Supreme Court Holds DOJ Has Broad, But Not Unlimited, Discretion to Dismiss False Claims Act Qui Tam Litigation Brought by Private Whistleblowers

Summary

On June 16, 2023, the Supreme Court of the United States resolved a dispute over whether and when the Department of Justice (DOJ) can force the dismissal of a civil False Claims Act case that was brought by a whistleblower and not by DOJ itself. The Court held that DOJ has broad authority to force the dismissal, even months or years after the case is initiated, but must jump through some procedural hoops. While in some extraordinary circumstances a court could keep an action alive over DOJ’s objection, the Court stressed that in most cases DOJ’s desire to terminate a case will prevail even where the whistleblower wants to continue litigating. Interestingly, three Justices expressly noted doubts about the constitutionality of whistleblower suits under the False Claims Act more broadly, signaling that the Court may be willing to take up such a constitutional challenge in the near future. Defendants in False Claims Act litigation should carefully examine the invitation to raise this constitutional argument.

Background

The False Claims Act, a Civil War-era statute, has always permitted litigation concerning alleged false claims for payment to be brought by individual whistleblowers or “relators,” who sue “in the name” of the government. (These suits are known as qui tam suits, a truncation of the historic Latin phrase for suing in the name of the King.) The federal government, represented by DOJ, can also bring its own civil litigation under the statute. And when a private relator brings a case, DOJ has the right to “intervene” early in the case, taking over the litigation.

As currently structured, the False Claims Act gives whistleblowers monetary incentives to bring suit. If DOJ does not intervene, the relator earns between 25% and 30% of the recovery, with a lesser award (generally between 15% and 25% of the recovery) if DOJ chooses to intervene, in addition to attorneys’ fees. Under 31 USC 3730, “within 60 days after” the government receives the relator’s complaint and any additional information, subject to extension, the government must “proceed with the action” or “notify the court that it declines to take over the action.” If it does not intervene, the government has the continued right to monitor the litigation.

The recent decision, United States ex rel. Polansky v. Executive Health Resources, Inc., No. 21-1052, examined what happens when the government initially declines to intervene (leaving the relator in charge of the litigation) but later attempts to intervene and take over the False Claims Act litigation — and to dismiss it, preventing the relators from continuing on their own. This issue was important to defendants in False Claims Act litigation, because the government’s ability to end a qui tam case can sometimes provide a quick resolution without the expense of protracted litigation. The DOJ has consistently asserted broad discretion to dismiss qui tams but has sought them relatively rarely, with slightly more dismissals since DOJ’s 2018 “Granston Memo,” which explained when to use this “important tool.”

Conversely, relators saw this case as an opportunity to bar the government from stopping False Claims Act cases. The relator in this case argued that the government loses any such power once it initially declines to intervene.

In Polansky, the government investigated the relator’s claim for approximately two years before declining to intervene. The relator then proceeded with the litigation for several years. DOJ then filed a motion to dismiss the case, which the district court granted. The Third Circuit concluded that the government could not dismiss the case unless it first formally intervened (which required “good cause”). But the court ultimately treated the government’s motion to dismiss as a motion to intervene and to dismiss, so it affirmed the dismissal.

The Supreme Court agreed to resolve multiple circuit splits on these issues, over (1) whether the government needs to intervene, with the court’s permission, in order to exercise any dismissal right; and (2) once the government has intervened, whether and under what circumstances it can justify dismissal over the relator’s objection.

The relator sought to narrow the government’s dismissal authority, arguing for a “use it or lose it” rule: that the government has no power to dismiss unless it intervenes during the initial 60-day period. The government and the defendant sought broader dismissal authority than the Third Circuit had given it: they argued that the government does not even need to intervene, and that the courts must accept the government’s unilateral dismissal motion even when the government is a nonparty.

The Supreme Court’s Decision

In an 8-1 decision authored by Justice Elena Kagan, the Supreme Court held that the government does need to intervene, and that once it does so, it has broad but not unlimited power to dismiss the case. By resolving the circuit conflict, the Court’s decision gives the government more dismissal authority in some circuits but narrows its authority (at least procedurally) in others.

Intervention: The Court held that the government can move to dismiss after the initial 60-day period. While the government must get the court’s permission to intervene, “the timing of the intervention makes no difference.” The “good cause” standard for intervention is quite permissive.

The Court rejected the relator’s “use it or lose it” argument, which was based on a statutory provision stating that when the government intervenes after the initial period, its intervention cannot “limit[] the status and rights” of the relator. No matter when the government intervenes, the Court held, it takes primary control of the litigation. And as a result, it has the right to file a motion to dismiss, even if the relator objects.

Dismissal Standard: Again coming down in between the parties’ positions, the Supreme Court held that the ordinary civil rule for voluntary dismissals, Rule 41, applies to government motions to dismiss qui tam litigation. That means that once the defendant has answered or filed a motion to dismiss, the court’s permission is required; the government’s authority is not absolute. But the Court took pains to explain, repeatedly, that the standard is permissive and dismissal will usually be granted. (There is one special procedural twist: unlike in ordinary litigation, the False Claims Act specifically requires that the relator receive notice and an opportunity for a hearing first.)

Most broadly, the Court held that the government’s motion should be granted “in all but the most exceptional cases.” The Court also observed that Rule 41’s standards “will be readily satisfied” in “most FCA cases.” Put another way: “a district court should think several times over before denying a motion to dismiss. 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.” The Court recognized that all relators want to continue with their cases and, thus, will always argue that the government is sacrificing a potentially large recovery. But dismissal is appropriate nonetheless once the government provides a justification.

Once a dismissal is granted, it will be reviewable on appeal only under a deferential standard (for abuse of discretion).

Justice Clarence Thomas was the sole dissenter: he would have accepted the relator’s “use it or lose it” position, in part because of his concerns that the FCA infringes on the Executive Branch’s power under Article II of the Constitution to direct government litigation. As Justice Thomas noted, civil litigation in the name of the United States is ordinarily an executive function, and private whistleblowers are not officers of the Executive Branch. According to Justice Thomas, “It thus appears to follow that Congress cannot authorize a private relator to wield executive authority to represent the United States’ interests in civil litigation.”

Justice Brett Kavanaugh, joined by Justice Amy Coney Barrett, joined the Court’s opinion but echoed the constitutional concern in a separate concurrence. He opined that “the Court should consider the competing arguments on the Article II issue in an appropriate case.”

Implications for the Future: A Constitutional Challenge?

In the past, district courts have sometimes refused to let the government dismiss a qui tam case. The Supreme Court’s decision should make such decisions extremely rare, as long as the government checks all the procedural boxes.

The constitutional issue raised by Justices Thomas, Kavanaugh, and Barrett suggests that the Court may be interested in taking up the constitutionality of whistleblower actions under the False Claims Act in the future. The Court rejected a different constitutional challenge to the False Claims Act in 2000, but it noted in a footnote that it was not resolving the executive power issue. Litigants in False Claims Act cases should keep in mind the three Justices’ invitation to raise this issue.