Polansky Purview – What if the United States Doesn’t Want to Realize it’s a Victim?

The Power of False Claims Act

In most areas of law victims can retain counsel to vindicate their rights, but sometimes the United States taxpayers are victimized through systemic fraud and require insiders to blow the whistle through the False Claims Act to help recover the funds. This has been highly successful over the years with billions each year recaptured and in aggregate over a billion dollars going out as whistleblower rewards. In order to file a False Claims Act lawsuit, you need a qui tam attorney to secretly file the matter under seal and allow the government the first opportunity to litigate it. If they step in and handle it the matter is considered intervened, or an intervention and the whistleblower is entitled to up to 25% of what the government recovers as whistleblower award.  If they decline to prosecute it’s referred to as a declined matter or a declination.  The federal circuit courts were split as to what happens if the government declines to prosecute and the relator (the plaintiff in a False Claims Act case) wishes to proceed, but the government wants to dismiss the case.

Government Intervention and Dismissal in False Claims Act Cases

In June 2023, the United States Supreme Court weighed in on the issue and held that if the government wants a case dismissed at any point, since it is the victim with standing, it could at any point intervene and move for dismissal over the objection of the relator and the court must dismiss the matter.  The full case is United States ex rel. Polansky v. Executive Health Resources, Inc., (No. 21–1052. Argued December 6, 2022—Decided June 16, 2023).

Implications for Relators and the Government

The Supreme Court affirmed that the government has the power to move to dismiss an FCA action under a specific provision (Section 3730(c)(2)(A)) of the Act, regardless of whether it intervened during the seal period or at a later date. The Court went as far to interpret the provision to allow the government to dismiss the action even above the objections of the relator, the person who brought the lawsuit, as long as the relator receives notice and an opportunity for a hearing. The Court rejected the argument that the government’s authority to dismiss applies only if it intervened during the seal period.  The Court left open a vague standard for continuing above the government’s objection, if there are “exceptional circumstances” which will be a high threshold to hit, but at least there’s a small outlet valve.

Practically speaking, this will encourage never ending lobbying from defendants through their defense counsel to dismiss the case during the pendency of litigation of declined cases and create some disheartening results.  In most areas of law if a party fails to invoke its rights in a prompt manner, then there’s concepts of laches and waiver, meaning that the party who fails to promptly exercise its rights may forfeit the right to do so at a later time.  With Polansky, theoretically, the government could give the nod for the relator to continue litigating the matter post-declination and the matter may drag out for some time as litigation often does, and then at some later date after both parties have expended considerable time and expense then the government can arbitrarily decide to intervene and dismiss, and other than receiving notice and a hearing, there’s nothing the relator can do other than wave at the case as it goes bye-bye unless it can concretely articulate what is exceptional about the case.

An interesting facet of the opinion is that the government as an entity and the theoretical victim was given a certain sanctity as a custodian.  The government does incur time and expense for monitoring non-intervened case, and this may have the inadvertent and unfortunate byproduct that small dollar qui tams are routinely dismissed under a cost-benefit analysis, thereby allowing smaller frauds to endure without scrutiny.  But who is the government if it’s not the people.  The pre-Polansky split in certain circuits allowed the court to balance the request of the government versus the argument of the relator to determine whether dismissal was warranted, but that avenue has been diluted from a balancing test to a high bar of exception. Never mind the fact that last year we saw a record-breaking False Claims Act settlement in a non-intervened case that lasted almost a decade which the government tried to dismiss and had the government won that dismissal it could have shorted the taxpayers nearly a billion dollars of taxpayer’s funds recovered.  So even if the taxpayers and the United States are a victim of some scheme, if the clumsy machinations of the government can’t figure it out, it may be possible that you will have to forego the qui tam case unless you can make a substantial showing.

The Role of Federal Rules of Civil Procedure

The Court determined that district courts procedurally should apply Federal Rule of Civil Procedure 41(a), the rule governing voluntary dismissals in civil litigation, when evaluating a motion to dismiss and since the true party in interest is the government, the relator has no ability to challenge the dismissal.

However, the Court did note two distinctions when applying Rule 41 in the FCA context. First, the FCA requires notice and an opportunity for a hearing before a dismissal can occur. Second, the court should consider the interests of the relator, as an ambassador for the taxpayer, who may have invested significant resources in the case, and allow a chance for the court to perceive the extraordinary circumstances.

Overall, this case affirmed the government’s authority to dismiss FCA actions under certain circumstances and provided guidance on the standard district courts should use when ruling on such dismissals, emphasizing the application of the Federal Rules of Civil Procedure.

Challenges and Dissenting Views in Polansky

There’s also much to be said about the dissent in Polansky, and the two justices concurring with the idea of hearing a case whether a relator has Article 2 standing to bring a declined case at all, but this author believes those arguments will ultimately fail based on the current composition of the court and that only 3 justices out of 9 took that viewpoint.

Pick and choose your battles. Very few firms litigate declined False Claims Act cases, and the whistleblower law firm of Brown, LLC is not just one of them, it’s part of a smaller subsect of some of the best whistleblower law firms in which they’ve obtained recoveries on behalf of the taxpayer in declined False Claims Act litigation.  Polansky may thin the herd even further as the risks of expending substantial resources in a declined case to be subjected to an arbitrary dismissal down the road may be perceived as too tenuous for most firms to absorb the cost and elevated risks of litigating declined False Claims Act matters.