Seventh Circuit Adds to Circuit Split Over Standard for DOJ Dismissals in FCA Cases
The Seventh Circuit Court of Appeals recently decided a case that created a new standard to assess requests by the Department of Justice (DOJ) to dismiss declined qui tam (whistleblower) suits under the False Claims Act (FCA). See U.S. ex rel. CIMZNHCA LLC V. UCB Inc. et al., No. 19-2273 (7th Cir. 2020). Prior to this decision, federal Courts of Appeals applied either the Sequoia Orange standard or the Swift standard, discussed below. In this decision, the Seventh Circuit opined that the standard should be informed by Federal Rule of Civil Procedure (FRCP) 41, and this standard “lies much nearer to Swift.” The Seventh Circuit also decided a key jurisdictional issue: whether the United States can appeal a denial of its motion to dismiss a declined qui tam action. Again, taking a new tack, the panel resolved this issue by construing the motion to dismiss also as a motion to intervene and construing the district court’s decision as a denial of that motion, thus obviating the need to invoke the collateral order doctrine.
The Government’s Right to Dismiss Qui Tam Actions
Section 3730(c)(2)(A) of the FCA gives the government the right to dismiss an FCA case, even over the relator’s objection, if the relator is provided notice and an opportunity for a hearing. As previously discussed on our blog, DOJ increasingly has exercised its authority to dismiss declined qui tam FCA suits following the release of the January 2018 “Granston Memo” and its incorporation into the Justice Manual. The Granston Memo instructed DOJ and U.S. Attorney Office civil litigators to consider dismissal of declined qui tam actions under §3730(c)(2)(A) where it would be in the federal interest to do so, for example, to preserve limited governmental resources, curb meritless claims, or avoid adverse precedent. From 1986 through January 2018, when such requests by DOJ were rare, and over the past two and a half years, DOJ’s requests to dismiss cases have been almost universally granted, and the CIMZNHCA case was a rare exception (only one of two cases since January 2018) where the district court denied DOJ’s request.
Notably, and as the Seventh Circuit recognized, the FCA itself does “not indicate how, if at all, the district court is to review the government’s decision to dismiss.” In the absence of clear direction from Congress, DOJ efforts to dismiss FCA cases generally have been analyzed under two standards: the DC Circuit’s Swift standard, and the Ninth Circuit’s Sequoia Orange standard. The Swift standard gives the government an “unfettered right” to dismiss qui tam cases. By contrast, Sequoia Orange standard (also adopted by the Tenth Circuit and the Eastern District of Pennsylvania) applies a “rational relation” standard, requiring the government to show (1) “a valid government purpose” and (2) a “rational relation between dismissal and accomplishment of the purpose” before the court can grant dismissal. See U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998). A number of courts have considered both standards, found that both standards are met, and granted DOJ’s motions to dismiss, and the concurring opinion in the Seventh Circuit’s decision adopted that stance as well.
The Seventh Circuit Articulates a New Standard for Dismissal
The Seventh Circuit’s decision concerned one of nearly a dozen FCA suits filed by the National Healthcare Analysis Group (NHAG), which alleged that the defendants illegally paid physicians for prescribing or recommending Cimzia, a drug manufactured by defendant UCB, Inc. to treat Crohn’s disease, to patients who received benefits under federal healthcare programs. Specifically, the relator alleged that the illegal kickbacks took the form of free education services provided by nurses to physicians and their patients and free reimbursement support services, i.e., assistance with insurance paperwork. The government declined to intervene, and the relator proceeded to litigate the FCA case.
In December 2018, DOJ moved to dismiss all of the NHAG’s FCA actions, including the one filed by relator CIMZNHCA LLC in the Southern District of Illinois. In nearly every case, the court either granted the government’s motion, or the relators voluntarily dismissed their case. In the Southern District of Illinois case, the district court applied the Sequoia Orange standard, and denied DOJ’s motion to dismiss. The government appealed, and the Seventh Circuit reversed and ordered judgment in favor of the defendants.
The Seventh Circuit decided that it did not have jurisdiction to decide the denial of DOJ’s motion to dismiss. Instead, the court interpreted the FCA “to require the government to intervene as a party before exercising its right to dismiss under §3730(c)(2)(A).” CIMZNHCA LLC, No. 19-2273 at 2, 12. In the court’s view, since the government does not become a party to a qui tam action unless and until it intervenes, see United States ex rel. Eisenstein v. City of New York, 556 U.S. 928, 937 (2009), the government can only exercise its right to dismiss an action after electing to intervene. Id. at 22. Accordingly, the circuit court construed DOJ’s motion to dismiss also as a motion to intervene and decided that DOJ, as required to intervene, had “good cause” to do so. The court noted that denials of motions to intervene are typically immediately appealable. In contrast, DOJ’s position is that it may appeal by intervening, and thus becoming a party, or by exercising an enumerated statutory right, i.e. to seek a dismissal or object to a settlement, without intervening, with jurisdiction provided under the collateral order doctrine.
