Add the Fifth Circuit to the list of jurisdictions questioning the use of the federal False Claims Act (FCA) in instances where – using the theory of implied certification - the alleged falsity is not apparent on the face of the claim. And in doing so, one Judge articulated many practitioners’ concerns: the financial provisions of the FCA may be incentivizing relators and the government to use the FCA to remedy what would otherwise be contractual or administrative disputes.
We previously wrote about the Sixth Circuit’s dismissal of an FCA case brought against providers who violated Medicaid enrollment regulations, finding that nothing in a rule or on the claim forms conditioned the Medicaid claims and payments at issue on those enrollment regulations. And we recently posted about a Department of Justice (DOJ) appeal of a district court’s dismissal of an FCA case, where the defendant allegedly violated FDA reporting requirements for the products billed. In that case, the court found no support for the theory that the claims at issue included an implied representation of compliance with those reporting requirements.
Last week, the Fifth Circuit rejected a relator’s FCA claims asserting that the defendants’ sale of allegedly faulty infusion devices to the United States Department of Veterans Affairs violated the FCA based upon (1) an implied false certification of “merchantability,” and (2) a “worthless goods” theory. The court determined that relator’s “merchantability” allegations failed to state a “cognizable implied false certification claim under the FCA” and the “worthless goods” allegations failed to satisfy the pleading requirements of Fed. R. Civ. P. Rule 9(b).
But what really caught our interest was Judge Higginson’s concurring opinion, suggesting that courts discard the “certification” construct for FCA liability altogether. Like his judicial colleagues, Judge Higginson acknowledged and cited the First Circuit’s decision in United States ex rel. Hutcheson v. Blackstone Med., Inc. addressing FCA liability for implied conditions not contained in statute or rule. Although the First Circuit took a broad approach to FCA liability (it reversed the dismissal of an FCA case against a medical device manufacturer premised on the manufacturer’s violations of the Anti-Kickback Statute), Judge Higginson echoed the First Circuit’s view that “judicial constructs” of express and implied certification “do more to obscure than clarify the issues before us” in FCA cases. As a result, Judge Higginson “would redirect attention to the plain language of the statute” and favored “restoring Congress’s statutory distinction between falsity and fraud, and using traditional, common-sense understandings of those terms, in combination with ‘strict enforcement of the Act’s materiality and scienter requirements[.]’” One reason for doing so, he said, is to maintain the “crucial distinction” between punitive FCA liability and ordinary breaches of contract.
Given this new attack on the implied certification theory of FCA liability, we assume DOJ will also appeal this decision. But FCA defense practitioners may take heart in this growing drumbeat to curb the reach of the FCA to conduct not expressly required as a condition of government program payment.