Background
Section 3730(c)(2)(A) of the FCA provides that DOJ may dismiss qui tam actions “notwithstanding the objections of the person initiating the action if the person has been notified by the government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.”2 Following the release of the so-called Granston Memo in 2018,3 DOJ has exercised its authority to dismiss under Section 3730(c)(2)(A) with greater frequency than in the past, leading to an uptick in litigation under that provision.
Prior to CIMZNHCA, some courts followed the approach taken by the Ninth Circuit in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp. in assessing government motions to dismiss.4 Under the Sequoia Orange test, the government must first identify a “valid government purpose” and then show “a rational relation between dismissal and accomplishment of the purpose.”5 Once the government makes this showing, the burden shifts to the relator to show that “dismissal is fraudulent, arbitrary and capricious, or illegal.”6 Other courts have followed the D.C. Circuit’s standard in Swift v. United States,7 which holds that the government has “an unfettered right” to dismiss.
The CIMZNHCA Decision
The Seventh Circuit opinion in CIMZNHCA is the latest word on the issue. CIMZNHCA was one of eleven FCA suits filed by the same relators in different jurisdictions, alleging essentially identical violations of the FCA arising from alleged violations of the Anti-Kickback Statute.8 DOJ declined to intervene in the qui tam action and moved to dismiss the suit in the U.S. District Court for the Southern District of Illinois. The district court adopted the Ninth Circuit rule, applying a standard akin to the “arbitrary and capricious” standard found in administrative law, and denied dismissal.9 The government appealed the district court’s decision, which stands as only one of two occasions when a court has denied a dismissal request by DOJ since the Granston Memo was issued.10
Jurisdiction
On appeal, the Seventh Circuit first had to overcome an objection to the exercise of appellate jurisdiction. The relator argued that the appeal should be dismissed because denial of a motion to dismiss is neither a final appealable order, nor reviewable under the collateral order doctrine.11 The Ninth Circuit had recently adopted this position in United States v. Academy Mortgage Corp., in which it held that a district court order denying the government’s dismissal motion under Section 3730(c)(2)(A) was not an appealable collateral order.12 The relator further argued that the FCA required the government affirmatively to intervene13 before exercising any right under Section 3730(c)(2), because, as a non-party, the government has no basis for moving to dismiss. The court acknowledged this limitation, but concluded it could construe the government’s motion to dismiss as impliedly incorporating a motion to intervene, and then construed the district court’s order as a denial of the government’s motion to intervene, which is appealable.14 Having found jurisdiction, the court went on to address the substance of the appeal.
Creation of a third standard
On the merits, the Seventh Circuit rejected the Sequoia Orange test as too rigorous, and the Swift test as too lax.15 It instead purported to draw the applicable standard from Federal Rule of Civil Procedure 41(a). Rule 41(a)(1)(A)(i) provides that “the plaintiff may dismiss an action” by serving a notice of dismissal any time “before the opposing party serves either an answer or a motion for summary judgment.” Unless the notice states otherwise, dismissal is without prejudice.16 This right is “absolute” according to the Seventh Circuit. “In other words, once a valid Rule 41(a)(1) notice has been served, ‘the case [is] gone; no action remain[s] for the district judge to take.’”17
However, Rule 41(a) by its plain terms allows only “the plaintiff” to dismiss, not an intervenor-plaintiff like the government. In addressing this point, the Seventh Circuit reasoned the government,18 as intervenor-plaintiff, could dismiss because the provisions of Rule 41(a) are “[s]ubject to … any applicable federal statute,” which in this case sweeps in the provisions of the FCA.19 Turning to Section 3730(c)(2)(A) of the FCA, the court observed that “[t]he Government may dismiss the action” without the relator’s consent if the relator receives notice and opportunity to be heard.20 This unrestricted procedural right afforded to the government is the only authorized statutory deviation from Rule 41. Construing Rule 41 and Section 3730(c)(2)(A) together, the Seventh Circuit held that once the required notice and hearing have taken place before an Answer or Motion for Summary Judgment is served, the case could be dismissed.
The Seventh Circuit recognized that its conclusion may seem counterintuitive (i.e., that after notice and a hearing a case is summarily dismissed), but noted that in some cases (unlike the one at issue here) the conditions of Rule 41(a)(1) may not apply. For example, if the litigation has progressed beyond the filing of an Answer or Motion for Summary Judgment, Rule 41(a)(2) would apply and would add an additional condition on top of the notice and hearing requirement for government dismissal— i.e., a “court order, on terms that the court considers proper.”21 In this instance, a required hearing under Section 3730(c)(2)(A) could serve as an opportunity for the relator to air what terms of dismissal, if any, it believes are proper.22
Looking ahead
The new approach proffered by the Seventh Circuit appears to provide further latitude to courts to dismiss qui tam actions that should be welcomed by both DOJ and defendants. The CIMZNHCA decision affords the government a largely unfettered right to intervene and dismiss over the relator’s objection during the early stages of litigation. This will likely serve to reinforce DOJ’s increased cadence for seeking dismissal of qui tam actions under the Granston Memo.
