Third Circuit Holds FCA Qui Tam Plaintiffs Not Entitled to Automatic Hearing on Government Motion to Dismiss

On Thursday, September 12, the Third Circuit decided United States ex rel. Chang v. Children’s Advocacy Center of Delaware, No. 18-2311. In a precedential decision, the panel held that when a relator has not requested a hearing on a government motion to dismiss a federal False Claims Act (FCA) qui tam action, the court is not required to hold an in-person hearing before dismissing the action.

In Chang, the relator filed a qui tam action against the Children’s Advocacy Center of Delaware, asserting claims under both the FCA and the Delaware False Claims Act (DFCA) and alleging the organization materially misrepresented its services in applying for and receiving government funds. (This note considers only the FCA claims.) Nearly three years after Chang’s original complaint, the government moved to dismiss, asserting investigation had revealed Chang’s allegations to be “factually incorrect and legally insufficient.” In opposing the motion, Chang argued the court should await summary judgment rather than dismiss the case.  However, Chang did not request oral argument or a hearing. The district court granted the motion to dismiss without conducting an in-person hearing or issuing a supporting opinion.

On appeal, Chang contended, even absent a relator’s request, the FCA guarantees the relator an in-person hearing before the district court may dismiss his qui tam action. See Chang (slip op. at 5–6). The district court erred, he argued, by not sua sponte scheduling and conducting such a hearing.  Id. (at 6).

Under the FCA, the government is entitled to dismiss a qui tam action over a relator’s objections, provided the government notifies the relator of the filing of the motion to dismiss “and the court has provided the [relator] with an opportunity for a hearing on the motion.”  31 U.S.C. § 3730(c)(2)(A) (emphasis added). The panel found, however, contrary to Chang’s contention, that “[a]n opportunity for a hearing . . . requires that relators avail themselves of the ‘opportunity.’” Chang (slip op. at 6) (emphasis added). The panel cited United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), which held that, in addition to where a relator requests a hearing, a hearing is appropriate upon a “colorable claim” that the government’s motion to dismiss is unreasonable, arbitrary, or not based on a full investigation of the allegations. Id. (citing 151 F.3rd at 1145). The panel held that Chang also failed to make such a showing.  Id. (slip op. at 8).

While underscoring that a relator must expressly request a hearing on a government motion to dismiss, the panel declined to resolve the circuit split on a larger question: whether the government’s discretion to dismiss a qui tam suit is absolute or subject to judicial test. Chang (slip op. at 4–5). On one view, the government has “an unfettered right” to dismiss a qui tam case, Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003); on the other, courts exercise “judicial oversight of the government’s decision to dismiss a qui tam action,” Sequoia Orange, 151 F.3d at 1145–46 (9th Cir. 1998) (citation omitted); accord United States ex rel. Ridenour v. Kaiser-Hill Co., LLC, 397 F.3d 925, 935–36 (10th Cir. 2005). Under the Sequoia Orange test, if “a valid government purpose” is identified and “a rational relation between dismissal and accomplishment of the purpose” found, the relator then has the burden to show “dismissal is fraudulent, arbitrary and capricious, or illegal.”  151 F.3d at 1145; see also Ridenour, 397 F.3d at 936.