U.S. Supreme Court Clarifies False Claims Act Liability

The Supreme Court’s unanimous decision in Universal Health Services v. Escobar will likely expand liability under the False Claims Act, meaning the potential for more qui tam lawsuits.   The case concerned how the failure to disclose noncompliance with statutory, regulatory or contractual requirements might create liability under the False Claims Act.

The full opinion is at the bottom of this article, but these are the highlights:

The opinion, written by Justice Thomas, adopted the “implied false certification” theory of liability.  Under this theory, even if the express terms of the claim submitted to the government are accurate, the defendant may be liable, in some circumstances, if it knowingly failed to disclose its non-compliance with a statutory, regulatory, or contractual requirement.  In other words, the party submitting the claim has “impliedly certified” that it has complied with all applicable statutory, regulatory, and contractual requirements.  If it has not complied with those requirements, it may be held liable for submitting a false claim.  (The adoption of the implied certification theory of liability ends a split among the lower courts in favor of the majority rule.)

The Court set out that an implied false certification theory can be a basis for liability where at least two conditions are satisfied:

first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.

The Court then addressed an important issue of the second condition – how to determine if there is material statutory, regulatory, or contractual noncompliance.  The Court rejected the defendant’s argument that only requirements expressly designated as a “condition of payment” by the government were material and could lead to liability.  Instead, the Court held that whether a requirement was a condition of payment is relevant, but not dispositive of the issue of materiality.  The issue requires a deeper analysis.

The Supreme Court held that lower courts should engage in a “rigorous” and “demanding” determination of materiality and that it cannot be found where noncompliance is “minor or insubstantial.”  As way of example, the analysis may include evidence of (a) whether the defendant knows the government typically refuses to pay claims in light of such violations and/or (b) whether the government has a record of paying such claims despite the particular violations.  Essentially, the analysis should not focus on nominal designations for the regulations, but on how material the regulations have been treated in practice by the government.  The Court stopped short, however, of providing guidance on the scope or weight of such evidence in determining materiality.  Instead, it left the application of the standard to the lower courts and remanded the instant case to the First Circuit Court of Appeals for such a determination.

Full Text Opinion: http://www.supremecourt.gov/opinions/15pdf/15-7_a074.pdf

(*Louis Szura is a member of Szura & Delonis, PLC. This post is intended for general informational and educational purposes only and should not be construed as legal advice. All rights reserved. Copyright 2016.)