Court May Confirm the Rigorous Materiality Standard Required by the False Claims Act

January 9, 2018By Anne K. Walsh

To prevail on an allegation under the False Claims Act (FCA), a plaintiff must allege that the misrepresentation by defendant was “material to the Government’s payment decision.” Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).  The U.S. Supreme Court explained that “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.” Id. at 2003.

As reported last year, there has been a trend to narrow the types of FCA theories that could survive the more stringent test for materiality established by Escobar, with several circuit courts requiring a rigorous scrutiny of the government’s behavior once it became aware of the alleged misrepresentations.  In July 2017, however, the Ninth Circuit bucked the trend, and concluded that whether allegations are material raised matters of proof that could not be resolved on the pleadings (i.e., at the motion to dismiss stage). See United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017).  The Ninth Circuit’s view was that the plaintiffs alleged “more than the mere possibility that the government would be entitled to refuse payment if it were aware of the violations,” and that was sufficient for materiality purposes “at this stage of the case.”

The U.S. Supreme Court now may be poised to provide further clarity on the materiality required for FCA liability. Gilead requested, but was denied, a rehearing en banc.  Gilead now requests in a petition for a writ of certiorari that the U.S. Supreme Court rule on the following question:

Whether an FCA allegation fails when the Government continued to approve and pay for products after learning of alleged regulatory infractions and the pleadings offer no basis for overcoming the strong inference of immateriality that arises from the Government’s response.

Gilead provides several reasons the Court should grant the writ. First, the Ninth Circuit’s approach conflicts with the decisions of six circuits that have addressed this very question and interpreted Escobar differently.  Second, courts have had, and will have, to consider this question with frequency, and the outcome of this case could impact the availability of drugs and medical products to the marketplace.  Last, this case is well positioned to provide “guidance on a significant and recurring issue by clarifying how the Government’s response upon learning of alleged infractions affects the viability of an FCA complaint.”

Response to the petition is due on February 2, 2018.