A successful False Claims Act claim must show that the defendant submitted a false claim or statement “knowingly.” The “knowing” element of the claim — known as the scienter prong — depends on whether the defendant actually knew that the claim or statement was incorrect, or recklessly disregarded the facts or legal requirements that rendered the claim “false.”
Government regulations — for example, those that govern when and how programs including Medicare and Medicaid will pay for the item or service being “claimed”—can be incredibly complex and difficult to understand. The same can be true for provisions in government contracts, grant programs, and the like.
When the ground rules are unclear, how does the company submitting a claim for payment “know” that its claim may be false under the FCA?
What does the FCA say about ‘knowing’?
The FCA defines “knowing” as when a person (1) had “actual knowledge of the information;” (2) acted “in deliberate ignorance of the truth or falsity of the information;” or (3) acted “in reckless disregard of the truth or falsity of the information.” It doesn’t require a “specific intent to defraud,” just that the person knew or deliberately ignored, or recklessly disregarded the relevant information.
Companies doing business with the government have a duty to familiarize themselves with the laws, regulation and contract terms applicable to that relationship. Where laws or regulations are unclear, an agency often will provide guidance in the form of regulations or policy announcements.
For example, the Medicare Anti-kickback Statute, or AKS, broadly prohibits “remuneration” in exchange for referrals of goods and services reimbursed by federal health care programs. But the it also authorizes the HHS Office of the Inspector General to promulgate regulatory “safe harbors” for certain financial arrangements in healthcare.
Over time, the number of safe harbors has grown from an initial 10 to 27. Additionally, the government’s interpretation of the AKS has been supplemented through HHS-OIG’s Advisory Opinion process, which gives providers insights as to how the agency interprets ambiguous circumstances.
Judicial interpretations of ambiguous laws can also provide insight into the proper meaning. A court’s interpretation of a statute or regulation may be sufficient to warn contractors how the government will construe a law. Less reliable insights might come from agency publications or policy pronouncements, industry practices, or expert analyses regarding the interpretation of an ambiguous term.
These less formal sources can be helpful in assessing risk moving forward. But, if no “authoritative guidance” exists from the government itself, then can a defendant truly be “reckless” about its compliance with an ambiguous term or provision? This is the question the Supreme Court intends to address during its 2023 term in United States ex rel. Schutte v. SuperValu, Inc.
Does subjective intent matter?
The SuperValu case presents the question of whether a person’s subjective belief matters for FCA liability when it comes to interpreting underlying legal requirements that are ambiguous.
Imagine a scenario where there is an ambiguous law and no authoritative guidance exists regarding the government’s interpretation. If a person’s actions are consistent with a reasonable — but ultimately incorrect — interpretation of the requirement, can FCA liability attach? Arguably, no. The FCA is not intended to punish innocent mistakes. But does it matter if the company actually believed, at the time it submitted claims to the government, that the government likely would view the requirement in a manner that would render the claims false?
The Sixth, Ninth, Tenth, and Eleventh Circuits have held that an FCA defendant’s subjective belief does matter: if a defendant thought the government could take the position that the claims at issue were false, the FCA’s scienter prong is met. As SuperValu’s petitioner argues, “[A] defendant acts ‘knowingly’ if the defendant subjectively knew or believed — or had reason to know or believe — that its conduct was unlawful. Potential ambiguity is one factor in this inquiry, but scienter ultimately turns on whether the defendant nevertheless understood or should have understood that its conduct was unlawful notwithstanding any ambiguity.”
In recent years, however, the District of Columbia, Fourth, Seventh, and Eighth Circuits have applied to the FCA’s scienter requirement the Supreme Court’s reasoning in Safeco Insurance Co. of America v. Burr: “[S]cienter cannot be shown as a matter of law if the defendant’s conduct was consistent with a reasonable interpretation of an ambiguous legal requirement....”
In other words, what the defendant subjectively thought or believed is irrelevant if its conduct was consistent with a reasonable interpretation of an ambiguous requirement. Given the identified ambiguity, and in the absence of guidance to “warn” the person away from acting, the person cannot have “known” or “recklessly disregarded” obligations to act differently.
How could high court ruling impact FCA cases?
The Supreme Court’s decision in SuperValu will impact how FCA allegations are investigated, litigated and resolved. If a person’s subjective, real-time interpretation is relevant, a potential defendant will want to demonstrate that their actions were based on good faith, reasonable interpretations of the requirements.
Evidence supporting their reasonable, even if ultimately erroneous, views could include: seeking the advice of counsel, attempting to contact the relevant agency for guidance, and researching and documenting industry practices. Documented evidence of an attempt to “get it right” will be helpful in defending FCA allegations that the person “knew” or disregarded its obligations.
Of course, more often than not, such evidence is non-existent. And it is the FCA plaintiff’s burden to prove that a defendant acted with the requisite knowledge.
If the Supreme Court agrees with the SuperValu petitioner that subjective belief matters, parties in FCA litigation (as well as the government investigation that typically precedes litigation) will seek discovery of documents and information showing that the defendant understood the government likely would take a differing position, and yet chose to submit claims—at its potential peril.
Should the Supreme Court instead adopt the Safeco standard for FCA cases, defendants will have additional ammunition to convince DOJ that their actions were “objectively reasonable” in light of the asserted ambiguity and to seek dismissal of FCA claims as a matter of law. Such a rule could resolve FCA cases earlier and streamline litigation and discovery.
Even if a well-pled complaint could survive a motion to dismiss, the court might narrow discovery to the issues of whether the defendant knew or recklessly disregarded “authoritative guidance” when it acted pursuant to a legally ambiguous rule or provision. Counsel for FCA whistleblowers fear that such an approach would allow defendants who understood their actions to be risky or fraudulent to escape liability through “creative lawyering.” Defense counsel counter that liability should not attach to conduct that was reasonably within the law if the government failed to provide clear direction.
Oral arguments in the SuperValu case are scheduled for April 2023, with a decision expected this summer.
Jennifer A. Short, Bridget Briggs and Tjasse Fritz are attorneys at Blank Rome LLP who focus on the FCA and government contracting.
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