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Will the Supreme Court Hear Its Second False Claims Act Case in Three Years?

Posted April 24th, 2018 by in Whistleblower Law.

The False Claims Act establishes liability against persons who submit false claims for payment to the Government. It allows individuals who know about such fraud against the Government to file a lawsuit on behalf of the Government and to share in the proceeds of a recovery.

So how does a person know if a claim for payment is a “false claim”? Some examples seem obvious. If a company submits a bill to the Government that misrepresents the goods or services that are provided, that would be a false claim. Courts typically refer to these types of false claims as “factually false.”

What if the company actually delivers the right goods, but fails to comply with a relevant regulation and makes a false statement of compliance on the bill? These cases are typically known as “false certification” cases, and courts have found that they, too, violate the False Claims Act.

Until 2016, there was an open question on whether there could be False Claims Act liability where the contractor failed to meet a Government requirement associated with providing the goods or services and failed to disclose its non-compliance to the Government. In the 2016 Escobar case, the Supreme Court found that such claims could be considered false even though there was no expressly false statement submitted to the Government. The Court found that where a defendant “makes specific representations about the goods or services provided” and fails to “disclose noncompliance with material statutory, regulatory, or contractual requirements” those representations are “misleading half-truths” that can result in False Claims Act liability.

However, in Escobar, the court ruled that in order for there to be an implied certification case, the violation must be “material” to the Government’s decision to pay. In deciding whether a claim is material, the Supreme Court noted that courts could look at whether the Government chose “to expressly identify a provision as a condition of payment,” whether the defendant knows that the government typically refuses to pay claims due to the type of violation at issue, and whether the government paid “a particular claim in full despite its actual knowledge that certain requirements were violated.”

In the two years since Escobar was decided, some courts have dismissed False Claims Act cases because they have found that Government payment of claims defeats the “materiality” element. This can put the Government in a difficult bind. Say the Government suspects that a contractor on an urgent project is defrauding the government in some way. The Government would have to choose between stopping payment and jeopardizing a project or continuing to pay and waiving its fraud claims.

Last year, the Ninth Circuit opined in U.S. ex rel. Campie v. Gilead Sciences, Inc. that the plaintiff had sufficiently alleged fraud on the FDA, even though the FDA did not withdraw approval of the defendants’ drug after allegations of fraud. The court noted that “there are many reasons the FDA may choose not to withdraw a drug approval, unrelated to the concern that the government paid out billions of dollars for nonconforming and adulterated drugs” and reversed the Northern District of California’s decision to dismiss the case.

The Defendants have filed a certiorari petition to the Supreme Court, asking the justices to weigh in on whether the Ninth Circuit appropriately applied the Supreme Court’s Escobar ruling. Last week, the Court asked the Department of Justice for its thoughts on whether the Court should hear the case.

If the Court decides to hear the Gilead case, it could result in another significant opinion in False Claims Act jurisprudence. The Supreme Court may clarify what role the Government’s payment decision plays in a fraud case, and how much weight courts should attach to it.

Whistleblowers who notice that a company is failing to comply with relevant terms while seeking payment from the Government can contact a whistleblower lawyer (or “qui tam” lawyer) to determine whether there is a basis to file a False Claims Act case under the case law.

Inayat Hemani

Inayat Hemani

Inayat Ali Hemani is a Senior Litigation Counsel in the NY office who works primarily on whistleblower/qui tam cases. Learn More

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