First Circuit Adopts Deferential Standard for Review of Government Decisions to Dismiss FCA Whistleblower Cases

On January 21, 2022, the First Circuit adopted a deferential standard that gives the government broad authority to dismiss False Claims Act (FCA) suits brought by private citizens (or relators) on behalf of the government pursuant to the so-called “qui tam” provisions of the FCA. The FCA expressly authorizes the government to “dismiss [a qui tam] action notwithstanding the objections of the [relator] if the [relator] has been notified by the Government of the filing of the motion and the court has provided the [relator] with an opportunity for a hearing on the motion.”  31 U.S.C. § 3730(c)(2)(A).  In so ruling, the First Circuit joined the D.C. Circuit in affording substantial deference to the government, as the real party in interest, to determine whether a qui tam lawsuit under the FCA should go forward.

In Borzilleri et al. v. Bayer AG, No. 20-1066 (1st Cir. Jan. 21, 2022) (Borzilleri), a unanimous three-judge panel affirmed the district court’s dismissal of the relator’s complaint at the request of the federal government.  The First Circuit panel held that while the government must provide its reasons for seeking dismissal over the objections of the relators so that the relator can attempt to convince the government to withdraw its motion, the district court should grant the government’s request unless the relator demonstrates that the government’s dismissal is “transgressing constitutional limitations or perpetrating a fraud on the court.”  Id. at 3.

The relator in Borzilleri originally filed his qui tam suit under seal in the District of Rhode Island in May 2014.  In 2018, after conducting its required investigation of the relator’s claims, the government filed notice declining to intervene and, later that year, moved to dismiss the case.  The basis for the government’s motion to dismiss was three-fold: (1) continued litigation would likely require the substantial expenditure of government resources; (2) the government had carefully investigated the relator’s claims and determined that many key aspects of his allegations were not supported; and (3) the relator’s actions, including allegations that he used the qui tam process to leverage his financial interests through securities trading, had convinced the government that the relator was not an appropriate advocate for the government’s interests.  See id. at 9-10.  After a hearing, the district court granted the government’s motion over the relator’s objections.  The relator then appealed to the First Circuit, arguing that the government had not diligently reviewed his claims and that the trial court had erred in granting dismissal. 

In order to address the relator’s arguments, the First Circuit had to resolve two questions of first impression for the circuit; namely, (1) what burden does Section 3730(c)(2)(A) impose on the government when it seeks dismissal of a qui tam action over the whistleblower’s objection; and (2) what standard of review applies to the government’s determination. In resolving those issues, the First Circuit panel disagreed with the relator’s argument that the government had exercised insufficient diligence, holding instead that Section 3730(c)(2)(A) only requires that a hearing should be held to allow a relator to respond to the government’s arguments for dismissal, and that the trial court must review the government’s decision deferentially and grant the motion to dismiss unless there are constitutional concerns or concerns regarding a fraud on the court.

In reaching its decision, the First Circuit panel expressly rejected the stricter standard that had previously been adopted by the Ninth Circuit, which requires a district court to conduct a multi-step substantive analysis of the government’s motion to dismiss. See United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F. 3d. 1139 (9th Cir. 1998).  Under the Sequoia Orange standard, the government must first identify a “valid government purpose” for dismissal and demonstrate a “rational relation between dismissal and accomplishment of [that] purpose."  Sequoia Orange, at 1145.  If the government can meet this burden, the burden then shifts to the relator to show that the “dismissal is fraudulent, arbitrary and capricious, or illegal.”  Id. 

