Eastern District of Pennsylvania Court Joins the Ninth and Tenth Circuits in Applying the Rational Basis Test to Governmental Dismissals of Qui Tam Cases

On April 3, 2019, in U.S. v. EMD Serono, Inc., CV 16-5594, 2019 WL 1468934 (E.D. Pa. Apr. 3, 2019), District Judge Timothy J. Savage of the Eastern District of Pennsylvania addressed a matter of first impression within the Third Circuit: what standard (if any) governs the government’s ability to dismiss a qui tam case over the objection of relators. 

The underlying case involved allegations that Pfizer and related healthcare companies had engaged in so-called “white coat marketing” and provide free educational and support services to boost prescriptions for a multiple sclerosis drug from physicians who availed themselves of such services. Id. Relators claimed that this amounted to illegal remuneration in violation of the Anti-Kickback Statute. Id. The government spent over 18 months investigating the case but declined to intervene finding that the alleged remuneration provided to physicians was not illegal remuneration under the AKS but legitimate (and legal) educational services. Id. Not only that, the government moved to dismiss the case, pursuant to 31 U.S.C. § 3730(c)(2)(A), on the basis that monitoring the non-intervened case would be, in effect, a waste of government resources. Id. Relators opposed the government, claiming that the case had merit and the potential to yield a sizeable recovery. Id. at *4.

The Government’s View

The government claimed that its discretion to seek dismissal of a qui tam action is unfettered, which the District of Columbia Circuit had found to be the case in Swift v. U.S., 318 F.3d 250, 252 (D.C. Cir. 2003). However, Judge Savage recognize that a circuit split existed with the Ninth and Tenth Circuits holding that the government must show that a rational relationship exists between the decision to seek dismissal and a legitimate government interest. U.S. ex rel., Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139(9th Cir. 1998); Ridenour v. Kaiser-Hill Co., L.L.C., 397 F.3d 925 (10th Cir. 2005). If the government meets that burden then the relator must show “that [the] dismissal is fraudulent, arbitrary and capricious, or illegal.”  Sequoia, at 1145.

The Court’s View

Judge Savage sided with the Ninth and Tenth Circuits recognizing, inter alia, that the False Claims Act provides for a hearing when the government seeks dismissal over a relator’s objection and that, if the government’s discretion were unfettered, then the hearing would be a “nullity.” Id., at *3. If a hearing is to take place with the judge playing a role, then there must be some standard for the judge to apply. Judge Savage found that the rational basis standard was apt and “strikes a balance among the branches of government. It does not give unlimited power to the Executive to dismiss a legitimate action the Legislature created. Nor does it give the Judicial Branch unrestrained power to stop the Executive from acting to dismiss an action in the government’s interest.” Id. at *4. In essence, the rational basis test “acts as 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.

The Court then moved to the facts at hand. The Court found that the government’s interest in not expending resources on a case that it found lacked merit was rationally related to the government’s interest in conserving litigation resources and effectuating policy goals (i.e., supporting bona fide pharmaceutical education programs). Id. The Relators, on the other hand, failed to meet their burden. Relators argued that the case had merit, the potential for a significant recovery, the government had not performed a sufficient investigation, and that the government was (they claimed) irrationally opposed to one of the relators (an investment-backed LLC, as opposed to an individual whistleblower). Id.at *4-5. Judge Savage found the Relators’ arguments unavailing, noting that the government had diligently investigated the matter, showed no animus toward the LLC Relator, and that the dispute essentially came down to one of conflicting judgments between the Relators and the government over the merits of the underling case. Id. at *5.

Conclusion

While EMD Serono provides relators facing a governmental dismissal motion with some judicial recourse and a check against abuses of executive power, the rational basis standard is an easy one to meet. Absent some truly arbitrary action or one that is otherwise likely to shock the court’s conscience, relators will continue to face an uphill battle in contesting dismissal motions under § 3730(c)(2)(A).