Health Choice Alliance v. Eli Lilly ( 2021 )

Case: 19-40906 Document: 00515928635 Page: 1 Date Filed: 07/07/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
July 7, 2021
No. 19-40906 Lyle W. Cayce
Clerk
United States of America, Ex Rel., Health Choice
Alliance, L.L.C., on behalf of United States of America and
31 States (AR; CA; CO; CT; DE; DC; FL; GA; HI; IL; IN; IA;
LA; MD; MA; MI; MN; MT; NV; NH; NJ; NM; NY; NC; OK;
RI; TN; TX; VT; VA; WA),
Plaintiffs—Appellants,
versus
Eli Lilly and Company, Incorporated; VMS
BioMarketing; Covance, Incorporated; United
BioSource Corporation; HealthSTAR Clinical
Education Solutions, L.L.C.; Covance Market Access
Services, Incorporated,
Defendants—Appellees,
United States of America,
Appellee,
______________________________
United States of America, Ex Rel., Health Choice
Group, L.L.C., on behalf of United States of America and 31
States (AR; CA; CO; CT; DE; DC; FL; GA; HI; IL; IN; IA;
LA; MD; MA; MI; MN; MT; NV; NH; NJ; NM; NY; NC; OK;
RI; TN; TX; VT; VA; WA),
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Plaintiff—Appellant,
versus
Bayer Corporation; Amgen, Incorporated; Onyx
Pharmaceuticals, Incorporated; AmerisourceBergen
Corporation; Lash Group,
Defendants—Appellees,
United States of America,
Appellee.
Appeals from the United States District Court
for the Eastern District of Texas
USDC No. 5:17-CV-123
USDC No. 5:17-CV-126
Before Higginbotham, Elrod, and Haynes, Circuit Judges.
Jennifer Walker Elrod, Circuit Judge: *
The appellants Health Choice Alliance and Health Choice Group
brought qui tam actions under the False Claims Act on behalf of the United
States alleging violations of the Anti-Kickback Statute by pharmaceutical
companies. The United States moved to dismiss the actions, and the district
court granted the motion. Because the actions were properly dismissed, we
AFFIRM.
I.
Health Choice Alliance and Health Choice Group (collectively Health
Choice) are both entities created by the National Health Care Analysis Group
*
Judge Haynes concurs in the judgment only.
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for the purpose of filing qui tam actions alleging instances of fraud in medicine
and pharmaceuticals. Health Choice and affiliated entities brought eleven
qui tam actions under the False Claims Act against a total of thirty-eight
defendants alleging similar violations of the Anti-Kickback Statute. 31 U.S.C.
§ 3730(b); 42 U.S.C. § 1320a-7b(b). This appeal concerns two of those qui
tam cases, against Eli Lilly and Company and Bayer Corporation. 1 The
complaints in both the Eli Lilly and Bayer cases allege that the defendants
illegally provided patient-education services to providers before a
prescription had been written in violation of the Anti-Kickback Statute and
certain state laws.
Health Choice filed two similar complaints against Eli Lilly and
(initially) four other defendants and against Bayer and four other defendants
1
The nine cases which are not at issue in this appeal are: United States ex rel.
CIMZNHCA v. UCB, Inc., 970 F.3d 835, 852, 854 (7th Cir. 2020) (remanding and
instructing the district court to dismiss the case on the government’s motion and stating
that “[w]herever the limits of the government’s power lie, this case is not close to them”),
remanded to No. 3:17-CV-765 (S.D. Ill. Sept. 28, 2020), cert. denied, No. 20-1138, 2021 WL
2637991 (June 28, 2021); United States ex rel. SMSPF, LLC v. EMD Serono, Inc., 370 F.
Supp. 3d. 483, 491 (E.D. Pa. 2019) (granting government’s motion to dismiss); United
States ex rel. NHCA-TEV, LLC v. Teva Pharm. Prods. Ltd., No. 17-CV-2040, 2019 WL
6327207, at *6 (E.D. Pa. Nov. 26, 2019) (granting government’s motion to dismiss); United
States ex rel. SAPF, LLC v. Amgen, Inc., No. 16-CV-5203 (E.D. Pa. Feb. 11, 2019)
(dismissing case on voluntary consent of the government and relators); United States ex rel.
SCEF, LLC v. AstraZeneca PLC, No. 17-CV-1328, 2019 WL 5725182, at *4 (W.D. Wash.
Nov. 5, 2019) (granting government’s motion to dismiss); United States ex rel. Miller v.
AbbVie, Inc., No. 16-CV-2111 (N.D. Tex. May 09, 2019) (dismissing case on voluntary
consent of relator and the government); United States ex rel. Carle v. Otsuka Holdings Co.,
No. 17-CV-966 (N.D. Ill. Jan. 29, 2019) (dismissing case on voluntary consent of the
government and relators); United States ex rel. SMSF, LLC v. Biogen, Inc., No. 16-CV-11379
(D. Mass. Dec. 17, 2018) (granting defendant’s unopposed motion to dismiss for failure to
state a claim); United States ex rel. Health Choice Advocates, LLC v. Gilead, et al., No. 5:17-
CV-121 (E.D. Tex. July 27, 2018) (dismissing case on voluntary consent of relator and the
government).
