Supreme Court Denies Cert in Schneider, Leaving Circuit Split on Extent of DOJ Power to Dismiss FCA CasesApril 17, 2020 – Analysis
The Supreme Court this past week denied certiorari in United States ex rel. Schneider v. J.P. Morgan Chase Bank, N.A., an appeal from a D.C. Circuit case affirming the district court’s dismissal of a qui tam FCA action. See No. 19-678, 2020 U.S. LEXIS 2079 (Apr. 6, 2020). In so doing, the Court declined to address the emerging circuit split over the extent of the government’s dismissal power in qui tam cases.
Relevant Background of the Case
In Schneider, the relator alleged the defendant bank made false statements to the government in connection with both the National Mortgage Settlement (NMS), a judicially-supervised settlement of bank fraud charges related to the 2007–2008 mortgage-based derivatives crisis, and the Home Affordable Modification Program (HAMP), a federally-funded foreclosure relief program. See United States ex rel. Schneider v. J.P. Morgan Chase Bank, N.A., 2019 U.S. Dist. LEXIS 35393, at *2 (D.D.C. Mar. 6, 2019). The government declined to intervene, and moved to dismiss under 31 U.S.C. § 3730(c)(2)(A). Id. at *3–4, 7. The district court granted the motion, based on the government’s “‘unfettered discretion’ to dismiss qui tam actions.” Id. at *8 (quoting Hoyte ex rel. United States v. Am. Nat’l Red Cross, 518 F.3d 61, 65 (D.C. Cir. 2008)). The D.C. Circuit affirmed. United States ex rel. Schneider v. JPMorgan Chase Bank, N.A., No. 19-7025, 2019 U.S. App. LEXIS 25339 (D.C. Cir. Aug. 22, 2019) (per curiam) (unpublished).
Power to Dismiss Under the FCA
Under the statute, “[t]he Government may dismiss the 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). The meaning of this language for the scope of the government’s dismissal power in qui tam cases, however, is currently unsettled, with courts divided between two schools of thought.
On one view, associated with the D.C. Circuit, the government has “what amounts to ‘an unfettered right to dismiss’ a qui tam action.” Hoyte, 518 F.3d at 65 (quoting Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003)). Swift, while conceding the government’s dismissal power “may not be absolute,” assumed the government “act[s] rationally and in good faith” in moving to dismiss a qui tam case. 318 F.3d at 253. “Nothing in  § 3730(c)(2)(A),” the court held, “purports to deprive the Executive Branch of its historical prerogative to decide which cases should go forward in the name of the United States.” Id.; see also Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 753 (5th Cir. 2001) (quoting Searcy v. Philips Elec. N. Am. Corp., 117 F.3d 154, 160 (5th Cir. 1997) (“[T]he government retains the unilateral power to dismiss an action ‘notwithstanding the objections of the [relator].’”); Rodgers v. Arkansas, 154 F.3d 865, 868 (8th Cir. 1998) (government’s dismissal power over relator’s objection “subject only to notice and a hearing” for relator).
In the Ninth Circuit, in contrast, United States ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F. Supp. 1325, 1341, 1347 (E.D. Cal. 1995), aff’d sub nom. United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), set the test to be met before a qui tam can be dismissed over relator’s objection. Under this standard, the government must first “identif[y] . . . a valid government purpose” and show “a rational relation between dismissal and accomplishment of the purpose.” 151 F.3d at 1145 (quoting Sequoia Orange, 912 F. Supp. at 1341). If the government overcomes its hurdles, the burden shifts to relator to “demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.” Id. (quoting Sequoia Orange, 912 F. Supp. at 1347); see also Ridenour v. Kaiser-Hill Co., LLC, 397 F.3d 925, 936 (10th Cir. 2005) (adopting Sequoia Orange test).
Meaning of Statutory “Opportunity for a Hearing”
A key interpretive clash concerns the “opportunity for a hearing on the motion”1 afforded relators by § 3730(c)(2)(A). The D.C. Circuit has described the hearing as merely “giv[ing] the relator a formal opportunity to convince the government not to end the case.” Swift , 318 F.3d at 253. In contrast, the district court in United States ex rel. CIMZNHCA v. UCB, Inc. rejected that view as rendering the hearing “superfluous” and found it inconceivable Congress intended in § 3730(c)(2)(A) to treat the court as a mere “venue, hosting the parties . . . while the relator pleads its case to the Government.” No. 17-CV-765-SMY-MAB, 2019 U.S. Dist. LEXIS 64267, at *7–8 (S.D. Ill. Apr. 15, 2019). Rather, following Sequoia Orange and Ridenour, the court found the statute contemplated “limited judicial review” of dismissal motions to ensure dismissal decisions are not “fraudulent, arbitrary or an abuse of power.” Id. at *8.
Two circuit courts of appeals, the Ninth and the Seventh, currently have before them cases involving the government’s power to dismiss FCA qui tam actions. In November, the Ninth Circuit heard oral argument in United States v. United States ex rel. Thrower, No. 18-16408, the government’s interlocutory appeal of the district court’s denial of the government motion to dismiss the case. The panel appeared to greet the government’s arguments with notable skepticism; see our analysis here. Meanwhile, oral argument has not yet been heard by the Seventh Circuit in No. 19-2273, a similar appeal of United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 17-cv-765-SMY-MAB, 2019 U.S. Dist. LEXIS 96160 (S.D. Ill. June 7, 2019).
Given the Ninth Circuit’s centrality in enunciating the more restrictive view of the government’s dismissal power, it is possible the Supreme Court denied cert in Schneider to allow resolution of the interlocutory appeal in Thrower. That decision, coupled with the Seventh Circuit’s in CIMZNHCA, could go a long way to either sharpening or dissipating what is shaping up as a significant circuit split.