Supreme Court
SCOTUS to Address Government’s Authority to Dismiss FCA Cases
The United States Supreme Court recently granted review of a decision from the Third Circuit that affirmed the dismissal of an FCA case at the government’s request. Polansky v. Exec. Health Res., 17 F.4th 376, 393 (3d Cir. 2021); Polansky v. Exec. Health Res., 21-1052 (June 21, 2022). Polansky resisted the government’s request to dismiss his case, arguing that the government had no authority to dismiss without intervention and that it lacked a basis for seeking dismissal. 17 F.4th 376 at 382. Although the Third Circuit held the government must intervene to be able to dismiss a case and the government did not file a motion to intervene, the Third Circuit held that the government’s motion to dismiss could be read as including an implicit request to intervene in the case. Id. at 392. Next, on the government’s authority to seek dismissal, the Third Circuit held that the standard was the same as applied in every civil case: “[A]n action may be dismissed at the plaintiff’s request only by court order, on terms that the court considers proper.” Fed. R. Civ. P. 41(a)(2). The standard to apply when the government moves to dismiss has received renewed attention in recent years. That attention is likely traceable to the Granston Memo, authored in January 2018, and since adopted as formal DOJ policy. The Granston Memo encourages prosecutors to dismiss declined qui tam actions, pointing to a waste of government resources and the risk of bad cases making bad law. The Memo explains: “Even in non-intervened cases, the government expends significant resources in monitoring these cases and sometimes must produce discovery or otherwise participate. In cases that lack substantial merit, they can generate adverse decisions that affect the government’s ability to enforce the FCA.” Until recently, there were generally two standards—an unfettered right to dismiss or a rational-basis framework. See Swift v. United States, 318 F.3d 250, 253 (D.C. Cir. 2003) (holding the government has an unfettered right to dismiss under the FCA); United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (requiring the government to identify a valid governmental purpose and relationship between the purpose and dismissal, and allowing a relator to resist the dismissal by demonstrating dismissal is arbitrary and capricious); Ridenour v. Kaiser-Hill Co., Ltd. Liab. Co., 397 F.3d 925 (10th Cir. 2005) (same). But in recent years the circuits have split in other ways on what standard applies to government requests to dismiss FCA cases. The Second Circuit recently noted the split between the Ninth and D.C. Circuits, but declined to adopt either standard. United States ex rel. Borzilleri v. Abbvie, Inc., 837 F. App’x 813, 816 (2d. Cir. 2020). Last year, as we reported previously, the United States Supreme Court denied review of a Seventh Circuit decision reversing a district court’s denial of DOJ’s request to dismiss. See Cimznhca LLC v. United States, No. 20-1138, 141 S. Ct. 2878 (June 28, 2021); Cimznhca, LLC v. UCB, Inc., 970 F.3d 835, 839-40 (7th Cir. 2020). The Seventh Circuit declined to adopt either Sequoia Orange or Swift, applying instead Rule 41(a). Id. The Third Circuit had previously declined to adopt either the Sequoia Orange or Swift standard. See, e.g., Chang v. Children’s Advocacy Ctr., 938 F.3d 384 (3d Cir. 2019). But in Polanksy, the Third Circuit followed the Seventh Circuit’s decision in Cimznhca, concluding that the government’s request to dismiss must simply follow Rule 41(a). Notably, the appellate standard of review on dismissals can shift dramatically based on the test applied. Under Sequoia Orange, appellate courts often review de novo. Schwartz v. Raytheon Co., 150 Fed. Appx. 627, 628 (9th Cir. 2005). If the dismissal authority is based on Rule 41(a), an appellate court would review the dismissal for abuse of discretion. Polansky, 17 F.4th at 392. Uniformity in the standard will bring welcome clarity to the government and relators. But there is reason for both to be concerned with the outcome. For relators, the Supreme Court may decide that the D.C. Circuit’s unfettered-right standard is appropriate, which is what the government asked the Third Circuit to apply. For the government, the Supreme Court may decide that dismissal requests require a rational-basis, formal intervention, and/or that dismissal was inappropriate in this particular case.
