We’ve long believed that False Claims Act (“FCA”) cases – particularly in the health sciences area – are out of control.  Twenty-first century lawyers, and their solicitation techniques, have turned Abraham Lincoln’s Nineteenth Century law aimed at corrupt government contractors into its own form of corruption.  Today’s FCA racket is complete with professional relators, deceit to obtain confidential information, and incorporation of entities created solely to serve as FCA relators.

Professional relators?  Check out the discussion in David Engstrom, “Harnessing the Private Attorney General:  Evidence from Qui Tam Litigation,” 112 Colum. L. Rev. 1244 (2012), about so-called “FCA trolls”:

[A]n increasing share of qui tam litigation is the work of so-called “professional” relators who lack the traditional insider status of qui tam whistleblowers and instead build cases through information derived from private investigative work targeting present and past company employees or publicly available sources, including FOIA requests made on government agencies.

Id. at 1279 (footnote omitted).  According to Professor Engstrom, his research shows that “professional relators” “account for nearly one-fifth” of FCA filings.

Deceit?  We previously blogged about Leysock v. Forest Laboratories, Inc., 2017 WL 1591833 (D. Mass. April 28, 2017), in which agents of an FCA relator – acting in the name of the United States, lied to obtain confidential medical information:

There is no dispute that the investigative scheme devised by attorneys . . . with the assistance of [their physician agent], involved an elaborate series of falsehoods, misrepresentations, and deceptive conduct.

The investigation was designed to appear as if it were a medical research study; its only purpose, however, was to obtain otherwise-confidential information from busy medical professionals for use in litigation. . . .  [The agent] also falsely stated that the information obtained from the physicians would be kept confidential. . . .  [T]here is no doubt that the entire scheme was devised by attorneys . . . and that [the physician] was simply acting as their agent.

Id. at *8 (footnote omitted).  The complaint was dismissed as a sanction.  Id. at *13-14.

Specially incorporated FCA relators?  From the same Columbia Law Review article:

[I]n recent years qui tam litigation has seen the emergence of companies that self-identify in court filings, to cite just one example, as “engaged in the business . . . of acquiring information regarding, and investigating alleged violations of [federal and local] False Claims Acts.”

Engstrom, “Harnessing,” 112 Colum. L. Rev. at 1278-79 (footnote omitted).  See United States ex rel. SCEF, LLC v. AstraZeneca, Inc., 2019 WL 5725182, at *1 (W.D. Wash. Nov. 5, 2019) (relator was “a limited liability company established by [litigation investors] to file qui tam cases”); United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 2019 WL 1598109, at *1 (S.D. Ill. April 15, 2019) (same, including several of the investors).

Thus, in late 2018 we blogged about the government finally cracking down on FCA abuse, and moving to dismiss a number of bogus FCA actions, which one would think the government would have the right to do, given that it is the real party in interest, and FCA relators purport to act in the government’s name.  The government’s opening shot was a January 10, 2018 Justice Department memorandum (called the “Granston Memo”) directing all Government attorneys handling FCA cases to consider dismissal of FCA actions under a variety of certain circumstances.  For more on the Granston Memo itself, see this post from the FDA Law Blog.

We haven’t followed up, before now, because this is primarily a product liability blog.  But because of the potential significance of the issue to our clients, we thought we’d see how the government’s battle to rein in abusive FCA litigation being brought in its name was going.

As one would expect, post-Granston, FCA relators have not reacted kindly to the government attempting to derail their gravy train.  They have returned fire, claiming, in effect, that they know better than the government itself what is good for it.  The FCA, however, provides that “[t]he Government may dismiss the action notwithstanding the objections of the [relator] if the [relator] 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.”  31 U.S.C. §3730(c)(2)(A).  That’s it.  The FCA doesn’t specify what the hearing is for or what grounds, if any, are needed to support dismissal as an exercise of the government’s prosecutorial discretion.

