We previously reported about a group of False Claims Act (“FCA”) cases brought by the National Healthcare Analysis Group (“NHCA”), a Wall Street funded “professional relator” that has filed nearly a dozen FCA cases advancing a similar legal theory against 38 defendants located throughout the country.  The Department of Justice (“DOJ”) was not enamored by NHCA’s theory—a claim of Anti-Kickback Statute violations from so-called “white coat marketing,” free “nurse services,” and “reimbursement support services”—or of its method of collecting data from “potential informants” that NHCA paid to participate in a “qualitative research study” of the pharmaceutical industry.   After investigating NHCA’s allegations, the DOJ moved to dismiss pursuant to its authority under the FCA, 31 U.S.C. § 3730(c)(2)(A), which permits the DOJ to dismiss an action even over the objections of a relator bringing the action.

The DOJ exercises its authority under this provision judiciously, and has been given broad discretion by courts when it decides to dismiss an action.  Two standards have emerged in these cases— Sequoia Orange and Swift—that give different levels of deference to the DOJ’s decision to dismiss.

• Sequoia Orange
  • In the Ninth and Tenth Circuits, where Sequoia Orange applies, the government must identify a valid purpose for its dismissal and a rational relation between dismissal and accomplishment of that purpose. The burden then shifts to the relator to show that the DOJ’s decision was fraudulent, arbitrary, capricious, or illegal.
  • Last year in Academy Mortgage, a judge in the Northern District of California (where Sequoia applies), became the first judge ever to deny a government motion to dismiss a relator’s qui tam suit—a decision currently on appeal by the DOJ.
• Swift
  • Under Swift, which applies in the D.C. Circuit, the standard is even more deferential—the government has “an unfettered right to dismiss” and its decision is essentially “unreviewable.”

Up until the past year, the Sequoia/Swift distinction was largely academic.  Then came the NHCA cases.  The first went as expected, with the Eastern District of Pennsylvania (3rd Circuit) granting the DOJ’s motion (under either Swift or Sequoia).  In the second case, however, Judge Yandle in the Southern District of Illinois (7th Circuit), applied the Sequoia standard and denied the DOJ’s motion, finding that its decision to dismiss was “arbitrary” and that it had failed to conduct a “meaningful cost-benefit analysis.”  Her decision, which was based on essentially the same set of underlying facts as the decision in Pennsylvania,  surprised many observers, and she became only the second judge in the nation to deny a motion to dismiss by the DOJ under the FCA. The DOJ is appealing Judge Yandle’s decision.

Last week, the Eastern District of Texas (5th Circuit) issued the third decision in the string of NHCA cases, giving the DOJ its second win and, as the DOJ had requested, dismissing the case.  The court’s decision, as others have likewise done, sidestepped the Sequoia/Swift debate by finding that even under the stricter of the two, the DOJ had met its burden.  The Fifth Circuit, however, appears poised to adopt Swift, as prior Fifth Circuit precedent has recognized the DOJ’s extensive authority over the fate of non-intervened FCA matters.  It will be interesting to see whether NHCA appeals the decision from last week, potentially deepening the current circuit split regarding the appropriate level of deference given to the DOJ’s dismissals of FCA actions.

Why does this matter beyond an academic debate? The DOJ’s use of its dismissal authority can have significant implications on a relator’s willingness to proceed with litigation in a non-intervened case.  In Gilead, for example, a relator pursuing a declined FCA case was met with a rude awakening when the DOJ waited until certiorari to the Supreme Court on defendants’ motion to dismiss before deciding that it would use its statutory authority to move to dismiss the case.  Relators already facing an uphill climb in a declined FCA case may choose to abandon the journey knowing that the DOJ could (and might) dismiss at any point.  For defendants, the DOJ’s use of its dismissal authority is welcome news as it serves to end what could otherwise be lengthy and expensive litigation with the relator, even after the DOJ declines to intervene.  A widening circuit split, and ultimately the potential of a Supreme Court decision that may adopt Swift, could shift the FCA landscape, leaving relators to walk a treacherous path in non-intervened FCA cases.      

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.