Two of the Most Important False Claims Act Rulings in the Last Ten Years

Over the past decade, the False Claims Act (FCA) has resulted in billions upon billions of dollars recouped for the taxpayers and billions in aggregate for whistleblower awards for those that successfully navigated the statute.  For every advancement of the law, there’s defendants and defense attorneys waiting to pick it apart, some to craftily defend and some to embolden deceit and make the black and white lines more grey which is why issues are teed up to the courts and they decide under the framework of the FCA what’s right and what’s wrong.   

The False Claims Act has been at the forefront of enforcing accountability and transparency in government contracts and programs. This vital piece of legislation, dating back to the Civil War era, has seen several pivotal rulings that have shaped its application and impact. In this blog, we’ll explore three important False Claims Act rulings from the last decade, which have set significant precedent and influenced the fight against fraud and abuse in the public sector.  Here are a couple opinions that have shaped the landscape of False Claims Act litigation from materiality to objective falsity, some key concepts to understand.

Universal Health Services, Inc. v. United States ex rel. Escobar (2016)

Arguably the most influential False Claims Act ruling in recent times, Universal Health Services, Inc. v. United States ex rel. Escobar, decided by the Supreme Court in 2016, clarified and solidified the “implied certification” theory of liability. This theory holds that submitting a claim for payment implies compliance with all material regulations and contractual requirements, even if the claim does not explicitly state such compliance.

The Court’s decision in Escobar validated the implied certification theory, making it a powerful tool for the government to pursue FCA cases. However, the Court also emphasized that not every regulatory violation would render a claim false under the FCA. It set a two-pronged test for liability: (a) the claim must make specific representations about the goods or services provided, and (b) the failure to disclose noncompliance with material requirements must be deemed a “material” falsehood.

This ruling significantly expanded the scope of potential FCA liability, encouraging companies and individuals to exercise greater due diligence in their dealings with government programs and contracts. On the flip side, Defendants have used Escobar to advance arguments that some courts adopted asserting that if the government continues to pay on the matter after they are aware of the fraud then it must not be material, since if it were material in its decision to pay, then they wouldn’t pay it. If the argument sounds a bit circular, it’s because it is.  Adopting this standard would cut into the ability of the government to investigate the claim, since upon notice, they would shut down the payment thereby putting the defendants on notice of the investigation.  The False Claims Act by definition allows remediation for fraud and nothing within the Act explicitly indicates they need to shut down the fraud immediately upon notice.  A bipartisan group in Congress is trying to enact an amendment to the False Claims Act to specifically address once again materiality to kill this defense argument (as well as amplify the strident anti-retaliation provision). 

The overall spirit of the materiality line of cases is to bypass what most people would perceive as purely academic violations that don’t have a bearing on payment. For example, if the government contract called out that the company must keep two copies of every document and the company kept once copy electronically and one printed out and someone sued asserting non-compliance because of the belief that it should be two hard copies, or if the contract called for the paperwork to be printed using a courier 12 font, and they used a times new roman 12 font instead, unless there’s an extremely cogent and integral reason why it had to be in the manner prescribed then it wouldn’t be deemed material.  The examples may sound silly, but for the latter example, assume the government was ingesting hard documents paperwork into a machine that could only read courier fonts and the contractor spent millions producing documents in the wrong font, the government would have a point. If it was just the fancy of the font of the author of the contract, then it would seem silly to say that the contract in spirit is not satisfied.  

Cochise Consultancy, Inc. v. United States ex rel. Hunt (2019)

The Supreme Court’s ruling in Cochise Consultancy, Inc. v. United States ex rel. Hunt (2019) clarified the statute of limitations under the False Claims Act. Prior to this decision, there was a split among the circuit courts regarding the statute of limitations for FCA actions brought by private whistleblowers (qui tam relators) when the government chose not to intervene in the case.

The Court’s unanimous decision held that private whistleblowers could bring FCA cases within three years after the government became aware of the alleged fraud, even if the relator’s lawsuit is filed after the standard statute of limitations period has expired.  The limitations period in 31 U.S.C. §3731(b)(2) — which provides that a False Claims Act action must be brought within three years after the “the official of the United States charged with responsibility to act in the circumstances” knew or should have known the relevant facts, but not more than 10 years after the violation — applies in a qui tam suit in which the federal government has declined to intervene; the relator in a no intervened suit is not “the official of the United States” whose knowledge triggers §3731(b)(2)’s limitations period.

This ruling provided whistleblowers with a more extended window of opportunity to pursue FCA cases independently, incentivizing them to come forward with crucial information about fraud and misconduct, even if the government does not intervene initially.

Conclusion

Over the last decade, False Claims Act rulings have significantly shaped the landscape of contract compliance and accountability. The Escobar ruling expanded the scope of potential liability while reigning in inconsequential petty issues and Cochise Consultancy ensured that whistleblowers had adequate time to report fraud. Together, these rulings have strengthened the FCA’s role in safeguarding taxpayer money and promoting integrity in public programs and contracts. As we look to the future, these precedents will continue to guide and inform FCA enforcement, ensuring that the fight against fraud remains robust and effective.