Supreme Court FCA Forecast: Clear Skies on Polansky, Clouds Around 9(b) and a Chance of Schutte Later On
There has been an unusual amount of False Claims Act activity at the Supreme Court in recent months. FCA practitioners were excited to learn in June that SCOTUS granted review to consider the scope of the Department of Justice’s authority to dismiss FCA actions in US ex rel. Polansky v. Executive Health Resources, Inc.—the first FCA case the high court has taken since 2019’s decision in Cochise Consultancy v. US ex rel. Hunt.
Since then, FCA practitioners have been wondering whether this will be a banner term as the Court has taken a particularly close look at two FCA pleading issues: the application of Rule 9(b) and whether the fact that a defendant’s interpretation of the governing legal standard is objectively reasonable forecloses a showing of scienter. Although the Court recently decided to pass on the former issue, it will likely be making a decision on the latter early in 2023. We at Qui Notes delve into all three issues below.
The stage is set for FCA litigants seeking clarity regarding the government’s authority to dismiss declined FCA suits. In Polansky v. EHR, after the Department of Justice (DOJ) declined to intervene, the relator continued litigation alone. Years later, DOJ signaled it was considering moving to dismiss the action but would stay out of it if relator narrowed the scope of his claims. After determining that the relator hadn’t sufficiently narrowed the claims, DOJ ultimately moved to dismiss and the district court granted the motion.
The Third Circuit affirmed, first holding that DOJ must intervene to file a motion to dismiss, and then concluding that the standard for dismissal depends on whether the defendant had filed a responsive pleading, citing FRCP 41(a). The court concluded that “dismissal at this later stage should be granted unless the defendant will suffer prejudice other than the mere prospect of another lawsuit,” saying that it is a rule “with constitutional implications in an FCA case, where it is the government seeking to dismiss a matter brought in its name.”
The issue presented is whether the government has unfettered discretion to dismiss an FCA action in which it declined to intervene. Polansky is now almost fully briefed (relator’s reply brief is due next week) and SCOTUS will hear oral argument on December 6.
9(b) Petitions—Bethany Hospice, Owsley, and Molina Healthcare
Practitioners have long complained that courts have reached inconsistent conclusions in applying Rule 9(b)’s particularity requirement to FCA cases. Some circuit courts require details of specific false claims be pled to pass muster under Rule 9(b), while the majority of circuit courts do not require details of actual false claims at the pleading stage—but require that the complaint contain enough detail to establish a sufficiently strong inference that false claims were actually submitted to the government. FCA super fans may recall that the high court passed on cases presenting that circuit split in 2010 and 2014.
A trio of recent cases raised the issue: Johnson v. Bethany Hospice & Palliative Care LLC (11th Cir.), US ex rel. Owsley v. Fazzi Associates, Inc. (6th Cir.) and Molina Healthcare of Illinois, Inc. v. Prose (7th Cir.). The Supreme Court was sufficiently interested in the issue such that it asked the Solicitor General (SG) to file an amicus brief in both Bethany Hospice and Owsley to weigh in on the cert-worthiness of the cases. In response, the SG denied the existence of a circuit split, saying that SCOTUS review was not warranted because “the courts have largely converged on an approach that allows relators either to identify specific false claims or to plead other sufficiently reliable indicia supporting a strong inference that false claims were submitted to the government.” The SG said that the divergent outcomes are a result of applying a “fact-intensive” standard to different cases.
On October 17, the Court denied all three petitions. The denial will frustrate many FCA practitioners, who disagree with the SG’s claim that courts have coalesced around a single standard.
Schutte (and Proctor)
There is still a chance, though, that another FCA case is picked up this term. The Supreme Court currently has at least two cases pending before it that present issues relating to pleading scienter. As Qui Notes readers may already know, many courts of appeals have applied the Safeco Insurance Co v. Burr scienter precedent in the FCA context, holding that a relator cannot establish a knowing or reckless violation of the FCA if the statement in question is consistent with an objectively reasonable interpretation of the governing legal obligation.
In US ex rel. Schutte v. SuperValu Inc., relators seek to challenge that precedent. There, the Seventh Circuit affirmed dismissal of the complaint, holding it irrelevant that relators alleged SuperValu’s subjective knowledge of its alleged wrongdoing because SuperValu’s position was objectively reasonable.
Two things about Schutte make it noteworthy. First, Senator Grassley, a strong advocate for the FCA, filed an amicus brief in support of the relators urging SCOTUS to reject the Safeco objective standard, which he argues does not give separate meaning to the FCA’s prohibition on acting with actual knowledge of fraud. Although members of Congress often submit amici briefs saying an appellate court misinterpreted a statute, it is notable when someone so closely associated with a statute chimes in.
Second, SCOTUS has asked the SG for its views on Schutte. Statistical analyses of the Court’s orders reflect that the cert. grant rate is between forty and fifty times higher following a CVSG. Indeed, the odds of a grant remain much higher even if the SG recommends the Court deny review.1 Although there is no formal deadline, the SG is expected to file its amicus brief by mid-December. Such timing permits the Court to decide in January whether to take the case, which would allow Schutte to be decided before the end of the current term.
Hot on Schutte’s heels is another Seventh Circuit case, US ex rel. Proctor v. Safeway, Inc., which similarly challenges SafeCo’s applicability to the FCA—and still others are expected to be filed soon. So, while it is rare for the High Court to consider more than one FCA case per term, the current term may be one for the record books.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.