EASTERN DISTRICT OF PENNSYLVANIA REJECTS GOVERNMENT’S USE OF “UNFETTERED DISCRETION” TO DISMISS QUI TAM ACTIONS

EASTERN DISTRICT OF PENNSYLVANIA REJECTS GOVERNMENT’S USE OF “UNFETTERED DISCRETION” TO DISMISS QUI TAM ACTIONS

Health Care
May 17, 2019

Recently, Judge Timothy J. Savage of the U.S. District Court for the Eastern District of Pennsylvania said the government cannot simply exercise “unfettered discretion” to dismiss a qui tam action. See United States v. EMD Serono, Inc., CV 16-5594, 2019 WL 1468934 (E.D. Pa. Apr. 3, 2019). As a matter of first impression in the Third Circuit, the Eastern District of Pennsylvania joined the Ninth and Tenth Circuits in holding that the government’s dismissal of a qui tam action is appropriate only if the government has a valid governmental purpose and dismissal is rationally related to accomplishing it.

Background

Under the False Claims Act, private individuals, known as relators, can bring whistleblower suits (also known as qui tam actions) against a party they believe has defrauded the federal government. The government may dismiss the action over a relator’s objections. But in order to do so, the relator must have an opportunity for a hearing. Until Serono, no court in the Third Circuit had addressed what standard a court must apply at such a hearing and what, if any, justification the government must provide for its decision to dismiss an action. 

In Serono, the Relators, health care analysis companies, claimed that two pharmaceutical companies violated the Anti-Kickback Statute. They alleged the pharmaceutical companies unlawfully engaged in “white coat marketing” by providing free educational and informational support, medication instruction, and nurse access and support to induce doctors to prescribe a particular medication. Following the Relators’ allegations, the government conducted an 18-month investigation and concluded the allegations lacked merit. The government moved to dismiss, asserting any continued investigation or prosecution would be too costly and contrary to the public interest. The Relators opposed, arguing the case had potential to return billions of taxpayer dollars to the government. 

The Standard Applied to the Government’s Motion to Dismiss

Before reaching its conclusion, the court noted the split among circuits on the standard for dismissing a qui tam action on the government’s motion over a relator’s objection. The Ninth and Tenth Circuits apply the rational relationship test, while the D.C. Circuit has held the government has an “unfettered right” to dismiss a qui tam action. Judge Savage found the standard applied by the Ninth and Tenth Circuits more persuasive.

Judge Savage reasoned that without requiring the government to provide any justification for dismissing the action, the statute’s mandated opportunity for a relator to have a hearing before a court would be “superfluous.” The court also recognized the rational relationship test is appropriate because it “strikes a balance among the branches of government” by not giving the Executive Branch the unlimited power to dismiss a legitimate qui tam action. By requiring the Executive to give a reason for dismissing an action, it provides “a check against the Executive from absolving a fraudster on a whim or for some illegitimate reason. It prevents the Executive from abusing power.” Id. at *4. 

Why the Court Granted the Government’s Motion to Dismiss

Judge Savage held the government satisfied the rational relationship test and dismissed the action. The government articulated a legitimate interest in avoiding litigation costs in a case without adequate factual and legal support. The government also had public policy reasons for dismissing the action because it concluded the support provided to doctors by the pharmaceutical companies at issue was “appropriate and beneficial to the federal health programs and their beneficiary.” Id. 

The Relators failed to demonstrate that dismissal would be “fraudulent, arbitrary and capricious, or illegal.” Id. at *5. Instead, they merely contended the government’s concern over costs and burdens was insufficient and the government moved to dismiss because it disliked the corporate relator. The court found their arguments unavailing – it pointed to the government’s extensive investigation and did not find any animus on the government’s part towards the corporate relator. 

Conclusion

While Serono offers relators something more than the “unfettered discretion” the D.C. Circuit has accorded the government, the rational relationship test will ordinarily be easily met by the government. Thus, Judge Savage’s adoption of the Ninth and Tenth Circuit’s approach affirms the statutory right of relators to a hearing before their claims are dismissed, but the dismissal standard applied at that hearing will not be difficult for the government to meet. Id. at *3. So long as the government can articulate some legitimate interest and show this interest will be accomplished by the dismissal, the court will grant the government’s motion. As a result, the Serono Relators’ victory in obtaining a higher standard for dismissal is unlikely to change the outcome of most government motions for dismissal of qui tam actions.

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