The Supreme Court provides False Claims Act relators with good news, bad news, and no news
It is often said that no news is good news. In that sense, relators can take comfort in the recent opinions issued by the Supreme Court relating to False Claims Act (“FCA”) matters (United States ex rel. Schutte v. SuperValu Inc. (“Schutte”) and United States ex rel. Polansky v. Executive Health Resources, Inc. (“Polansky”)). Though the effects of these opinions obviously remain to be seen, it is unlikely they will materially alter the challenges relators face, while foreclosing a potentially devastating defense to FCA claims.
The good news: The Schutte opinion rejects a defendant’s ability to abstract away knowing conduct.
In Schutte, the Court assessed whether a defendant can be determined to have acted knowingly (i.e., with scienter) if any objectively reasonable determination could have been made that a defendant’s claims were not false. The defendants in the matter sought to argue that the existence of an objectively reasonable interpretation that would render their claims not false precluded any finding that they were knowingly false. The Court rejected this theoretical endeavor, unanimously concluding that “[w]hat matters for an FCA case is whether the defendant knew the claim was false.”[i] In short, a relator who offers evidence that a defendant knew its conduct was false need not pre-empt theoretical justifications for the claims.
From a relator’s perspective, the Schutte case appears to be a helpful prophylactic; its clarification that scienter is assessed at the time of a false submission based on what a defendant actually knows or subjectively believes is a strongly favorable one. A contrary decision could easily have amplified the difficulty of litigating False Claims Act matters, requiring relators to thwart theoretical defenses, and potentially made them much into a more costly battle hinging upon experts testifying as to whether theoretical interpretations are objectively reasonable.
The bad news: The Polansky opinion permits the government broad discretion to dismiss relator’s cases at any phase.
In Polansky, the Court considered whether the government has the authority to seek dismissal of a relator’s False Claims Act case after it has declined to intervene during the period remains under seal and, if so, what standard of review is applied to such a motion to dismiss.
Neither answer the majority offers will provide relators any comfort. The Court affirmed the Third Circuit’s opinion addressing a matter arising out of exceptional circumstances in its entirety.[ii]
As to the first question, the Court determined that the government may intervene for the purpose of making a motion to dismiss a private FCA action at any time. While a post-seal intervention requires the government to show good cause,[iii] the Court acknowledges that the Third Circuit found the government’s “request to dismiss the suit – based on its weighing of discovery burdens against likelihood of success – itself established good cause to intervene.”[iv] While this is merely footnoted in the opinion, this dicta is likely to guide courts toward a fatalistic view of “good cause” when it comes to False Claims Act matters.
Post-Polansky, relators will strain to find substance in the statutory language from the same statutory section that the Court may permit the government to intervene in the post-seal period “without limiting the status and rights of the person initiating the action”;[v] now, this language seems merely to ensure the relator gets the right to argue against the virtually inevitable.
This is not merely because the “good cause” standard is rendered largely circular by the Third Circuit’s approach, but because the Court adopts a sweeping interpretation of the standard of Rule 41 to assess a government’s motion to dismiss. The Court adopts the Third Circuit’s view that the standards of Rule 41 “will be readily satisfied” in most False Claims Act matters, even while it rejects the Government’s assertion of “essentially unfettered discretion to dismiss”.[vi] A relator will be entitled to notice and an opportunity for hearing before dismissal and the dismissal must be on “proper terms” but that “in all but the most exceptional cases”, this standard will be satisfied.[vii] The Court declines to theorize as to what Rule 41 requires or what could constitute “proper terms” when years of effort and substantial expense can be readily rendered useless.
The likely reality is that Polansky will encourage defendants to amplify their discovery demands on the government unless and until they face material limitations on their ability to do so.
As disconcerting as the majority opinion is, the dissent (Thomas, J.) offers the greatest concern for relators, since Justice Thomas finds that “[t]here are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation”.[viii] acknowledge While Congressional advocates for False Claims Act matters may have the ability to soften the majority opinion’s approach through statutory revisions, these questions that three justices acknowledge would not be so readily addressed.
The no news: Polansky’s majority opinion is unlikely to materially change the landscape.
Despite all this bad news, relators can gleam some optimism from Polansky. The fundamental lesson of the majority opinion is, frankly, unsurprising -- relators acting without government support know they are facing an uphill battle, both at the motion to dismiss stage and as the case progresses. Moreover, the alternative holding that Polansky, the relator in the underlying action, urged here would likely have been a mixed blessing at best. By determining that the government may only intervene in the initial seal period, the Court would have ensured either the government’s aggressive intervention to dismiss all but the most exceptional cases at that stage or extremely prolonged seal periods. Lastly, the Supreme Court does reject the “unfettered discretion” argument set forth by the government, so that district court judges retain the ability to consider relators’ interests against a government motion to dismiss.[ix]
Polansky’s holding has two takeaways for relators. It will be of greater-than-ever significance to find counsel who can maintaining a cooperative relationship with the government to alleviate the risk of involuntary dismissal. Finding counsel that can adhere to the “KISS principle” (“keep it simple, stupid”) will, as well, presenting the government with concise and clearly-pleaded cases will help to prevent defendants from inducing motions to dismiss with sprawling discovery.
[i] United States ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391, 1396 (2023).
[ii] The district court’s dismissal followed extensive discovery, sanctions placed on the relator for failure to disclose documents, and a relator altering a previously-determined set of bellwether claims to be tried when the prior set of claims had been “painstakingly arrived at after several pretrial conferences” and relator did not “offer any explanation as to why he failed to seek court approval” or “satisfactorily explain” the revision. The district court noted that the relator’s “behavior was material . . .” and “caused serious prejudice to Defendant and unnecessary delays in pretrial proceedings.” Polansky v. Executive Health Resources, Inc., 422 F. Supp. 3d 916, 920-21 (E.D. 2019).
[iii] 31 U.S.C. § 3730(c)(3).
[iv] United States ex rel. Polansky v. Executive Health Resources, Inc., 143 S. Ct. 1720, 1729 n.2 (2023).
[v] 31 U.S.C. § 3730(c)(3).
[vi] Polansky, 143 S. Ct. at 1733.
[vii] Id. at 1734.
[viii] Id., 143 S. Ct. at 1741 (Thomas, J., dissenting). In a brief concurrence, Justice Kavanagh, with whom Justice Barrett joins, acknowledges his agreement with the dissent that these constitutional arguments are substantial and should be considered. Polansky, 143 S. Ct. at 1737 (Kavanagh, J., concurring).
[ix] Polansky, 143 S. Ct. at 1733.