FCA Materiality May Return to High Court

Morrison & Foerster LLP

In Escobar, the U.S. Supreme Court held that a defendant could be found liable under the False Claims Act for submitting impliedly false claims for payment. Under the implied certification theory of liability, a claim for payment can be false if it is based on an implied representation that the individual or company who submitted the claim is in compliance with all applicable statutes, regulations, or government contract provisions, when in fact the individual/company is not in compliance. In ratifying this theory, however, the Supreme Court also imposed an important qualification on the plaintiffs: The government or any relator must demonstrate that the requirements at issue were material. Furthermore, the Supreme Court stated that “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 are not material.”

In other words, if the government continues to pay a contractor after becoming aware that the contractor is not complying with applicable statutes, regulations, or government contract provisions, then that acquiescence is strong evidence that compliance with those requirements is not material to payment and the contractor’s noncompliance cannot give rise to FCA liability.

Originally published in Law360 on March 13, 2018.

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