June 22, 2022
by Chris DeLong
Supreme Court
SCOTUS Denies Review of Dismissal at DOJ’s Request; Circuit Split Remains
On June 28, 2021, the United States Supreme Court denied review of a Seventh Circuit decision affirming the Department of Justice (“DOJ”)-requested dismissal of a False Claims Act (“FCA”) suit alleging a drug kickback scheme. Cimznhca LLC v. United States, No. 20-1138, 2021 U.S. LEXIS 3404 (June 28, 2021). As a result, the circuit split regarding the standard that applies to a Government’s motion to dismiss an FCA action remains unresolved. In the underlying case, relator Cimznhca, LLC filed an action against four defendants, UCB, Inc. RXC Acquisition Company, Omnicare Inc., and CVS Health Corporation, in July 2017. United States ex rel. Cimznhca, LLC v. UCB, Inc., 970 F.3d 835, 839-40 (7th Cir. 2020). Relator alleged that the defendants were engaged in a kickback scheme by providing physicians with incentives for prescribing a brand-name drug over other competitors. Id. The Government declined to intervene in December 2017, and Relator continued to prosecute the case. Id. However, the Government moved to dismiss under 31 U.S.C. § 3730(c)(2)(A) in December 2018. Id. at 840; see also Granston Memo (Jan. 10, 2018) (encouraging the DOJ to use its power to dismiss relators' claims more often). Relator objected to the dismissal. The district court held a hearing on the petition and applied the Sequoia Orange rational-basis test from the Ninth Circuit. Id. Under Sequoia Orange, when the government identifies a valid governmental purpose and a relationship between the purpose and dismissal, the court will dismiss unless the Relator can demonstrate that the dismissal is arbitrary and capricious. United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998). The district court determined the Government’s motion was arbitrary and capricious and denied it. Cimznhca, 970 F.3d at 840. The Government appealed the order. Id. The competing dismissal standard is the unfettered-right standard from Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003). Under the Swift standard, the Government may dismiss an action without judicial review in virtually all cases. Id. at 253. The Tenth Circuit has followed the Ninth, adopting the Sequoia Orange standard. See, e.g., Ridenour v. Kaiser-Hill Co., Ltd. Liab. Co., 397 F.3d 925 (10th Cir. 2005). The Second and Third Circuits have noted the split but declined to adopt either standard. See, e.g., Chang v. Children’s Advocacy Ctr., 938 F.3d 384 (3d Cir. 2019); United States ex rel. Borzilleri v. Abbvie, Inc., 837 F. App’x 813, 816 (2d. Cir. 2020). In this case, the Seventh Circuit reversed and directed the district court to dismiss. 970 F.3d at 854. The Seventh Circuit declined to decide whether Sequoia Orange or Swift was the proper standard, but suggested that something closer to Swift would apply in almost all cases, excepting, for example, a fraud on the court. Id. at 851-52. Relator petitioned for a writ of certiorari, noting the circuit split on the dismissal standard. With the Supreme Court’s denial of Relator’s petition for a writ of certiorari, the circuit split remains. Defendants embroiled in FCA cases should thus remain cognizant of the opportunity, under the right circumstances, for an early exit with the support of the DOJ, but note that the applicable standard will vary depending upon the circuit in which the case is filed.
June 29, 2021
by Chris DeLong
Supreme Court
Supreme Court Declines to Resolve Circuit Split Regarding Standard for “Falsity” in FCA Claims
On February 22, 2021, the United States Supreme Court declined to resolve a circuit split regarding the proper standard under which False Claims Act (“FCA”) claims in the medical context should be reviewed. See Care Alternatives v. United States, No. 20-371, 2021 U.S. LEXIS 915 (Feb. 22, 2021). The Court’s decision leaves open the question of what constitutes “falsity” under the FCA and opens the door to further expansion of the circuit split as additional appeals reach jurisdictions that have not yet determined this question of law. In United States ex rel. Druding v. Druding, the Third Circuit Court of Appeals considered whether the district court properly concluded relators were required to demonstrate “objective falsity” in order to satisfy the falsity element of an FCA claim. 952 F.3d 89 (3d Cir. 2020). There, relators alleged that Care Alternatives, a palliative care provider, submitted false hospice-reimbursement claims to Medicare and Medicaid for care provided to patients that were not sufficiently ill to qualify for hospice care. Id. at 93. The relators’ case relied heavily upon the expert report of a geriatric care physician, who examined the records of dozens of hospice-admitted patients and opined that 35 percent (35%) of the patients did not qualify for hospice care under the federal guidelines. Id. at 94. Care Alternatives’ expert, also a physician, concluded the opposite, finding that a physician could have reasonably determined that each patient was near the end of life and appropriately admitted to hospice care. Id. After extensive discovery, including the dueling expert opinions, Case Alternatives moved for summary judgment, arguing inter alia that relators had not produced sufficient evidence of falsity. Id. The district court agreed with Case Alternatives, holding that the “mere difference of opinion between physicians, without more, is not enough to show falsity” because “medical opinions are subjective and cannot be false.” Id. In so holding, the district court embraced the “objective falsehood” standard for falsity under the FCA articulated by the Eleventh Circuit Court of Appeals in United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019). On