7th Circuit

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The U.S. Court of Appeals for the Seventh Circuit recently joined the ranks of every other circuit court of appeal to have considered the issue in holding that the False Claims Act (FCA) requires an objective scienter standard.  Under this standard, defendants who act under an incorrect interpretation of the relevant statute or regulation do not act “knowingly” under the FCA if both of the following are true:

  1. The interpretation was objectively reasonable.
  2. “Authoritative guidance” did not warn the defendant away from their interpretation.

Background on Objective Scienter Standard

The FCA imposes liability on those who “knowingly” submit false claims to the government. The term “knowingly” is statutorily defined to cover defendants who act with “actual knowledge,” “deliberate ignorance,” or “reckless disregard.”

In construing the scienter requirement of the Fair Credit Reporting Act (FCRA) in Safeco Insurance Co. of Am. v. Burr, which punishes “willful” violations, the Supreme Court analyzed the common-law definition of that term and noted that willfulness as a statutory condition of civil liability has generally been understood to cover both knowing and reckless violations of a standard.  The Court then held that a defendant interpreting an ambiguous statute or regulation did not act with “reckless disregard” where their interpretation was objectively reasonable and no authoritative guidance warned them away from their interpretation.Continue Reading Seventh Circuit Holds FCA Requires Objective Scienter Standard

In a recent opinion, the Seventh Circuit joined its sister circuits in holding that under the FCA, a defendant’s conduct must proximately cause injury to the government in order to incur liability for that injury.  United States v. Luce, No. 16-4093, 2017 WL 4768864 (7th Cir. Oct. 23, 2017).  This decision resolves a circuit split that arose in 1992 when the Seventh Circuit parted company with the Third Circuit—the only other circuit at that time to have addressed the issue.  At that time, the Seventh Circuit held that the FCA required only a “but-for” standard of causation, meaning that a defendant could be held liable under the FCA even if the Government’s loss was not caused directly by the defendant’s conduct so long as the government would not have suffered the loss if not for the defendant’s conduct.  In addition to the Third Circuit, the other circuits that have since addressed this issue—the Fifth, D.C., and Tenth Circuits—have held that the higher standard of “proximate causation” applies to FCA cases.
Continue Reading Seventh Circuit Resolves Circuit Split on Causation in FCA Cases

In one of the few cases to apply the Supreme Court’s recent decision in Universal Health Services v. Escobar, the Seventh Circuit recently revisited and affirmed its prior rejection of an implied certification claim under the FCA.  Whether this is a window into how other circuit courts might implement Escobar remains to be seen.

In United States ex rel. Nelson v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015), the relator brought several claims, one of which was an implied certification claim, alleging that Sanford-Brown College (the “College”), which receives federal subsidies, violated the FCA by maintaining recruiting and retention practices that ran afoul of Title IV.  In particular, the College entered into a Program Participation Agreement (PPA) with the federal government to receive subsidies under the Higher Education Act, and the PPA contained boilerplate language requiring the College to affirm that it would comply with Title IV’s mandates.  The relator claimed that because the College’s practices in actuality violated Title IV, its representations in the PPA, and its attendant subsidy claims, were false.Continue Reading Seventh Circuit Revisits Sanford-Brown, Rejects Implied Certification Claim

On September 1, 2016, the U.S. Court of Appeals for the Seventh Circuit reversed the dismissal of an FCA lawsuit by the U.S. District Court for the Eastern District of Wisconsin, and in doing so, evaluated the particularity required to survive a motion to dismiss under Rule 9(b) as it relates to both a relator’s obligation to plead specific claims and the specifics of the underlying fraudulent conduct at issue.
Continue Reading Seventh Circuit Rejects Specific Claims Requirement for 9(b), Maintains a High Bar for Medical Necessity Allegations

The Seventh Circuit’s rejection of the implied certification theory of liability gave rise, in part, to the circuit split resolved by the Supreme Court’s opinion in Escobar.  In its first FCA decision since the Supreme Court’s opinion – U.S. ex rel. Sheet Metal Workers International Association v. Horning Investments, LLC, the Seventh Circuit sidestepped the question of whether the relator’s allegations that a government contractor’s certification of compliance with the Davis-Bacon Act amounted to an implied false certification sufficient to give rise to FCA liability.  Rather than tackle the implications of Escobar, the Seventh Circuit affirmed entry of summary judgment in favor of the contractor, explaining that the defendant’s conduct amounted to certifying compliance with an ambiguous statutory obligation and, therefore, did not constitute a “knowing” violation of the FCA.
Continue Reading Seventh Circuit Sidesteps Escobar; Boots FCA Claims for Lack of Knowledge

The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will take a closer look at recent legal developments involving the FCA. This week, we examine recent court decisions considering relators’ efforts to plead and prove falsity under the FCA by relying on a worthless services theory of liability.

The Seventh Circuit’s decision in U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., 764 F.3d 699 (7th Cir. 2014), casts significant doubt on the “worthless services” theory of FCA liability. Following the Seventh Circuit’s ruling in Momence, courts have reaffirmed the high hurdle that relators must surmount in order to plead a “worthless services” claim under the FCA.Continue Reading FCA Deeper Dive: Worthless Services as a Theory of Falsity

The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will take a closer look at recent legal developments involving the FCA. This week, we examine recent court decisions considering the level of specificity required of a relator under Rule 9(b) in pleading the alleged FCA fraud scheme.

While analyzing the circumstances of fraud is necessarily a case-by-case analysis, courts have applied decidedly different approaches to examining certain components of a fraudulent scheme, including the “who” and “when” requirements.Continue Reading FCA Deeper Dive: Rule 9(b) and the Pleading of the Alleged Fraud Scheme

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From the Bass, Berry & Sims Blog Network

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