To Intervene or Not to Intervene?: The Third Circuit Sides With the Seventh Circuit on Assessing Government Motions to Dismiss

The Third Circuit is the latest circuit court to jump into the Section 3730(c)(2)(A) fray and weigh in on the appropriate standard for dismissal of a qui tam action over a relator’s objections. In Polansky v. Executive Health Resources, Inc., the Third Circuit concluded that, to seek dismissal after a prior declination, the government must first intervene and, once it does so, its dismissal motion must satisfy Fed. R. Civ. P. 41(a). No. 19-3810 (3d Cir. Oct. 28, 2021).

The relator in Polansky was a consultant for defendant EHR, a company that provided review and billing certification services to hospitals and physicians that bill Medicare. In his suit, the relator alleged that EHR systematically enabled client hospitals to over-admit patients by certifying inpatient services that should have been provided on an outpatient basis. This practice allegedly caused hospitals to bill the government for services that were not “reasonable and necessary.”

Following its investigation, the government declined to intervene, and the case proceeded through discovery. Seven years after the relator filed suit, the government notified the parties that it intended to dismiss the action under 31 U.S.C. 3730(c). After some negotiation with the relator and the filing of an amended complaint, the government moved to dismiss. In granting the motion, the trial court recognized that there was a circuit split on the standard under Section 3730(c)(2)(A) but declined to adopt a position, instead concluding that the government made an adequate showing under any of the prevailing standards.

On appeal, the Third Circuit acknowledged those various prevailing standards: On one side, the Ninth, Tenth and DC circuits have held that the government need not intervene to move to dismiss a suit after previously declining. On the other end are the Sixth and Seventh circuits, which have held that Section 3730 requires the government to intervene before it can move to dismiss. And within that split, the circuits have further diverged on what standard district courts should apply when considering government motions: The most deferential standard is that of the DC Circuit, which has held that the government has an “unfettered right” to seek dismissal of an FCA suit given its prerogative to make prosecutorial decisions; the Ninth and Tenth circuits have held that the slightly less deferential “rational relation” standard applies; and, most recently, the Seventh Circuit has concluded that Rule 41(a) governs, which provides a court with a “broad grant of discretion” to dismiss on “terms the court considers proper.”

The Third Circuit entered this thicket by agreeing with the Seventh Circuit’s reasoning. First, the court held that the text and statutory construction of the FCA require the government to intervene—a step that itself requires a showing of “good cause”—before it can exercise its authority to seek dismissal under the statute. In Polansky, the court construed the government’s motion to dismiss “as including a motion to intervene,” even in the absence of a formal intervention motion. Id. at 27-28. The Third Circuit further held that, once it intervenes, the government becomes a party, and its motion to dismiss is governed by Rule 41(a). The implications of that? “If the defendant has yet to answer or move for summary judgment, the government is entitled to dismissal [per Rule 41(a)(1)] . . . albeit with an opportunity for the relator to be heard . . . subject only to the bedrock constitutional bar on arbitrary government action.” Id. at 22-23 (internal citations omitted). “And if the litigation is already past that ‘point of no return,’ then dismissal must be ‘only by court order, on terms the court considers proper,’” per Rule 41(a)(2). Id. at 21 (internal citations omitted).

Although the Third Circuit provided clarity as to the particular procedure to be followed for (c)(2)(A) motions, it declined to provide much guidance to district courts on how they should assess the substance of government dismissal motions. For Polansky, the court found that there was no abuse of discretion, crediting the district court’s “exhaustive examin[ation]” of the parties’ interests, their conduct during the litigation and the government’s reasons for seeking dismissal, and noting “Rule 41(a)(2)’s ‘broad grant of discretion’ to shape the ‘proper’ terms of dismissal.” Id. at 28-29 (internal citations omitted). The court also noted that the relevant “constitutional question would not be whether the government adequately weighed the costs and benefits of its actions, but whether there was ‘executive abuse of power’ that ‘shocks the conscience.’” Id. at 23 n.17.

But questions still remain, including whether the standard the Third Circuit articulated in Polansky will be rendered moot by potential amendments to the FCA. We at Qui Notes will update you as the law on this issue continues to develop.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.