On September 12, the United States Court of Appeals for the Third Circuit, in a precedential ruling, held that courts are not required to hold an in-person hearing prior to granting a government’s request to dismiss a qui tam whistleblower’s federal False Claims Act (“FCA”) or Delaware False Claims Act (“DFCA”) suit. However, the Court declined to weigh in on a circuit split that has developed over whether there are limits to the government’s FCA dismissal authority.
The FCA and its Delaware counterpart, the DFCA, are materially identical in allowing the government “to dismiss an action notwithstanding the objections of the person initiating the action if the person has been notified by the government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” 31 U.S.C. § 3730(c)(2)(A); Del. Code Ann. tit. 6, § 1204(b).
The case is United States and State of Delaware ex rel. Chang v. Children’s Advocacy Center of Delaware, No. 18-2311.
Chang sued the Children’s Advocacy Center of Delaware under the FCA and the DFCA, alleging that the Center had misrepresented that its services included a “Multi-Disciplinary Team” philosophy to obtain certain federal and state funding conditioned on this requirement. It further alleged that but for this misrepresentation, the Center would have been ineligible and not received the federal and state funding.
The U.S. Department of Justice and the Delaware Department of Justice declined to intervene, and Chang continued to pursue the case. Subsequently, both the U.S. and Delaware moved to dismiss the case, stating that investigations revealed Chang’s claims to be factually inaccurate and without legal merit. Chang opposed dismissal but did not request a hearing. The U.S. District Court for the District of Delaware dismissed the case without holding a hearing.
Chang then appealed to the Third Circuit, alleging that he had been deprived of an in-person hearing as required by the plain text of the FCA and DFCA, which provide for “an opportunity for a hearing” when the government moves to dismiss an FCA or DFCA suit over the whistleblower-relator’s objections.
The Third Circuit held that the statutory “opportunity” for a hearing should not be interpreted to mean that an actual hearing is mandatory. Instead, the Court held, the statute only provides whistleblowers with the ability to request a hearing.
The Court pointed out that Chang had not requested a hearing at any point and that his opposition “did not demonstrate that the governments’ motions were arbitrary or capricious.” Ultimately, the Court held that the district court did not err in granting the governments’ motion to dismiss without holding an in-person hearing that Chang had never requested in the first place.
Related Circuit Split
Despite requests from the parties, the Court declined to weigh in on a circuit split over the U.S. Department of Justice’s dismissal authority.
The U.S. Courts of Appeals for the Fifth Circuit, the Eleventh Circuit, and the D.C. Circuit have declined to require good cause or formal intervention in order for the U.S. to seek dismissal of an FCA case, instead determining that the U.S. Department of Justice possesses an “unfettered right” to dismiss FCA actions. Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 754 (5th Cir. 2001) (en banc); United States v. Everglades Coll., Inc., 855 F.3d 1279, 1286 (11th Cir. 2017); Swift v. United States, 318 F.3d 250, 251 (D.C. Cir. 2003). According to the D.C. Circuit, allowing courts to circumvent the U.S. Department of Justice’s dismissal authority would contravene the Executive Branch’s “historical prerogative to decide which cases should go forward in the name of the United States.” Swift, 318 F.3d at 251-52.
In contrast, the U.S. Courts of Appeals for the Ninth and Tenth circuits have required the Department of Justice to show a valid purpose for dismissal and have required court approval for dismissal. See United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998); U.S. ex rel. Wickliffe v. EMC Corp., 473 F. App’x 849, 853 (10th Cir. 2012). These two circuits permit qui tam relators to counter that such dismissals are allegedly fraudulent, arbitrary, or illegal in order to escape dismissal.
The Third Circuit declined to decide the appropriate level of scrutiny for government dismissals because it concluded that the dismissal reasons proffered by the U.S. Department of Justice and Delaware Department of Justice met the standard imposed by the Ninth and Tenth circuits.
While the Third Circuit did not weigh in on the extent of government authority to dismiss FCA actions, the decision in Chang continues to demonstrate that qui tam relators face an uphill battle in continuing FCA cases in the face of government opposition. At a minimum, qui tam relators who want to be heard on a dismissal should not assume that the statutory “opportunity for a hearing” is guaranteed. For defense practitioners, the decision reinforces the benefits of endeavoring to convince the state or federal prosecuting authority that it should not only decline to intervene, but that it should also seek dismissal.
Troutman Sanders will continue to monitor and report on state and federal False Claims Act developments around the country as they happen.