Our court system being what it is – and the United States Supreme Court never having considered this issue (and having just denied a certiorari petition raising it) – the government faced a split of authority in the courts of appeals.  A couple of courts applied something that looks to us like an “arbitrary and capricious” standard.  “A two step analysis applies here to test the justification for dismissal:  (1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose.”  U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (quoting and approving standard created by district court).  The Ninth Circuit justified this result by asserting the general Due Process standard for evaluating any governmental action.  Id. at 1146.  See Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 936 (10th Cir. 2005) (following Sequoia Orange).

However, the court of appeals with the most experience with administrative law had concluded that the government could effectively dismiss FCA suits brought in its name for any reason, without substantive judicial review:

We hesitate to adopt the Sequoia test.  It may be that despite separation of powers, there could be judicial review of the government’s decision that an action brought in its name should be dismissed.  But we cannot see how §3730(c)(2)(A) gives the judiciary general oversight of the Executive’s judgment in this regard.  The section states that “The Government” − meaning the Executive Branch, not the Judicial − “may dismiss the action,” which at least suggests the absence of judicial constraint.  To this must be added the presumption that decisions not to prosecute, which is what the government’s judgment in this case amounts to, are unreviewable.  Reading §3730(c)(2)(A) to give the government an unfettered right to dismiss an action is also consistent with the Federal Rules of Civil Procedure.

Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003) (citing, inter alia, Heckler v. Chaney, 470 U.S. 821, 831-33 (1985)).  See United States ex rel. Schweizer v. Oce N.V., 677 F.3d 1228, 1234 (D.C. Cir. 2012) (“in a pure dismissal . . ., the relator has no protection: he is not entitled to compensation or judicial review of the government’s decision”); Hoyte v. American National Red Cross, 518 F.3d 61, 64-65 (D.C. Cir. 2008) (government has “virtually unfettered discretion” to dismiss).  Other courts of appeals have made similar, albeit less definitive, statements.  Riley v. St. Luke’s Episcopal Hospital, 252 F.3d 749, 753 (5th Cir. 2001) (“the government retains the unilateral power to dismiss an action” under section 3730(c)(2)(A)) (en banc); United States ex rel. Rodgers v. Arkansas, 154 F.3d 865, 868 (8th Cir. 1998) (government’s right to dismiss FCA cases is “subject only to notice and a hearing for the qui tam relator”).

Obviously, all of this appellate precedent predated the Granston memo and thus the government’s recent campaign to restrain FCA abuses.  Given the circuits’ disparate (and often unknown) views on the dismissal standard, we’ve organized our research on a circuit-by-circuit basis, with the two most interesting circuits first.  But as an executive summary, we note that the government has mostly succeeded in this war.  In 22 of 24 post-Granston cases, motions to dismiss filed by the government have been granted.

In the only post-Granston appellate precedent so far, Chang v. Children’s Advocacy Center, 938 F.3d 384 (3d Cir. 2019), the court affirmed a government-initiated dismissal of an FCA case, without either a hearing, or even an opinion, from the district court.  While the relator had a right to a hearing under §3730(c)(2)(A), he never requested one, waiving that right.  Id. at 387-88.  Chang declined to opt for one side or another in the Sequoia/Swift debate, but concluded that, even under the less deferential standard, the relator failed to demonstrate that the government’s recitation of a desire to reduce “litigation costs” was not “arbitrary or capricious.”  Id. at 389.  Chang is only the appellate tip of the iceberg.  The government has blown out of the water several ill-conceived FCA actions in Third Circuit district courts.

Following Chang, the court in United States ex rel. NHCA-TEV, LLC v. Teva Pharmaceutical Products Ltd., held:

The Government’s interest in avoiding potentially burdensome or unnecessary litigation costs is legitimate even when a relator’s claims appear meritorious. . . .  [C]ourts have similarly accepted the Government’s putative policy interests in patient care and enforcement prerogatives as valid government purposes.

2019 WL 6327207, at *3 (E.D. Pa. Nov. 26, 2019) (citations omitted).  Further, “the FCA does not require the government to ‘fully investigate’ an alleged FCA violation before moving to dismiss.”  Id. at *6 (citation and quotation marks omitted).

