Nearly two years after the DOJ first signaled an increased willingness to exercise this dismissal authority,2 the government still appears to be driven primarily by concerns about the burdens placed on federal agencies and DOJ by litigation around the materiality requirement articulated in Universal Health Services, Inc. v. U.S. ex rel. Escobar.3
NHCA group cases
Among the cases to watch in 2019 were the qui tam actions brought by relators backed by the National Healthcare Analysis Group (NHCA) – a group of LLCs created by investors and former Wall Street investment bankers to take advantage of what they deemed to be “a massive business opportunity” created by the availability of Medicare claims data.4 After attempting to gather inside information to supplement the data, the NHCA relators brought many qui tam actions.
On December 17, 2018, the DOJ moved to dismiss 10 of these actions,5 and two more have been dismissed without a motion by the DOJ.6 The DOJ’s motions gave the same reasons for dismissing the NHCA relators’ claims: (1) dismissal is “rationally related to the valid governmental purposes of preserving scarce government resources and protecting important policy prerogatives of the federal government’s healthcare programs;” (2) the allegations lack sufficient factual and legal support; and (3) allowing the suit to go forward will necessarily result in substantial litigation burdens to the United States, such as the expense of producing documents from multiple federal healthcare programs and data for thousands of beneficiaries, preparing agency witnesses for depositions, and filing statements of interest on legal issues in these cases.7
In response, three NHCA relators gave up the fight, moving themselves for voluntary dismissal.8 One qui tam was dismissed on other grounds the day after the DOJ filed its motion,9 and six other NCHA relators opposed dismissal, but after subsequent briefing and hearings, five of these cases now have been dismissed.10 In a surprise, a court in the Southern District of Illinois denied the government’s motion to dismiss in U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc.11
Deepening circuit split
The CIMZNHCA court first adopted the Ninth Circuit’s standard for deciding a motion to dismiss based on Section 3730(c)(2)(A) of the FCA, which lacks a standard for courts to apply in deciding whether to grant the government’s motion.12 Courts in the Ninth and Tenth Circuits apply the standard from U.S. ex rel. Sequoia Orange Co. v. Baird- Neece Packing Corporation, which requires the government to demonstrate a valid purpose for dismissal and a “rational relation” between dismissal and accomplishment of that purpose.13 The D.C. Circuit “give[s] the government an unfettered right to dismiss an action,” rendering the government’s decision to dismiss essentially “unreviewable,” under its opinion in Swift v. United States,14 and the Fifth and Eighth Circuits have suggested they would apply a similar standard.15 The Seventh Circuit, where the CIMZNHCA court sits, has not reached this issue. The court, in adopting the Sequoia Orange standard, observed that Congress could not have intended that courts “sit idly by” given the relator’s statutory right to a hearing on the government’s motion.16
Then – surprisingly – the CIMZNHCA court denied the DOJ’s motion, concluding that the government’s stated purposes for dismissal were arbitrary and capricious and not rationally related to a valid government purpose.17 The court acknowledged the government generally has a valid interest in avoiding litigation costs, especially in cases it deems lacking factual and legal support, but the government’s decision to dismiss “must have been based on a minimally adequate investigation, including a meaningful cost-benefit analysis” for the purpose to be valid and rationally related to dismissal.18 The court found the DOJ failed to fully investigate the allegations against UCB by only conducting a general, collective investigation of the cases brought by NHCA and “failed to conduct a cost-benefit analysis to support its concerns, including an assessment of the potential proceeds from the lawsuit.”19 The court also questioned whether dismissal was truly in the interest of government healthcare programs and suggested the reasons DOJ gave for dismissal were a pretext for the government’s animosity towards this corporate relator.20
The DOJ sought interlocutory appeal of this decision in the Seventh Circuit Court of Appeals, which accepted the case, and the appeal remains pending.21 The Seventh Circuit could weigh in on what standard applies to dismissals under Section 3730(c)(2)(A), deepening the existing circuit split, or refuse to take a side. Despite entreaties from the parties, the Third Circuit recently refused to opine on the circuit split.22 The Seventh Circuit could do the same by concluding that under either standard, the DOJ has shown dismissal is warranted. The district court deciding the last-standing motion to dismiss a NHCA qui tam took this very approach and applied the Sequoia Orange standard – without adopting it – because under this more restrictive standard, the DOJ had shown dismissal was warranted.23
If the Seventh Circuit joins the Ninth Circuit, or refuses to adopt a standard, its decision in CIMZNHCA could further clarify when the “rational relationship” standard is not met and a Section 3730(c)(2)(A) dismissal would be arbitrary and capricious. The Ninth Circuit may weigh in on this too; currently pending before it is another interlocutory appeal of a district court’s denial of a DOJ Section 3730(c)(2)(A) motion to dismiss.24 That district court also concluded the government’s decision to dismiss was based on an inadequate investigation, suggesting that is an area ripe for clarification. And the DOJ did not argue to the Ninth Circuit that Sequoia Orange was wrongly decided – only that it should be applied deferentially.25
The Fifth Circuit, which previously suggested the government retained “unilateral power” to dismiss, is also considering appeals brought by NHCA relators in two cases after a district court granted DOJ motions to dismiss.26
These are all cases to watch in the coming year, as appellate courts have a chance for the first time in a while to weigh in on the government’s dismissal authority under Section 3730(c)(2)(A).