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in the United States District Court for the Eastern District of Texas. 2 Prior
to filing these complaints, Health Choice submitted pre-filing notices to and
met with attorneys from the United States Attorney’s Office for the Eastern
District of Texas. After filing the complaints, Health Choice met with
officials at the Department of Justice Civil Division in Washington, D.C. The
United States declined to intervene in either case.
Health Choice then amended each of its complaints. Shortly
thereafter, Eli Lilly, Bayer, and the other defendants filed motions to dismiss
for failure to state a claim. See Fed. R. Civ. P. 9(b), 12(b)(6). The magistrate
judge held a consolidated hearing on the motions to dismiss in both cases.
The magistrate judge recommended the motions be denied in part and
granted in part, and the district court adopted these recommendations.
Health Choice amended its complaints once more to address the pleading
deficiencies identified by the district court.
In October of 2018, approximately a year after declining to intervene
in the Eli Lilly and Bayer cases, the government sent notice to Health Choice
that it intended to move to dismiss the complaints. See 31 U.S.C.
§ 3730(c)(2)(A). Over the next two-and-a-half months, Health Choice and
the government conferred by meeting, letter, and teleconference to discuss
the government’s stated concerns about the case. During a teleconference
with Health Choice, the government identified four specific concerns about
2
In its negotiations with the government, Health Choice agreed to voluntarily
dismiss its claims against the non-pharmaceutical defendants in the Eli Lilly case in order
to “streamline” the case and reduce the administrative burden on the government. In
January of 2019, Health Choice dismissed its claims, without prejudice, against all the
defendants except Eli Lilly in the Eli Lilly case. Health Choice did not voluntarily dismiss
any claims in the Bayer case. Amgen, Inc., Onyx Pharmaceuticals, Inc.,
AmerisourceBergen Corp., and Lash Group remain codefendants in the Bayer case. For
simplicity, we refer only to Eli Lilly and Bayer.
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the Eli Lilly and Bayer cases: “(1) whether there [was] sufficient factual and
legal support to prove violations of the Anti-Kickback Statute, 42 U.S.C.
§ 1320a-7b(b) (AKS); (2) the substantial costs and burdens for the United
States if the qui tam actions were to continue; (3) certain policy interests of
Medicare and other federal healthcare programs; and (4) the investigative
methods employed by ‘National Healthcare Analysis Group,’” Health
Choice’s parent organization.
On December 17, 2018, the government notified Health Choice that it
intended to proceed with its motions to dismiss, and it filed those motions
the same day. In its notice to Health Choice, the government cited to its own
two-year investigation and the supplemental information provided by Health
Choice—including documents purportedly supporting Health Choice’s
theory of the cases and letters from Health Choice concerning the merits and
costs and benefits of the cases—as the basis of its decision to seek dismissal.
In response to the government’s motions to dismiss, Health Choice
first asserted that the government supported its motions primarily with “ad
hominem attacks” against Health Choice. Health choice then argued that the
district court should not afford the government unfettered discretion to
dismiss and instead should hold that the government has not made the
“proper showing” to warrant dismissal.
In reply, the government said it had “concluded that, not only do the
allegations lack factual and legal support, but further litigation will impose
burdens and costs on the government that are not justified and will
undermine practices that benefit federal healthcare programs by providing
patients with greater access to product education and support.”
On May 14, 2018, the magistrate judge held a consolidated hearing on
the government’s motions to dismiss both cases. The magistrate judge
recommended that the district court grant both motions. The district court
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adopted the recommendations and granted the government’s motions to
dismiss. Health Choice timely appealed.
II.
Before turning to the merits, we must determine whether we have
jurisdiction to hear this case. The district court had federal question
jurisdiction over Health Choice’s federal claims and supplemental
jurisdiction over its state law claims. See 28 U.S.C. §§ 1331, 1367(a). Both
Health Choice and the United States contend that appellate jurisdiction
exists because the orders below are “final decisions” of the district court. 12
U.S.C. § 1291. Still, we have an independent obligation to assure ourselves
of jurisdiction. Green Valley Special Util. Dist. v. City of Schertz, 969 F.3d 460,
468 (5th Cir. 2020) (en banc).
We have “jurisdiction of appeals from all final decisions of the district
courts of the United States.” 28 U.S.C. § 1291. “[T]here is no final decision
if a plaintiff voluntarily dismisses a defendant without prejudice, because the
plaintiff ‘is entitled to bring a later suit on the same cause of action.’”
