BACKGROUND OF UNITED STATES EX REL. CIMZNHCA, LLC V. UCB, INC.The UCB action arose when an opportunistic limited liability company, Venari Partners, formed 11 subsidiaries for the sole purpose of filing 11 separate qui tam actions alleging identical FCA violations against pharmaceutical companies based on supposed kickbacks to physicians for prescribing certain drugs to Medicare and Medicaid patients.[2] The government declined to intervene in the UCB action in December 2017, and a series of extensions to the defendants’ time to answer followed while a motion to transfer venue was pending.One year later, in December 2018, the government filed a motion to dismiss pursuant to 31 USC § 3730(c)(2)(A),[3] stating that all of the Venari Partners’ qui tam actions “lack sufficient merit to justify the cost of investigation and prosecution and otherwise [are] contrary to the public interest.”[4]The district court adopted the Ninth Circuit’s test for evaluating dismissal under Section 3730(c)(2)(A),[5] but then became only the second district court to deny dismissal under this standard.

Just as the government’s exercise of its statutory authority to dismiss non-intervened False Claims Act (FCA) qui tam cases was beginning to pick up steam, the US Court of Appeals for the Ninth Circuit has issued a new decision that may slow down that progress.For the last three decades, even though the government could have (and should have) routinely dismissed qui tam cases that it knew had no merit or otherwise infringed upon agency priorities or drained federal resources, the government rarely utilized its authority for most of that period. Only recently, within the last two years, has the US Department of Justice required its attorneys to consider dismissal under 31 USC § 3730(c)(2)(A) as an option, which has led to a sharp uptick in the number of dismissal motions during that period, as we previously reported.The increased usage of that statutory dismissal authority, however, has highlighted a longstanding circuit court split over the standard for a court’s review of the government’s motion to dismiss under § 3730(c)(2)(A).

Takeaways and Industry Impacts:On June 21, 2022, the Supreme Court announced its decision to hear United States ex rel. Polansky v. Executive Health Resources Inc. in which the Relator-Petitioner raises two issues critical to DOJ’s ability to move for and secure dismissals of FCA qui tam cases under 31 U.S.C. § 3730(c)(2)(A). The first is whether DOJ forfeits its right to move to dismiss a case if it initially declined to intervene.

See, e.g., July 7, 2022, Client Alert discussing $9 million FCA settlement by Aerojet Rocketdyne. In fiscal year 2021, the Department of Justice reported settlements and judgments from FCA cases totaling more than $5.6 billion, of which $1.6 billion was from qui tam actions. Of that $1.6 billion, relators were entitled to between 15% and 30%, totaling approximately $237 million.Given the financial stakes, it is no surprise that the issue of which party is authorized to control these suits has come into play. 31 U.S.C. § 3730 generally outlines the rights of the parties involved in such actions, but questions remain. Specifically, the petitioner in United States ex rel. Polansky v. Executive Health Resources, Inc.raises the question: “Whether the government has authority to dismiss an FCA suit after initially declining to proceed with the action, and what standard applies if the government has that authority.”

The FCA expressly authorizes the government to “dismiss [a qui tam] 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 [relator] with an opportunity for a hearing on the motion.” 31 U.S.C. § 3730(c)(2)(A). In so ruling, the First Circuit joined the D.C. Circuit in affording substantial deference to the government, as the real party in interest, to determine whether a qui tam lawsuit under the FCA should go forward.

Not only are these conclusions consistent with the FCA’s plain language, but they also effectuate the FCA’s purpose, which, as noted, is to advance the government’s interest, and not simply to enrich relators or their counsel.72 As to the public-disclosure bar and the first-to-file rule, Congress found that qui tam “whistleblower” actions do not generally advance the public interest, but actually undermine that interest, once a related qui tam action is filed or the allegations have been publicly disclosed, unless the relator is able to establish that it provided the government with materially useful information, because at that point no whistleblower action is needed, and the government should not needlessly have to share a recovery with a relator who did not break the conspiracy of silence. For example, under the public-disclosure bar, 31 U.S.C. § 3730(e)(4), Congress forced would-be “whistleblowers” to report the fraud before the information was publicized in various formats. In enacting this bar, Congress viewed that actions where the relator merely repeated public information was not valuable enough to compel the government to share a substantial portion of its recovery with the relator, unless the relator was an informant or was materially added to the allegations in the public domain.

