On Friday June 16, 2023, the Supreme Court of the United States in an 8-1 decision affirmed the Third Circuits decision in Polansky v. Executive Health Resources, Inc.[1] and resolved a circuit split in a long-awaited decision.

The Supreme Court resolved two questions: (1) whether the government has authority to dismiss a False Claims Act (FCA) suit over a relator’s objection after initially declining to intervene in the action, and if so, (2) what standard applies to review the decision to dismiss.

The Supreme Court decided that the Government maintains its right to dismiss an FCA action over a relators’ objection after initially having declined to intervene, but it must intervene before seeking dismissal. The FCA provides that the Government may intervene in an action later “upon a showing of good cause,” which is a low burden, and after intervening the Government becomes a party to the action with the right to seek dismissal.[2]

The Supreme Court also decided that the Government’s motion to dismiss should be determined by applying Federal Rule of Civil Procedure 41(a) that governs voluntary dismissals but explained that the application of the rule in an FCA case will differ from the norm in two ways. First, the FCA requires notice and a hearing before dismissal, so a district court must apply Rule 41(a) within that procedural framework. Second, Rule 41(a)(2) provides that after an answer is filed an action may only be dismissed by court order “on terms that the court considers proper.”

The proper terms under Rule 41 refers to the set of interests the district court should consider in ruling on a post-answer motion to dismiss.[3] Typically, those are the defendant’s interests and includes considering whether the defendant’s commitment of time and money should result in the denial of a motion to dismiss. However, here, the Supreme Court clarified that in an FCA-case the set of interests considered under the “proper terms” assessment are those of the Relator’s instead.

Even though a district court is now required to consider the Relator’s commitment of time and resources before dismissal, it will likely be relatively easy for the Government to obtain dismissal anyway, although the Supreme Court here called it a “close call.” Relator, Polansky, argued that significant sums and efforts were expended on the case by the time it was dismissed at the summary judgment stage, but the Governments basis for dismissal trumped his argument. The Government argued that it would be burdened by “significant costs of future discovery in the suit, including the possible disclosure of privileged documents,” and asserted a detailed explanation of why the Government believed “that the suit had little chance of success on the merits.” Relator, Polansky, disputed the latter point and claimed that the Government was “leaving billions of dollars of potential recovery on the table.”[4]

The Supreme Court concluded that the “Government gave good grounds for thinking that this suit would not do what all qui tam actions are supposed to do: vindicate the Government’s interests. Absent some extraordinary circumstance, that sort of showing is all that is needed for the Government to prevail on a (2)(A) motion to dismiss.”

Justice Kagan delivered the opinion joined by Chief Justise Roberts and Justices Alito, Sotomayor, Gorsuch, Kavanaugh, Barrett, and Jackson. However, Justice Thomas dissented and sided with Relator Polansky’s argument that the Government’s decision not to intervene at the onset of the case precluded it from later seizing “the reins from the relator to unilaterally dismiss the suit after declining to proceed with an action during the seal period.”[5] However, Justice Thomas also raised a concern that relators proceeding with an FCA action that the Government would want to dismiss raises constitutional concerns and may be “inconsistent with Article II.” Justices Kavanaugh and Barrett concurred with the majority opinion in full, but agreed with Justice Thomas as to the constitutional concerns, and encouraged the court to consider that concern in an appropriate case.

The decision resolves an elaborate circuit split. The Government had advanced the argument that it had “unfettered discretion” to dismiss FCA actions over relator’s objections as set forth in the Swift decision by the D.C. Circuit.[6]  Under Swift, the Government is not required to intervene first and absent a showing of fraud had unfettered discretion to dismiss an action.

On the other end of the spectrum, the Ninth and Tenth Circuits had decided that while intervention was not necessary, the dismissal standard set forth in Sequoia should apply. That standard required: “(1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose.” And, if “the government satisfies the two-step test, the burden switched to the relator ‘to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.’”[7]  (The different standards applied in other circuits and the parties’ positions are set forth in more detail in a prior article).

Relator, Polansky’s position was largely unsupported by any of the circuits’ decisions, Instead, Polansky argued that the Government’s election not to intervene at the onset precluded it from intervening and dismissing the action later. In the recent decision, Justice Thomas supports this view in his dissent.

Impact on future cases

There is no doubt that this decision is disappointing to relators and their counsel. If Polansky’s argument had been successful, then Relators and their counsel would have been free to pursue the FCA claims in un-intervened cases without the risk of later dismissal. This decision forces relators and their counsel to be more discerning in where they apply their resources. On the other side, defense counsel is likely to take this decision into consideration in their future litigation strategy. If the heavy burden of discovery and the risk of disclosure of privileged material is cause for the Government to seek a dismissal in a case it thinks has little chance of success or with a low value, then defense counsel will seek to demonstrate the low chances of recovery and the extensive burden of discovery in order to invite a dismissal by the Government.