US Supreme Court clarifies government’s False Claims Act
dismissal standard

On June 16, 2023, the US Supreme Court issued this term's second important opinion regarding the False Claims Act (FCA).

In the previous important decision, as noted by our prior update, "US Supreme Court unanimously decided eagerly anticipated False Claims Act case," the Court clarified the knowledge requirements of the False Claims Act.

The most recent opinion decided two critical questions—whether the government can dismiss a qui tam case in which it did not initially intervene during the FCA's statutory 60-day seal period, and the standard of review for that dismissal.

The Court held that the government can move to dismiss later in a case even if it did not initially intervene, that Courts should use Rule 41 of the Federal Rules of Civil Procedure to consider the motion, and that the government is entitled to substantial deference. In short, if the government presents a reasonable argument why a qui tam case should be dismissed, it should be dismissed regardless of when it intervenes absent some extraordinary circumstance.

As brief background, the underlying case involved alleged improper Medicare charges for inpatient rather than outpatient services. The government declined to intervene during the seal period, and the relator (i.e. the whistleblower) took over prosecution of the case, engaging in years of discovery.

The government determined that its discovery obligations were mounting and were implicating significant privilege issues. The government also determined that the case had little chance of success on the merits. Therefore, it determined that the burdens of the case no longer outweighed the potential benefits.

The government then intervened and filed a motion to dismiss under 31 USC §3730(c)(2)(A)—a "c2A" motion in FCA practitioner's parlance. The District Court granted the Government's motion and the Third Circuit affirmed. The Supreme Court took the case to resolve a circuit split regarding the Government's dismissal power and the standard of review.

Justice Kagan wrote for an 8-1 court to address the "uncommon, even extraordinary" power that the government has in an FCA case—"to dismiss and settle an action over the objection of the person who brought it." In the end, the Court stated that it was "not a close call."

The Court stressed throughout the opinion that an FCA case is brought in the government's predominant interest, and, therefore, the government has the ability to seek to dismiss a case even though it initially declined to intervene during the seal period. The Court held that the seal-period intervention was not an "on-off switch," so Congress gave the government the ability to "reassess qui tam actions and change its mind," and not take a "back-seat" to the relator.

Therefore, the Court held that the government had the authority to move to dismiss even when it intervenes later in a case.

Regarding the standard of review, the Court noted that the government sought unfettered discretion and the relator sought an arbitrary and capricious standard with a burden-shifting component, but the Third Circuit's "Goldilocks" position emerged as the correct standard.

The standard came from Federal Rule of Civil Procedure 41(a), or voluntary dismissal in ordinary civil litigation, which allows for dismissal "on terms that the Court considers proper." Within that framework, the Government's reasons for dismissal in the case—burdens of future discovery, the possible disclosure of privileged documents, and that the suit had little chance of success on the merits, were all more than sufficient.

The Court stated a District Court should "think several times over before denying a motion to dismiss" and "if the government offers a reasonable argument for why the burdens of continued litigation outweigh its benefits, the court should grant the motion. And that is so even if the relator presents a credible assessment to the contrary." Although the Court acknowledged that in non-intervened cases, the relator committed substantial resources to the case, the Court said that c2A motions "will satisfy Rule 41 in all but the most exceptional cases."

Aside from this expected result that clarifies c2A motions going forward, perhaps more intriguing are the issues raised in the concurring opinion (Justice Kavanaugh, joined by Justice Barrett) and dissent (Justice Thomas).

The three Justices hinted at a potential blockbuster issue—that the FCA's qui tam provisions are unconstitutional. Justice Thomas stated that the FCA is in a "constitutional twilight zone" and "there are substantial arguments that the qui tam device is inconsistent with Article II" because relators may not represent the United States' interest in litigation, as those powers can only be exercised by the President or those acting under him.¹ With a third of the Court identifying this intriguing issue, it may emerge in the future and potentially call into question how and by whom the False Claims Act is enforced.

Although an expected decision that validated the Government's authority to dismiss and the deferential standard for doing so, the concurrence and dissent raised a very interesting potential question regarding the overall viability of the qui tam provisions of the False Claims Act in the future.