New York Federal Court Holds that False Certification is Not Actionable Under False Claims Act Unless it Involves a Condition for Payment

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United States ex rel. Qazi v. Bushwick United Housing Dev. Fund Corp., et al., 11 Civ. 1592 (BMC) (E.D.N.Y.): A New York federal district court dismissed an action alleging that a day care provider violated the federal and New York state False Claims Acts (FCA) when it failed to comply with state mandated supervisor-child ratios. The relator, Shahzada Qazi, a former teacher for defendant United Community of Williamsburg Day Care Center, Inc., alleged that her classroom had up to 24 children with only two supervising adults. Article 47 of the New York City Health Code requires one adult supervisor per every six children in any Day Care Center class, and no more than 12 children per class. The relator alleged that the Day Care Center and defendant Bushwick United Housing Development Fund Corp. falsely certified compliance with Article 47 in order to induce the New York City Department of Health and Mental Hygiene to issue them a permit to deliver day care services and to qualify for state and federal funding. Relator further alleged that she raised this concern with defendants’ management multiple times, to no avail. She alleged that defendants intentionally failed to comply with Article 47 to maximize their profits.

The defendants moved to dismiss the complaint, and the court considered “whether the claim was false, and if the defendants knew the claim was false.” Because the relator did not allege that defendants did not provide the day care services for which they sought and received funding, the court focused on the notion of “legal” falsity. In other words, did the claim involve a false representation of compliance with a statute or regulation or a contractual term? The court observed that the certification here “did not expressly condition payment on defendants’ compliance with the [New York City] Health Code.” Instead, it was a condition of participation. The court then concluded that a false certification of compliance with Article 47 of the New York City Health Code could not trigger FCA liability because: (1) Article 47 never conditions payment on compliance and, in fact, never references payment at all; and (2) Article 47 never requires automatic revocation of a permit where noncompliance is evident; but rather, requires a discretionary finding by the administering agency.

Significantly, the court indicated that it would not interfere with administrative bodies that are charged with ensuring compliance with the regulations they promulgate. It found that “administering those regulations is ‘best left to the administrators.’”