United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 19-2273

• Decision Date: 17 August 2020
• Docket Number: No. 19-2273
• Citation: 970 F.3d 835
• Parties: UNITED STATES of America ex rel. CIMZNHCA, LLC, Plaintiff-Appellee, v. UCB, INC., et al., Defendants, Appeal of: United States of America, Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

970 F.3d 835

UNITED STATES of America ex rel. CIMZNHCA, LLC, Plaintiff-Appellee,

v.UCB, INC., et al., Defendants,Appeal of: United States of America, Appellant.

No. 19-2273

United States Court of Appeals, Seventh Circuit.

Argued January 23, 2020

Decided August 17, 2020

Rehearing and Rehearing En Banc Denied September 17, 2020

Melissa N. Patterson, Charles W. Scarborough, Attorneys, DEPARTMENT OF JUSTICE, Civil Division, Appellate Staff, Washington, DC, Nathan D. Stump, Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Civil Division, Fairview Heights, IL, for Plaintiff - Appellant.

Julie Fix Meyer, Attorney, ARMSTRONG TEASDALE, St. Louis, MO, W. Jason Rankin, I, Attorney, HEPLER BROOM, LLC, Edwardsville, IL, for Defendants CVS HEALTH CORPORATION and OMNICARE, INCORPORATED.

Scott D. Stein, Attorney, SIDLEY AUSTIN LLP, Chicago, IL, for Defendants RXC ACQUISITION COMPANY and UCB, INC.

C. Lance Gould, Leslie Pescia,, Attorneys, BEASLEY ALLEN, Montgomery, AL, for Appellee.

James F. Segroves, Attorney, REED SMITH LLP, Washington, DC, for Amicus Curiae.

Before Rovner, Hamilton, and Scudder, Circuit Judges.

Hamilton, Circuit Judge.

The False Claims Act allows the United States government to dismiss a relator's qui tam suit over the relator's objection with notice and opportunity for a hearing. 31 U.S.C. § 3730(c)(2)(A). The Act does not indicate how, if at all, the district court is to review the government's decision to dismiss. The D.C. Circuit has said not at all; the Ninth Circuit has said for a rational basis. Compare Swift v. United States , 318 F.3d 250 (D.C. Cir. 2003), with United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp. , 151 F.3d 1139 (9th Cir. 1998). In this case, the district court said it agreed with the Ninth Circuit but applied something closer to administrative law's "arbitrary and capricious" standard and denied dismissal. The government has appealed. The relator contends we should either dismiss for want of appellate jurisdiction or affirm.

We find that we have jurisdiction and reverse. First, we interpret the Act to require the government to intervene as a party before exercising its right to dismiss under § 3730(c)(2)(A). We think it best, however, to construe the government motion here as a motion to both intervene and dismiss. This solves the jurisdictional problem without needing to create a new category of collateral-order appeals. On the merits, we view the choice between the competing standards as a false one, based on a misunderstanding of the government's rights and obligations under the False Claims Act. And by treating the government as seeking to intervene, which it should have been allowed to do, we can apply a standard for dismissal informed by Federal Rule of Civil Procedure 41.

I. Factual and Procedural Background

In 1863, "a series of sensational congressional investigations" revealed that war-profiteering military contractors had billed the federal government for "nonexistent or worthless goods, charged exorbitant prices for goods delivered, and generally robbed" the government's procurement efforts. United States v. McNinch , 356 U.S. 595, 599, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958). In response, Congress passed the False Claims Act, now codified at 31 U.S.C. §§ 3729 – 3733. The Act authorizes a private person, called a relator, to enforce its terms by filing suit "for the person and for the United States Government." § 3730(b)(1). Suits of this type were once so common that "[a]lmost every" penal statute could be enforced by them. Adams v. Woods , 6 U.S. (2 Cranch) 336, 341, 2 L.Ed. 297 (1805). Such suits are called "qui tam" suits, from a Latin tag meaning, "who as well for the lord king as for himself sues in this matter." If the relator's qui tam action is successful, she receives a portion of the recovery as a bounty; the lion's share goes to the government. § 3730(d).

The False Claims Act prohibits, among other acts, presenting to the government "a false or fraudulent claim for payment or approval." § 3729(a)(1)(A). One way to present a false claim is to present to a federal healthcare program a claim for payment that violates the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), which prohibits giving or receiving "remuneration" in return for such programs’ business. See 42 U.S.C. § 1320a-7b(g) (violations of the Anti-Kickback Statute also violate the False Claims Act). For a limited liability company called Venari Partners, doing business as the "National Health Care Analysis Group," this law presented a business opportunity.

