Ninth Circuit’s Refusal to Consider Government Appeal of FCA Dismissal Authority Portends Trouble

August 07, 2020

Just as the government’s exercise of its statutory authority to dismiss non-intervened False Claims Act (FCA) qui tam cases was beginning to pick up steam, the US Court of Appeals for the Ninth Circuit has issued a new decision that may slow down that progress.

For the last three decades, even though the government could have (and should have) routinely dismissed qui tam cases that it knew had no merit or otherwise infringed upon agency priorities or drained federal resources, the government rarely utilized its authority for most of that period. Only recently, within the last two years, has the US Department of Justice required its attorneys to consider dismissal under 31 USC § 3730(c)(2)(A) as an option, which has led to a sharp uptick in the number of dismissal motions during that period, as we previously reported.

The increased usage of that statutory dismissal authority, however, has highlighted a longstanding circuit court split over the standard for a court’s review of the government’s motion to dismiss under § 3730(c)(2)(A). As we previously described, some courts hold that the government has an essentially “unfettered” right to use its dismissal authority, while others require the government to put forth some evidence demonstrating that dismissal is rationally related to a valid government purpose. However, even where the government has been obliged to make that minimal showing, it has not been a heavy lift, with courts almost universally granting the motion and ending the case at a very early stage after unsealing.

But a recent Ninth Circuit decision demonstrates that the differing standards of review can be critical and have enormous consequences for the government and defendants alike. In United States v. Academy Mortgage Corp., No. 18-16408, 2020 WL 4462130 (9th Cir. Aug. 4, 2020), the Ninth Circuit held that a district court order denying the government’s dismissal motion under § 3730(c)(2)(A) is a collateral order over which it lacks jurisdiction. And in so ruling, the Ninth Circuit remanded the case to the district court to proceed with a qui tam litigation that the government – the real party in interest – is on record as seeking to dismiss.

This decision not only forces the defendant to expend resources litigating a case that the supposed victim of the fraud represented is not in its interests to pursue, but also forces the government to become embroiled in discovery in that same proceeding. While leaving the door open to a certified interlocutory appeal, the appellate panel’s rationale and result raise substantial constitutional questions and effectively makes the district court’s order unreviewable, since the defendant will not appeal the order if it prevails and the appellate court is unlikely to set aside an FCA liability judgment on this ground if the defendant loses. Moreover, by the time of a post-judgment appeal, the government, too, will already have incurred the burdens and expenses that it sought to avoid when it moved for early dismissal.

Background of United States v. Academy Mortgage Corp.

In April 2016, a former employee acting as a relator filed a qui tam action against Academy Mortgage, alleging that the mortgage lender had submitted false claims to the US Department of Housing and Urban Development (HUD) for federal mortgage insurance by underwriting ineligible loans. According to the Justice Department, the relator copied the allegations – sometimes verbatim – from other FCA cases that the Justice Department had brought against different mortgage lenders.[1]

The government declined to intervene, and Academy Mortgage filed a motion to dismiss. The relator then filed an amended complaint, prompting an amended defense dismissal motion. Shortly before the scheduled motion hearing, the Justice Department filed its own motion to dismiss pursuant to 31 USC § 3730(c)(2)(A).[2] The government justified its motion by citing the need to preserve “government resources” and pointing to a cost-benefit analysis that factored in the nonspecific allegations against Academy Mortgage as well as the “burdensome Touhy requests” that the government anticipated based on its experience in similar FCA cases.[3]

The district court denied the government’s motion to dismiss and later denied Academy Mortgage’s motion to dismiss.

The District Court’s Decision

With respect to the government’s motion to dismiss, the district court applied the Ninth Circuit test for evaluating dismissal under § 3730(c)(2)(A), as developed in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998). Under that review standard, the government first must identify a valid governmental purpose and demonstrate a rational relationship between dismissal and accomplishment of that purpose. If satisfied, the burden shifts to the relator “to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.”[4] The district court found that the government failed the first step of the test and would have failed the second step because “the Government did not perform a full investigation of the amended complaint” in order to adequately perform a cost-benefit analysis.[5] In so holding, the district court thus became the first district court in the Ninth Circuit to refuse dismissal under the Sequoia Orange test.

