Supreme Court Rules on False Claims Act Liability Under the Implied Certification Theory
The U.S. Supreme Court in Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 195 L. Ed. 2d 348 held that the implied certification theory can be a basis for liability under the civil False Claims Act (FCA), resolving a split among the Federal Court of Appeals about the theory’s viability. Under this theory, when a contractor submits a claim, it impliedly certifies compliance with all conditions of payment. However, if the contractor fails to disclose a violation of a material statutory, regulatory, or contractual requirement, the contractor has made a misrepresentation that renders the claim “false or fraudulent” under the FCA. certification theory
The Court not only upheld the validity of the implied certification theory, but also clarified the scope of the theory. The Court held that the implied certification theory can be a basis for liability only where two conditions are satisfied. First, a claim for payment cannot “merely request payment.” The claim for payment must also “make specific representations about the goods or services provided.” Second, the contractor’s “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements” must make those “representations misleading half-truths.” The Court also held that FCA liability for failing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payment. A contractor can be liable for violating requirements even if the requirements were not designated as conditions of payment, but not every violation of a requirement that was designated as a condition of payment triggers liability. In reaching this holding, the Court explained: “What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.”
The Court also clarified how the materiality requirement under the FCA should be enforced. The Court emphasized that the “materiality standard is demanding.” Materiality “cannot be found where noncompliance is minor or insubstantial.” Consequently, the Government’s decision to identify a provision as a condition of payment is relevant to materiality, but “not automatically dispositive.” The Court elaborated that “proof of materiality can include … evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement,” or, conversely, the Government’s payment of a “claim in full despite its actual knowledge that certain requirements were violated” is “strong evidence that the requirements are not material.”
While the Court upheld the implied certification theory, the true impact of the decision will depend on how the lower courts choose to implement the decision. In particular, how the lower courts read the Court’s emphasis on materiality. The focus of future litigation may be whether the Government actually cared about the alleged violations, rather than technical arguments over terms of payment.
Moore & Lee Welcomes Ashley Presley
Moore & Lee is pleased to announce that Ashley Presley has joined the firm as an Associate. Ashley previously worked as a litigation attorney at the Department of Veterans Affairs where she was responsible for all facets of government contracting on behalf of the Agency
Moore & Lee Welcomes Alexander Yun
Moore & Lee is pleased to announce that Alexander Yun has joined the firm as an Associate. Alex previously worked for a boutique law firm in Fairfax, VA where he practiced all facets of civil litigation.
Continued Developments on False Claims Act Liability Under the Implied Certification Theory
The U.S. Supreme Court in Universal Health Servs., Inc. v. United States, 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.). 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.). 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.
Moore & Lee is Pleased to Announce that Jason Constantine has Become a Partner in the Firm
Moore & Lee Welcomes Two Summer Associates
Moore & Lee is pleased to welcome John Bertino and Rachel Bauer as summer associates. John has just finished his second year at George Washington University Law School and Rachel has just finished her first year at American University Washington College of Law.
Robert M. Moore Named in Virginia Super Lawyers 2017
Congratulations to Robert M. Moore on again being recognized as a Virginia Super Lawyer for Construction Litigation.
U.S. Court of Federal Claims Enjoins Award of Lease for TSA
The U.S. Court of Federal Claims recently set aside GSA’s award of a lease for the Transportation Security Administration’s (“TSA”) consolidated Northern Virginia Office. The TSA’s new office would have provided more than 600,000 square feet of rentable space for the administration. The Court of Federal Claims in Springfield Parcel C, LLC v. United States, held that a permanent injunction preventing GSA from proceeding with lease contract originally awarded to successful offeror was warranted. The court further held that GSA’s acceptance of an offer for space larger than the permitted maximum contained in the request for proposal contravened a material term in the proposal, and therefore, violated 40 U.S.C. § 3307(a). The failure to acquire appropriations for this lease, also violated the Anti-Deficiency Act, and therefore, the lease was void ab initio.
The Court, with this ruling, has carved out a right for would-be lessors to seek permanent injunctive remedies if an agency lease contract does not comply with the terms approved by Congress and articulated in the Request for Lease Proposal (“RLP”). Prior to this ruling, post award bid protests pertaining to a fully executed GSA lease did not pose a real threat to the government or the awardee. After this ruling government contractors should be very careful to follow any, and all, specifications found in the RLP when submitting their bid.
Moore & Lee Welcomes Michael Dockins
Moore & Lee is pleased to announce that Michael Dockins has joined the firm as an Associate. Michael earned his law degree from the University of Texas at Austin in May 2016. Michael had previously worked at Moore & Lee as a Paralegal prior to law school and as a Summer Associate during law school.
Moore & Lee Welcomes Spencer Kiggins
Moore & Lee is pleased to announce that Spencer Kiggins has joined the firm as an Associate. Spencer is barred in Virginia and the District of Columbia and has been practicing complex commercial, securities, antitrust and construction litigation since 2009.