Indeed, shortly before the Seventh Circuit spoke on the issue, the Ninth Circuit refused, on jurisdictional grounds, to invoke the collateral order doctrine to permit an appeal by the government from a district court order denying a motion to dismiss a qui tam action, thus allowing the relator to proceed with the action over the government’s objection. See United States v. Academy Mortgage Corp., No. 18-16408 (9th Cir. Aug. 4, 2020).
Having found jurisdiction to address the merits, the court then rejected both the Swift and Sequoia Orange tests and applied a new formulation based on the standard for a voluntary dismissal by a plaintiff under FRCP 41.
What Standard Applies?
Under FRCP 41(a)(1)(A)(i), a plaintiff has an absolute right to dismiss an action without prejudice any time “before the opposing party serves either an answer or a motion for summary judgment.” By its terms, however, this otherwise absolute right is qualified by “any applicable federal statute.” Id. 41(a)(1)(A). The court reasoned that §3730(c)(2)(A) is such a statute, as it provides that the government may dismiss over the relator’s objection only after the relator is afforded notice and an opportunity to be heard. Taken together, the court held that before an answer or motion for summary judgment is served, “[t]he Government may dismiss the action without the relator’s consent if the relator receives notice and opportunity to be heard.” CIMZNHCA LLC, No. 19-2273 at 24.
The court also rejected the notion that the hearing requirement of §3730(c)(2)(A) of the FCA was superfluous. For one, where FRCP 41(a)(1) does not apply—where the defendants have answered the complaint, for example—then a court order would be required for the government to obtain a dismissal under FRCP 41(a)(2). The required hearing could be a chance for the relator to argue what terms, if any, should be imposed by the court in allowing dismissal. CIMZNHCA LLC, No. 19-2273 at 26. The court also reasoned that the hearing could serve to police “exceptional cases” involving egregious government conduct, such as a §3730(c)(2)(A) dismissal that violated the Equal Protection Clause or amounted to fraud on the court. Id. at 28-29.
On the facts before it, the Seventh Circuit remanded to the District Court to dismiss the relator’s claims because all the prerequisites for dismissal were satisfied. In sum: (1) to appeal, the government must intervene, and here the government had “good cause” to intervene and it shall be deemed to have done so; (2) the government moved to dismiss the action before the defendants answered or filed a motion for summary judgment under FRCP 41(a)(1)(A)(i); (3) the relator was afforded notice and a hearing under §3730(c)(2)(A); and (4) there were no constitutional problems with the government’s decision to seek dismissal.
On the merits, the Seventh Circuit’s decision adds to a circuit split on the correct standard for addressing the government’s right to dismiss a qui tam action. While the Seventh Circuit’s standard arguably poses a higher bar than the D.C. Circuit’s Swift standard, the court’s reasoning makes clear that the government should have a nearly unfettered right to intervene and dismiss, at least before defendants file an answer to the relator’s complaint. In this respect, the Seventh Circuit’s approach hews much closer to the D.C. Circuit’s than the Ninth’s. This decision gives DOJ broad latitude to dismiss declined qui tam actions barring egregious, and unconstitutional, prosecutorial misconduct.
The jurisdictional issue, though, is complex. Though DOJ can readily intervene concurrently with seeking to dismiss a declined qui tam, and the Seventh Circuit now says it must, DOJ may continue to take the position that the Seventh Circuit and the Ninth Circuit mistakenly reject DOJ’s right to appeal a denial of its motion to dismiss without intervening. Perhaps DOJ will comply by routinely moving to intervene whenever it seeks to dismiss an action, while asserting that it need not do so. But perhaps DOJ will continue to challenge the Seventh and Ninth Circuit decisions that deny the United States the right to seek a dismissal and, if denied, immediately appeal it. Due to the disputed standard for dismissal, the jurisdictional issue, and the Seventh Circuit’s novel approach to both, there is an increasing chance that these issues might attract the attention of the Supreme Court.
DOJ’s increasing use of its dismissal power has also attracted the attention of Senator Grassley, widely-considered an architect of the modern FCA. He recently announced that he is working on new legislation to address what he perceives to be DOJ’s flawed use of its dismissal power.