Yesterday, Judge Staci M. Yandle, a district court judge in the Southern District of Illinois, become only the second judge in the nation to deny a motion to dismiss by the Department of Justice (DOJ) under 31 U.S.C. § 3730(c)(2)(A), thwarting the DOJ’s efforts to end eleven False Claims Act cases backed by Wall Street investors. In a previous blog, we detailed the National HealthCare Analysis Group saga and DOJ’s success in winning round one, a decision by the Eastern District of Pennsylvania granting the DOJ’s motion to dismiss.
Judge Yandle’s decision marks a decisive and significant victory by National HealthCare Analysis Group in round two of what is now guaranteed to be a long fight that may end with the Supreme Court determining the appropriate standard of review for government dismissal under 31 U.S.C. § 3730(c)(2)(A).
Two standards have emerged—Sequoia Orange and Swift—that give the government different levels of deference when it moves to dismiss a qui tam action brought by a relator under the False Claims Act. While both standards are deferential to the government, recognizing that even in non-intervened cases the government is still the real party in interest, Sequoia Orange, applicable in the Ninth and Tenth Circuits, requires that the government identify a valid purpose for its dismissal and a rational relation between dismissal and accomplishment of that purpose. If the United States meets that test, the burden shifts to the relator to demonstrate that the dismissal is fraudulent, arbitrary and capricious, or illegal. Under Swift, however, which applies in the D.C. Circuit, the government has “an unfettered right to dismiss” and its decision is essentially “unreviewable.”
While undecided in the Seventh Circuit, Judge Yandle adopted the Sequoia Orange standard, finding that Swift “renders the hearing specifically provided for in the statute superfluous and belies the role of the judiciary in ensuring constitutional checks and balance.” Judge Yandle echoed what many reading Swift have wondered – did Congress really intend for there to be a judicial hearing in which the relator can plead with the government to change its mind, but the court will play no role in evaluating the merits of the government’s decision?
Judge Yandle noted that even under the Sequoia Orange standard, the court is “deferential to the Government’s prosecutorial authority” and that “the Government has a valid interest in avoiding litigation costs, particularly in cases it deems lacking in factual and legal support.” She went on, however, to write that the government’s decision to dismiss “must have been based on a minimally adequate investigation, including a meaningful cost-benefit analysis” and that its decision here was “arbitrary because it failed to fully investigate the allegations against the specific defendants in this case, versus conducting a general collective investigation [of] the eleven cases filed by the relator against various defendants nationwide and [it] failed to conduct a cost-benefit analysis to support its concerns, including an assessment of the potential proceeds from the lawsuit.”
The court’s comments were in stark contrast to those of the Eastern District of Pennsylvania earlier this month which referred to the government’s investigation in that case as an “extensive” 18 month investigation by a multi-agency team that included meetings with subject matter experts, defendants, and relators’ counsel, witness interviews and review of information provided by the relators and defendants.
Underlying the court’s decision here was a concern about the government’s animus towards “professional relators.” The court wrote that “the Government devoted a significant portion of its briefing – 6 1/2 pages and all exhibits – to deriding the relator’s business model and litigation activities . . . [and] one could reasonably conclude that the proffered reasons for the decision to dismiss are pretextual and the Government’s true motivation is animus towards the relator.” The court denied the DOJ’s motion, holding that the “Government’s decision to dismiss this action is arbitrary and capricious, and as such, not rationally related to a valid governmental purpose.”
While Judge Yandle’s decision will certainly be appealed to the Seventh Circuit, the immediate impact of her ruling will be felt in the remaining nine National HealthCare Analysis Group cases, as it will prompt judges in those cases to take a harder look at the government’s investigation in their particular case, as well as its underlying motivations for dismissing this set of qui tam actions.
Derek M. Adams is a partner at Feldesman Tucker Leifer Fidell LLP in its False Claims Act and litigation practice groups. He previously worked as a Trial Attorney at the Department of Justice, Civil Fraud Section.