Williams v. Taylor Seidenbach, Inc., 958 F.3d 341, 343 (5th Cir. 2020) (en banc)
(quoting Ryan v. Occidental Petroleum Corp., 577 F.2d 298, 302 (5th Cir.
1978)). “And in a suit against multiple defendants, there is no final decision
as to one defendant until there is a final decision as to all defendants.” Id.;
see Fed. R. Civ. P. 54(b).
There is a potential jurisdictional issue concerning the chronology of
two events: the plaintiff’s voluntary dismissal and the district court’s
granting of a motion to dismiss. Health Choice voluntarily dismissed,
without prejudice, its claims against certain defendants in the lawsuit against
Eli Lilly. Eight months later, the district court granted the United States’
motion to dismiss and entered final judgment. This circuit has not decided
how the finality rule of “Williams and Ryan would apply where the
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[voluntary, without-prejudice] dismissal occurred before the adverse,
interlocutory order.” Firefighters’ Ret. Sys. v. Citco Grp. Ltd., 963 F.3d 491,
492 n.1 (5th Cir. 2020). This case squarely presents that question. We
decline to create a circuit split and conclude that the prior without-prejudice
dismissals did not deprive the district court’s subsequent decision of finality.
See Schoenfeld v. Babbitt, 168 F.3d 1257, 1265–66 (11th Cir. 1999) (holding that
this sequence of events results in a final decision).
Unlike Ryan, this case involves a final decision. In Ryan, the district
court granted a motion to dismiss certain paragraphs of plaintiff’s complaint
against the lone defendant. See Ryan, 577 F.2d at 300. Then, the plaintiff
voluntarily dismissed without prejudice the remaining substantive allegation
and requested certification under Federal Rule of Civil Procedure 54(b).
This court saw the plaintiff’s actions for what they were: a transparent
attempt to obtain immediate appellate review over rulings that did “not
amount to a termination of the litigation between the parties.” Id. at 302.
This case, by contrast, involves the plaintiff dismissing all claims against
certain defendants “without prejudice before the district court entered the
order [granting the government’s motion to dismiss] and entered a final
judgment.” See Schoenfeld, 168 F.3d at 1265. Instead of manufacturing an
appealable decision like the plaintiff in Ryan, Health Choice’s dismissal
brought about a swifter termination of the litigation.
The district court’s order on the motion to dismiss was final because
it “adjudicated all the claims against all the remaining parties in the action at
the time it was entered.” Id. at 1266; cf. Cook v. City of Tyler, 974 F.3d 537,
539 (5th Cir. 2020) (“For purposes of Section 1291 a decision is final only if
it ‘ends the litigation on the merits and leaves nothing for the court to do but
execute the judgment.’” (quoting Sealed Appellant 1 v. Sealed Appellee, 199
F.3d 276, 278 (5th Cir. 2000))). The prior voluntary dismissal does not alter
that conclusion.
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III.
Satisfied that we have appellate jurisdiction, we now turn to the merits
of Health Choice’s appeal.
Health Choice brought its Anti-Kickback claims against Eli Lilly and
Bayer on behalf of the government under the False Claims Act. 31 U.S.C.
§ 3730(b); 42 U.S.C. § 1320a-7b(b). The False Claims Act states that “[a]
person may bring a civil action for a violation of [31 U.S.C. §] 3729 for the
person and for the United States Government. The action shall be brought
in the name of the Government.” 31 U.S.C. § 3730(b). This provision
authorizes individuals—relators—to bring qui tam lawsuits alleging a “false
or fraudulent claim” for payment from the United States. Id. §§ 3729(a),
3730(b); United States ex rel. Spicer v. Westbrook, 751 F.3d 354, 364 (5th Cir.
2014). Relators are entitled to a portion of the proceeds from a successful qui
tam lawsuit. 3 31 U.S.C. § 3730(d).
The Anti-Kickback Statute proscribes “offer[ing] or pay[ing] any
remuneration (including any kickback, bribe, or rebate) . . . to refer an
individual to a person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part under a
Federal health care program.” 42 U.S.C. § 1320a-7b(b)(2)(A). Health
Choice alleges that Eli Lilly and Bayer illegally provided free product-
education services from nurses in order to induce health care providers to
prescribe Eli Lilly and Bayer products. The Anti-Kickback Statute makes
such an allegation actionable by a qui tam relator by defining a violation of
3
Amicus curiae, the Chamber of Commerce, criticizes the False Claims Act for
incentivizing relators to bring qui tam lawsuits by offering them a portion of the recovery.
Such a policy objection to Congress’s chosen incentive structure is irrelevant to our
construction of the statute. See Tolbert v. RBC Capital Markets Corp., 758 F.3d 619, 627 n.6
(5th Cir. 2014) (“We decline, however, to engage in any policy debate that would affect
how we interpret this statute.”).