The interests of the agency
The DOJ’s motions to dismiss NHCA qui tams – which comprised over half of the DOJ’s motions in 2018 – focused on the burdens of continued litigation on the government, especially on federal agencies. This issue continued to be a driving force behind government dismissals in 2019. For example, the DOJ moved to dismiss the qui tam in Gilead Sciences, Inc. v. U.S. ex rel. Campie, making good on its promise in the Solicitor General’s amicus curiae brief in the Supreme Court to dismiss the complaint because “if this suit proceeded past the pleading stage, both parties might file burdensome discovery and Touhy requests for FDA documents and FDA employee discovery (and potentially trial testimony), in order to establish ‘exactly what the government knew and when,’ which would distract from the agency’s publichealth responsibilities.”27 Similarly, the DOJ moved to dismiss the complaint in U.S. ex rel. Polansky v. Executive Health Resources, Inc. in August 2019 after the district court overruled its objections to the defendant’s latest discovery requests.28 The defendant had already subpoenaed six government entities and received over 42,000 pages of documents.29
On October 28, 2019, the DOJ entered into a Memorandum of Understanding with the Department of Housing and Urban Development, in which the agencies agreed that “HUD may recommend that DOJ seek dismissal of the case if HUD does not support the FCA litigation”30 in any case filed by a qui tam relator. This further cements the important role agencies play when the DOJ moves to dismiss qui tam suits.
The takeaways from 2019 continue to be that the DOJ’s motions to dismiss are largely driven by the burdens post-Escobar qui tam litigation can place on federal agencies. Developments in 2020 will show whether courts weighing in on the standard for Section 3730(c)(2)(A) dismissals or relators determined to fight the government’s discretion changes the DOJ’s willingness to seek dismissal of burdensome and meritless qui tam suits.
1. 31 U.S.C. § 3730(c)(2)(A) (providing for dismissal “notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.”)
2. DOJ first did so in the Granston Memo, which was later incorporated into the Justice Manual. See Memorandum from Michael D. Granston, Dir. Com. Lit., Fraud Section, U.S. Dep’t of Justice, To Att’ys in the Com. Lit., Fraud Section and U.S. Att’ys, Handling False Claims Act Cases, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018), https://assets.documentcloud.org/ documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf; Justice Manual, § 4-4.111 – DOJ Dismissal of a Civil Qui Tam Action, https://www. justice.gov/jm/jm-4-4000-commercial-litigation#4-4.111.
3. 136 S. Ct. 1989 (2016).
4. J.C. Herz, Medicare Scammers Steal $60 Billion a Year. This Man is Hunting Them., Wired, May 7, 2016 (quoting NHCA Group investor John Mininno).