appeal, the Third Circuit reversed, finding that the district court’s reliance upon an “objective falsity” standard “improperly conflates the elements of falsity and scienter, inconsistent with the application of the FCA.” Druding, 952 F.3d at 95. Turning to the text of the statute, the court noted the FCA provides that “any person who ‘knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval’ is liable to the United States…” Id. (emphasis in original). Based on that statutory text, and the lack of a definition within the statute for the terms “false” or “fraudulent,” the court determined that, under common law principles, an “opinion can be considered ‘false’ for purposes of liability” and therefore medical opinions may supply a basis for finding falsity under the FCA. Id. The court further noted that the scienter element of an FCA claim, distinct and separate from the falsity element, served to limit the possibility that hospice providers would be “exposed to liability under the FCA any time the Government could find an expert who disagreed with the certifying physician’s medical prognosis.” Id. at 96. Thus, “[b]y requiring ‘factual evidence that Defendant's certifying doctor was making a knowingly false determination,” the court determined the lower court’s “‘objective’ falsity standard conflates scienter and falsity” by “incorporat[ing] a scienter element into its analysis regarding falsity.” Id. at 96. The court explained that the correct standard for falsity under the FCA “simply asks whether the claim submitted to the government as reimbursable was in fact reimbursable, based on the conditions for payment set by the government.” Id. at 97. Following its defeat at the Third Circuit Court of Appeals, Care Alternatives sought to appeal the decision to the Supreme Court. In its petition, Care Alternatives noted the need for the Court to resolve the “square circuit split” between the Third and Eleventh Circuits which “creates the untenable prospect that hospices in New Jersey will face treble damages for the same difficult medical judgments that cannot be second-guessed in Florida.” Care Alternatives also emphasized the importance of the legal issue, contending that “the Third Circuit’s decision opens up hospices and physicians to crushing financial liability and reputational harm, notwithstanding near universal acknowledgment that determinations about life expectancy are notoriously difficult and inexact.” On February 22, 2020, the Supreme Court declined to hear Care Alternatives’ appeal without comment, leaving unresolved a growing circuit split between the Fourth, Seventh, Tenth, and Eleventh Circuits, which have adopted the objective falsity standard, and the Third and Ninth Circuits, which have embraced the more lenient standard for falsity. Given the prevalence of FCA claims premised upon medical reimbursements, the circuit split is likely to expand. Although the Third and Ninth Circuits have established a lower bar for relators to establish the falsity element for a claim—perhaps eliminating a pathway for defendants to resolve FCA claims at the summary judgement stage—both courts have stressed that the scienter requirement under the FCA, i.e., the requirement that Defendant knows “the treatment was not medically necessary,” Winter ex rel. United States v. Gardens Reg'l Hosp. & Med. Ctr., Inc., 953 F.3d 1108, 1114 (9th Cir. 2020), should serve to appropriately limit liability. Whether and to what extent this circuit split bears on the outcomes of FCA cases is an issue for FCA practitioners and their clients to monitor.
March 9, 2021
by Jack Huerter
Supreme Court
Supreme Court Settles Circuit Split and Reads the False Claims Act Statute of Limitations Provision Broadly in Boon to Relators
On May 13, 2019, the U.S. Supreme Court decided Cochise Consultancy, Inc. v. United States ex rel. Hunt, No. 18–325, and resolved a circuit split regarding the statute of limitations for an FCA claim brought by a relator between six and ten years after a violation, but less than three years after the government knew or should have known the relevant facts. The Court held that relators can invoke a statute that tolls the usual six-year FCA statute of limitations to permit suit until up to three years “after the date when facts material to the right of action are known or reasonably known to the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.” 31 U.S.C. § 3731(b). In doing so, the Court settled the debate about whether a relator can claim the benefit of this tolling provision even when the government declines to intervene and the relator knew of the alleged violation before the usual six-year statute of limitations expires. The Court held a relator can. Relator Billy Joe Hunt worked for a defense contractor in Iraq tasked with cleaning up excess munitions left behind by enemy forces. Hunt alleged that the contractor and others defrauded the United States through a scheme designed to award a security subcontract to a higher priced contractor than the lowest qualified bidder. As a result of the alleged scheme, Hunt claimed that the United States paid for the higher priced services through September 2006. On November 30, 2010, Hunt reported the alleged fraud to FBI agents investigating a separate kickback scheme. On November 27, 2013, Hunt filed a sealed complaint alleging FCA claims against the contractors in federal court in Alabama. The government declined to intervene, and the contractors moved to dismiss the claims as time-barred under the six-year statute of limitations period in 31 U.S.C. § 3731(b)(1). The district court dismissed the claims, but the U.S. Court of Appeals for the Eleventh Circuit reversed, finding that Section 3731(b)(2) tolled the statute of limitations until three years after