With Oral Argument in Important False Claims Act Case Fast Approaching, A Reminder of the High Stakes

On April 18, the Supreme Court will hear oral argument in two consolidated cases that present the question of whether a defendant can “knowingly” submit a false claim under the Federal False Claims Act when the alleged falsity is based on an objectively reasonable legal interpretation of an ambiguous provision of law and no authoritative guidance from the government warned the defendant away from its interpretation.

The defendants in the cases recently submitted their brief arguing that the answer to that question should be “no.”  On the other side of the issue are the whistleblowers/relators in the case and the DOJ, which the Court has granted leave to participate in the argument. Much has already been written on this issue and more is sure to come as the tea leaves from the argument are read, and a decision is ultimately issued.   We will continue to follow the developments, but for today’s blog, focus on what’s at stake—in short, massive amounts of damages and penalties.

When an ambiguous law or regulation is presented to a court, it is the court’s job to decide what it means, no matter how ambiguous or inartful the provision may be.  The upshot is that a court, for the first time in a False Claims Act case may be called upon to decide what a law means, and therefore whether a claim submitted well before the issue reached the court is a “false” claim.

Unlike the FDC Act, the FCA is not a strict liability statute, however. So, even if the court resolves the ambiguity and determines that a claim was “false” there is no FCA liability unless, among other elements, the defendant acted “knowingly.”  Under an objective reasonableness standard for “knowingly,” if the court finds that when the defendant was engaged in the allegedly violative conduct, the provision was ambiguous and the defendant’s interpretation objectively reasonable, the case can be dismissed at the pleading stage or summary judgment avoiding trial.

Much of the objection to an objective reasonableness standard suggests that creative lawyers using post-hoc rationalizations could allow defendants who subjectively “knew” to “get away” with something. That commentary does not typically focus on the stakes for a defendant that believes it was right, goes to trial and loses.  A recent case before the Minnesota District Court shows how high those stakes are.  In a recent trial, a jury verdict finding $43M in single damages has, according to the government, resulted in $490M in statutorily mandated liability.  The sheer size of that type of exposure gives the government and relators an outsized hammer in negotiating with a putative or actual defendant.  Even defendants that ultimately prevail can spend years defending their actions.  We recently blogged about a qui tam suit that was dismissed despite an en banc review at the 4th Circuit, but not before spending nearly a decade defending its reasonable interpretation of an ambiguous best price statute.

Given the already stacked scales of justice in these FCA cases, we are hopeful that the Court will adopt the objective reasonableness standard, but regardless we will be following the issue closely and keep you apprised of the latest developments.