Not long ago we brought you a report from the False Claims Act (“FCA”) front on how the government was doing with its attempts to prune back some of the worst abuses of FCA litigation – particularly the advent of “professional relators.” In that earlier post, we discussed the two major approaches that courts had taken towards the authority of the United States to put an end to objectionable litigation ostensibly brought in its name – the more deferential analysis of Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003), versus the less governmentally friendly stance taken in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998). We also detailed how – as of April 13, 2020 – “In 22 of 24 post-Granston[-memo] cases, motions to dismiss filed by the government have been granted.”
This is an update about United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 2019 WL 1598109 (S.D. Ill. April 15, 2019), which was one of the two government losses.
It’s a loss no longer.
In United States v. UCB, Inc., ___ F.3d ___, 2020 WL 4743033 (7th Cir. Aug. 17, 2020) (“US v. UCB”), the Seventh Circuit unanimously (but with a concurrence) reversed the trial court’s refusal to allow the government to dismiss the action. In so doing, the Seventh Circuit appears to have invented its own “third way” test for evaluating government dismissal motions – albeit one closer to Swift than to Sequoia Orange. “[T]he correct answer lies much nearer to Swift than Sequoia Orange.” 2020 WL 4743033, at *2.
Full disclosure: Reed Smith filed an amicus brief in US v. UCB, for the U.S. Chamber of Commerce.
We will skip most of this rather lengthy (16 Westlaw pages, with an appendix) opinion because it is directed to the question of appealability rather than the government’s substantive right to dismiss a rogue FCA relator’s claims. Suffice it to say that, while the government appealed claiming a “collateral order,” the court decided, instead to deem the government’s dismissal motion to encompass a motion to intervene, the denial of which was appealable as of right. See generally 2020 WL 4743033, at *4-7. There follows a lengthy discussion of the “constitutional doubt canon,” which the court ultimately decides not to employ (and the concurrence wouldn’t have even mentioned). Id. at *7-10, 16. Only then does the opinion reach the merits.
On the merits, “the government was entitled to dismissal.” Id. at *10. The action itself was contrived from beginning to end. The “plaintiff” was a shell – an investment vehicle for litigation funders to create their own litigation:
For a limited liability company called Venari Partners, doing business as the “National Health Care Analysis Group,” this law [the FCA] presented a business opportunity. Venari Partners has four members (Sweetbriar Capital, LLC; 101 Partners, LLC; Min-Fam-Holding, LLC; and Uptown Investors, LP), themselves composed of one or two individual investors, six in total. Venari Partners formed eleven daughter companies, each for the single purpose of prosecuting a separate qui tam action. All eleven actions allege essentially identical violations of the False Claims Act via the Anti-Kickback Statute by dozens of defendants in the pharmaceutical and related industries across the country. The relator in this case is CIMZNHCA, LLC, one of those Venari companies.
US v. UCB, 2020 WL 4743033, at *1-2 (emphasis added).
The court analogized the government’s power to dismiss an FCA action under 31 U.S.C. §3730(c)(2)(A), to a plaintiff’s right to dismiss an action voluntarily under Fed. R. Civ. P. 41(a)(1)(A)(i). This Rule 41 right to dismiss “is absolute. One doesn’t need a good reason, or even a sane or any reason to serve notice under the Rule.” 2020 WL 4743033, at *10 (citations and quotation marks omitted). The FCA adds only a relator’s right to “notice and opportunity to be heard” to Rule 41. Id.
Once, as was provided in the district court, “the relator received notice and took its opportunity to be heard . . ., that should have been the end of the case.” Id. The only constraints that US v. UCB put on the government’s right to dismissal had nothing to do with the manufactured facts of that manufactured FCA action. These were the “background constraints on executive action” such as “a colorable claim that the agency’s refusal to institute proceedings violated any constitutional rights of the plaintiffs.” Id. at *11. A dismissal that “proceed[ed] from enmity or prejudice” or was “in return for a bribe” could be rejected by a court under §3730(c)(2)(A). Id. (citations and quotation marks omitted). “[W]e hope that these generous limits would be breached rarely if ever. We say only that in exceptional cases they could supply grist for the hearing.” Id. at *12.
Short of that extreme, the government had a right to prevent FCA relators from pursuing meritless – indeed, destructive – legal actions.
Wherever the limits of the government’s power lie, this case is not close to them. At bottom, the district court faulted the government for having failed to make a[n] . . . estimate of the potential costs and benefits of [this] lawsuit, as opposed to the more general review of the Venari companies’ activities undertaken and described by the government. No constitutional or statutory directive imposes such a requirement. None is found in the False Claims Act. The government is not required to justify its litigation decisions in this way.
US v. UCB, 2020 WL 4743033, at *12. The government had good reasons for putting an end to these investor-owned FCA claims.
The government proposed to terminate this suit in part because, across nine cited agency guidances, advisory opinions, and final rulemakings, it has consistently held that the conduct complained of is probably lawful. Not only lawful, but beneficial to patients and the public.
Id. FCA claims “should not” be “created as investment vehicles for financial speculators” or —“permitted to indiscriminately advance claims on behalf of the government . . . that would undermine practices the federal government has determined are appropriate and beneficial.” Id. (citation and quotation marks omitted).
In short, the government’s dismissal of these ill-conceived and pecuniary claims was “not government irrationality. It oppresse[d] no one and shocks no one’s conscience.” Id. Accordingly, US v. UCB rejected “Sequoia Orange’s ‘two-step test.’” Id. at *13. The government does not bear any initial burden of proof. Nor was there any need to remand. “[T[he proper outcome is clear,” and “[a] denial would be an abuse of discretion.” Id.
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FYI: To tie up the other loose end from our original report, US v. UCB also informed us (2020 WL 4743033, at *4 n.2) that the other government loss was recently deemed non-appealable by the Ninth Circuit. See United States ex rel. Thrower v. Academy Mortgage Corp., 968 F.3d 996 (9th Cir. 2020). That result leads to the legal absurdity of a supposed “relator” suing in the government’s name over something that the government itself is on record that it doesn’t want litigated.