the United States became aware of the alleged scheme. The Supreme Court agreed to review the decision to resolve a split among the circuit courts about how to apply the tolling provision. The Court agreed that Hunt was entitled to invoke the three-year tolling provision under Section 3137(b)(2), even though the government declined to intervene and Hunt knew of the alleged fraud well before disclosing the scheme to the FBI in 2010. The Court reasoned the text of the statute does not support the contractors’ theories that the United States should have to intervene before the tolling provision applied or that a private relator could himself be “the official” whose knowledge begins the three-year tolling period. Although the Court was not enamored with the text of Section 3731(b)(2)—Justice Alito called the FCA “a terribly drafted statute” at oral argument—the justices unanimously agreed it could only be read one way. This decision creates an anomaly in the world of tolling provisions—typically, plaintiffs can claim the benefit of a tolling provision only when they personally did not know they had a potential claim. Not so in FCA cases. Rather, Cochise makes clear that an FCA relator can bring an otherwise time-barred claim that the realtor has long known about if a third party (“the official of the United States”) did not know the claim existed until a later date. This is what the Court decided Congress envisioned when it wrote the statute. After all, in an FCA suit, the United States is always the beneficiary of more than half of any settlement or judgment proceeds. The United States has the authority to move to dismiss an FCA suit, even when it did not intervene, and its consent is always required to settle an FCA suit. Given this unique role, the Court decided it was not illogical to follow the plain meaning of the statutory text and extend to relators tolling rights that depend on the knowledge of the United States. The implications for government contractors and others subject to the FCA are clear: First, relators now have more time—as many as four more years—to bring FCA claims. Second, because claims brought by private relators are initially sealed while the government decides whether to intervene—a process that can itself take years—a government contractor may not learn of a timely-filed complaint until more than ten years after the alleged violation. Third, government recoveries in declined qui tam actions may trend upward, given that there is now a broader universe of conduct that could be encompassed by a relator’s complaint. Fourth, government contractors may want to evaluate their document-retention policies to retain documentation related to government claims until ten years—or more—have elapsed. Burdensome though this may be, it might assist contractors defend themselves against the aged FCA claims made possible by the Court’s interpretation of the statute.
May 16, 2019
by Ben Kappelman, Alex Hontos, Kirk Schuler, and Caitlin L.D. Hull
Supreme Court
Supreme Court Considers Whether to Extend FCA Statute of Limitation
On Tuesday, March 19, the Supreme Court considered whether to extend the FCA’s alternate 10-year statute of limitations to cases in which the government does not intervene. The case, Cochise Consultancy Inc. v. United States, ex rel. Hunt, involves a whistleblower’s qui tam action alleging that two defense contractors defrauded the government. The case centers on the FCA’s two statutes of limitations. One allows lawsuits to be filed within six years of the alleged fraud. 31 U.S.C. § 3731(b)(1). The other allows lawsuits to be filed three years after the federal government knows of facts “material to the right of action,” but never more than 10 years after the alleged fraud. 31 U.S.C. § 3731(b)(2). In Cochise, the relator filed his complaint in 2013, more than six after the alleged fraud, which took place in 2006 and 2007. The relator argued that his complaint was timely under the 10-year limitations period of § 3731(b)(2) because he filed it within three years after the FBI learned of the fraud in 2010. It was undisputed that if the government had intervened, the 10-year limitations period would have applied. At issue was whether that period can apply in cases where, as in Cochise, the government does not intervene. The Fourth and Tenth Circuits had previously ruled that it could not, but the Eleventh Circuit created a split when it ruled—in the decision on appeal in Cochise, and as previously reported by this blog here—that that period could apply to cases in which the government is not a party. At Tuesday’s argument, defense contractors’ counsel argued that extending the 10-year limitations period would result in increased claims, impose higher evidentiary burdens, and allow relators to “wait in the weeds” while developing their cases. But relator’s counsel argued that, in practice, relators have a strong incentive to file as soon as possible, because otherwise the potential plaintiff risks their claim being dismissed under the “first to file bar,” which is intended to avoid duplicative FCA litigation by prohibiting subsequent FCA actions based upon the same essential facts as a previously filed qui tam action. The Solicitor General’s Office also argued the relator’s position was consistent with the FCA’s purpose because “the majority of any recovery would go to the United States” even where the government does not intervene. Although it is difficult to predict the Court’s decision based on oral argument, it seems at least possible that the Court will extend the FCA’s 10-year statute of limitations to cases where the government does not intervene. That result would likely increase risk and costs for defendants facing FCA claims.
March 22, 2019
by Alan J. Iverson