In rejecting the Sequoia Orange standard, the First Circuit observed that the Ninth Circuit’s interpretation of Section 3730(c)(2)(A) “puts the burden on the government to justify its motion to dismiss,” even though “the FCA does not allocate such a burden to the government.”  Borzilleri, at 15.  The First Circuit panel also rejected the standards adopted by the Third and Seventh Circuits, which require the government to satisfy the standards for dismissal under the Federal Rules of Civil Procedure, as other parties are required to do.  See id.at 16-18 (citing United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835, 849-50 (7th Cir. 2020); Polansky v. Exec. Health Res. Inc., 17 F.4th 376, 387-90 (3d Cir. 2021)).  Instead, the First Circuit opted to follow the D.C. Circuit, which gives the government broad authority to dismiss FCA suits absent unconstitutionality or fraud.  See Swift v. United States, 318 F.3d 250, 252-53 (D.C. Cir. 2003).

The First Circuit panel also rejected arguments by the relator that the district court should be required to assess the diligence of the government’s investigation before granting dismissal, pointing to the absence of such language from the text of Section 3730(c)(2)(A) and the fact that a “diligence” inquiry would require to the court to review the government’s investigatory decisions, which typically receive wide discretion.  See id. at 22.  The panel noted that a “diligence” inquiry would require a “mini-trial” process, which would be especially inappropriate where the government has decided that the underlying case would be a drain on government resources and could ultimately hamper FCA enforcement by forcing the government to reveal details of its investigation of the defendants, among other concerns.  See id. at 23-24.

The government’s authority to dismiss under Section 3730(c)(2)(A) has become a frequent topic of interest in recent years, especially after the Granston Memo became public in early 2018 and set forth direction for DOJ’s exercise of authority under this Section with respect to declined qui tam cases.  The guidance in the Granston Memo has since been incorporated into the Department of Justice Manual.  While public comments by government representatives indicated that the Granston Memo was not a change of policy, DOJ’s exercise of dismissal authority under Section 3730(c)(2)(A) appeared to increase in 2018.

To date, the Supreme Court has declined twice, first in April 2020 and again in June 2021, to weigh in on the circuit split on the standard under Section 3730(c)(2)(A), denying petitions for writs of certiorari in two cases that raised the issue, U.S. ex rel. Schneider et al. v. JPMorgan Chase Bank NA et al. and CIMZNHCA LLC v. United States. In late July 2021, shortly after the Supreme Court’s decision not to hear the CIMZNHCA case, a bipartisan group of Senators led by Senator Grassley (R-Iowa) introduced proposed legislation that would, in part, amend Section 3730(c)(2)(A) to require that the government “demonstrat[e] reasons for dismissal” and give relators “the opportunity to show that the reasons [for the Government’s dismissal] are fraudulent, arbitrary and capricious, or contrary to law.”  (We covered this proposed legislation in a blog post.)  As of the date of this post, however, Congress has done little with this proposed bill.

The First Circuit’s decision in Borzilleri reasonably allocates to the government, as the true party in interest, the presumptive right to determine when continued pursuit of litigation in its name is in the best interest of the United States.  The purpose of the FCA was never to enrich relators or to advance relators’ individual legal or policy preferences, but rather to provide a vehicle for uncovering and providing redress for harms to the government.  It is reasonable, therefore, in the absence of collusive or unconstitutional conduct, to allow the government to determine for itself whether it has in fact been harmed or whether pursuit of redress is warranted.  Deference to the government on these issues is also consistent with long-established principles of prosecutorial discretion that the federal courts have consistently recognized and upheld.  Moreover, even taking into account post-Granston Memo increases in government dismissals, the government still rarely exercises this authority, suggesting that there is little need for courts to rein in excessive dismissals by adopting a more stringent standard of review under Section 3730(c)(2)(A).

As of the date of this post, it is unknown whether the relator in Borzilleri will seek review of this decision by the Supreme Court. Given the deepening of the circuit split, there is a reasonable chance that the Supreme Court could decide that this case provides an appropriate vehicle to resolve that split and grant a petition for review.  Were that to happen, the case would be unlikely to come before the Supreme Court prior to its Spring 2023 term.  Thus, at least for now, the existing circuit split and Congress’s lack of movement on creating a uniform statutory standard mean that that the government (and FCA defendants) will continue to live with a jurisdiction-specific approach to dismissing FCA cases.

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