23 September 2019

Third Circuit Holds That A Live Hearing Is Not Required When Government Seeks To Dismiss FCA Complaint Over Relator’s Objection

The Third Circuit recently held that relators are not automatically entitled to an in-person hearing when the government moves to dismiss a qui tam suit over the relator’s objection. U.S. ex rel Chang v. Children’s Advocacy Center of Delaware, No. 18-2311 (3d Cir. Sept. 12, 2019). Weih Chang filed qui tam lawsuit in 2015 alleging the Children’s Advocacy Center of Delaware had misrepresented material information when applying for governmental funding. After a lengthy investigation, the United States declined intervention and moved to dismiss under the statutory provision that allows dismissal, “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.” 31 U.S.C. § 3730(c)(2)(A). The district court granted the motion to dismiss, holding that the government had shown a legitimate interest in dismissing the suit and Chang had not met the burden of showing that the move to dismiss was arbitrary or capricious. Chang appealed, arguing that he had a statutory right to an in-person hearing prior to dismissal and that at the hearing he could have introduced evidence to show that the dismissal was arbitrary and capricious. Id. at *5-6. The Third Circuit affirmed the district court opinion, holding the court had not erred in granting dismissal without conducting an in-person hearing. Id. at 8.

However, the Third Circuit expressly stopped short of taking sides on the existing Circuit split on the standard to be applied to government motions to dismiss qui tams under its Section 3730 authority. The D.C. Circuit takes the approach that the United States has “an unfettered right” to dismiss a qui tam law suit. Id. at *5 (citing Swift v. United States, 318 F.3d 250, 252–53 (D.C. Cir. 2003)); see also Hoyte v. Am. Nat’l Red Cross, 518 F.3d 61, 65 (D.C. Cir. 2008). However, the Ninth and Tenth Circuit provide courts with approval authority to allow dismissal only upon the showing of (1) a valid government purpose and (2) a rational relation between dismissal and accomplishment of the purpose. If this is met, the burden shifts to the whistleblower to show that “dismissal is fraudulent, arbitrary and capricious, or illegal.” Id. at 4-5 (citing United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145–46 (9th Cir. 1998)); see also United States ex rel. Ridenour v. Kaiser-Hill Co., LLC, 397 F.3d 925, 934–35 (10th Cir. 2005).  The Third Circuit found it unnecessary to weigh in on the Circuit split, since Chang’s appeal failed under both tests. The court found persuasive the government’s desire to avoid the costs of allowing Chang to pursue claims that the investigation had found were “factually incorrect and legally insufficient.” Chang at *4. The court rejected Chang’s argument that he should have been granted a hearing to present evidence to meet the burden of showing the government’s action was arbitrary and capricious. The court held that the statutory language that grants relators the “opportunity” for a hearing does not mean a hearing is automatic. Id. at 6-8. Instead, relators must “avail themselves of the ‘opportunity.’” Id. Since Chang never requested a hearing, dismissal was proper. Id. at 8.

A copy of the Third Circuit’s opinion can be found here.

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