5. See The United States’ Mot. to Dismiss Relator’s Second Am. Compl. at 1, U.S. ex rel. Health Choice Grp., LLC v. Bayer Corp., No. 5:17-CV-126-RWS-CMC (E.D. Tex. Dec. 17, 2018), ECF No. 116; The United States’ Mot. to Dismiss Relator’s Second Am. Compl. at 1, U.S. ex rel. Health Choice Alliance, LLC v. Eli Lilly & Co., No. 5:17-CV-123- RWS-CMC (E.D. Tex. Dec. 17, 2018), ECF No. 192; United States of America’s Mot. to Dismiss Relators’ First Am. Compl. at 1, U.S. ex rel. Miller v. AbbVie, Inc., No. 3:16-CV- 2111-N (N.D. Tex. Dec. 17, 2018), ECF No. 52; United States’ Mot. to Dismiss at 1, U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 3:17-CV-00765-SMY (S.D. Ill. Dec 17, 2018), ECF No. 63; United States’ Mot. to Dismiss Relators’ Compl. at 1, U.S. ex rel. Carle v. Otsuka Holdings Co., No. 17-CV-00966 (N.D. Ill. Dec. 17, 2018), ECF No. 30; United States’ Mot. to Dismiss Relators’ Compl. at 1, U.S. ex rel. SCEF, LLC v. AstraZeneca PLC, No. 2:17-CV-01328-RSL (W.D. Wash. Dec. 17, 2018), ECF No. 15; United States’ Mot. to Dismiss at 1, U.S. ex rel. SMSF LLC v. Biogen Inc., No. 1:16-cv-11379-IT (D. Mass. Dec. 17, 2018), ECF No. 52; United States’ Mot. to Dismiss at 1-2, U.S. ex rel. SAPF LLC, v. Amgen Inc., No. 2:16-CV-05203-GJP (E.D. Pa. Dec. 17, 2018), ECF No. 18; United States’ Mot. to Dismiss at 1-2, U.S. ex rel. SMSPF LLC v. EMD Serono Inc., No. 2:16-cv-05594-TJS (E.D. Pa. Dec. 17, 2018), ECF No. 23; United States’ Mot. to Dismiss Relator’s First Am. Compl. at 1, U.S. ex rel. NHCA-TEV LLC v. Teva Pharm. Prods. Ltd., No. 2:17-cv-02040-JD (E.D. Pa. Dec. 17, 2018), ECF No. 30.
6. The United States’ & Plaintiff-States’ Notice of Consent to Dismissal at 1, U.S. ex rel. Health Choice Advocates, LLC v. Gilead Sciences, Inc., et al., No. 5:17-cv-121-RWSCMC (E.D. Tex. July 26, 2019), ECF No. 246 (voluntarily dismissed by relator with DOJ’s consent); Order at 1, U.S. ex rel. Doe & APBQR v. Sanofi-Aventis U.S. LLC, No. 1:16-cv-05107-NRB (S.D.N.Y. Feb. 13, 2019), ECF No. 12 (dismissed without prejudice for failure to serve complaint).
7. See, e.g., The United States’ Mot. to Dismiss Relator’s Second Am. Compl. at 14-16, U.S. ex rel. Health Choice Grp., LLC v. Bayer Corp., No. 5:17-cv-126-RWS-CMC (E.D. Tex. Dec. 17, 2018), ECF No. 116.
8. Notice of Voluntary Dismissal at 1, U.S. ex rel. SAPF, LLC v. Amgen, Inc., No. 16-cv- 05203-GLP (E.D. Pa. Feb. 8, 2019), ECF No. 19; Notice of Voluntary Dismissal at 1, U.S. ex rel. Miller v. AbbVie, Inc., No. 3:16-cv-2111 (N.D. Tex. March 13, 2019), ECF No. 58; Notice of Voluntary Dismissal at 1, U.S. ex rel. Carle v. Otsuka Holdings Co., No. 17-cv-00966 (N.D. Ill. Jan. 24, 2019), ECF No. 35.
9. Electronic Order, U.S. ex rel. SMSF, LLC v. Biogen, Inc., No. 1:16-cv-11379-IT (D. Mass. Dec. 18, 2018), ECF No. 54 (granting defendants’ motions to dismiss as unopposed and denying government’s motion as moot).
10. U.S. ex rel. SMSPF, LLC v. EMD Serono, Inc., 370 F. Supp. 3d 483, 485 (E.D. Pa. 2019); U.S. ex rel. NHCA-TEV, LLC v. Teva Pharm. Prods., No. 17-2040, 2019 WL 6327207, at *1 (E.D. Pa. Nov. 26, 2019); U.S. ex rel. SCEF LLC v. Astra Zeneca PLC, No. 2:17-cv- 1328-RSL, 2019 WL 5725182, at *4 (W.D. Wash. Nov. 5, 2019); U.S. ex rel. Health Choice Alliance, LLC v. Eli Lilly & Co., No. 5:17-cv-123-RWS-CMC, 2019 WL 4727422, at *1 (E.D. Tex. Sep. 27, 2019) (dismissing cases against both Eli Lilly and Bayer).
