The Seventh Circuit reversed a district court’s denial of the government’s motion to dismiss a qui tam case alleging healthcare fraud. The parties disagreed over which standard should apply—Swift or Sequoia Orange—and the relator argued the appeals court lacked jurisdiction. First, the circuit court held that the motion should have been treated as a motion to intervene and then to dismiss, which would grant the court jurisdiction. Second, by treating the government as seeking to intervene, the court applied the standard for dismissal informed by Federal Rule of Civil Procedure 41. Notably, the court adopted neither the Swift nor Sequoia Orange standard for considering a Department of Justice motion to dismiss a qui tam case.
The government appealed a district court’s denial of its motion to dismiss a qui tam case alleging healthcare fraud. The relator opposed, arguing in part the court should dismiss the motion for lack of jurisdiction.
At the outset, the court noted that other circuits had split on the issue. The D.C. Circuit has held that the Department of Justice has an unfettered right to dismiss qui tam complaints, while the Ninth Circuit held that DOJ must show a rational basis for the dismissal. In this case, the district court agreed with the Ninth Circuit, but applied an arbitrary and capricious standard, which it found the government failed to meet.
CIMZNHCA LLC is a company formed by investors for the sole purpose of pursuing qui tam cases. A company called Venari Partners, itself comprised of four member companies, formed 11 affiliated LLCs, each of which was intended to pursue a single whistleblower case alleging 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.
In this case, the relator alleged that the defendants illegally paid physicians for prescribing or recommending Cimzia, a drug manufactured by defendant UCB Inc. to treat Crohn’s disease, to patients who received benefits under federal healthcare programs. The relator alleged that the illegal kickbacks took the form of free education services provided by nurses to physicians and their patients and free reimbursement support services in the form of assistance with insurance paperwork. The government declined to intervene, and later sought to dismiss the action after its investigation found the claims lacked sufficient merit to justify the use of resources.
The district court denied the motion to dismiss. The government argued in favor of the unfettered Swift standard, while the relator argued for the more demanding test in Sequoia Orange, which requires the government to demonstrate a valid government purpose and a rational connection between that purpose and dismissal. In the latter case, if the court finds the government made such a connection, the burden shifts to the relator to show that the dismissal is arbitrary and capricious, or otherwise improper.
Reasoning that Congress would not require a hearing on an issue with a preordained outcome, the district court applied the Sequoia Orange standard, and concluded the government’s evaluation of the claims was insufficient to support dismissal. The court also suggested there was animus towards the relator and deemed the motion arbitrary and capricious and not validly related to governmental purpose.
On appeal, the government argued the Swift standard should have been applied and alternatively, that it had satisfied the Sequoia Orange standard. The relator urged the appeals panel to affirm, and alternatively argued the court lacked jurisdiction.
First, the court considered its jurisdiction, noting that it has jurisdiction over district court’s final judgments and some categories of interlocutory orders. Will denials of motions to dismiss rarely fit into either category, the government argued that a denial of a motion to dismiss is a collateral order, not a final judgment, yet still a final decision that is appealable. The court declined to create a new category of appealable collateral orders.
However, the court held the motion should have been deemed a motion to intervene and then a motion to dismiss, noting that it is well established that denials of motions to intervene are appealable. The court read the FCA as requiring the government to intervene before exercising any right under § 3730(c)(2), and therefore treated the government’s motion to dismiss as a motion both to intervene and to dismiss. The court reasoned that if the government wishes to control the action as a party, it must intervene as a party, as provided for by Congress. By treating the motion as a motion to intervene, the court resolved the jurisdictional issue without creating a new category of appealable collateral orders.
Next, the court considered the motion on the merits. By treating the motion as one to intervene, the court also found a standard on the merits of dismissal in the Federal Rules of Civil Procedure, as limited by the FCA and other constraints. Finding that those constraints did not apply to this case, the court held the Rules’ standard sufficed.
The Rules state that a plaintiff may dismiss an action by serving a notice of dismissal any time before the opposing party serves either an answer or a motion for summary judgment. This dismissal is without prejudice unless the notice states otherwise, and the court explained the right is absolute. Once a notice is served, no other actions are valid. In this case, the government filed its motion to dismiss before the defendants had answered or moved for summary judgment, seeking dismissal without prejudice as to it and with prejudice as to the relator. The court found it irrelevant that the submission was labeled a motion rather than a notice.
The court also noted the government may dismiss an action over the relator’s objection, provided the relator is given notice and the opportunity to be heard. That standard was met here.
However, the court agreed with the district court that it was nonsensical to read the FCA as requiring a hearing when the government’s right to dismiss is absolute and the conclusion preordained. The court noted that Congress sometimes requires parties to attempt to resolve disputes without court action. However, in such cases, the court is not called upon merely to affirm that this communication took place as required, but rather has a substantive role. Hence, the court rejected the assertion in Swift that the function of a hearing in these instances was only to provide a relator with a formal opportunity to convince the government not to dismiss a case.
While the court’s acknowledged limits to the government’s power, it found this case did not approach them. The district court faulted the government for having failed to make a particularized dollar-figure estimate of the potential costs and benefits of CIMZNHCA’s lawsuit, as opposed to the more general review of the Venari companies’ activities undertaken and described by the government. However, the appeals panel found no constitutional or statutory directive imposes such a requirement, including the FCA. The court held the government is not required to justify its litigation decisions in this way, as though it had to show “reasoned decision making” as a matter of administrative law.
The appeals court disagreed with the suggestion that the government’s decision here fell short of the bare rationality standard borrowed by Sequoia Orange from substantive due process cases. Rather, the court held the government proposed to terminate this suit in part because, across nine cited agency guidance documents, advisory opinions, and final rulemakings, it has consistently held that the conduct complained of is probably lawful, but also beneficial to patients and the public.
Nonetheless, even where the government’s conduct does not bump up against the Rules, the statute, or the Constitution, the court held the hearing process is not futile. Instead, it reasoned that this particular relator simply had no substantive case to make at the hearing to which the statute entitled it. While a difficult bar to reach, that did not render the right futile.
Further, even if the hearing were futile, that would not justify imposing on the government the burden of satisfying Sequoia Orange’s “two-step test” before the burden is put back on the relator to show unlawful executive conduct. According to the court, if Congress wishes to require some extra-constitutional minimum of fairness, reasonableness, or adequacy of the government’s decisions in these cases, it will need to say so.
The court reversed the district court’s decision and remanded with instructions to enter an order in favor of the government’s motion to dismiss.
