Thanks to the Supreme Court’s decision in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), 2017 proved to be a fascinating year in the development of False Claims Act (FCA) jurisprudence. It was widely expected that the Supreme Court would recognize so-called implied false certification liability under the Act. And, when Justice Thomas’s decision for a unanimous court was announced, it did just that. But to arrive at that conclusion, the Court touched on several other underlying issues in ways that shed important light on the application of the statute going forward. In the intervening months, Justice Thomas’s opinion, which incorporates unusually strong language about the enforcement of the “rigorous” scienter and materiality requirements of the Act, has spawned nuanced litigation about how and when those requirements, as articulated in the opinion, may be met.
The holding in Escobar is simple enough to summarize. The implied certification theory can be a basis for liability, “at least where 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.” Id. at 2001. But unraveling precisely what the Court meant in this seemingly straightforward passage has generated numerous conflicting opinions, with significant ramifications for the likelihood that a case will proceed past the pleading stage, survive summary judgment, or result in liability at trial.
Courts are divided over the “specific representation” requirement. Some courts have taken the plain language of the Supreme Court’s opinion at face value and demanded allegations or proof of a specific representation of the nature of the goods or services provided. Other courts, at the urging of the Department of Justice, have concluded that Escobar prescribes just one of the ways that implied certification can give rise to liability, and that a specific representation is not required in every circumstance.
Courts analyzing the materiality of an alleged fraud have examined decisions made by the government after it knew of the alleged fraud. From decisions to pay claims and award contracts to decisions not to intervene in a qui tam suit, the scope and significance of government action and inaction in the face of knowledge of an alleged fraud continues to develop in the courts, to dramatic effect. In September, the Fifth Circuit overturned a $663 million judgment for a relator, the largest judgment ever imposed under the FCA, focusing with laser-like precision on the significance of the issues tackled in Escobar:
“[T]he demands of materiality adjust tensions between singular private interests and those of government and cabin the greed that fuels it. As the interests of the government and relator diverge, this congressionally created enlistment of private enforcement is increasingly ill served. When the government, at appropriate levels, repeatedly concludes that it has not been defrauded, it is not forgiving a found fraud—rather it is concluding that there was no fraud at all.”
United States ex rel. Harman v. Trinity Indus. Inc., 15-41172, 2017 WL 4325279 at *18 (5th Cir. Sept. 29, 2017).
From where we sit, pleading, proving, and defining claims through the lens of Escobar is the FCA and qui tam litigation issue of the year for 2017. In this review, we discuss this and other significant developments of the past year.