11. U.S. ex rel. CIMZNHCA, LLC v. UCB, INC., No. 3:17-cv-00765-SMY-MAB, 2019 WL 1598109, at *4 (S.D. Ill. Apr. 15, 2019).
12. Id. at *3.
13. 151 F.3d 1139, 1145 (9th Cir. 1998). See Ridenour v. Kaiser–Hill Co., L.L.C., 397 F.3d 925, 940 (10th Cir. 2005).
14. 318 F.3d 250, 252-253 (D.C. Cir. 2003).
15. See Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 753 (5th Cir. 2001) (en banc) (noting that “the government retains the unilateral power to dismiss an action ‘notwithstanding the objections of the person’”); U.S. ex rel. Rodgers v. Arkansas, 154 F.3d 865, 868 (8th Cir. 1998) (government has power to dismiss over relator’s objection “subject only to notice and a hearing for the qui tam relator”).
6. CIMZNHCA, 2019 WL 1598109, at *3.
17. Id. at *4.
18. Id. at *3.
20. Id. at *4.
21. Am. Notice of Appeal at 1, U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 3:17-cv- 00765-SMY (S.D. Ill. July 5, 2019), ECF No. 110; Order at 1, U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 19-2273 (7th Circ. Aug. 14, 2019), ECF No. 13 (ordering that appeal shall proceed to briefing).
22. Chang v. Children’s Advocacy Center of Delaware Weih Steve Chang, 938 F.3d 384, 387 (3d Cir. 2019) (concluding that the court did not need to take a side in the circuit split because relator failed to show even the more restrictive standard was not met).
23. NHCA-TEV, 2019 WL 6327207, at *3.
24. See Docketing Letter at 1, U.S. ex rel. Thrower v. Academy Mortgage Corp., No. 18- 16408 (9th Cir. July 27, 2018), ECF No. 3.
25. See Opening Brief for the United States at 21 n.4, 22-25, U.S. ex rel. Thrower v. Academy Mortgage Corp., No. 18-16408 (9th Cir. Mar. 15, 2019), ECF No. 22.
26. Riley, 252 F.3d at 753; see First Am. Notice of Appeal, U.S. ex rel. Health Choice Grp., LLC v. Bayer Corp., No. 5:17-cv-126-RWS-CMC (E.D. Tex. Oct. 25, 2019), ECF. No. 158; Sec. Am. Notice of Appeal at 1, U.S. ex rel. Health Choice Alliance, LLC v. Eli Lilly & Co., No. 5:17-cv-123-RWS-CMC (E.D. Tex. Oct. 25, 2019), ECF No. 249.
27. Brief for the United States as Amicus Curiae at 15, Gilead Scis., Inc. v. U.S. ex rel. Campie, No. 17-936 (U.S. Nov. 30, 2018).
28. See The United States’ Mot. Dismiss Relator’s Third Am. Compl. at 1, U.S. ex rel. Polansky v. Exec. Health Res., Inc., No. 2:12-cv-04239-MMB (E.D. Pa. Aug. 20, 2019), ECF. No. 526; see also Final Mem. at 37, Polansky, No. 2:12-cv-04239-MMB (E.D. Pa. Nov. 5, 2019), ECF No. 561 (granting motions to dismiss filed by defendants and the government).
29. The United States’ Mot. Dismiss Relator’s Third Am. Compl. at 8, Polansky, No. 2:12-cv-04239-MMB (E.D. Pa. Aug. 20, 2019), ECF. No. 526.
30. Mem. of Understanding Between the Dep’t of Housing & Urban Dev. & the Dep’t of Justice, Inter-Agency Coordination of Civil Actions Under the False Claims Act Against Participants in FHA Single Family Mortg. Ins. Programs, at 3-4 (Oct. 28, 2019), https:// www.hud.gov/sites/dfiles/SFH/documents/sfh_HUD_DOJ_MOU_10_28_19.pdf.