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§ 1320a-7b as a “false or fraudulent claim for purposes of” the False Claims
Act. Id. § 1320a-7b(g). Thus, Health Choice’s Anti-Kickback Statute claims
are properly brought on behalf of the United States under the False Claims
Act.
In this case, as with every False Claims Act qui tam lawsuit, the “real
party in interest” is the United States. 31 U.S.C. § 3730(c)(2)(A); United
States ex rel. Eisenstein v. City of New York, 556 U.S. 928, 930 (2009)
(describing the United States as the “real party in interest” in any False
Claims Act lawsuit). The claims here ultimately belong to the United States,
not Health Choice. See Vt. Agency of Nat. Res. v. United States ex rel. Stevens,
529 U.S. 765, 773 (2000) (regarding the False Claims Act as “effecting a
partial assignment of the Government’s damages claim”). The False Claims
Act allows the government to assert control over qui tam litigation through a
number of procedural mechanisms, such as intervention, settlement, and
“[t]he power to veto voluntary settlements.” Searcy v. Philips Elecs. N. Am.
Corp., 117 F.3d 154, 160 (5th Cir. 1997); accord 31 U.S.C. § 3730(c).
The government moved to dismiss Health Choice’s claims in the Eli
Lilly and Bayer cases, and the district court granted both motions. Health
Choice challenges the dismissals on appeal. To address Health Choice’s
arguments, first, we lay out the tests other circuits have adopted to assess a
motion by the government to dismiss a qui tam action. Second, we construe
the term “hearing” in 31 U.S.C. § 3730(c)(2)(A) to require something more
than a forum for a relator to convince the government not to dismiss. Third,
we determine that Health Choice got a hearing as required by
§ 3730(c)(2)(A). And fourth, we conclude that dismissal of the Eli Lilly and
Bayer cases was proper even under the test most favorable to Health Choice.
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A.
At oral argument, Health Choice focused mainly on the hearing
requirement attendant to the government’s right to “dismiss the action
notwithstanding the objections of the person initiating the action.” 31 U.S.C.
§ 3730(c)(2)(A). The government may move to dismiss once two conditions
have been met. Id. First, the government must give notice to the qui tam
relator of the government’s motion to dismiss; second, the court must
provide the relator with “an opportunity for a hearing on the motion.” Id.Health Choice argues that the district court erred by not affording it
an evidentiary hearing before dismissing both cases. Health Choice further
contends that a hearing necessarily entails the exercise of judicial power, and
so the district court must engage is some meaningful review of the
government’s decision to dismiss.
We have not yet had an opportunity to determine what is required for
the government to dismiss a case under § 3730. Four other circuits, however,
have done so, and there is a deeply entrenched circuit split. Compare Swift v.
United States, 318 F.3d 250, 252 (D.C. Cir. 2003) (giving the government
unfettered discretion to dismiss qui tam lawsuits), with United States ex rel.
Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir.
1998) (adopting a rational-relation test for reviewing the government’s
motion to dismiss a qui tam lawsuit), and Ridenour v. Kaiser-Hill Co., 397 F.3d
925, 936 (10th Cir. 2005) (adopting Sequoia Orange’s rational-relation test).
But see United States ex rel. CIMZNHCA v. UCB, Inc., 970 F.3d 835, 839 (7th
Cir. 2020) (viewing the “choice between the competing standards as a false
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one” and applying a standard “informed by Federal Rule of Civil Procedure
41”). 4
In Swift, the D.C. Circuit read § 3730(c)(2)(A) as “giv[ing] the
government an unfettered right to dismiss an action” brought by a relator
under the False Claims Act. Swift, 318 F.3d at 252. “The section states that
‘The Government’—meaning the Executive Branch, not the Judicial—‘may
dismiss the action.” Id. (quoting 31 U.S.C. § 3730(c)(2)(A)). The D.C.
Circuit read no intent to create judicial review in § 3730(c)(2)(A). Id. Nor
did the D.C. Circuit credit the relator’s argument that a relator’s “right to a
hearing” gives the judiciary authority to review the government’s decision to
dismiss. Id. at 253. A § 3730(c)(2)(A) hearing, according to Swift, is simply
“a formal opportunity to convince the government not to end the case,” and
possibly to establish fraud on the court. Id. Swift gives the government nearly
unfettered discretion to dismiss a False Claims Act qui tam action.
Conversely, Sequoia Orange articulates a rational-relation test to
scrutinize motions to dismiss filed by the government. Recognizing that
“[t]he qui tam statute itself does not create a particular standard for
dismissal,” the Ninth Circuit approved of the “two step” burden-shifting
test applied by the district court in that case. Sequoia Orange Co., 151 F.3d at
1145. First, the government must identify: (1) “a valid government
purpose”; and (2) “a rational relation between dismissal and
accomplishment of that purpose.” Id. Second, if the government satisfies its
burden, “the burden switches to the relator ‘to demonstrate that dismissal is
fraudulent, arbitrary and capricious, or illegal.’” Id. (quoting United States
4
UCB is one of the eleven cases brought by entities affiliated with Health Choice.
