The False Claim Act (FCA) is seeing quite a bit of action at the Supreme Court this term, with multiple cases under consideration. This is the first installment in PilieroMazza’s blog series on “The FCA at the Supreme Court” where we will examine active cases, comment on decisions once they are issued, and discuss ways defendants can protect themselves in FCA litigation.
On December 6, 2022, the Supreme Court heard arguments in United States ex rel. Polansky v. Executive Health Resources, Inc., a case with potential impacts on the level of government involvement in FCA cases. The issue for the Court is whether the government has broad, unfettered authority to dismiss an FCA suit brought by a qui tam relator after initially declining to intervene. This case pits the relator and the government against each other. Although it is presently unclear how the Court will rule, the upcoming Executive Health decision could reinforce the omnipresence of government authority in FCA cases, leaving relators on potentially unstable ground and presenting FCA defendants with alternative strategies for defense.
Petitioner-Relator Dr. Jesse Polansky is a former consultant for Executive Health, a company responsible for submitting Medicare claims to the government on behalf of healthcare providers. Polansky filed a qui tam action under the FCA against Executive Health in 2012, with the case being described as having “billion-dollar stakes.” The government investigated and ultimately declined to intervene in the litigation in 2014. The relator, through counsel, pursued the case without government assistance from that point forward, allegedly investing approximately $20 Million in time and resources. But, in August 2019, the government moved to dismiss the case on the ground that the case was creating a “tremendous, ongoing burden on the Government.” The district court sided with the government and dismissed the case, and the Third Circuit affirmed. According to the Third Circuit, the government must intervene in the litigation before seeking dismissal, but it may elect to intervene at any time. The Third Circuit determined that, after government intervention, the trial court should consider the standard for dismissing cases under Federal Rule 41(a) in determining whether to dismiss at the government’s request. Polansky sought review by the Supreme Court, and the Supreme Court granted the petition for certiorari.
Currently, different circuits treat dismissal requests from the government in different ways. For example, the D.C. Circuit and the First Circuit rule is that the government has “unfettered” discretion to dismiss FCA cases. The Seventh Circuit (now joined by the Third Circuit in Executive Health) requires the government to intervene and satisfy the Federal Rules standard for voluntary dismissals. The Ninth and Tenth Circuits require the government to meet a higher standard, i.e., to identify a “valid government purpose” and explain a “rational relation between dismissal and accomplishment of that purpose” before it will consider dismissing a qui tam action at the government’s request. Executive Health will now resolve those competing standards.
If the Court holds for Polansky, it will undercut the government’s ability to manage FCA cases and likely force the government to make drastic policy choices regarding which FCA cases to pursue early in litigation, possibly before it has a clear picture of the potential for liability. Notably, Polansky is arguing, among other things, that the government has no authority to seek dismissal of a qui tam action after it declines to intervene. If the Supreme Court were to adopt this position, it could mean the government would spend more time and resources during the investigation stage of the matter to determine if it should intervene and dismiss, potentially lengthening the pre-intervention investigation period, increasing the number and scope of civil investigative demands for documents or depositions, creating additional backlog at the Department of Justice, and drastically increasing investigation and defense costs for defendants.
On the other hand, if the Court finds in favor of the government, relators’ and their attorneys’ willingness to pursue borderline-liability or complex FCA cases may be chilled (particularly after the government declines to intervene). From the relator’s perspective, investing the significant time and resources, attorneys’ fees, and out-of-pocket costs to pursue an FCA claim after the government declines to intervene may become too risky if the government is permitted to dismiss a case for any reason and at any time. Importantly, the government’s argument at the Supreme Court is that it has absolute discretion to dismiss an FCA case at any time, for any reason.
Ultimately, the Justices are likely to land somewhere in the middle. At oral arguments in December, the Justices appeared hostile to both parties’ positions. The Court’s middle-ground solution may require the government to intervene in the litigation before seeking dismissal, and it is likely to announce some standard of proof the government must meet before a trial court may authorize dismissal. Regardless, it is likely to outline at least some pathway for the government to seek dismissal of qui tam actions that the government determines are not in the government’s best interests. A decision is expected in Executive Health by June 2023.
We offer the following key takeaways from where the Executive Health decision seems to be heading:
- Confirmation of the government’s dismissal authority would be good news for defendants. The Supreme Court is likely to grant the government at least some discretion in dismissing qui tam actions, and the standard of proof required to seek dismissal is not likely to be a difficult hurdle for the government to clear in the vast majority of cases. The government’s dismissal authority could be a strategic focus for defendants to help avoid liability and litigation expense early in a case. Defendants that can offer legitimate bases for their conduct and/or evidence indicating that the qui tam action would not be in the government’s best interests to pursue (such as public policy issues, the risk of an adverse decision impacting greater governmental enforcement goals, or the anticipated burden on the government to respond to discovery) can encourage the government to exercise its dismissal authority. While we anticipate that the government will only seek dismissal in a small percentage of cases, defendants that can present a compelling reason for dismissal could find success by lobbying the government early in the case.
- The Court deciding that the government can exercise its dismissal authority at any time could offer defendants some reprieve, even late in a case. A determination by the Court that the government may seek dismissal of a qui tam suit, even after years of investigation and the government initially declining to intervene, could save some defendants time, resources, attorneys’ fees, costs, and the inherent risks of a jury trial at any stage of litigation. Often, defendants file their own motions to dismiss or motions for summary judgment seeking dismissal of a qui tam suit at various stages of litigation. However, the standard of review on those motions generally favors the relators; the government’s dismissal authority following the Court’s ruling likely will not. Accordingly, where a defendant can make a compelling case to the government for dismissal, even if insufficient to meet the standard applicable to a defendant’s dispositive motion, they may have an alternative means for exiting a case before trial.
- The FCA is getting additional scrutiny by the Supreme Court. In addition to the Executive Health case, on January 13, 2023, the Supreme Court agreed to consider two cases questioning whether the FCA’s mandatory scienter (i.e., intent) requirement can be satisfied if a defendant’s conduct could be explained by an objectively reasonable interpretation of a statute or regulation. The Supreme Court’s consideration of multiple FCA cases in a single term could have significant impacts on this field of law and could reshape the way defendants can protect themselves in FCA litigation. These cases will be addressed in the second installment of this blog series.
If you have questions about the FCA or are the subject of an FCA investigation or lawsuit, please reach out to Matt Feinberg and Annie Hudgins, the authors of this blog series, or another member of PilieroMazza’s False Claims Act or Audits & Investigations teams.