Likewise, after seven years of litigation, the court in Polansky v. Executive Health Resources, Inc., 422 F. Supp.3d 916 (E.D. Pa. 2019), let the government throw in the towel.  The government’s assertion that plaintiffs had a weak case, along with “costs of continued litigation,” met the Sequoia – and thus a fortiori the Swift – standard.  Id. at 927.  In United States v. EMD Serono, Inc., 370 F. Supp.3d 483 (E.D. Pa. 2019), litigation costs took a back seat to the government’s disagreement with one of the premises of the plaintiff’s FCA theory:

[T]he relators’ allegations conflict with important policy and enforcement prerogatives of the federal government’s healthcare programs. . . .  [E]ducational programs, informational support, medication instruction, and nurse access and support are not “remuneration” and are programs that are appropriate and beneficial to the federal health programs and their beneficiaries.

Id. at 489 (footnotes omitted).

The government also found the Ninth Circuit a minefield of questionable FCA litigation.  The parties had previously appealed a different FCA issue in United States v. Gilead Sciences, Inc., 2019 WL 5722618 (N.D. Cal. Nov. 5, 2019), all the way to the Supreme Court.  The high court asked the government for its views, and in the resultant amicus brief the government dropped this bombshell – that it would “move to dismiss . . . under Section 3730(c)(2)(A)” in the district court because “if this suit proceeded past the pleading stage . . . “burdensome discovery” would “distract from the [FDA’s] public-health responsibilities.”  Id. at *3.  When that happened, the district court granted the government’s motion under the Ninth Circuit’s less deferential Sequoia standard.

[Plaintiffs] have failed to establish that dismissal would fall under any of the above categories.  [They] primarily argue that the government’s request to dismiss is arbitrary and capricious but . . . that position is not well supported under the particular facts and circumstances of this case.  There was a multi-year [government] investigation . . . and the government made deliberate enforcement decisions in regard thereto. The government [also] considered the burdens of this litigation. . . .

Id. at *8.  See Mikovits v. Whittemore Peterson Institute, 2020 WL 1000519, at *2 (D. Nev. March 2, 2020) (granting government’s dismissal motion where “[p]laintiff makes no allegation that the dismissal would be fraudulent, arbitrary and capricious, or illegal”); United States ex rel. Toomer v. TerraPower, LLC, 2018 WL 4934070, at *5 (D. Idaho Oct. 10, 2018) (that plaintiff “disagrees with the government’s priorities . . . is insufficient to establish that the government’s reasons for seeking dismissal are invalid”; “litigation costs [also] represent a valid governmental interest”), motion to certify appeal denied, 2019 WL 6689888 (D. Idaho Dec. 6, 2019).

In the aforementioned SCEF, 2019 WL 5725182, involving one of those specially incorporated FCA litigation entities, the court shot down, at the government’s request, an obviously made-for-litigation FCA claim.  “[C]onserving governmental resources and protecting important policy prerogatives of the federal government’s healthcare programs” were a proper basis for dismissal.  2019 WL 5725182, at *2.  The suit tried to convert valuable services into “false” claims:

[T]he federal healthcare programs have a strong interest in ensuring that, after a physician has appropriately prescribed a medication, patients have access to basic product support relating to their medication, such as access to a toll-free patient-assistance line or instructions on how to properly inject or store their medication.

Id. (citation and quotation marks omitted).

And the rest. . . .

The Sequoia versus Swift issue was left undecided in the only post-Granston decision out of the First Circuit, United States v. Bayer HealthCare Pharmaceuticals, Inc., 2019 WL 5310209, at *2 (D.R.I. Oct. 21, 2019), since the government’s dismissal motion was proper either way.  “The Court ha[d] no reason to doubt the Government’s contention that further litigation in this action will impose a significant burden on several federal agencies and take resources away from the administration of parts of the Medicare program.”  Id.  Once the government established a “valid” purpose and “rational relation,” the relator “must offer actual evidence of impropriety or fraud, not mere speculation,” which did not happen in Bayer.  Id.  A relator’s “subjective disagreement with the underlying conclusions of the Government’s investigation” doesn’t cut it.  Id. at *3.

