The Third Circuit’s Decision 

The case originated in 2012 when Jesse Polansky brought suit against his former employer, Executive Health Resources, Inc., which is a health care billing advisory services company. Polansky alleged that the company helped hospitals overbill Medicare by billing patient treatments as inpatient claims rather than cheaper, outpatient services. After two years, the government declined to intervene.

Several years after DOJ’s declination and periods of active litigation costing millions of dollars, the government sought dismissal of the case in August 2019 before the U.S. District Court for the Eastern District of Pennsylvania. DOJ has routinely taken the position that it is authorized to seek dismissal of whistleblower FCA cases—which are brought in the name of the United States—particularly where it contends the suit lacks merit or may lead to unfavorable precedent. Here, the government argued that it was entitled to complete deference on the question, but that, in light of the expense and demands of the litigation and the low likelihood of success, dismissal was warranted under either potentially applicable standard. Polansky disagreed, arguing, inter alia, that DOJ’s decision to dismiss bore no rational relationship to any developments occurring since DOJ’s initial decision not to exercise its dismissal authority, and that DOJ’s reversal of its prior decision was arbitrary. The district court found that the government’s motion to dismiss was sufficiently supported and granted dismissal in November 2019.1

Polansky appealed, and a Third Circuit panel affirmed the district court’s dismissal on October 28, 2021, finding that, while the government must first intervene in a qui tam case before it can move for dismissal, it may step back into a case at any time and seek to dismiss upon a showing of good cause. “[H]ad Congress intended so draconian a consequence as to strip the government of all ability to terminate a case brought in its name,” the panel wrote, “it would not have obscured it in a clause preserving the ‘status and rights of the [relator].’”2

Polansky promptly filed a petition for writ of certiorari, which DOJ opposed. In support of its request that the Supreme Court deny Polansky’s petition, Solicitor General Elizabeth Prelogar argued that the FCA “is best read to preserve the Executive Branch’s virtually unfettered discretion to dismiss an action brought in the name of the United States to remedy a wrong done to the United States.” Although DOJ took the position that the lower court had “erred in holding that the government must intervene in an FCA action in order to seek dismissal under Section 3730(c)(2)(A),” in DOJ’s view that did not provide a sufficient basis for Supreme Court review given the lack of a “practical impact” in the case. 

The Long-Emerging Circuit Split

Long before the Third Circuit weighed in, circuits across the country had been divided on the two questions implicated in Polansky. On the question of intervention, the Third, Sixth, and Seventh Circuits have required intervention in order for the government to move to dismiss a qui tam suit, while the Ninth, Tenth, and D.C. Circuits impose no such requirement.

The circuits likewise diverge as to the standard of review courts apply when considering government motions to dismiss whistleblower cases. The D.C. Circuit articulated a highly deferential standard in Swift v. United States, concluding that § 3730(c)(2) provides the government with “an unfettered right to dismiss an action[.]”3 The First Circuit echoed this view of broad government authority to end qui tam actions most recently in a January 2022 decision.4

In contrast, the Ninth and Tenth Circuits have held that the government must demonstrate a rational basis in order to secure dismissal. In particular, the government must articulate a valid interest and a “rational relation” between dismissal and that interest.5 If the government satisfies these requirements, the burden then shifts to the relator “to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.”6

In Polansky, the Third Circuit followed the Seventh Circuit, concluding that in evaluating the government’s motion to dismiss over a relator’s objection in a declined qui tam action, the government must satisfy the standard for voluntary dismissals contained in Federal Rule of Civil Procedure 41(a).7

For its part, the Eighth Circuit has ruled that that the government’s power to dismiss a case over a relator’s objection is “subject only to notice and a hearing for the qui tam relator[,]” parroting the language of the statute but not clearly arriving at an applicable standard.8

The growing circuit split could have been rendered moot by potential amendments to the FCA. Senator Chuck Grassley, one of the key authors behind the 1986 FCA amendments authorizing qui tam actions, introduced a bill in July 2021 that would have adopted the more stringent Sequoia Orange standard, requiring the government to provide sufficient justification before it could dismiss a qui tam suit. Although that bill was reported out of Committee in November 2021, it has yet to reach a floor vote. For now, then, the Supreme Court’s decision is poised to govern such cases.

Implications

While it remains relatively uncommon for DOJ to move to dismiss declined qui tam suits, such activity increased following the issuance of a DOJ policy memorandum in January 2018.9 In the guidance,  DOJ encouraged its trial attorneys to more frequently utilize their power pursuant to 31 U.S.C. § 3730(c)(2) to dismiss relators’ claims in cases in which DOJ had previously declined to intervene, citing limited government resources and a desire to avoid creation of adverse precedent. Such guidance has made the Supreme Court’s forthcoming decision in Polansky particularly relevant.

DOJ has contended that adoption of Polansky’s suggested rule—i.e., that the government may not seek to dismiss FCA suits after declining to intervene—actually would have an adverse effect on whistleblowers, insofar as it would incentivize DOJ to pursue dismissals in the early phases of litigation. By contrast, if Polansky’s favored approach was not adopted, the government might grant relators further opportunity to demonstrate the merit of their claims.

While it remains to be seen whether the Supreme Court’s grant of certiorari signals disagreement with the Third Circuit’s position, the outcome is one that relators and potential FCA defendants alike will be watching closely.