SCOTUS Will Determine Fate of Legal Falsity Under the FCA

k9263134By Miriam Swedlow

A core purpose of the Federal Claims Act (FCA) is to discourage and prevent the submission of fraudulent claims to the government. The statute imposes treble damages, civil penalties, and attorneys fees for “knowingly” submitting a “false . . . claim for payment or approval.” The Act further discourages violation by permitting private relators a portion of the damages awarded in a successful action.

The Supreme Court may halt the expanding scope of FCA liability as it considers what counts as “false” under the FCA. The Court granted Certiorari for one of two petitions asking to settle a circuit split over whether an implied certification of compliance is actionable under the FCA, 31 U.S.C. §3729. A wide range of industries will likely watch the Court’s decision because it impacts any person or corporation that contracts with the federal government. This includes defense industry contractors, banks, telecommunication companies, health-care providers, and hospitals.

Claims may either be factually false, e.g. the actual facts of the claim are wrong, or legally false, e.g. the claimant did not comply with a statutory, regulatory, or contractual condition of payment. Legal falsity can be further broken down into two categories. A claim is false if the claimant expressly certifies that it is compliant, when in fact it is not. But, some courts also recognize implied compliance, where the claimant’s request itself represents implicit material compliance with the relevant statute, regulation, or contract. There is disagreement among the federal circuit courts whether implied false certification is actionable under the FCA and if so, how the doctrine should be applied. Although the First, Fourth, and D.C. Circuits broadly apply the doctrine, most circuit courts reject liability absent compliance as an express prerequisite to payment. In contrast, the Fifth and Seventh Circuits seemingly reject the theory of liability altogether.

Two cases sought Supreme Court review to settle this circuit split – Triple Canopy, Inc. v. United States ex rel. Badr, U.S., No. 14-1440, petition filed 6/5/15, and Universal Health Servs., Inc. v.United States, U.S., No. 15-7, petition filed 6/30/15. Certiorari was granted for Universal Health Serv. on December 4. Specifically, the Court will determine:

  1. Whether the “implied certification” theory under the FCA is viable and if so;
  2. Whether liability extends to the failure to comply with a statute, regulation, or contractual provision regardless of an express statement that it is a condition of payment; or
  3. Whether liability if limited to adherence to statutes, regulations, or contractual provisions that expressly state compliance is a condition of payment.

If the Supreme Court adopts the Fourth and D.C. Circuit’s broad application of liability, failure to comply with any of the countless technical requirements imposed by government regulation or contract could subject a claimant to the FCA’s harsh penalties. Critics of this approach point out that that these compliance deficiencies are better suited to breach of contract claims and that expanding liability will feed the current proliferation of qui tam FCA filings. Such actions typically settle, regardless of merit, in order to avoid the burdens of discovery and potential damages. Universal Health Serv.’s petition argues that adoption of a narrow application, requiring express condition of payment is more consistent with the purpose of the statute, principles of fair notice, and judicial economy.

Regardless of the outcome, it is clear that the stakes are high for resolving this ongoing uncertainty in the FCA.

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