Venari Partners has four members (Sweetbriar Capital, LLC; 101 Partners, LLC; Min-Fam-Holding, LLC; and Uptown Investors, LP), themselves composed of one or two individual investors, six in total. Venari Partners formed eleven daughter companies, each for the single purpose of prosecuting a separate qui tam action. All eleven actions allege essentially identical violations of the False Claims Act via the Anti-Kickback Statute by dozens of defendants in the pharmaceutical and related industries across the country.

The relator in this case is CIMZNHCA, LLC, one of those Venari companies. Its complaint, filed in 2017 in the Southern District of Illinois, alleges that defendants illegally paid physicians for prescribing or recommending Cimzia, a drug manufactured by defendant UCB, Inc. to treat Crohn's disease

, to patients who received benefits under federal healthcare programs.

The relator alleges that the illegal kickbacks took the form of free education services provided by nurses to physicians and their patients and free reimbursement support services, that is, assistance with insurance paperwork.

Once the relator filed this action, the government had the right "to intervene and proceed" as the plaintiff with the "primary responsibility" for prosecuting it. 31 U.S.C. §§ 3730(b)(2), 3730(c)(1). The government chose not to exercise that right. The False Claims Act also gives the government the right to dismiss the action over the relator's objection if the relator is provided notice and an opportunity for a hearing. § 3730(c)(2)(A). This right the government has sought to exercise. On December 17, 2018, the government filed a motion to dismiss, representing that it had investigated the Venari companies’ claims, including CIMZNHCA's, and found them "to lack sufficient merit to justify the cost of investigation and prosecution and otherwise to be contrary to the public interest." The district court held a hearing on the government's motion and issued an opinion denying it.

The court considered first what standard of review applied to the government's motion under § 3730(c)(2)(A), which itself supplies none. The government urged adoption of the standard announced in Swift v. United States , 318 F.3d 250, 253 (D.C. Cir. 2003), which gives the government "unfettered" discretion to dismiss. Relator argued for the more demanding burden-shifting test announced in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp. , 151 F.3d 1139 (9th Cir. 1998). Under that test, the government must first identify a "valid government purpose" and then show "a rational relation between dismissal and accomplishment of the purpose." Id. at 1145. If the government does so, the burden shifts to the relator to show that "dismissal is fraudulent, arbitrary and capricious, or illegal." Id.

Reasoning that Congress would not command the hollow ritual of convening a hearing on a preordained outcome (no one deliberates about the fall of Troy, as Aristotle said), the district court concluded that Sequoia Orange supplied the proper standard. Deeming the government's general evaluation of the Venari companies’ claims to be insufficient as to CIMZNHCA in particular, and hearing notes of mere "animus towards the relator" in the government's arguments, the court concluded further that the government's decision to dismiss was "arbitrary and capricious" and "not rationally related to a valid governmental purpose."

After the district court denied its motion to reconsider, the government took this appeal, pending which the district court proceedings have been stayed. Our jurisdiction is contested. On the merits, the government argues that Swift , not Sequoia Orange , supplies the proper standard and that it satisfied the Ninth Circuit's test in any event. Relator argues that Swift should be rejected and that the district court correctly applied Sequoia Orange . We conclude first that we have jurisdiction and second that the choice presented to us on the merits is a false one, though the correct answer lies much nearer to Swift than Sequoia Orange . We reverse and remand with instructions to dismiss this action.

II. Analysis

A. The False Claims Act

We begin with an overview of the False Claims Act's most relevant provisions.¹ A qui tam action under the Act is brought "for the person and for the United States Government" and must be filed "in the name of the Government." 31 U.S.C. § 3730(b)(1). The relator may voluntarily dismiss the action "only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting." Id.

The relator's complaint must be filed under seal and may not be served on the defendants until the court so orders. § 3730(b)(2). Upon filing, the relator must serve the government with a copy of the complaint and a "written disclosure of substantially all material evidence" in the relator's possession. Id. The government then has sixty days, id. , extendable for "good cause shown," § 3730(b)(3), to decide whether "to intervene and proceed with the action" while the complaint remains under seal. § 3730(b)(2). At the end of the seal period, "the Government shall (A) proceed with the action, in which case the action shall be conducted by the Government; or (B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action." § 3730(b)(4).

Before 1986,...