On January 13, 2023, the Supreme Court granted a writ of certiorari to petitioners in two False Claims Act cases to determine whether the False Claims Act’s knowledge requirement reaches defendants who can offer an “objectively reasonable” interpretation of an ambiguous legal or contractual requirement material to government payment. The Court’s decision will likely be one of the most significant FCA decisions in decades, and it will have important implications for government contractors and healthcare providers whose businesses require compliance with complex and sometimes opaque regulatory regimes.
The FCA provides for liability for a defendant that “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” 31 USC § 3729 (a)(1). Knowingly is defined in the act as acting with (1) “actual knowledge” of the falsity, (2) “deliberate ignorance of the truth”, or (3) “reckless disregard of the truth”. 31 USC § 3729 (b)(1). Two recent Seventh Circuit decisions, U.S. ex rel. Schutte v. SuperValu Inc.and U.S., Ex Rel. Proctor v. Safeway, Inc., held that the defendants were not liable under the FCA because they did not act “knowingly” since they had offered in litigation “objectively reasonable” (if not accurate) interpretations of the complex Medicare and Medicaid prescription drug pricing schemes at issue (involving accurate reporting of “Usual and Customary” pricing to ensure government payors receive the benefits of discounts provided in the market place to commercial insurers and private individuals).
More specifically, the Seventh Circuit held that a defendant whose actions or statements violated the best interpretation of an ambiguous provision, and so satisfied the FCA’s falsity requirement, may nonetheless undermine the knowledge requirement and escape FCA liability if “(a) it has an objectively reasonable reading of the statute or regulation and (b) there was no authoritative guidance warning against its erroneous view.” Supervalu, 9 F.4th at 468.
Moreover, the Seventh Circuit emphasized that the defendant’s subjective intent is irrelevant for purposes of FCA liability. Id. at 470 (“The FCA establishes liability only for knowingly false claims… a defendant’s subjective intent does not matter for its scienter analysis—the inquiry is an objective one. This standard reflects the limits of FCA liability.”).
The majority opinions in the SuperValu and Safeway decisions—both authored by Judge Amy St. Eve—imported this “objectively reasonable” standard from the Fair Credit Reporting Act’s knowledge standard, as interpreted by the Supreme Court in Safeco Insurance Co. v. Burr in 2007. Judge David F. Hamilton dissented in both cases, arguing that the Fair Credit Reporting Act’s knowledge standard should be distinguished from the False Claims Act’s knowledge standard because the former defines knowing to include acting “willfully” while the FCA contains no such requirements. Judge Hamilton further opined that grafting the Safeco standard in the FCA context creates “a safe harbor for deliberate or reckless fraudsters” to “concoct a post hoc legal rationale” that explains why their actions were not fraudulent. In other words, government contractors who intend to defraud the government, could escape liability by creatively concocting an “objectively reasonable” interpretation during litigation, albeit one that they may not have held when they submitted the false claim for payment (or made the false statement at issue).
The dueling majority and dissenting opinions in the SuperValu and Safeway decisions echo those debates occurring across the circuit courts of appeal. The Department of Justice and relators’ bars oppose the “objectively reasonable” standard, and the circuits have adopted varying approaches to its applicability.
The “objectively reasonable” standard applied to the FCA can serve as an important protection for honest government contractors and healthcare providers who could otherwise be subject to liability for failing to comply with complex regulatory regimes. It remains to be seen whether the Court will adopt the Seventh Circuit’s view about what satisfies the “knowingly” requirement of the FCA. Companies who transact with the government should follow these cases closely and, whatever the outcome, they should make good faith (and well documented) efforts to reasonably interpret and comply with legal and contractual provisions. Doing so may afford a degree of protection in future enforcement actions.
Please contact the authors if you have any questions regarding the FCA and other government-contractor or healthcare-related enforcement or compliance concerns.
 United States v. Supervalu Inc., 9 F.4th 455 (7th Cir. 2021), cert. granted, 143 S. Ct. 644 (2023).
 United States ex rel. Proctor v. Safeway, Inc., 30 F.4th 649 (7th Cir. 2022), cert. granted, 143 S. Ct. 643 (2023)
 Safeco Insurance Co. v. Burr, 551 U.S. 47 (2007).
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