From Second Circuit courts, United States v. Cooperatieve [sic] Bank U.A., 2019 WL 5593302 (S.D.N.Y. Oct. 30, 2019), opted for the less deferential Sequoia test, id. at *3, but granted dismissal to the government anyway.  Not only was dismissal “rationally related to the objective of conserving governmental resources,” but also served to “deter[] parasitic and opportunistic litigation, particularly where, as here, Relator’s allegations are based largely on information from public enforcement actions.”  Id.  Even if the government “did not sufficiently investigate [the] claims,” that “does not rise to the level of showing that dismissal is fraudulent, arbitrary and capricious, or illegal.”  Id.  United States ex rel. Borzilleri v. AbbVie, Inc., 2019 WL 3203000 (S.D.N.Y. July 16, 2019), decided not to decide, because “the Government may dismiss the case even under the more stringent standard.”  Id. at *2.  The case “would impose substantial burdens on government resources: and “divert time and resources to respond to discovery.”  Id.

Two district courts in the Fourth Circuit have “aligned” themselves with the Swift standard.  United States ex rel. Henneberger v. Ticom Geomatics, Inc., ___ F. Supp.3d ___, 2019 WL 8161574, at *2 (E.D. Va. June 12, 2019).  Accord United States v. Capital Rail Constructors, ___ F. Supp.3d ___, 2019 WL 8161575, at *2 (E.D. Va. Oct. 22, 2019) (“Considering the language of the statutes, and the nature of qui tam actions, this Court finds the D.C. Circuit’s standard proper.”).  Not surprisingly, both granted FCA dismissals at the government’s behest.  Capital Rail, 2019 WL 8161575, at *2 (governmental “investigation . . . revealed no evidence supporting culpability”); Henneberger, 2019 WL 8161574, at *2 (citing “potential cost” and lack of merit).  A third, earlier, case declined to pick a standard but granted dismissal under either Swift or Sequoia:

[The government] asserts that dismissal will further its interest in preserving scarce resources by avoiding the time and expense necessary to monitor this action.  Relator argues that the anticipated financial gain outweighs the anticipated time and money to be expended on this case; however, [the government’s] interest in allocating its resources as it sees fit has been validated on several occasions.

United States ex rel. Stovall v. Webster University, 2018 WL 3756888, at *3 (D.S.C. Aug. 8, 2018) (citing, inter alia, Heckler, 470 U.S. 821).

A decision out of the Fifth Circuit, Health Choice Alliance LLC ex rel. United States v. Eli Lilly & Co., 2019 WL 4727422 (E.D. Tex. Sept. 27, 2019), affirmed a magistrate’s grant of dismissal (2019 WL 5691988) under either Sequoia or Swift.  Id. at *8.

[E]ven assuming “constantly changing justifications” are arbitrary . . . the Government has consistently cited scarce resources as its motivation.  The Government’s position on the merits − i.e., that [plaintiff] is unlikely to recover − is part-and-parcel of the Government’s preservation-of-resources argument.  The Government does not want to expend resources on a claim that it believes to lack merit. . . .  [T]hat is a rational decision.

Id.  See United States ex rel. Johnson v. Raytheon Co., 395 F. Supp.3d 791, 795 (N.D. Tex. 2019) (threat of disclosure of “classified” information justified dismissal).  Cf. United States ex rel. De Sessa v. Dallas County Hospital Dist., 2019 WL 2225072, at *1-2 (N.D. Tex. May 23, 2019) (granting government dismissal motion under Swift); United States ex rel. Sibley v. Delta Regional Medical Center, 2019 WL 1305069, at *6 (N.D. Miss. March 21, 2019) (same; “Giving the government the unilateral power to dismiss qui tam actions is consistent with the notions of prosecutorial and executive discretion.”).

A district court in the Sixth Circuit granted a government motion to dismiss in United States ex rel. Maldonado v. Ball Homes, LLC, 2018 WL 3213614 (E.D. Ky. June 29, 2018), and adopted a Swift-like standard.  “[T]he plain language of the statute says nothing about the government being required to make any sort of showing in support of its motion to dismiss.”  Id. at *3.  The government had an interest in “reining in” FCA abuse:

It is clearly unreasonable to suggest that the government should sit by idly while [relator] prosecutes an action in the United States’ interest. . . .  [T]he government has a valid interest in reining in weak qui tam actions. . . .  After evaluating [relator’s] claims, the government concludes that he overstate[d] the significance of the alleged false statements and fail[ed] to tie the false statements to false claims.