Public Disclosures Limited to the News Media and Federal Sources Previously, the public disclosure bar applied when “(1) there was a ‘public disclosure’; (2) ‘in a criminal, civil, or administrative hearing, in a congressional, administrative or [GAO] report, hearing, audit, or investigation, or from the news media’; (3) of ‘allegations or transactions’ of the [alleged] fraud; (4) that the relator's1 action was ‘based upon’; and (5) the relator was not an ‘original source’ of the information.” United States ex rel. Paranich v. Sorgnard, 396 F.3d 326, 332 (3d Cir. 2005) (quoting 31 U.S.C. § 3730 (e)(4)(A)).2 The 2010 amendments narrowed the application of the public disclosure bar to disclosures in federal sources or in the news media, thus allowing lawsuits based on information publicly disclosed in state and local sources to proceed.

ghts in the litigation, including the right to “the lion’s share of recovery” and to “intervene after the seal period ends.”In this case, a physician sued his employer, a company that helped hospitals bill the United States for Medicare-covered services. The physician filed a complaint under seal in 2012. The physician alleged that his employer helped hospitals overbill Medicare. After conducting its investigation while the case was under seal, the government declined to intervene. As permitted by statute, the physician proceeded with the lawsuit, and the matter spent years in discovery, which became costly and time-consuming. While the government had not intervened in the case, the defendant sought documents and deposition testimony from the government in discovery. As its discovery obligations grew and “weighty privilege issues emerged,” the government claimed it decided that these discovery burdens outweighed the potential value of the case. The government thus filed a motion under 31 U.S.C. §3730 (c)(2)(A)3to dismiss the action over the physician’s objection. The district court granted the request, and the physician appealed the decision to the Third Circuit.The Third Circuit considered two specific legal questions: (1) Does the government have authority to dismiss an action under Subparagraph (2)(A) of the FCA if it declined to intervene during the seal period? (2) What standard should a district court use in ruling on a Subparagraph (2)(A) motion?The Third Circuit held that the government had the power to seek dismissal under Subparagraph (2)(A), provided it sought to intervene in the action at some point, even if it did so after the seal period.4The Third Circuit also held that Federal Rule of Civil Procedure 41(a), which governs voluntary dismissals in ordinary civil litigation, was the proper standard to evaluate the government’s motion to dismiss. The physician appealed.The Supreme Court agreed to review the case to resolve circuit splits over both questions.5The government argued

Since a physician and former pharmaceutical company medical liaison filed a False Claims Act lawsuit in 1996 alleging that his former company had illegally driven up sales of the company’s drug by marketing it for off-label uses,1 whistleblowers have prompted investigations into a range of FDCA compliance issues, including promotional activities, current good manufacturing practices2 and reporting violations,3 that have resulted in significant False Claims Act (“FCA”) settlements and criminal fines.For every FCA complaint that involves allegations that lead to an investigation and settlement with the United States, many more complaints are filed involving alleged violations of the FDCA in which the Government declines to intervene.4 Some of these declined cases proceed to years of civil litigation without the active participation of the Government.5As the real party in interest in a FCA case, the Government is always entitled to seek dismissal of an FCA complaint under 31 U.S.C. § 3730(c)(2)(A), even in cases in which it does not intervene. The Government exercises this authority rarely.

A recently leaked U.S. Department of Justice (“DOJ”) memorandum asks government attorneys to consider seeking the outright dismissal of “meritless” qui tam actions filed under the False Claims Act (“FCA”). [1] The eight-page memorandum, which was authored by Director of the Commercial Litigation Branch of the Fraud Section, Michael Granston, suggests seven factors that government attorneys should consider in deciding whether or not to seek dismissal pursuant to 31 U.S.C. § 3730(c)(2)(A). [2] While the factors themselves do not represent new law, Granston’s issuance of the memorandum may indicate a shift in the DOJ’s enforcement strategy with respect to the FCA.