See supra note 1 and accompanying text. The Seventh Circuit decided UCB after initial
briefing and oral argument in this case. Both parties submitted supplemental letters to
address UCB. See Fed. R. App. P. 28(j).
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ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F.Supp. 1325,
1347 (E.D. Cal. 1995)).
The Tenth Circuit adopted this rational-relation test from Sequoia
Orange because it “construe[d] the hearing language of § 3730(c)(2)(A) to
impart more substantive rights for a relator” than the D.C. Circuit
recognized in Swift. Ridenour, 397 F.3d at 935.
The Seventh Circuit has also weighed in on this issue, refusing to
wholly adopt either the Sequoia Orange rational-relation test or the
unfettered-discretion standard from Swift, criticizing both. UCB, 970 F.3d
at 839, 850, 853. Instead, the Seventh Circuit treated the government’s
motion to dismiss as a motion to intervene and then “appl[ied] a standard for
dismissal informed by Federal Rule of Civil Procedure 41.” Id. at 839. The
Seventh Circuit used the phrase “[s]ubject to . . . any applicable federal
statute” to apply § 3730(c)(2)(A) to the government’s motion. Id. at 850
(quoting Fed. R. Civ. P. 41(a)(1)(A)). The Seventh Circuit concluded that
the government has an “absolute” right to dismiss, so long as it serves notice
under Rule 41(a) and there is a hearing under § 3730(c)(2)(A). Id. at 849–50.
Because there is no dispute in this case that Health Choice received notice of
the government’s motion to dismiss, application of the Seventh Circuit’s
approach reduces to the question of whether Health Choice “took its
opportunity to be heard.” Id. at 850.
Health Choice urges us to adopt the rational-relation test from Sequoia
Orange and argues that the district court erred in dismissing the Eli Lilly and
Bayer cases. In doing so, however, it focuses on the relator’s burden and
insists that the Sequoia Orange test “marches under the banner of arbitrary
and capricious review, a foundational limitation on government action.” The
government, conversely, urges us to adopt the unfettered discretion standard
from Swift and argues that both the Eli Lilly and Bayer cases were properly
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dismissed. Alternatively, the government contends that the district court
was correct in concluding that the government satisfied both the unfettered-
discretion standard from Swift and the more burdensome Sequoia Orange
standard.
B.
The meaning of the term “hearing” holds the key to the question of
the court’s role in assessing the government’s decision to dismiss under
§ 3730(c)(2)(A). Because this is a question of statutory interpretation, our
review is de novo. See Dresser v. Meba Medical & Benefits Plan, 628 F.3d 705,
708 (5th Cir. 2010). We are persuaded by Health Choice’s argument that the
term “hearing” means what is says. It includes judicial involvement and
action.
Congress introduced the hearing requirement in § 3730(c)(2)(A) in
1986. False Claims Amendments Act of 1986, P.L. 99-562, 100 Stat. 3153.
The fifth edition of Black’s Law Dictionary gives the primary definition of
“hearing” as a “[p]roceeding of relative formality . . . , generally public, with
definite issues of fact or law to be tried, in which witnesses are heard and parties
proceeded against have right to be heard, . . . and may terminate in final
order.” Hearing, Black’s Law Dictionary (5th ed. 1979) (emphasis added).
Similarly, the tenth edition of Merriam-Webster’s Collegiate Dictionary defines
“hearing” in the relevant legal sense as “a listening to arguments.” Hearing,
Merriam-Webster’s Collegiate Dictionary (10th ed. 1993); see also Hearing
Webster’s Second International Dictionary (1934) (“A listening to arguments
or proofs and arguments in interlocutory proceeding.”). 5
5
See Antonin Scalia & Bryan A. Garner, A Note on the Use of Dictionaries, 16 Green
Bag 2d 419, 423, 426, 427 (2013) (“Dictionaries tend to lag behind linguistic realities . . . .
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The Black’s definition hinges on the issues tried at the hearing, and
the Webster’s definition hinges on the argument or proofs presented at the
hearing. Both definitions, then, necessarily involve something to be decided.
These definitions cast doubt on the government’s notion of a
§ 3730(c)(2)(A) hearing as merely an opportunity for the government to
publicly broadcast its reasons for dismissal and for the relator to convince the
government to change its mind. Such a limited notion of a hearing that leaves
nothing for the court to decide or do is inconsistent with the notion that the
function of federal courts is to decide actual cases and controversies. Cf. U.S.
Const. art. III § 2; DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 340–41
(2006). Simply put, courts do not exist to provide a forum for press
announcements.
While some type of actual hearing is required, we need not decide the
precise bounds of the government’s discretion to dismiss qui tam lawsuits.
