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December 29, 2021

Third Circuit weighs in on the Government's Statutory Authority to Dismiss a False Claims Act Qui Tam Action

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In Polansky v. Executive Health Resources, Inc., et al., No. 19-3810 (3d Cir. Oct. 28, 2021), the United States Court of Appeals for the Third Circuit recently weighed in on procedural issues fueling circuit splits relative to both the Government's statutory authority to intervene in False Claims Act (FCA), 31 U.S.C. § 3729-3733 qui tam lawsuits and the standard governing Government intervention. More particularly, the Third Circuit addressed the circumstances under which the Government can voluntarily dismiss a FCA lawsuit over the relator's objection. The Third Circuit held that the Government must intervene pursuant to § 3730(c)(3) before it can seek to dismiss a qui tam lawsuit under § 3730(c)(2)(A), and the Government's motion to dismiss is governed by the provisions set forth in Federal Rule of Civil Procedure 41(a).

The FCA provides the United States Government with statutory ammunition to combat fraud on the United States across many industries. Specifically, the FCA permits the Government to levy fines and treble damages against a person for knowingly submitting false claims for payment to the Government. The FCA also creates a private enforcement provision that authorizes individuals, referred to as relators, to file lawsuits against any individual or organization who knowingly submits false claims to the Government. These lawsuits are known as qui tam lawsuits and, if successful, allow the relator to retain up to 30% of the recovery. In the context of healthcare, FCA claims may include allegations related to the submission of false claims to federal agencies, including the Centers for Medicare and Medicaid Services (CMS), for reimbursement services that were not rendered, overbilling and upcoding, billing for prescription drugs or procedures that were not medically necessary, kickbacks, or retention of overpayments. 

Recently, the Third Circuit addressed to what extent the Government retains statutory authority to dismiss a qui tam action, if the Government declined to proceed with the action at the lawsuit's onset. In Polansky v. Executive Health Resources, Inc., the relator alleged that Executive Health Resources, Inc. caused hospitals to bill and seek reimbursement from CMS for patient hospital stays that did not meet the CMS statutory and regulatory requirement of "reasonable and necessary" for diagnosis and treatment. The relator filed the FCA action, and after the Government investigated the allegations, the Government declined to intervene in the lawsuit. The relator then proceeded for himself and for the Government as plaintiff. After several years of litigation, the Government notified the parties that it would be seeking dismissal of the action pursuant to § 3730(c)(3). Despite the relator's objection, the Government filed a motion to dismiss, and after briefing and argument, the District Court granted the Government's motion to dismiss.  

On appeal, the Third Circuit considered the Government's statutory intervention authority under the FCA, even though the Government did not formally intervene before filing its motion to dismiss. Circuits are split concerning the Government's statutory intervention authority under the FCA. The Seventh Circuit and Sixth Circuit have interpreted the FCA as requiring the Government to intervene before moving to dismiss a qui tam lawsuit, while the D.C. Circuit and Tenth Circuit have held that the Government is not required to intervene before moving to dismiss a relator's action. A circuit split also exists relative to the standard governing Government intervention. The D.C. Circuit has held that the Government has an "unfettered right" to dismiss, while the Ninth Circuit and Tenth Circuit have held the Government to a "rational relation" standard. The Seventh Circuit has taken a third approach, holding that the Federal Rules of Civil Procedure apply to Government intervention, consistent with any party in a civil case.

Recognizing circuit splits on both issues, the Third Circuit agreed with the Seventh Circuit's interpretation of 31 U.S.C. § 3730(c), and held that § 3730(c)(3) requires the Government to intervene before it can exercise its authority to seek dismissal under § 3730(c)(2)(A). Once the Government has intervened, it proceeds with the action under § 3730(c)(1) and the rights of the realtor are limited under § 3730(c)(2), which allows the Government to move for dismissal of the relator's action. The Third Circuit further held, consistent with the Seventh Circuit, that the Government must meet the threshold requirements of the applicable prong of Rule 41(a) when moving for dismissal of a qui tam action, while also providing the relator with notice and opportunity for a hearing pursuant to under § 3730(c)(2)(A).

Although the Third Circuit's opinion in Polanksy recognizes that its sister circuits have adopted various approaches to interpreting § 3730(c)(3) and § 3730(c)(2)(A), the Third Circuit's holding in Polansky permits the Government broad discretion to seek dismissal of FCA qui tam actions within the framework of Rule 41(a) governing voluntary dismissals.   

For defendants in false claims lawsuits, particularly in the Third Circuit, it is important to remember that even in cases where the Government initially declines to intervene, it is still possible to convince the Government that dismissal of the suit is warranted. Among other reasons, the Government may seek to dismiss claims that are considered meritless or parasitic, that interfere with agency policy, or that require the Government to expend resources beyond the anticipated recovery.

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