A whistleblower case that began more than a decade ago and has made its way to the U.S. Supreme Court ultimately could have significant implications for other whistleblower cases. At the very least, the decision will bring much needed clarity around the government’s dismissal powers under the False Claims Act.
The key question presented to the Court in the case United States ex rel. Polansky v. Executive Health Resources is “whether the government may dismiss a suit under the False Claims Act (FCA), after initially declining to proceed with the action, and what standard applies if the government has that authority.”
The FCA, 31 U.S.C. section 3729, authorizes private parties (called “relators”) to file “qui tam” actions on behalf of themselves and the government against those who have engaged in deceptive practices involving government funds. If the government chooses to proceed with the lawsuit, the relator may receive a portion of the government’s recovery – meaning there is the potential for a significant financial incentive in filing an FCA claim. Where the government decides not to proceed, the relator may move forward with the claim, with the government remaining an interested party.
The central controversy of this case concerns the text of section 3730(c)(2)(A) of the FCA, which states that the government “may dismiss the action 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.”
Case background
Petitioner Jesse Polanksy is a doctor and former consultant of Executive Health Resources (EHR), a subsidiary of UnitedHealth that provides billing certification services for hospitals and physicians that bill the government for Medicare services. In July 2012, Polansky filed a qui tam action under seal, in which he alleged that EHR fraudulently certified hundreds of thousands of cases for client hospitals to bill Medicare by falsely designating patient admissions as inpatient rather than as outpatient and, thus, billing the government at a higher rate than was necessary.
Following a two-year investigation, in June 2014 the government initially declined to intervene. Under the FCA, “[i]f the government elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action.” Polansky proceeded with the lawsuit.
A court battle between Polansky and EHS ensued. After several years of back-and-forth proceedings, tens of thousands of pages of documents produced, and considerable time and resources expended, in February 2019 the government notified the parties of its intent to dismiss the entire action.
The District Court for the Eastern District of Pennsylvania stayed the proceedings while the parties consulted with the government. While the government agreed not to dismiss Polansky’s case if he agreed to substantially narrow the scope of his claims, ultimately it determined Polansky failed to do so. Thus, in August 2019, the government filed a motion to dismiss the entire action.
In moving to dismiss, the government cited “additional developments” that included discovery burdens greater than initially anticipated; concerns about privileged documents having to be disclosed if the case proceeded; and doubts about Polansky’s credibility after it belatedly came to light that he had a DVD with 14,000 CMS documents in his possession for which Polansky was sanctioned by the district court.
In November 2019, the district court granted the government’s motion to dismiss, finding the government’s decision to be “sufficiently reasoned and supported.”
In October 2021, the Third Circuit Court of Appeals affirmed the district court’s decision. “[W]e conclude that the government is required to intervene before moving to dismiss and that its motion must meet the standard of Federal Rule of Civil Procedure 41(a),” the Third Circuit stated in its decision. “Because we also conclude that the district court here acted within its discretion in granting such a motion by the government, we will affirm the court’s order of dismissal.”
Circuit split
Polansky, of course, disagreed with the Third Circuit’s decision. The central controversy of the case is as follows: According to Polansky, “the plain text, context, structure, and history of the FCA” limits the government’s dismissal authority to cases where the government “proceeds with the action.” If the government initially declines to intervene, then the FCA vests the relator, not the government, with “the right to conduct the action.”
The government, while agreeing with the Third Circuit’s decision, argued in its response brief that the court “erred in requiring the United States to intervene before moving to dismiss an FCA action under section 3730(c)(2)(A), and in holding that the government must establish ‘good cause’ and ‘proper’ justification in order to obtain dismissal.” The government argued, “the United States retains significant mechanisms to control qui tam litigation even when it initially declines to intervene.”
Over the years, courts have interpreted the FCA’s dismissal standards in various and conflicting ways. For example, some circuit courts, like the U.S. Court of Appeals for the D.C. Circuit, have ruled the government has “unfettered” discretion to dismiss FCA cases, while other circuit courts have ruled the government needs a “rational basis” for dismissing a qui tam action.
In January 2022, Polansky filed a petition for a writ of certiorari. The High Court granted his petition and heard oral arguments in December 2022.
Reading the tea leaves
If the oral arguments are any indication of how the Court will decide, the government seems likely to prevail. Specifically, many of the Justices expressed doubt about the FCA’s history not supporting the government’s authority to dismiss an FCA case at any point with good cause, and specifically when new facts or circumstances arise that the government deems warrant a dismissal.
“It seems as though the history of the statute is pretty clear that Congress only amended it to allow for later intervention because it was concerned that the government didn’t have an opportunity to intervene after the initial period,” said Justice Ketanji Brown Jackson. “So, this is sort of in line with my colleagues suggesting that they wanted the government to be able to come back in and take over the case if things had changed or the circumstances were such.”
The second question addressed during oral arguments was what standard must be used to evaluate the government’s dismissal authority. Polansky argued the government must satisfy a “rational nonarbitrary basis for dismissing the case,” because it pertains to a relator’s property interests under the Fifth Amendment’s Due Process Clause. Justice Neil Gorsuch, while acknowledging that argument, took issue with Polansky’s “pretty aggressive version” for rational basis.
The government did not contest that Polansky has a property interest in the claim – but argued that, because the FCA does not apply a dismissal standard, a constitutional baseline must apply.
Conclusion
Of course, there are many legitimate reasons the government has for dismissing a qui tam action. Those who side with the government argue that limiting its authority will encourage meritless FCA qui tam actions.
As the U.S. Chamber of Commerce said in an amicus brief, “When the government investigates the allegations in a qui tam action and concludes that they lack legal or factual merit, the government serves the public interest by dismissing that action. The government should be free to exercise this important check on the qui tam mechanism – not be deterred from doing so by the threat of mini-trials second guessing its reasons for dismissal.”
But just as the government must appropriately weigh the resources demanded of it to move forward with a qui tam action, whistleblowers must engage in the same cost-benefit analysis. Thus, a decision in the government’s favor, as some whistleblower attorneys have argued, could discourage other whistleblowers to proceed with other FCA qui tam actions if the risk of having the case dismissed by the government outweighs the time and cost spent moving forward.
Given that whistleblower lawsuits drive a great deal of the Department of Justice’s enforcement efforts under the FCA, this latter outcome does not sound any more appealing than the former, neither for whistleblowers nor the government.
At the very least, no matter how the justices find, it is time for the U.S. Supreme Court to weigh in on this matter, providing at least some sense of clarity and uniform standard across extremely divided courts of appeals. A final decision is expected from the Justices this year.
