In April, we previewed two significant False Claims Act (FCA) cases before the U.S. Supreme Court, United States ex. rel. Schutte v. SuperValu, Inc., No. 21-1326 (“SuperValu”), and United States ex. Rel. Proctor v. Safeway, Inc., No. 22-111 (“Safeway”). The FCA provides that “any person who knowingly presents, or causes to be presented, a false or fraudulent claim” to the United States, or who engages in other related activity as set forth in the statute, is liable to the United States for substantial civil penalties plus treble damages. 31 U.S.C. § 3729 (emphasis added.) The SuperValu and Safeway cases involved a situation where the defendants were alleged to have subjectively believed their claims were false, but because of ambiguity in the underlying regulations (which limited reimbursement for prescription drugs based on a pharmacy’s “usual and customary” drug prices), it would have been objectively reasonable to have believed the claims were proper. The question for the Supreme Court was whether in such a situation the defendants could be said to have “known” their claims were false. After all, so the defendants argued, even if they subjectively believed their claims were false, it was objectively reasonable for them to have believed they were not.
The answer, according to a unanimous ruling handed down last week in favor of the government and relators and against the defendant pharmacies: “[w]hat matters for an FCA case is whether the defendant knew the claim was false.” (emphasis added.) “Thus, if respondents correctly interpreted the relevant phrase and believed their claims were false, then they could have known their claims were false.” In other words, “[t]he FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.” That the underlying regulation “may be ambiguous on its face” was insufficient, according to the Supreme Court, “to preclude a finding that the defendants knew their claims were false.”
Squire Patton Boggs attorneys Vipal Patel, Jerrob Duffy, Kathleen McGovern, Benjamin Glassman and Karen Harbaugh discuss this case in detail and provide some possible takeaways on our Global Investigations & Compliance Review Blog, which may be read here.