Cf. United States v. Gonzales, 520 U.S. 1, 11 (1997) (“We are hesitant to reach
beyond the facts of this case to decide a question that is not squarely
presented for our review.”). For the reasons explained below, it is clear that
Health Choice had a hearing and that dismissal was, in the very least, not
arbitrary and capricious.
C.
At oral argument, counsel for Health Choice repeatedly stressed that
there had been an absence of “an evidentiary hearing, as required by
procedural due process” and § 3730(c)(2)(A). See, e.g., Oral Argument at
1:45, 2:50. Health Choice thus states both statutory and constitutional bases
for affording it an evidentiary hearing.
If you are seeking to ascertain the meaning of a term in an 1819 statute, it is generally quite
permissible to consult an 1828 dictionary.”).
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Health Choice’s statutory argument fails because a review of the
record demonstrates that Health Choice did get a hearing, and the magistrate
judge did not prevent Health Choice from presenting evidence at that
hearing. Health Choice simply chose not to present its evidence. 6 Counsel
for Health Choice admitted as much at oral argument:
We said, “We are prepared to prove our case,” but we felt,
honestly . . . that there was no need for an evidentiary hearing
because the government’s affidavits and declarations had been
thoroughly rebutted. But now that we are where we are we
would like an evidentiary hearing to show that—
....
I want to be very precise. We asked—We represented to the
court we have John Mininno here prepared to testify. The
magistrate judge did not respond at all. That was our
submission. And why was that our submission? Because the
fundamental thrust of the motion to dismiss was “NHCA
[Health Choice’s parent organization] is bad” and “NHCA”
which is wrong . . . and the second thing that we said is the
6
In that hearing, Health Choice split its argument into two parts, delivered by two
different attorneys. In the first portion of its argument, Health Choice urged the magistrate
judge to reject the D.C. Circuit’s unfettered-discretion approach from Swift and instead
adopt the rational-relation test from Sequoia Orange used by the Ninth and Tenth Circuits
as the standard of review of the government’s decision to dismiss. In the second portion of
its argument, Health Choice asserted that the totality of the circumstances shows the
government’s decision to dismiss the Eli Lilly and Bayer cases was arbitrary and capricious.
Health Choice’s standard-of-review argument at the hearing centered around the
need for “an authentic and meaningful hearing with law to apply.” Health Choice stressed
at this hearing that “we want a hearing . . . and a meaningful hearing.” Health Choice told
the magistrate judge that a witness, John Mininno, was present at the hearing and that
“[h]e’s prepared to answer any questions that the Court might have, and the Court has the
benefit of his declaration, which really is not contested by the Government.” Health
Choice, however, did not move to put John Mininno on the stand, nor did it offer any other
evidence at the hearing. There is no indication in the record that the magistrate judge
prevented Health Choice from examining John Mininno or presenting other evidence.
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Anti-Kickback statute is so vitally important and the challenge
that was mounted in the motion to dismiss to our methodology
with respect to interviewing witnesses is wrong. And the
magistrate judge did not respond to that.
....
I want to be very clear with the court. We did not say to the
court in open court “We need an evidentiary hearing.” But
please don’t suggest that in any way contemplates or suggests
waiver. The government hasn’t argued it, and if that is the
case, then the government has waived a waiver argument.
Oral Argument at 7:55–8:15, 8:40–9:45, 11:00–20.
Waiver is not at issue in this case. Rather, the oral argument aptly
demonstrates why there was no error here. Health Choice had a hearing
before the magistrate judge. 7 It had a witness available to testify at that
hearing, and the witness was not prohibited from testifying. Health Choice
declined to call the witness to testify and the magistrate judge did not prevent
Health Choice from presenting the witness. Health Choice’s statements at
oral argument suggest that it consciously and strategically chose not to offer
evidence because it believed it had already won the motion. Oral Argument
at 8:15–30. Even assuming that § 3730(c)(2)(A) requires the hearing to be an
evidentiary hearing, there was no error because Health Choice declined to
offer evidence at the hearing. See Chang v. Child.’s Advoc. Ctr. of Del. Weih
Steve Chang, 938 F.3d 384, 387 (3d Cir. 2019) (“An ‘opportunity for a
hearing,’ however, requires that relators avail themselves of the
‘opportunity.’”).
Health Choice’s constitutional argument also fails. Health Choice
argues that procedural due process entitled it to an evidentiary hearing, citing
7
Health Choice does not argue that the hearing needed to be before the district
court instead of the magistrate judge.
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to Hamdi v. Rumsfeld, Goldberg v. Kelly, and Thibodeaux v. Bordelon for
support. Oral Argument at 6:10; 56:04; 542 U.S. 507 (2004); 397 U.S. 254(1970); 740 F.2d 329 (5th Cir. 1984). In Health Choice’s view—and in its
own words—“a qui tam relator surely should enjoy the modicum of
protections asserted by a welfare benefits recipient.” Cf. Goldberg v. Kelly,
397 U.S. 254 (1970). Health Choice quotes Vermont Agency of Natural
Resources for the proposition that “the [Anti-Kickback Statute] gives the
relator himself an interest in the lawsuit, and not merely the right to retain a
fee out of the recovery.” 529 U.S. at 772. Thus, on Health Choice’s
reasoning, the relator has a property interest in the lawsuit that is protected
by procedural due process.
