DOJ Continues to Leverage Polansky in Seeking (c)(2)(A) Dismissals

As discussed here, there is new leadership at DOJ and last week we got insight into when DOJ is moved to exercise its dismissal authority under 31 U.S.C. § 3730(c)(2)(A).  In March, DOJ moved to dismiss the relator’s FCA case in United States ex rel. Vermont National Telephone Co. v. Northstar Wireless LLC.  The district court referred the motion to a magistrate judge and the magistrate recommended that the district court grant DOJ’s motion.  The magistrate’s recommendation was grounded in the Supreme Court’s decision in United States ex rel. Polansky v. Executive Health Resources (previously covered here), which holds that DOJ is entitled to substantial deference in seeking dismissal of qui tam actions when it offers reasonable arguments that the burdens of continued litigation outweigh its benefits.  The relator objected to the magistrate’s decision and, on June 25, DOJ filed its response (the “Response”).

The qui tam involves an FCC auction for wireless spectrum licenses, in which certain bidding credits were available to small businesses, known as designated entities (“DEs”).  The relator alleged that the defendants fraudulently obtained DE bidding credits by failing to disclose their relationships with a larger entity.  The FCC determined that the defendants were ineligible for the credits due to de facto control by the larger entity, but also found that the defendants had adequately disclosed their ownership structures and had not misled the FCC.  Ultimately, the defendants paid full price for the licenses they retained and default payments for those they relinquished.  Nonetheless, the relator alleged defendants’ conduct violated the FCA.

After almost ten years of litigation, DOJ moved to dismiss the case, citing: (1) a lack of evidence supporting the relator’s claims; (2) an apparent lack of damages, as no DE bidding credits were awarded; and (3) the burden on government agencies in responding to discovery.  The magistrate judge found these reasons sufficient to justify dismissal, that the government acted in good faith, and that the relator would not suffer legal prejudice.  Relator’s objection to the magistrate’s decision argues that the magistrate misapplied Polansky, failed to scrutinize the government’s reasons for dismissal, and did not adequately address claims of bad faith, legal prejudice, and a Fifth Amendment property interest.

In its Response, DOJ argues that “this case is identical to Polansky in almost every salient respect” and therefore the district court should adopt the magistrate’s dismissal recommendation.  The Response also reveals DOJ’s current views on the expansive scope of its dismissal authority under (c)(2)(A), as well as its willingness to exercise it.  For example:

• DOJ argues that it “need not disprove [the relator’s] case before it can dismiss.” Rather, it was enough that DOJ had determined the relator was unable to “uncover enough evidence to convince the Government that any significant violations of the FCA actually took place.”
• DOJ also argues that “there is no quantitative threshold the Government’s [discovery] burden must exceed before it may move to dismiss. Rather, it is a judgment call on how best to allocate Government resources.”
• DOJ rejected Relator’s “bad faith” argument, pointing out that it is allowed to change its mind and that arriving at a “different conclusion about t[he] evidence” than relator does not amount to bad faith.
• DOJ further argues that Relator’s concerns about the deprivation of his ability to “fairly” present his case, the potential frustration of the “deterrence” function of the FCA, and his lost “resources” are common to every relator facing a (c)(2)(A) dismissal and are simply insufficient to overcome DOJ’s dismissal authority.
• Finally, DOJ argues that the relator’s Fifth Amendment Takings Clause argument is misplaced because the only property interest a relator has in FCA cases is in the “proceeds of the action or settlement of the claim” and that interest “does not materialize until after success on the merits.”

We will continue to monitor this case and provide an update when the district court issues its decision.

A copy of the Response may be found 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.