Knowledge/Scienter

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On June 1, the U.S. Supreme Court unanimously refused to apply the Safeco objective knowledge standard to the False Claims Act (FCA), holding instead in U.S. ex rel. Schutte v. Supervalu Inc. that the FCA’s scienter element turns on a defendant’s “knowledge and subjective beliefs,” not on “what an objectively reasonable person may have known or believed.”Continue Reading Supreme Court Rejects Safeco, Holds that FCA Scienter Turns on Defendant’s Subjective Belief

Scienter is an element that the government or relator must prove to demonstrate a violation of the False Claims Act, 31 U.S.C. § 3729, et seq.  Under the False Claims Act, the required scienter, or state of mind, is “knowledge.” In other words, the False Claims Act only penalizes defendants who knowingly submitted false claims, i.e., submitted the false claim with knowledge of the claim’s falsity.
Continue Reading False Claims Act Fundamentals: Scienter

The False Claims Act, 31 U.S.C. § 3729, et seq. is the federal government’s primary and most effective tool for fighting fraud. This post provides an overview of the elements that plaintiffs must satisfy to establish liability under the False Claims Act and common defenses related to the elements.
Continue Reading False Claims Act Fundamentals: Elements of the False Claims Act

On January 25, in a 2-1 decision in U.S. ex rel. Sheldon v. Allergan Sales, LLC, 2022 WL 211172, the Fourth Circuit became the most recent federal appellate court to hold that the objective scienter standard in the Supreme Court’s Safeco decision applies to the False Claims Act (FCA). Under the Fourth Circuit’s decision, the FCA’s scienter element cannot be met if the defendant’s interpretation of applicable statutory or regulatory requirements was objectively reasonable and no authoritative guidance from a circuit court or government agency warned the defendant away from its interpretation.
Continue Reading Fourth Circuit Adopts Safeco’s Objective Reasonableness Standard for False Claims Act

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

On Tuesday, November 20, 2018, Defendants-Petitioners Brookdale Senior Living Communities, Inc. et al. (Brookdale) filed a petition for a writ of certiorari with the U.S. Supreme Court asking the Court to resolve circuit splits regarding enforcement of the materiality and scienter elements of the False Claims Act (FCA) in cases involving the implied false certification theory of liability. The relator in the case, styled Brookdale Senior Living Communities, Inc. v. U.S. ex rel. Prather, is a former Brookdale utilization review nurse who alleges that Brookdale did not obtain physician signatures on home health certifications as soon as possible after the physician established a plan of care, in violation of Medicare regulations. The U.S. District Court for the Middle District of Tennessee previously dismissed the lawsuit for failure to plead falsity, but the case was revived on appeal by a divided panel of the Court of Appeals for the Sixth Circuit, which held that the relator adequately pleaded a regulatory violation. After the relator amended her complaint in light of the Supreme Court’s 2016 decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar, which addressed the FCA’s materiality requirement, the district court dismissed the case for failure to plead materiality. On appeal, however, the Sixth Circuit again reversed in a 2-1 decision, finding that the relator adequately pleaded materiality and scienter.
Continue Reading Supreme Court Review Sought on FCA Materiality, Scienter Elements

On August 12, 2016, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment with respect to FCA claims asserted against an anesthesia practice based on the theory that the practice’s physicians billed Medicare for anesthesia services without being present in the operating room during the patients’ “emergence” from anesthesia.   In U.S. ex rel. Donegan v. Anesthesia Associates of Kansas City, PC, the Eight Circuit concluded that the relator failed to establish that the practice acted with the requisite knowledge because the practice’s interpretation of the billing regulation at issue was “objectively reasonable.”
Continue Reading Eighth Circuit Affirms Dismissal of FCA Claims Related to Ambiguous Regulation

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 the requirement that a relator plead and prove that a defendant acted with the requisite level of knowledge to establish an FCA claim and evaluate how courts have evaluated this issue in recent cases.
Continue Reading FCA Deeper Dive: Meeting the FCA’s Intent Requirement

From the Bass, Berry & Sims Blog Network
From the Bass, Berry & Sims Blog Network

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