As DOJ continues to seek dismissal of qui tam suits, parties should continue to monitor developments in this area, and consider the approach that will likely be applied by a court assessing a motion by the government to dismiss. The increased exercise of DOJ’s dismissal authority may well lead to additional disputes over the correct standard of review for Section 3730(c)(2)(A) dismissal, and, indeed, several circuit courts of appeal are currently reviewing district court decisions to grant a government motion to dismiss, affording more circuits an opportunity to weigh in on the appropriate standard for a government motion to dismiss. Most recently on December 1, 2020, the Second Circuit upheld a government motion to dismiss, determining that even under the strictest test, the relator could not prove the government’s dismissal was unreasonable.
In short, there now exist three different approaches to DOJ dismissals under the FCA, and there is an opportunity for yet additional splits, or Supreme Court review. The Supreme Court may find it more attractive to address the deepening split after declining to review this topic in April 2020. From a legislative perspective, the topic of DOJ dismissals has also caught the attention of Senator Charles Grassley, who has announced plans to introduce legislation to address perceived flaws in DOJ’s dismissal authority.
References
1. 970 F.3d 835 (7th Cir. 2020).
2. 31 U.S.C. § 3730(c)(2)(A).
3. This was later incorporated into the Justice Manual. See Memorandum from Michael D. Granston, Dir. Com. Lit. Branch, Fraud Section, U.S. Dep’t of Justice, to Att’ys in the Com. Lit. Branch, Fraud Section and Assistant U.S. Att’ys Handling False Claims Act Cases, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A)
(Jan. 10, 2018), available at https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf; Justice Manual, § 4-4.111 – DOJ Dismissal of a Civil Qui Tam Action, available at https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.111.
4. 151 F.3d 1139 (9th Cir. 1998).
5. Id. at 1145.
6. Id.
7. 318 F.3d 250, 252 (D.C. Cir. 2003).
8. 42 U.S.C. § 1320a-7b(b).
9. United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 17-CV-765-SMY-MAB, 2019 WL 1598109 (S.D. Ill. Apr. 15, 2019).
10. See United States v. Academy Mortgage Corp., No. 16-cv-02120-EMC, 2018 WL 3208157, at *2-3 (N.D. Cal. June 29, 2018), appeal dismissed, 968 F.3d 996 (9th Cir. 2020).
11. The collateral order doctrine permits appellate review of a narrow set of prejudgment orders that are collateral to the merits of an action, but too important to be denied immediate review.
12. 968 F.3d 996, at 1002-10 (9th Cir. 2020) (declining to expand the collateral order doctrine to encompass the govern-ment’s appeal of the district court’s denial of its motion to dismiss).
13. The court read the FCA “to require the government to intervene as a party before exercising its right to dismiss under § 3730(c)(2)(A)” and concluded you should “treat the government’s motion to dismiss as a motion both to inter-vene and to dismiss.” CIMZNHCA LLC, 970 F.3d at 842, 843; see also Swift, 318 F.3d at 252 (“[I]f there were such a requirement, we could construe the government’s motion to dismiss as including a motion to intervene.”).
14. See, e.g., United States ex rel. Eisenstein v. City of New York, 556 U.S. 928, 931 n.2 (2009).
15. CIMZNHCA, 970 F.3d at 839 (The Seventh Circuit noted, however, that its position lay much nearer to the Swift approach than Sequoia Orange).
16. Fed. R. Civ. P. 41(a)(1)(B).
17. CIMZNHCA, 970 F.3d at 849.
18. Fed. R. Civ. P. 41(a)(1)(A).
19. Id.
20. 31 U.S.C. § 3730(c)(2)(A).
21. Fed. R. Civ. P. 41(a)(2).
22. CIMZNHCA, 970 F.3d at 850-51 (“Thus, if the government’s chance to serve notice of dismissal has passed, see Fed. R. Civ. P. 41(a)(1)(A)(i), and the relator by hypothesis refuses to agree to dismissal, see Fed. R. Civ. P. 41(a)(1)(A)(ii), then a hearing under § 3730(c)(2)(A) could serve to air what terms of dismissal are ‘proper.’”).
23. See Borzilleri, v. Bayer AG, case number 20-1066, in the U.S. Court of Appeals for the First Circuit; Polansky. v. Exec. Health Res. Inc., case number 19-3810 in the U.S. Court of Appeals for the Third Circuit; and USA ex rel. Health Choice Alliance LLC v. Eli Lilly & Co. Inc., case number 19-40906, in the U.S. Court of Appeals for the Fifth Circuit.
24. United States ex rel. Borzilleri v. AbbVie, Inc., No. 19-2947-CV, 2020 WL 7039048 (2d Cir. Dec. 1, 2020). On April 6, 2020, the Supreme Court denied a petition for certiorari that could have provided an opportunity for the Court to clarify the standard for DOJ dismissal. See U.S. ex rel. Schneider v. JPMorgan Chase Bank NA, No. 19-678 in the Supreme Court of the United States.
26. Prepared Floor Remarks by U.S. Senator Chuck Grassley of Iowa, Celebrating Whistleblower Appreciation Day (July 30, 2020), available at https://www.grassley.senate.gov/news/news-releases/grassley-celebrating-whistle-blower-appreciation-day.