New FCA Decision Instructs the Government and Whistleblowers to Play Nice, Follow the Rules and Gives Government Discretion for Dismissal

A recent decision by the Seventh Circuit Court of Appeals addressed the sometimes hostile relationship between the government and the whistleblowers it relies on to prosecute False Claims Act (“FCA”) actions. The resulting opinion was twofold:

• If the government wants to dictate FCA litigation it must intervene in the lawsuit; and
• The government has the right to dismiss an action over a whistleblower’s objection without providing a rational basis for the decision.

The facts underlying U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc., et al.[1] set the perfect stage for this decision. The whistleblower—CIMZNHCA, LLC—is an organization, the product of a group of investors who endeavored to profit from FCA actions.[2] The organization and its sister companies filed similar qui tam actions across the country, many of which have encountered swift dismissal by the government seeking to curb the monetization of the FCA and for lack of merit. The same was true here.[3] The whistleblower objected arguing the Ninth Circuit’s decision in Sequoia Orange[4] supplied the proper standard of review, and that the government could not show a rational relationship between its decision to dismiss and a valid government purpose.[5] The district court agreed.

On appeal, the government argued that the district court should not have applied this “rational basis” test created by the Ninth Circuit.[6] Instead, it argued the Seventh Circuit should apply the standard found in the D.C. Circuit’s decision in Swift[7], which grants the government “unfettered discretion to dismiss.”[8] The whistleblower maintained its position and also argued that the Court of Appeals lacked jurisdiction because the government never intervened in the case, thus it was not a party and the order on its motion to dismiss was not a final appealable order.[9]

The Seventh Circuit provided a thorough analysis of party status and its jurisdiction, ultimately holding that the analysis was mostly unnecessary as the government’s motion to dismiss could easily be implied to act as a motion to intervene.[10] The Court held that the FCA requires the government to intervene to actively participate in the lawsuit, stating emphatically “The government cannot eat its cake and have it too. If the government wishes to control the action as a party, it must intervene as a party…”[11]

Having implied intervention, the Court then addressed which test it should apply to the government’s right to dismiss the lawsuit. In a truly scholarly manner, the Seventh Circuit bypassed a comparison of the Ninth Circuit’s “rational basis” test to the D.C. Circuit’s authorization of free rein. Instead, the Court simplified the argument and relied on the Federal Rules of Civil Procedure.[12] The Seventh Circuit clarified that FRCP 41(a)(1)(A)(i) gives the plaintiff—here the government, now that it was deemed to have intervened—an “absolute” right to dismiss before an opposing party serves either an answer or a motion for summary judgment.[13]

The Court delicately aligned that procedural right with the FCA itself. The FCA requires a whistleblower who objects to dismissal be provided notice and an opportunity to be heard.[14] That statutory provision, the Court held, is a congressional safeguard to ensure the government and whistleblower communicate, but does not preclude the applicable rules of civil procedure.[15] With this clarification, the Seventh Circuit held that the government had the absolute right to dismiss the lawsuit against the whistleblower’s objection.[16]

The Seventh Circuit rounded out its decision with a lesson in statutory interpretation by discrediting the whistleblower’s argument and the Ninth Circuit holding in Sequoia Orange, holding that the FCA does not impose a heightened standard for dismissal by the government.[17] Instead, the Seventh Circuit stated that “If Congress wishes to require some extra-constitutional minimum of fairness, reasonableness, or adequacy of the government’s [decision to dismiss], it will need to say so.”[18]

This case leaves open the question of how a court would interpret this rule later in the case. Here, the Court interpreted this rule when the complaint had yet to be answered. Given the Seventh Circuit’s clarification of FRCP 41(a)(1)(A)(i), it could be argued that the government would not have an absolute right to dismiss an action if an answer or a dispositive motion has been filed leaving defendants on the hook for fees associated with briefing and discovery if a whistleblower chooses to continue litigation without the government’s support.

If you have any questions or would like more information, please contact:

• David Honig at (317) 977-1447 or dhonig@wp.hallrender.com;
• Matt Schappa at (317) 429-3604 or mschappa@wp.hallrender.com;
• Lauren Rodriguez at (317) 977-1453 or lrodriguez@wp.hallrender.com; or
• Your regular Hall Render attorney.

Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.