In 2016, the U.S. Supreme Court handed down its decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar confirming the viability of the implied false certification theory in False Claims Act (FCA) cases and mandating that claims brought pursuant to that theory satisfy “demanding” materiality and scienter requirements. As discussed in a prior post, since Escobar, the U.S. Courts of Appeals have wrestled with analyzing and applying the materiality and scienter requirements discussed in the Supreme Court’s opinion, resulting in a number of recent petitions for writ of certiorari filed with the Supreme Court seeking clarification of the Escobar mandates.
In one of its first actions of 2019, the Supreme Court recently denied petitions in two closely-watched FCA cases, U.S. ex rel. Harman v. Trinity Industries, Inc., and Gilead Sciences Inc. v. U.S. ex rel. Campie.
$660 Million Reversal Stands in Harman
The plaintiff-relator in Harman sought review from the Supreme Court after the U.S. Court of Appeals for the Fifth Circuit reversed a $660 million jury verdict, holding that the relator failed to prove that the defendant’s alleged misrepresentations were material to government’s payment decisions. The relator in Harman claimed that the defendant produced and sold defective highway guardrails to various states, causing them to submit fraudulent claims for reimbursement to the federal government. However, evidence was presented that the Federal Highway Administration was aware of the alleged defects but continued to pay for the guardrails despite their non-compliance. Relying on Escobar, the Fifth Circuit held that relator failed to overcome such “strong evidence” that the requirements at issue were not material. The Supreme Court’s recent denial of the relator’s petition leaves intact the Fifth Circuit’s judgment and precedential opinion, providing a potential defense to FCA defendants in cases where the government was aware of certain conduct but continued to pay claims.