Even assuming that procedural due process requires an evidentiary
hearing when the government seeks to terminate a qui tam lawsuit brought
under the False Claims Act, Health Choice’s procedural-due-process
argument fails for the same reason that the statutory argument failed. Health
Choice had a hearing. Health Choice brought a witness, John Mininno, to
that hearing. Health Choice simply chose not to call the witness or offer any
other evidence. To emphasize this point, it is worth repeating Health
Choice’s counsel’s statement at oral argument: “[W]e felt, honestly . . . that
there was no need for an evidentiary hearing because the government’s
affidavits and declarations had been thoroughly rebutted. But now that we
are where we are we would like an evidentiary hearing.” Oral Argument at
7:55–8:15. Assuming arguendo that Health Choice had a property interest in
the Eli Lilly and Bayer qui tam lawsuits, its property interests were adequately
protected by the procedures in the district court. There was no procedural-
due-process error in this case.
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D.
Finally, we consider Health Choice’s argument that the government
failed to satisfy its burden to dismiss under § 3730(c)(2)(A). Assuming,
without deciding, that Sequoia Orange’s more burdensome test applies, 8 we
hold that dismissal was proper.
Under the Sequoia Orange test, the government must first show that
there is: (1) “a valid government purpose; and (2) a rational relation between
dismissal and accomplishment of that purpose.” Sequoia Orange Co., 151
F.3d at 1145. To show a rational relation, “there need not be a tight fitting
relationship between [dismissal and the stated purpose]; it is enough that
there are plausible, or arguable, reasons supporting the [decision to
dismiss].” Ridenour, 397 F.3d at 937 (quoting Sequoia Orange Co., 912
F.Supp. at 1347 (E.D. Cal. 1995)); see also Jackson Water Works, Inc. v. Pub.
Util’s Comm’n of the State of Cal., 793 F.2d 1090, 1094 (9th Cir. 1986). If the
government makes its showing, the burden shifts to the qui tam relator to
show that “dismissal is fraudulent, arbitrary and capricious, or illegal.”
Sequoia Orange, 151 F.3d at 1145 (quoting Sequoia Orange Co., 912 F.Supp. at
1347 (E.D. Cal. 1995)).
1.
The government made its required showing.
The government offered two valid purposes to justify dismissal. First,
“the allegations . . . lack sufficient merit to justify the cost of investigation
and prosecution.” Second, “further litigation . . . will undermine practices
8
The magistrate judge in her reports and recommendations, and the district court
in adopting the reports and recommendations, both assumed that Sequioa Orange should
apply and determined that dismissal was proper even under that more burdensome
standard.
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that benefit federal healthcare programs by providing patients with greater
access to product education and support.”
Health Choice alleged violations spanning a six-year period involving
Medicare, Medicaid, and TRICARE. For Medicare Part D alone, the Eli
Lilly allegations involve more than 32,000,000 prescriptions, from more than
400,000 physicians, for more than 1,000,000 Medicare beneficiaries.
Similarly, the Bayer allegations involve nearly 500,000 prescriptions, from
more than 10,000 physicians, for “tens of thousands” of Medicare
beneficiaries. According to the government, the scope of these allegations
would impose “substantial litigation burdens” on the United States as it
monitors the cases, responds to discovery requests, prepares agency
employees for depositions, et cetera. The government has stated a legitimate
government purpose in considering litigation costs. See Sequoia Orange, 151
F.3d at 1146.
The government has shown a rational relation between dismissal and
its cost-saving purpose. The government concluded that the litigation costs
were not justified by the expected value of recovery against Eli Lilly and
Bayer, particularly given the government’s concerns about the merit of the
underlying allegations. It reasoned that its litigation expenses would not be
recouped by pursuing the case further. In that sense, dismissal is rationally
related to the purpose of avoiding litigation costs.
The government also asserted in the district court that the product
education services provided by Eli Lilly and Bayer “benefit[ed] federal
healthcare programs” and were lawful. According to the government,
federal healthcare programs have a strong interest in ensuring that benefits
recipients have access to education about their prescriptions. Further, the
government had previously concluded in a different context that patient-
education services alone do not constitute illegal remuneration. Thus, the
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government concluded that the services provided by Eli Lilly and Bayer are
not only beneficial but also lawful. Promoting beneficial and lawful programs
is plainly a legitimate government interest. Dismissal is rationally related to
that interest because it removes an impediment to providing those services.
In short, the government has satisfied its burden of showing a rational relation
between dismissal and legitimate government interests.
2.
