Yesterday, Judge Chen of the U.S. District Court for the Northern District of California dismissed claims alleging that Gilead Sciences, Inc. defrauded the United States government and violated the False Claims Act (FCA) by using prohibited ingredients in HIV drugs it sold to government purchasers, including Medicare and Medicaid.

The case, brought by two relators on behalf of the government under the FCA’s qui tam provisions, presented a test of the government’s authority to dismiss relator-initiated cases over the relator’s objection.  As we explained in an expert analysis for Law360, the case against Gilead was one in which the government had declined to intervene in the litigation, and has been closely watched for two reasons.

First, typically the Department of Justice (DOJ) will exercise its dismissal authority, if at all, at or near the time of intervention, however it wasn’t until the case was being considered by the Supreme Court for certiorari that the DOJ decided to dismiss.  Second, the Gilead case was before Judge Chen, the first judge in the nation (now in a group of two) to deny a DOJ motion to dismiss under the False Claims Act.

In moving to dismiss the case this April, the DOJ indicated that continued involvement in the case, including monitoring the matter and responding to discovery requests, would be an overly costly burden to the government.  Judge Chen, however, was not satisfied and asked the DOJ for additional information reflecting its cost-benefit analysis, which it provided this summer.

The district court found that although the FCA allows private parties to bring qui tam actions, the government, as the real party in interest, may dismiss a relator’s case over the relator’s objection so long as dismissal serves an identifiable and valid governmental purpose and is neither arbitrary, capricious, nor contrary to law. The particular test the court applied was articulated in the Ninth Circuit’s decision in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), a case that appears to sit on one side of a growing circuit split.

Considering the facts and arguments before it and applying the Sequoia framework, the district court in Gilead ultimately concluded that granting the government’s requested dismissal would serve two valid governmental purposes—reducing the government’s litigation costs and avoiding undermining FDA decisions—and that the relators’ argument that the government’s request to dismiss was arbitrary and capricious was “not well supported under the particular facts and circumstances of the case.”  In addition, although Judge Chen noted that the DOJ’s cost-benefit analysis “could have been more robust” he found that a qualitative analysis was sufficient—the “critical question is whether the United States engaged in a meaningful consideration of cost and benefit such that its decision to seek dismissal is supported by a rational basis.”

With the main FCA claim now dismissed, the court noted that the relators may still proceed with their remaining claims, including those related to retaliation.

Rosie Dawn Griffin is a senior associate in the firm’s Litigation and Government Investigations practice group and has years of experience working on False Claims Act matters. She can be reached at rgriffin@feldesmantucker.com or (202) 466-8960 if you have any questions.