In a recent opinion, the U.S. Court of Appeals for the Third Circuit weighed in on what standard to apply in reviewing government motions to dismiss False Claims Act (FCA) actions. As discussed in detail in a July 2021 Law360 article titled “Tide Is Turning Against FCA Case Dismissals,” a three-way circuit split has developed regarding the standard governing a government motion to dismiss a whistleblower’s non-intervened qui tam case, but the varying approaches in the courts may be less important to the viability of government dismissals than the actions of the executive and legislative branches.
These government motions to dismiss are referred to as “(c)(2)(A) motions” in reference to the relevant provision of the FCA that authorizes the government to move to dismiss a qui tam complaint over the relator’s objection. The FCA, however, does not provide a substantive standard for evaluating such motions. Three judicial approaches to considering such dismissals have emerged: (1) the U.S. Court of Appeals for the Ninth Circuit adopted a rational relation test requiring the government to put forward a valid government purpose and demonstrate a connection between that purpose and dismissal; (2) the U.S. Court of Appeals for the D.C. Circuit concluded that the government has “an unfettered right to dismiss an action,” and that its decision to do so is virtually unreviewable; and (3) the U.S. Court of Appeals for the Seventh Circuit held in U.S. ex rel. CIMZNHCA v. UCB, Inc. that the voluntary dismissal standard in Federal Rule of Civil Procedure 41(a) provides the standard for (c)(2)(A) dismissals. During its last term, the Supreme Court decided not to review an appeal of the Seventh Circuit’s CIMZNHCA decision, leaving in place the three-way circuit split regarding the appropriate standard for evaluating (c)(2)(A) dismissal motions.
Recently, in Polansky v. Executive Health Resources Inc., the U.S. Court of Appeals for the Third Circuit weighed in on what standard to apply and joined the Seventh Circuit’s “middle of the road” approach that is deferential to the government while providing for some level of meaningful judicial review of (c)(2)(A) dismissal motions. In that case, relator Dr. Jesse Polansky filed a qui tam action in 2012 alleging that Executive Health Resources Inc., a physician advisory company, was causing hospitals to bill the government for inpatient stays that were not “reasonable and necessary” for diagnosis or treatment. For the next two years, Polansky’s complaint remained under seal while the government conducted its own investigation, ultimately deciding it would not participate in the case. Over the next several years, the parties and the district court invested considerable time and resources in litigating the case. Then, in February 2019, despite Polansky’s objection, the government notified the parties that it intended to dismiss the entire action pursuant to its (c)(2)(A) dismissal authority. The district court granted the government’s motion to dismiss, recognizing the circuit split and concluding that the government met its burden under any of the three standards.
On appeal, the Third Circuit addressed three questions: (1) whether the FCA requires the government to intervene in order to seek a (c)(2)(A) dismissal, either at the outset of the case or at a later date; (2) what standard governs (c)(2)(A) motions to dismiss; and (3) whether the district court’s grant of dismissal was a reasonable exercise of its discretion.
Considering the first question, after analyzing the language and context of the FCA statute, the Third Circuit agreed with the Seventh Circuit, finding that under § 3730(c), the government must intervene before it can move to dismiss, but that it can seek leave to intervene at any point in the litigation upon a showing of “good cause.” As the Third Circuit noted, “showing ‘good cause’ is neither a burdensome nor unfamiliar obligation. . . [rather,] [i]t is a ‘uniquely flexible and capacious concept,’ meaning simply a ‘legally sufficient reason. . .’”
Turning to the governing standard, the Third Circuit again concurred with the Seventh Circuit and concluded that Rule 41, which establishes different standards for evaluating a motion to dismiss depending on the procedural posture of the case, provides the applicable standard for granting (c)(2)(A) dismissals. Specifically, if the (c)(2)(A) motion to dismiss is filed before the defendant files an answer or summary judgment motion, “the plaintiff may dismiss an action without a court order simply by filing a notice of dismissal.” Those dismissals are subject only to the constitutional bar on arbitrary government action. However, if the defendant has filed a responsive pleading, then “an action may be dismissed at the plaintiff’s request only by court order, on terms that the court considers proper.” That review of propriety, the court noted, “as a practical matter . . . may well converge” with the evaluation of whether the government has “good cause” to intervene pursuant to § 3730(c)(3).
Having clarified the applicable standard, the Third Circuit affirmed the district court’s dismissal of the qui tam action, holding (1) that although the government did not formally file a motion to intervene, it could construe the government’s motion to dismiss as including a motion to intervene based on “good cause”; and (2) that the district court did not abuse its discretion in concluding that the government’s motion was “proper,” and so had satisfied Rule 41(a)’s standards for dismissal.
As explained in the above referenced article, while the Supreme Court’s decision to decline review of the Seventh Circuit’s decision in CIMZNHCA and the Third Circuit’s Polansky decision (and its fairly easily satisfied requirements that the government’s motion to intervene is based on “good cause” and dismissal is “proper”) appear to be favorable outcomes for potential defendants, the Biden administration’s leanings toward a more pro-whistleblower and pro-enforcement stance and bipartisan congressional support for reigning in government dismissals of qui tam suits is likely to ultimately lead to the government filing fewer (c)(2)(A) motions to dismiss. That said, given the Third Circuit’s recent decision in Polansky (of note, the Polansky appeal was briefed and argued before the change in administration), as well as the fact that the DOJ’s “Granston Memo” (directing prosecutors to consider the importance of (c)(2)(A) dismissals to weed out nonmeritorious cases) has not been formally superseded, (c)(2)(A) dismissals remain a potentially helpful tool for defendants in FCA cases.
 Michael Podberesky, John Moran & Cassie Burns, Tide Is Turning Against FCA Case Dismissals, Law360 (July 28, 2021) https://www.law360.com/articles/1405490/tide-is-turning-against-fca-case-dismissals.
 U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998).
 Swift v. U.S., 318 F.3d 250, 252 (D.C. Cir. 2003).
 U.S. ex rel. CIMZNHCA v. UCB, Inc., 970 F.3d 835, 849 (7th Cir. 2020).
 Polansky v. Exec. Health Res. Inc., No. 19-3810, 2021 U.S. App. LEXIS 32304, at *4-5 (3d Cir. Oct. 28, 2021).
 Id. at *5.
 Id. at *6.
 Id. at *7.
 Id. at *8.
 Id. at *11.
 Id. at *16-17.
 Id. at *18.
 Id. at *19 (internal quotations omitted).
 Id. at *21.
 Id. at *19-20 (emphasis added).
 Id. at *20 n.14.
 Id. at *26-28.
 Tide Is Turning Against FCA Case Dismissals, supra note 1.