Part 2 of 2: U.S. Supreme Court Confirms False Claims Act’s Scienter Standard Accounts for Subjective Intent

Dechert LLP

On June 1, 2023, the U.S. Supreme Court released a unanimous decision in U.S. ex rel. Schutte v. SuperValu Inc., No. 21-1326; U.S. ex rel. Proctor v. Safeway, Inc., No. 22-111, clarifying the False Claims Act’s scienter standard.

The cases before the Court involved pharmacies that presented or submitted claims for payment that the relator alleged were false. The relator’s theory was that the “usual and customary” prices for medications quoted by the pharmacies for purposes of reimbursement from Medicare and Medicaid did not account for certain discounts routinely given to retail customers. The pharmacies argued that their actions were consistent with an objectively reasonable interpretation of the regulations’ ambiguous phrase “usual and customary” and therefore they could not have acted “knowingly” in submitting allegedly false claims for payment.

As we expected, the Court confirmed that “the FCA’s scienter element refers to respondents’ knowledge and subjective beliefs” when they submitted the allegedly false claim – “not what the defendant may have thought after submitting it.” Thus, a defendant cannot establish that it did not act “knowingly” merely by pointing to an objectively reasonable interpretation of ambiguous regulatory guidance absent evidence the defendant subjectively believed that interpretation at the time the claim was submitted. The decision, authored by Justice Thomas, overturned the Seventh Circuit’s affirmance of summary judgment and remands the cases back to the district court.

The Court found that the False Claims Act’s three-part definition for scienter tracks the traditional requirements from common law fraud. The opinion describes the three-part definition as follows:

  • Actual knowledge “refers to whether a person is ‘aware of’ information” that the claim is false.
  • Deliberate ignorance “encompasses defendants who are aware of a substantial risk that their statements are false, but intentionally avoid taking steps to confirm the statement’s truth or falsity.”
  • Reckless disregard “captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway.”

The Court therefore rejected the notion that post-hoc interpretations might have rendered a claim accurate. The Court emphasized the narrow nature of its ruling, observing that it did not resolve whether petitioners had made a sufficient showing under the correct legal standard to preclude summary judgment or whether the respondents actually believed their claimed interpretation. Nonetheless, the decision confirms that the FCA’s scienter standard accounts for a party’s contemporaneous and subjective belief when submitting or presenting a claim for payment to the government.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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