The government’s prediction that it would face burdensome discovery and expenditure of resources came true soon after the district court decision. After the district court denied the government’s motion to stay discovery pending appeal, Academy Mortgage moved to compel HUD’s response to a Rule 45 subpoena.[6]

The Ninth Circuit’s Decision

In a matter of first impression, the Ninth Circuit dismissed the government’s appeal for lack of jurisdiction after concluding that the district court’s order fell outside of the collateral order doctrine’s “stringent” and narrow scope.[7] The Ninth Circuit thus distinguished an order denying a § 3730(c)(2)(A) dismissal from other FCA orders that the US Supreme Court has described as reviewable collateral orders.[8]

As a general rule, the collateral order doctrine allows appellate review of pre-final judgment orders where they (1) are “conclusive” of the issue, (2) “resolve important questions separate from the merits,” and (3) are “effectively unreviewable” after final judgment.[9] The Ninth Circuit held that the second factor was dispositive and that “the mere fact that an erroneous denial of a § 3730(c)(2)(A) motion could lead to unnecessary government expenditures” is not sufficiently important because, (i) otherwise, the government could always satisfy the factor with any early loss, and (ii) non-parties cannot immediately appeal orders denying their challenges to arguably burdensome discovery requests.[10]

By characterizing the interest at stake as one of simple third-party discovery burden,[11] the Ninth Circuit drove the result and largely ignored important constitutional interests – discussed below – that are implicated in allowing the district court’s decision to go unreviewed and which align with other interests previously recognized as protected by the collateral order doctrine.[12] The Ninth Circuit dispensed with these concerns by declaring that the government’s interests in non-intervened cases are “qualified” and “diminished,” including because of the reasoning of Sequoia Orange in creating a “check” on the government’s dismissal authority in the first place.[13] Thus, the Ninth Circuit avoided actually applying the Sequoia Orange test to the facts of Academy Mortgage, while still underscoring Sequoia Orange as the appropriate standard of review for § 3730(c)(2)(A) dismissal.


The Ninth Circuit’s decision has profound implications for the conduct of qui tam actions. First, the Ninth Circuit’s refusal to hear the merits of the appeal, which leaves the district court’s decision that the government cannot dismiss without a “full investigation” unreviewable, allows a relator to tie the government’s hands by amending his complaint after an initial declination decision. In criticizing the government’s failure to investigate, the district court noted that the amended complaint had not been filed under seal, something the relator apparently refused to do.[14] At the same time, however, the district court commented that, even though it was unlikely that a request to file an amendment under seal would have been granted, the government nevertheless should have conducted a full investigation in the midst of ongoing litigation.

Indeed, while the district court did not detail what a “full investigation” necessary to support dismissal would entail, the same district court later distinguished Academy Mortgage in granting the government’s dismissal in another qui tam case by pointing to a two-year investigation that included witness interviews, the collection of over 600,000 pages of documents, and consultations with experts.[15] Effectively mandating this type of investigation in tandem with discovery would create an untenable situation for defendants, raise due process concerns, and run contrary to Congress’s intent in allowing for a limited amount of time for the government to make an intervention decision.[16] Of course, the Justice Department could have avoided these concerns and the outcome in Academy Mortgage by relying more heavily on other valid rationales for dismissal, such as emphasizing its assessment that the relator’s allegations were parasitic and lacked merit.

Second, as an alternative to meeting this onerous “full investigation” requirement developed by the district court, the Ninth Circuit pointed to the idea that the government, under the FCA, can always move to intervene in the case after initial declination.[17] This raises statutory construction issues, as dismissal under § 3730(c)(2)(A) does not contain a “good cause” requirement, unlike late intervention under § 3730(c)(3). Moreover, if, as the Academy Mortgage district court found, the government’s interest in dismissal is not valid under either part of the Sequoia Orange test – meaning that it is arbitrary and capricious at best – then how will it satisfy the “good cause” required for intervention under § 3730(c)(3)? Indeed, the district court even equated the Sequoia Orange test with the “good cause” for intervention test.[18] This idea that the government could be denied either dismissal or intervention based on a court’s assessment of the fulsomeness of its investigation raises serious separation-of-power concerns.[19]

