Fifth Circuit Affirms DOJ’s Broad Authority to Dismiss Qui Tams Over Relators’ Objections, but Adds Teeth to “Hearing” Requirement

On July 7, 2021, the Fifth Circuit affirmed a district court’s grant of the United States’ motion to dismiss—over the relator’s objection—two qui tams that challenged pharmaceutical patient support programs.  While the court’s decision is consistent with those of other courts of appeal that have confirmed DOJ’s broad authority to dismiss qui tams over relators’ objections, the Fifth Circuit appears to add some teeth to the requirement that the relator be provided with a “hearing” before such a dismissal may be granted.

The relator alleged that the defendants provided patient-education services to providers before a prescription had been written, in violation of the Anti-Kickback Statute and certain state laws.  The United States declined to intervene.  After the relator amended its complaints, the defendants moved to dismiss for failure to state a claim.  The district court denied in part and granted in part.  The United States, however, then notified the relator that the United States intended to move to dismiss the complaints pursuant to the government’s right under 31 U.S.C. § 3730(c)(2)(A), in part because of the burden that the litigation placed on the government.  The magistrate judge held a consolidated hearing on the government’s motions to dismiss, at which the magistrate judge heard argument.  The magistrate judge ultimately granted the motions, and after the district court adopted the magistrate judge’s ruling, the relator appealed.

The Fifth Circuit acknowledged that the government may move to dismiss under 31 U.S.C. § 3730(c)(2)(A) once two conditions are met.  First, the government must give notice to the relator of the motion to dismiss; second, the court must provide the relator with an opportunity for a “hearing.”  In evaluating how to apply these conditions, the court surveyed the approaches of other circuits.  The D.C. Circuit in Swift has held that the government has nearly unfettered discretion to dismiss qui tams.  Similarly, the Seventh Circuit in UCB (discussed here) concluded that the government has an “absolute” right to dismiss, so long as (1) the government serves notice under Rule 41(a), and (2) there is a “hearing” under § 3730(c)(2)(A).  Conversely, the Ninth Circuit in Sequoia Orange and the Tenth Circuit in Ridenour adopted a stricter rational relation test.  To dismiss over a relator’s objections, the government must identify (1) a valid government purpose, and (2) a rational relation between dismissal and accomplishment of that purpose.  If the government satisfies its burden, the burden switches to the relator to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.

Not committing to any other circuit’s approach, the court declared that the statute’s use of the term “hearing” held “the key to the question of the court’s role in assessing the government’s decision to dismiss . . . . [H]earing means what i[t] says.  It includes judicial involvement and action.”  Indeed, dictionary definitions of the word “hearing”

necessarily involve something to be decided.  These definitions cast doubt on the government’s notion of a § 3730(c)(2)(A) hearing as merely an opportunity for the government to publicly broadcast its reasons for dismissal and for the relator to convince the government to change its mind.  Such a limited notion of a hearing that leaves nothing for the court to decide or do is inconsistent with the notion that the function of federal courts is to decide actual cases and controversies.

Accordingly, the circuit court appeared to side with the view that the term “hearing” allows the relator to present evidence, if desired.  On this topic, the relator argued that dismissal was inappropriate because the relator had not gotten the evidentiary hearing that procedural due process purportedly requires.  Even assuming arguendo that the relator was correct about the type of hearing required, the court disagreed.  The magistrate judge had in fact given the relator an opportunity for an evidentiary hearing.  Declining to present evidence, including the testimony of the key principal of the corporate relator, because the relator believed that it had already won the motion, the relator simply chose not to take that opportunity.

Despite going so far as to determine that the hearing opportunity afforded did satisfy the statutory requirement for a hearing, the circuit court declined to go further and to “decide the precise bounds of the government’s discretion to dismiss.”  Instead, the court applied Sequoia Orange to demonstrate that even under the strictest test, dismissal was appropriate here.  The government offered two valid purposes to justify dismissal: (1) the allegations lacked sufficient merit to justify the cost of investigation and prosecution, and (2) further litigation would undermine practices that benefit federal healthcare programs by providing patients with greater access to product education and support.  These purposes were rationally related to dismissal because dismissal would (1) preclude further litigation costs, and (2) remove an impediment to the provision of beneficial services.

The government having met its burden, the burden switched to the relator to show that dismissal was “fraudulent, arbitrary and capricious, or illegal.”  First, the relator alleged that the government’s desire to dismiss was based on animus against the relator’s parent organization and witness.  The court disagreed because that allegation was unsupported.  Second, the relator argued that the dismissal was arbitrary and capricious because the government had failed to conduct a cost-benefit analysis.  The court disagreed because the government’s position—that the complaints lacked merit to justify the costs of litigation—reflected “a cost-benefit analysis of sorts,” thus rejecting the view that this argument was unsupported because the government did not produce a full-fledged cost-benefit analysis.

The Fifth Circuit’s decision is available here.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.