Id. at *3 (citation and quotation marks omitted).  Finally, the FCA entitled a relator only to a “hearing” – not an “evidentiary hearing” – when the government sought dismissal.  Id. at *4.

In United States ex rel. Farmer v. Republic of Honduras, 2020 WL 496509 (S.D. Ala. Jan. 30, 2020), the court concluded that the Eleventh Circuit would likely follow the DC Circuit’s “unfettered” discretion standard for governmental dismissals.  Id. at *5.  The “allegations lack merit” and “dismissal would accomplish the valid government purpose of declining to litigate a non-meritorious claim.”  Id. at *6.  Unlike Farmer, United States ex rel. Graves v. Internet Corp. for Assigned Names & Numbers, Inc., 398 F. Supp.3d 1307 (N.D. Ga. 2019), dodged the Sequoia/Swift issue, again because the government won dismissal either way.  Id. at 1310.  Either of the government’s two justifications – lack of merit and interference with its objectives – was sufficient to meet even the Sequoia test.  Id. at 1311.

The relator in United States ex rel. Schneider v. J.P. Morgan Chase Bank, N.A., No. CV 14-1047 (RMC), 2019 WL 1060876 (D.D.C. March 6, 2019), tried to avoid Swift by claiming that Department of Justice “internal rules” constrained the power of the government to dismiss FCA cases.  Id. at *2.  No dice.  The government’s discretion to dismiss was “unfettered.”  On appeal, this ruling was summarily affirmed.  United States ex rel. Schneider v. JPMorgan Chase Bank, National Ass’n, 2019 WL 4566462 (D.C. Cir. Aug. 22, 2019).  Even more recently, the United States Supreme Court denied a petition for certiorari in Schneider.

Of course, even the most baseless litigation can occasionally find a safe haven.  Such was the case in CIMZNHCA, 2019 WL 1598109, where one of the investor-owned FCA cases survived a government motion to dismiss.  Not only did CIMZNHCA find nothing wrong with the business model of “professional relators,” but it held that the government’s objection to such practices meant the government’s objection was “pretextual and the Government’s true motivation is animus towards the relator.”  Id. at *4.

The government also lost a battle in United States v. Academy Mortgage Corp., 2018 WL 3208157 (N.D. Cal. June 29, 2018), under what may euphemistically be called a “searching” application of the Ninth Circuit’s Sequoia standard.  In response to the government’s dismissal motion, the court referenced an “evidentiary hearing” (unusual, to say the least) and refused to credit the government’s “drain its resources” justification.  Id. at *1.  Instead, Academy Mortgage criticized the government for investigating only the plaintiff’s limited initial complaint and not the “expanded” (and thus more burdensome to the government) amended complaint, despite “[a] more complete investigation [being] well within the Government’s ability.”  Id. at *2.  Uniquely, Academy Mortgage imported a “good cause” requirement into the government’s right of dismissal, even though that was limited to outright government intervention (31 U.S.C §3730(c)(3)) to take over prosecution of an FCA action.  Id. at *3.

These rulings in Academy Mortgage struck us (again euphemistically) as sufficiently unusual that we checked what happened after that – after all, couldn’t the government simply undertake a “more complete investigation” and again seek dismissal?  In Academy Mortgage the government filed an appeal (No. 18-16408) and sought to stay the action, which was denied, and then an interlocutory appeal, which was also denied.  See United States v. Academy Mortgage Corp., 2018 WL 4794231 (N.D. Cal. Oct. 3, 2018).  That was too much even for the Ninth Circuit, which (according to PACER, Docket #160) itself stayed the action on December 21, 2018.  The government’s appeal in Academy Mortgage was orally argued on November 14, 2019, and remains pending in the Ninth Circuit.  Thus, the trench warfare in Academy Mortgage continues for the time being.

Mr. Lincoln’s law has been badly abused.  Even though only a small percentage of all FCA cases have been affected to date, we do respect the government’s ongoing campaign against the litigation industry’s excesses – Rally ‘Round the Flag.