Finally, the Ninth Circuit’s decision undermines the government’s status as the real party in interest, which may lead to serious problems in resolving qui tam cases on the merits. The Supreme Court took pains to underscore that a relator is only “a partial assignee” of the government,[20] and thus only has limited rights granted by statute. But the Ninth Circuit decision downplays the government’s role by minimizing the significance of the assignment: “[T]he Government is more akin to a third-party assignor, albeit one that retains some statutory rights to participate in the proceedings.”[21] In so doing, the court’s assessment conflicts with the weight of the assignment relationship in other Ninth Circuit opinions[22] and raises problematic due process concerns.

In particular, the Ninth Circuit points to the government – not having been allowed to dismiss the case based on its discovery burden rationale – instead being able to quash Rule 45 subpoenas to otherwise vindicate its interest in not having resources “commandeered into service by private litigants.”[23] But the parties to an FCA action are not merely “private litigants” vis-à-vis the government because the United States is the real party in interest. Indeed, following the Supreme Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar,[24] which confirmed that the element of materiality depends on evidence of how the government actually acted in paying out claims, extensive discovery directed at the relevant government agencies is vitally important. The Justice Department recognized this problem in its district court briefing, admitting that, “[w]hile the United States may be able to avoid discovery burdens by denying Touhy requests, if appropriate, that lack of discovery could prevent the parties from litigating the merits of the case.”[25]

Notably, all of these problematic issues could be avoided if the Ninth Circuit’s Sequoia Orange test for § 3730(c)(2)(A) dismissal, also adopted by the Tenth Circuit,[26] is dispensed with in favor of the DC Circuit’s “unfettered right to dismiss” standard in Swift v. United States.[27] The circuit split is particularly ripe for resolution at present, with the Justice Department’s increased exercise of its dismissal authority following the Granston Memo in 2018 and the incorporation of the Granston Memo principles into the Justice Manual.[28] Indeed, the Seventh Circuit is poised to decide an appeal[29] focused on the identical issue as in Academy Mortgage – district court denial of the government’s motion to dismiss because its investigation was not “minimally adequate” and thus could not support a “meaningful cost-benefit” analysis.[30] And the Fifth Circuit recently heard oral argument on an appeal by a relator in a dismissed qui tam case, asking it to weigh in on the proper standard to evaluate the government’s dismissal authority.[31] Meanwhile, Senator Chuck Grassley recently announced that he intends to propose legislation that potentially could impact the circuit split for future FCA cases by requiring the Justice Department to give an explanation when seeking dismissal of qui tam cases.[32]


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Megan R. Braden
Tinos Diamantatos

B. Scott McBride
John W. Petrelli

Alison Tanchyk

New York
Kelly A. Moore
Martha B. Stolley
Daniel B. Tehrani

Meredith S. Auten
John C. Dodds
Lisa C. Dykstra
Rebecca J. Hillyer
Ryan P. McCarthy
Zane David Memeger
John J. Pease, III
Eric W. Sitarchuk

Washington, DC
Douglas W. Baruch
Giovanna M. Cinelli
Brad Fagg
Kathleen McDermott
Scott A. Memmott
Kenneth J. Nunnenkamp
Jennifer M. Wollenberg
Howard J. Young

[1] See United States ex rel. Dougherty v. Guild Mortg. Co., No. 16-cv-2909 (S.D. Cal.); United States v. Quicken Loans Inc., No. 16-cv-14050 (E.D. Mich.).

[2] 31 USC § 3730(c)(2)(A) (“The 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.”).

[3] United States Memo. of Points and Auths. in Support of Motion to Dismiss, ECF No. 60, at 5, 7, United States ex rel. Thrower v. Academy Mortg. Corp., No. 16-cv-2120 (N.D. Cal. July 19, 2017) (US Memo).

[4] United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1146 (9th Cir. 1998).

