US Supreme Court Establishes Standard for Government Dismissal of False Claims Act Cases

In a significant development for False Claims Act litigation, the U.S. Supreme Court has delivered a decisive ruling that strengthens the federal government’s authority to dismiss whistleblower lawsuits. The 8-1 decision, issued on June 16, 2023, clarifies two critical aspects of FCA proceedings: the government’s ability to dismiss qui tam cases after initially declining to intervene, and the standard courts should apply when reviewing such dismissal requests.

The ruling represents the Court’s second major FCA opinion this term, following an earlier unanimous decision that clarified the knowledge requirements under the Act. This latest decision addresses a longstanding circuit split that had created uncertainty about the government’s dismissal powers in whistleblower cases.

Justice Elena Kagan, writing for the majority, described the government’s authority to dismiss FCA cases as “uncommon, even extraordinary,” noting the power “to dismiss and settle an action over the objection of the person who brought it.” The Court ultimately determined the issue was “not a close call,” emphasizing throughout the opinion that FCA cases are fundamentally brought in the government’s interest.

The case stemmed from allegations of improper Medicare billing for inpatient services that should have been classified as outpatient care. After the government initially declined to intervene during the statutory 60-day seal period, the whistleblower (known as the relator) proceeded with the case independently, engaging in extensive discovery over several years.

As litigation progressed, the government determined that its discovery obligations were becoming increasingly burdensome and risked exposing privileged information. Officials also concluded the case had limited prospects for success on the merits. Based on this cost-benefit analysis, the government eventually intervened and moved to dismiss the case under 31 U.S.C. §3730(c)(2)(A).

The Supreme Court affirmed that the government’s ability to intervene is not limited to the initial seal period, rejecting the notion that the seal-period decision represents an “on-off switch.” Instead, the Court recognized that Congress intended to give the government flexibility to “reassess qui tam actions and change its mind” rather than take a “back-seat” to relators.

Regarding the standard of review, the Court adopted what Justice Kagan characterized as the Third Circuit’s “Goldilocks” approach. This standard applies Federal Rule of Civil Procedure 41(a), which governs voluntary dismissals in ordinary civil litigation and allows for dismissal “on terms that the Court considers proper.”

Within this framework, the Court emphasized that district judges should “think several times over before denying a motion to dismiss” from the government. The ruling establishes that “if the government offers a reasonable argument for why the burdens of continued litigation outweigh its benefits, the court should grant the motion” – even when the whistleblower presents credible contrary arguments.

The Court acknowledged that whistleblowers in non-intervened cases often commit substantial resources to litigation, but nonetheless concluded that government dismissal motions “will satisfy Rule 41 in all but the most exceptional cases.” This highly deferential standard significantly strengthens the government’s ability to terminate qui tam actions it deems unworthy of pursuit.

Perhaps most intriguing are the issues raised in the concurring and dissenting opinions. Justice Kavanaugh’s concurrence, joined by Justice Barrett, along with Justice Thomas’s dissent, questioned the constitutionality of the FCA’s qui tam provisions. Justice Thomas specifically characterized the FCA as existing in a “constitutional twilight zone,” suggesting “there are substantial arguments that the qui tam device is inconsistent with Article II” because private citizens may not properly represent the United States’ interests in litigation.

With one-third of the Court expressing concerns about the constitutional foundation of qui tam actions, future challenges to the fundamental enforcement mechanism of the False Claims Act appear increasingly likely. Such challenges could potentially reshape how the FCA – one of the government’s primary tools for combating fraud – is enforced and by whom.

The ruling provides welcome clarity for FCA practitioners while reinforcing the government’s ultimate authority over qui tam actions. However, it also signals potential seismic shifts in FCA jurisprudence that could emerge in coming years as the Court continues to examine the boundaries of executive power in fraud enforcement.