08 November 2021

Third Circuit Adopts the Seventh Circuit’s Voluntary Dismissal Standard for Evaluating Granston Motions to Dismiss

On October 28, 2021, the Third Circuit affirmed a district court’s grant of the United States’ motion to dismiss—over the relator’s objection—a qui tam alleging that the defendant had caused hospitals to submit false claims.  Adopting the Seventh Circuit’s approach, the court determined that in evaluating the government’s motion to dismiss over a relator’s objection in a declined qui tam, courts should apply the standards for voluntary dismissals contained in Federal Rule of Civil Procedure 41(a).

The relator alleged that the defendant, a Medicare billing consultant company, had caused the submission of claims that were false because they requested reimbursement for medically unnecessary services—services that were not “reasonable and necessary.”  The United States declined to intervene, and the complaint survived the motion to dismiss stage.  The government then moved to dismiss under 31 U.S.C. § 3730(c)(2)(A), which provides that the government may dismiss notwithstanding the objection of a relator so long as the relator receives notice and an opportunity to be heard.  After briefing and argument, the district court granted the government’s motion.  The relator appealed.

As a threshold issue, the court addressed whether the government retained the authority to move to dismiss pursuant to § 3730(c)(2)(A) even though the government had declined to intervene.  On this question, the relator contended that the government lost its ability to move to dismiss when it decided not to proceed with the action under § 3730(c)(1).  The government and the defendant, however, contended that the government could seek dismissal at any time—even as a non-party—under § 3730(c)(2).  Rejecting both contentions, the court “read § 3730(c) as a whole.”  According to the court, the authority to move to dismiss under paragraph (2) exists, per the statute, only as a “limitation[]” on the relator’s rights under paragraph (1), which grants the government the right to “proceed[] with the action.”  As such, the government must choose to “proceed[] with the action” before it may move to dismiss.  And per paragraph (3), the government may so choose at any time by intervening, upon a showing of good cause.

Having determined that the government may move to dismiss only after intervening, the court considered what standard to apply to the motion to dismiss.  The court adopted the Seventh Circuit’s approach, which we have discussed here.  “Having intervened, the Government becomes a party, and like any party, it is subject to the Federal Rules of Civil Procedure, including the rule governing Voluntary Dismissal”—Federal Rule of Civil Procedure 41(a).  Under that rule, so long as the defendant has not filed an answer or summary judgment motion, the plaintiff may dismiss without a court order by simply filing a notice of dismissal.  If, however, the defendant has already filed a responsive pleading, a qui tam may be dismissed at the government’s request only by court order, on terms that the court considers proper, after notice and an opportunity for a hearing.

Construing the district court’s grant of the motion to dismiss as an order under Rule 41(a)(2), the Third Circuit reviewed the order for an “abuse of discretion.”  Employing the framework of Rule 41(a), the Third Circuit first addressed whether the district court had abused its discretion in allowing the government to intervene.  Even though the government had not formally moved to intervene, the court interpreted the motion to dismiss as including a request to intervene, “which was in substance what the government sought and in form what the False Claims Act requires.”  The district court had not abused its discretion here.  Having thoroughly examined the government’s reasons for moving to dismiss, the district court found that the government “had shown the ‘legally sufficient reason’ for intervening that good cause requires.”  Second, the Third Circuit addressed whether the district court had abused its discretion by granting the dismissal.  Seeing no abuse of discretion, the Third Circuit found that the district court had “exhaustively examined the interests of the parties, their conduct over the course of the litigation, and the Government’s reasons for terminating the action.”

The Third Circuit’s opinion can be found here.

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