky Relator Brief at 20, 34-46.
[26] Health Choice Alliance Relator Brief at 33-34; see also Borzilleri Relator Brief at 23-25; Polansky Relator Brief at 19-20, 29-34.
[27] As noted above, the Sequoia Orange court indicated that the burden is on the relator to make a colorable claim of unreasonable government conduct, such as unconstitutionally arbitrary decision-making, in order to be entitled to a hearing. See Sequoia Orange, 151 F.3d at 1145 (citations and quotations omitted); see also Health Choice Alliance DOJ Brief at 30 (arguing that relators "urg[e] this Court not merely to adopt the rational-basis standard that the Ninth Circuit fashioned out of whole cloth in Sequoia Orange but rather the more exacting arbitrary and capricious standard employed under the Administrative Procedure Act") (emphasis added) (quotations and citations omitted).
[28] AbbVie Summary Order at 8 (citing Sequoia Orange, 151 F.3d at 1145).
[29] Id. The court did not elaborate on why the relator failed to make such a showing, nor did it specify what would constitute a colorable claim.
[30] See id. at 8 (finding that "the district court provided the relator an opportunity to be heard as it considered the parties' briefing on the issue"). In AbbVie, the district court held neither an evidentiary hearing nor oral argument before ruling on the DOJ's motion.
[31] As noted above, the Second Circuit did not elaborate on what it would take to make such a claim. The Sequoia Orange court also left this question largely open, though it did indicate that a claim might be established, for example, through "evidence that the defendants engaged in bribery, fraud, or coercion, or otherwise conspired with the government to dismiss the qui tam actions for improper reasons." See Sequoia Orange, 151 F.3d at 1146.
[32] Justice Manual, § 4-4.111.
[33] Health Choice Alliance DOJ Brief at 46; see also Borzilleri DOJ Brief at 39-40; Polansky DOJ Brief at 41-44.
[34] See Health Choice Alliance Relator Brief at 41.
[35] Health Choice Alliance Relator Reply Brief at 21 (quotations and citations omitted); see also Polansky Relator Brief at 36-37; Borzilleri Relator Brief at 23.
[36] See Swift, 318 F.3d at 254 (finding that "the government's goal of minimizing its expenses is ... a legitimate objective, and dismissal of the suit furthered that objective"); Sequoia Orange, 151 F.3d at 1146 (finding that "the government can legitimately consider the burden imposed on the taxpayers by its litigation ... even if the relators were to litigate the FCA claims, the government would continue to incur enormous internal staff costs").
[37] AbbVie Summary Order at 7.
[38] United States ex rel. Schneider v. JPMorgan Chase Bank Nat'l Ass'n
, 140 S. Ct. 2660 (U.S. 2020).[39] Chang v. Children's Advocacy Ctr. of Delaware
, 141 S.Ct. 243, 2020 WL 5882268 (U.S. 2020).[40] See Prepared Floor Remarks by U.S. Senator Chuck Grassley of Iowa Celebrating Whistleblower Appreciation Day (July 30, 2020), https://www.grassley.senate.gov/news/news-releases/grassley-celebrating-whistleblower-appreciation-day.
[41] See https://www.congress.gov (last visited Feb. 25, 2021).
[42] Keynote Remarks at 2021 Federal Bar Association Qui Tam Conference, https://www.youtube.com/watch?v=ny0KU2jjEeM&t=10s (at 2:30-2:550.
[43] Acting Assistant Attorney General Brian M. Boynton Delivers Remarks at the Federal Bar Association Qui Tam Conference (Feb. 17, 2021), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks-federal-bar.
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