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Continued Developments on False Claims Act Liability Under the Implied Certification Theory

March 17, 2017

In 2016, the U.S. Supreme Court in Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989 (2016) held that liability can exist under the civil False Claims Act (FCA) based on the implied certification theory, resolving a split among the Federal Court of Appeals about the theory’s viability.  Since that decision, Federal Circuits have begun to explore the ramifications of the holding.  The Seventh Circuit Court of Appeals, in United States v. Sanford–Brown, Ltd., examined the new standard and held that the conditions for liability under an implied certification theory were not met.  840 F.3d 445, 447 (7th Cir. 2016).  The Court of Appeals found that “bare speculation” regarding misleading representations is insufficient to support a claim at the summary judgment stage.  Id.  Second, the granting of summary judgment was affirmed because the plaintiff failed to establish the independent element of materiality.  Id.  The Court of Appeals strongly enforced this element of the implied certification theory, and focused on the fact that there was no evidence to support the argument that the government’s decision to pay would likely or actually have been different if it had known of the alleged misrepresentations.  Id.  Further, the Court of Appeals stressed that even if it was shown that the government’s knowledge of misrepresentations would have caused it to decline payment, this alone would still not be enough to meet the high standard required for the materiality element.  Id. at 448.  In summary, the Seventh Circuit Court of Appeals did not try to find ways to work around the Supreme Court’s decision; rather, it whole-heartedly enforced the elements outlined by the Supreme Court and showed that it will hold plaintiffs to a rigorous standard on alleged liability under the FCA based on the implied certification theory.

The Ninth Circuit Court of Appeals recently addressed the materiality element of the implied certification theory as well.  United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325 (9th Cir. 2017).  Again, the Court of Appeals held that the claims failed because of the failure to meet the rigorous materiality standard.  Id. at 333.  As the Seventh Circuit Court of Appeals did, the Ninth Circuit Court of Appeals held that it is not enough to show that the government would not have paid if it knew of the alleged misrepresentation.  Id.  Rather, what was important here was the fact that the government did not find the reports which contained the alleged misrepresentations useful—the government found the reports to be neither necessary nor cost‑justified for their related project.  Id. at 334.  This indicates that the Ninth Circuit will examine the government’s use of the substance that contains the alleged misrepresentations, and that materiality will be judged partly on the utility of that use.  The takeaway from this case is that the Ninth Circuit, like the Seventh Circuit, will apply a rigorous standard to meet the materiality element.  Moving forward, it will be worth watching the Federal Circuits as they continue to develop and explore their treatment of the materiality element.