The Supreme Court’s recent decision in United States ex rel. Schutte v. SuperValu, Inc. clarified that the claimant’s knowledge and subjective beliefs, and not what an objectively reasonable person may have known or believed is relevant to determining liability under the civil False Claims Act (FCA). United States ex rel. Schutte v. SuperValu, Inc., No. 21-1326 (U.S. June 1, 2023).
The FCA imposes liability on those who “knowingly present… a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729 (a). In determining the meaning of that intent requirement, several lower courts had relied on a prior Supreme Court decision, Safeco Ins. Co. of America v. Burr, to hold that an objectively reasonable interpretation of a statute, in the absence of federal guidance to the contrary, could not be fraudulent under the FCA even where there is subjective intent to commit fraud. 551 U. S. 47 (2007). These decisions created another defense to FCA claims, because the claimant could argue both that they believed the claim was valid and that an objective party could believe the claim was valid.
Justice Thomas, writing for a unanimous Supreme Court, rejected this interpretation of the FCA and Safeco and held that “[w]hat matters for an FCA case is whether the defendant knew the claim was false.” Per the Court, “the FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.” The Court rejected the lower court’s assessment that “a claim would have to be objectively unreasonable, as a legal matter, before a defendant could be held liable for ‘knowingly’ submitting a false claim, no matter what the defendant thought.”
The Court did not apply the holding of Safeco to the FCA, because that case involved the definition of a different intent requirement (willfully) for a different statute (the Fair Credit Reporting Act). Further, the Court rejected the argument that Safeco “purport[ed] to set forth [a] purely objective safe harbor.” The Court explained that the FCA’s definition of “knowingly” follows the common law definition; common law fraud exists when a “culpable state of mind” is captured and where a false statement is made “without belief in its truth or recklessly, careless of whether it is true or false.” According to the Court, “ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false” and the focus must be “on what the defendant knew when presenting the claim.”
It is important for any party that is considering submitting a claim to the Government to carefully consider whether the claim is being brought in good faith and whether the amount requested is fully justified. The Court’s decision has eliminated a powerful defense to an FCA allegation for an innocent contractor who is attempting to comply with a complex or ambiguous statute. The best way to minimize the risk of these claims is to ensure a strong government compliance program and to involve counsel in reviewing and assessing potential claims for FCA exposure.
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