[5] United States v. Acad. Mortg. Corp., No. 16-CV-02120-EMC, 2018 WL 3208157, at *1, 3 (N.D. Cal. June 29, 2018).

[6] Just after this motion to compel was filed, the Ninth Circuit stayed the district court case pending resolution of the appeal.

[7] 2020 WL 4462130, at *2-3.

[8] Id. at *3 (distinguishing commentary in United States ex rel. Eisenstein v. City of New York, 556 U.S. 928 (2009), that 31 USC § 3730(b)(1) dismissal over the government’s objection and 31 USC § 3730(c)(3) denial of motions to intervene are collaterally reviewable).

[9] Id. at *3 (citing Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546 (1949)).

[10] Id. at *5, 7.

[11] Id. at *8 (“As a practical matter, the Government need not do anything beyond respond to discovery requests like any other third party, provide its views if the relator seeks to dismiss the case, and wait to see if the suit succeeds ….” (internal citations omitted)).

[12] See id. at *6 (citing P.R. Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 146 (1993); Nixon v. Fitzgerald, 457 U.S. 731, 743 (1982); Abney v. United States, 431 U.S. 651, 661 (1977)).

[13] Id. at *7-8.

[14] 2018 WL 3208157, at *2; see also US Memo at 5.

[15] See United States v. Gilead Scis., Inc., No. 11-CV-00941-EMC, 2019 WL 5722618, at *5-7 (N.D. Cal. Nov. 5, 2019).

[16] See S. Rep. No. 99-345, at 24-25 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5289 (“Keeping the qui tam complaint under seal for the initial 60-day time period is intended to allow the Government an adequate opportunity to fully evaluate the private enforcement suit and determine both if that suit involves matters the Government is already investigating and whether it is in the Government's interest to intervene and take over the civil action. … The Committee feels that with the vast majority of cases, 60 days is an adequate amount of time to allow Government coordination, review and decision.”).

[17] See 31 USC § 3730(c)(3) (“When a person proceeds with the action, the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the Government to intervene at a later date upon a showing of good cause.”).

[18] 2018 WL 3208157, at *3.

[19] See, e.g., Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 934 (10th Cir. 2005) (“[T]o condition the Government’s right to move to dismiss an action in which it did not initially intervene upon a requirement of late intervention tied to a showing of good cause would place the FCA on constitutionally unsteady ground.”); Swift v. United States, 318 F.3d 250, 253 (D.C. Cir. 2003) (explaining that “the decision whether to bring an action on behalf of the United States is … a decision generally committed to [the government’s] absolute discretion” (internal quotation marks omitted)).

[20] Vermont Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 773 n.4 (2000) (emphasis in original).

[21] 2020 WL 4462130, at *6.

[22] See, e.g., United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1215 (9th Cir. 1996) (“[Q]ui tam plaintiffs are merely agents suing on behalf of the government, which is always the real party in interest.”).

[23] 2020 WL 4462130, at *7 (quoting Exxon Shipping Co. v. U.S. Dep’t of Interior, 34 F.3d 774, 779 (9th Cir. 1994)).

[24] 136 S. Ct. 1989, 2003 (2016).

[25] United States Reply in Support of Motion to Dismiss, ECF No. 69, at 6, United States ex rel. Thrower v. Academy Mortg. Corp., No. 16-cv-2120 (N.D. Cal. Oct. 2, 2017).

[26] Ridenour v. Kaiser-Hill Co., 397 F.3d 925 (10th Cir. 2005), cert. denied, 546 U.S. 816 (2005).

[27] Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003).

[28] See LawFlash, Morgan Lewis & Bockius, DOJ Memorandum Supports Government Dismissal of Qui Tam False Claims Act Cases (Jan. 25, 2018). See also Justice Manual, § 4-4.111 (2018).

[29] United States v. CIMZNHCA, LLC, No. 19-2273 (7th Cir.). Oral argument was heard on January 23, 2020.

[30] United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 17-CV-765-SMY-MAB, 2019 WL 1598109 (S.D. Ill. Apr. 15, 2019).

[31] United States ex rel. Health Choice Alliance LLC v. Eli Lilly & Co. Inc., No. 19-40906 (5th Cir.).