Last week, the Supreme Court issued its much anticipated opinion in Universal Health Services, Inc. v. U.S. ex rel. Escobar. As we discussed in a prior blog, the Universal Healthcare case presented two important questions regarding the scope and breadth of the False Claims Act (31 U.S.C. §§ 3729 et seq.) (the “FCA”): (1) whether the implied certification theory of liability is appropriate under the FCA; and (2) if so, whether the implied certification theory should be limited to statutes, regulations, and/or contract provisions that expressly condition payment upon compliance.
In a unanimous decision authored by Justice Thomas, the Court approved the implied certification theory of liability under the FCA, but held that its application should be limited. Specifically, the Court explained that FCA liability may attach under the implied certification theory when the following two conditions are satisfied:
- The claim does not merely request payment, but also makes specific representations about the goods or services provided; and
- The failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.
The Court’s decision emphasized that the FCA is not “a vehicle for punishing garden-variety breaches of contract or regulatory violations.” To curb the expansive reach of the FCA, the Court turned its attention to the impact of the materiality requirement as it relates to the implied certification theory. Explaining that a noncompliance with a statute, regulation, or contractual requirement “must be material to the Government’s payment decision to be actionable [under the FCA],” the Court cautioned that the materiality standard is “demanding.”
The Court explained that the materiality requirement of the FCA is not satisfied “where noncompliance is minor or insubstantial.” Moreover, the Court reasoned that “[w]hether a provision is labeled a condition of payment is relevant to, but not dispositive of the materiality inquiry.” In examining the materiality requirement of the FCA, the Court provided the following guidance:
[P]roof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, 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 were material.
The impact of the Court’s decision in Universal Healthcare will undoubtedly be the subject of much debate in the coming years as lower courts grapple with scope of the implied certification theory of the FCA and its relationship to the materiality requirement. That said, the Court’s decision is a helpful reminder that contractors would do well to closely scrutinize the validity of representations provided to the Government in connection with the submission of a claim for payment. This is because the implied certification standard set forth by the Court requires courts to examine claims for payment and any “specific representations about the good or services provided.” Therefore, undisclosed violation(s) of a material statute, regulation, or contractual term are still actionable under the implied certification theory of the FCA.