On January 13, the Supreme Court announced it would hear a pair of cases concerning a critical element of liability under the False Claims Act – a defendant’s mental state.
A person violates the FCA if they “knowingly” present a false claim for payment or make false statements to the government. The FCA defines “knowingly” to include actual knowledge, deliberate ignorance, or reckless disregard. The issue the Supreme Court will decide is whether and when a defendant’s understanding or belief about the lawfulness of its conduct is relevant to whether it knowingly violated the False Claims Act.
In a 2021 decision, United States ex rel. Schutte v. SuperValu, Inc. the Seventh Circuit Court of Appeals held that when a case involves compliance with an ambiguous legal requirement, a defendant does not act knowingly if its conduct was consistent with a reasonable interpretation of the requirement, unless sufficiently specific, authoritative guidance put the defendant on notice that its interpretation was incorrect. The Seventh Circuit also held that what the defendant actually thought when it presented the false claim or statement (its subjective intent) is “irrelevant.”
Last year, the Seventh Circuit reaffirmed its approach in a second case, United States ex rel. Proctor v. Safeway, Inc. A strong dissent in each of these cases pointed out that this standard would permit a defendant who “suspect[s], believe[s], or intend[s] to file a false claim” to avoid liability as long as the defendant’s lawyers can later “concoct a post hoc legal rationale that can pass a laugh test.”
The whistleblowers who filed the cases sought the Supreme Court’s review. In the SuperValu case, the Supreme Court invited the views of the government, which then urged the court to take the case and reverse the Seventh Circuit.
The question whether and when a defendant’s subjective intent is relevant to establish FCA liability has divided the lower federal courts. Several appeals courts, including the Eleventh Circuit, have held that subjective intent is relevant. And the issue continues to generate disagreement. Last January, a three-judge panel on the Fourth Circuit adopted the Seventh Circuit’s approach, but when the full complement of Fourth Circuit judges re-heard the case in September, they divided equally and vacated the three-judge panel’s opinion. Such splits among the courts of appeals often prompt the Supreme Court to step in and resolve the dispute.
The Supreme Court has taken great interest in the FCA over the past several years, issuing four decisions involving that statute since 2015. In December, the court heard a fifth case, United States ex rel. Polansky v. Executive Health Resources, which addresses the government’s power to dismiss an FCA case over the objection of the whistleblower who filed the case.
However, the court recently declined to review three cases concerning the level of detail that plaintiffs must allege when they bring an FCA case. In response to a request by the court for the government’s views, the government argued that the court should not hear those cases because the courts of appeals were not truly divided on that issue.
It is not surprising that FCA cases have been brought to the court’s attention so frequently. The FCA is the government’s primary tool for combating fraud, and since Congress amended the statute in 1986, FCA whistleblowers have played a critical role by bringing cases that alert the government to fraud. In fiscal year 2021, the government reported over $1.6 billion in settlements and judgments from FCA whistleblower cases. The deterrent effect on would-be fraudsters is likely many times greater.
Decisions in SuperValu, Safeway, and Executive Health Resources are expected by the end of the court’s term in June.
About the author
Phillips & Cohen associate John Tremblay represents whistleblowers in both “qui tam” (False Claims Act) cases and claims with the Securities and Exchange Commission’s whistleblower reward program.
He has worked on Medicare and Medicaid fraud whistleblower cases involving kickbacks, fraudulent billing and mischaracterization of laboratory services, and the falsification of pharmacy claims for costly prescription drugs. Many of the SEC cases he works on allege bribery of foreign officials in violation of the US Foreign Corrupt Practices Act.
Mr. Tremblay represented two international whistleblower clients who filed a joint submission to the SEC and received a $37 million award.
Mr. Tremblay received his law degree from Berkeley Law at the University of California, where he was the senior articles editor for the Berkeley Journal of Employment and Labor Law.