United States: DOJ Flexes Its Post-Polansky (C)(2)(A) Muscles And Moves To Dismiss Qui Tam Midway Through Discovery

Earlier this month, the Department of Justice (DOJ) filed what we at Qui Notes think is the department's first (c)(2)(A) motion filed in a case after discovery was underway since SCOTUS in Polansky held that DOJ need only clear a low hurdle to obtain dismissal of an FCA case over a relator's objection. DOJ's robust motion in U.S. ex rel. Vermont National Telephone Co. v. Northstar Wireless LLC provides insight into the circumstances under which DOJ may be willing to seek a (c)(2)(A) dismissal during discovery in the post-Polansky world.

This particular case relates to an auction of wireless spectrum licenses held by the Federal Communications Commission (FCC) in 2014. To encourage small business participation, FCC would give a 25% bidding credit (and require the bidder to pay only 75% of its bid) to a winning bidder that could prove that its business had less than an average of US$15 million “attributive” annual revenue. “Attributive” revenue included the revenues of the bidding company, plus any entity that exercised control over the bidding company. Relator Vermont International Telephone Co. (VTel) participated in the auction, as did defendants DISH Network, Northstar Wireless, and SNR Wireless. Northstar and SNR provisionally won hundreds of licenses, claimed they were eligible for bidding credits, and submitted the necessary applications to obtain them. After the FCC posted the applications publicly, relator (and others) filed petitions arguing that the companies did not qualify for the credit because of their relationship with DISH. Relator also argued that Northstar and SNR failed to adequately disclose DISH's control over their bidding conduct and requested that FCC reauction certain wireless licenses.

The FCC then concluded that DISH did have the requisite control over Northstar and SNR such that they did not qualify for the bidding credit. But it expressly rejected VTel's arguments that the companies failed to disclose their relationship with DISH. It declined to reauction any of Northstar or SNR's licenses and instead directed them to pay the full amount of their winning bids (without credits) to receive the licenses — which they did for most of the licenses, but chose to default on a few others.

Relator filed the qui tam four days after filing its FCC petition challenging the awards to Northstar and SNR. DOJ then spent 16 months investigating relator's claims, which included “the review of thousands of pages produced by the Defendants that were not part of the proceedings before the FCC, and multiple meetings with counsel for Defendants, counsel for VTel, and subject matter experts at the FCC who planned and conducted” the auction. DOJ ultimately declined and, “[d]espite being informed of significant reservations the United States had …, VTel elected to litigate on its own.”

It took VTel several years to reach discovery. During that time, Vtel lost a motion to dismiss at the trial court that was then reversed on appeal, and it fought off a motion for judgment on the pleadings based on the public disclosure bar and a partial motion for summary judgment on damages. After discovery began in Fall 2022, “VTel propounded a significant amount of discovery on Defendants and third-parties searching for evidence that VTel allege[d] was not disclosed to the FCC.” By January 2024, VTel's “document discovery was substantially complete” and it had completed 18 depositions, including a Rule 30(b)(6) deposition of Northstar.

It appears that at this point, DOJ engaged with relator about a potential (c)(2)(A) motion. DOJ filed its motion on March 8. The motion lists the dates and subject matter of several meetings and other communications between DOJ and relator through which relator “has had ample opportunity to convey the fruits of discovery it believed supported its allegations.” DOJ points to three reasons that the court should dismiss the case. First, the U.S. does not believe there is sufficient evidence supporting relator's primary allegations that defendants failed to fully disclose information about DISH's interest in Northstar and SNR, and DOJ has confidence in the FCC's previous determination that the defendants made sufficient disclosures. Second, even if relator was able to prove that defendants failed to disclose material facts, there is “significant doubt” it will be able to prove damages because defendants were not awarded billing credits. Noting that FCA damages (before trebling) are intended to put the government in the same position as it would have been had a defendant's claims not been false, DOJ argues that the FCC would have denied Northstar and SNR bidding credits even if they had disclosed more information. Finally, DOJ argues that allowing the case to proceed will “impose a significant resource drain on the United States and this Court” given the additional discovery expected in the case, which would include discovery from federal agencies and a likely “extended discovery dispute and litigation” over the government's claims of attorney-client and deliberative process privileges over documents sought by relator.

DOJ went on to argue that this case is “identical to Polansky in almost every salient respect.” In both cases, the relator vigorously litigated the case after DOJ's declination while the government identified significant costs of future discovery and explained in detail why it had concluded that the suits had little chance of success on the merits. And finally, consistent with its other post-Polansky (c)(2)(A) motions, DOJ argues that the court can decide this issue on the papers without an additional hearing. Our readers will recall that the Second Circuit has endorsed this view.

VTel's response is due March 22 (unless it obtains an extension). We assume VTel will vigorously oppose dismissal, but check back for our continuing coverage on this case. In addition, by our count, DOJ has now filed at least eight (c)(2)(A) motions since the Polansky ruling. As always, we will continue to monitor and blog about these welcomed developments as DOJ continues to exercise its authority to seek dismissal of non-meritorious qui tams.

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