Because the government made its required showing, the burden shifts
to Health Choice to show that the government’s motion to dismiss is
“fraudulent, arbitrary and capricious, or illegal.” Sequoia Orange, 151 F.3d
at 1145 (quoting Sequoia Orange Co., 912 F.Supp. at 1347 (E.D. Cal. 1995)).
Health Choice does not meet this burden. Health Choice offers little more
than unsupported allegations of animus against John Mininno and the
National Health Care Analysis Group, Health Choice’s parent organization,
to support its assertion that dismissal is arbitrary and capricious. See Oral
Argument at 9:30.
Health Choice devotes much of its opening brief to the government’s
interest in the National Health Care Analysis Group’s corporate structure
and its apparent misunderstanding of Health Choice’s claims. The
government’s letter to Health Choice, its motion to dismiss, and its
arguments before the magistrate judge, however, show that National Health
Care Analysis Group’s corporate structure played no part in the
government’s rationale for dismissal. Moreover, to support its claim of the
government’s apparent misunderstanding of its claims, Health Choice offers
little more than a single question asked by a government attorney.
Health Choice further offers the conclusory assertion that the one-
year time period between the government’s declination notice and its notice
of intent to dismiss amounted to arbitrary and capricious conduct. Health
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Choice cites to a Department of Justice document, referred to as the
“Granston Memo,” to bolster this point. The memo states that “if one waits
until the close of discovery or trial [to move to dismiss a qui tam lawsuit],
there is a risk that the court may be less receptive to the request given the
expenditure of resources by the court and parties.” This guidance speaks to
the risk that the court will deny the government’s motion to dismiss. We
cannot say that the government did not follow its own guidance when it
decided to take a risk contemplated by that guidance.
Finally, Health Choice insists that dismissal was arbitrary and
capricious because the government failed to conduct a cost–benefit analysis.
This argument, however, fails to acknowledge the government’s position
that Health Choice’s allegations “lack sufficient merit to justify the cost of
investigation and prosecution.” This is a cost–benefit analysis of sorts. As
explained above, the government considered the expected benefit of Health
Choice’s lawsuit given the government’s assessment of the merits of the
case.
Considering Health Choice’s arguments and the record as a whole, we
hold that Health Choice did not show that dismissal was “fraudulent,
arbitrary and capricious, or illegal” under the strict Sequoia Orange standard.
Cf. Chang, 938 F.3d at 387 (determining that relator failed to establish fraud,
arbitrariness and caprice, or illegality); Ridenour, 397 F.3d at 937–38 (“The
district court correctly concluded the Relators failed to meet their burden to
show the Government’s motion to dismiss was fraudulent, arbitrary and
capricious, or illegal.”).
* * *
For the reasons set forth above, the judgment of the district court is
AFFIRMED.
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Patrick E. Higginbotham, Circuit Judge, concurring:
While this appeal touches on an unsettled area of law, the outcome
here is straightforward. Under Congress’s qui tam regulatory scheme, the
government may assume the prosecution of a claim filed by a relator with full
control over its course, or it may allow the relator to press the claim alone. 1
Where, as here, the government follows the latter course but returns to the
litigation at a later stage, 2 the government’s control over its prosecution is
less certain, including its authority to dismiss the case, and this uncertainty
has divided our sister courts.
The hearing requirement in § 3730(c)(2)(A) evidences Congress’s
recognition of the relator’s interest in qui tam claims hitherto pursued alone.
While providing textual footing for judicial oversight of the government’s
decision to dismiss the case, it offers little more as to its scope. This silence
leaves the content of the hearing to respond to the case before the court. At
a minimum, the statute compels the government to stand in open court and
state for the record the reasons for its judgment that the case should not
proceed. While seemingly pro forma, this statutory requirement is not empty
of force for it affords a measure of public accountability.
In this case, it suffices that the relator, through able counsel, had the
opportunity to engage the government’s stated reasons and did so without
apparent restriction on its response, including its ability to put on evidence.
In sum, it is not apparent that the district court could reasonably have denied
the government’s motion to dismiss the claims. While this want of control
1
31 U.S.C. §§ 3730(c)(1)-(5).
2
We do not address whether the government may dismiss without formally
intervening or whether the motion to dismiss should be treated as a motion to intervene, as
the Seventh Circuit has held. United States v. UCB, Inc., 970 F.3d 835, 849 (7th Cir. 2020).
The distinction does not affect the outcome.
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leaves a relator at risk, it signifies that the risk is inherent in pursuing litigation
under this statutory scheme, which also offers the possibility of large returns.
The government could have prevented the relators from being involved at
the start; it could have said it was aware of, but never defrauded by, the
practices alleged. The government did neither here, but when it chose to
dismiss, it gave legitimate reasons for doing so, ones which sound mostly in
policy choices, belonging to the political branches. On these facts, I agree that
the statutory prerequisites for dismissal were satisfied.
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