Escobar Petitioner Urges Supreme Court to Reject or Limit FCA Implied Certification Theory

On January 19, Petitioner filed its opening merits brief in Universal Health Services v. United States ex rel. Escobar, urging the Supreme Court to reject entirely, or at the very least sharply curtail, the “implied certification” theory of FCA liability developed in the Circuit courts.

To frame the case, Petitioner makes effective use of an example employed by the United States in its brief in opposition to certiorari in another recent FCA case, Triple Canopy, Inc. v. United States ex rel. Badr.  As the Solicitor General described “implied certification” liability in that case:

[I]f a parent promises to pay a child $10 for every hour spent mowing the lawn, and the child returns at the end of the day requesting $20, the child has impliedly represented that the job required two hours’ labor—a representation that would be false if the job in fact required only one hour.

But, as Petitioner in Universal Health Services explains, the example is misleadingly simplistic and hardly does the doctrine justice.  As recast by Petitioner:

The parent agrees to pay the child $10 an hour to mow the lawn, provided the child complies with three conditions every time he or she mows the lawn.  Two years later, the child mows the lawn, tells the parent truthfully that they spent two hours mowing the lawn, and asks for $20 in payment.  The child is not asked whether he or she complied with the three conditions.  Later, the parent learns that the child did not comply with one of the three conditions.  The parent is not sure he or she would have agreed to pay the child had the child not initially, two years earlier, agreed to the three conditions.  The question is what should the parent do?  Give the child a talking to and ensure he or she follows the rules in the future? Ask for some fraction of the $20 back?  Or, ask for $60 back, impose an additional punishment, and publicly label the child a fraudster?

As Petitioner frames the question before the Court—did Congress intend to impose “such draconian remedies and punishments” on those who submit factually true claims for payment, but which are subsequently deemed legally false because the claims contain an “implied certification” of compliance with all potentially applicable legal duties.

The FCA Does not Permit Implied Certification Liability

Petitioner first argues that the implied certification theory is inconsistent with both the text and the purposes of the FCA, and therefore should be rejected entirely.  At common law, Petitioner argues, falsity turns on whether a statement made is incorrect, not whether a statement not made would have been incorrect had it been made.  Moreover, Petitioner argues, a fraud claim may be based on non-disclosure only where there exists an independent duty to speak.  Where a statute incorporated common law terms, the statute is assumed to incorporate the common law meaning.  Because the implied certification theory reads the terms false and fraudulent more broadly than their common law meanings, the theory is inconsistent with the plain meaning of the FCA.  To adopt that reading, Petitioner argues, would be to imposing an affirmative fiduciary duty on every entity doing business with the government—an extraordinary result.

Turning to the policies motivating the FCA, Petitioner emphasizes the practical difficulties inherent in attempting to comply with the FCA under the implied certification theory.  Where a contractor may be subjected to FCA liability for any violation of any legal duty that the court determines, after-the-fact, is within the scope of the contractor’s implied certification, a meaningful compliance program is all but impossible.  A contractor would have to ensure compliance with every underlying legal duties at all times, an unrealistic expectation.

Implied Certification Liability Should Arise Only for Expressly Stated Conditions of Payment

In the alternative, Petitioner argues, implied certification liability should lie only for noncompliance with an expressly stated condition of payment.  This more tailored approach, Petitioner argues, are consistent with principles of fairness, notice, and the constitutional Due Process, particularly given the Supreme Court’s recognition as FCA liability as “essentially punitive.”

Additionally, Petitioner argues, the First Circuit’s broad implied certification theory unconstitutionally erodes the FCA’s other requirements, falsity, scienter, and materiality.  To prove scienter, for example, the government or relator must link knowledge of a violation to a precondition to payment, because without such knowledge “there is no basis to conclude that the defendant’s claim for payment amounted to a certification of compliance with the condition.”

In conclusion, Petitioner argues that the First Circuit’s interpretation “threatens to impose ‘almost boundless’ liability,” allowing qui tam plaintiffs to plead claims based on “perceived violations of technical and obscure industry standards, environmental regulations, procurement manuals, and contractual terms,” and facilitating qui tam plaintiffs’ usurpation of power from the government and increasing pressure to settle even meritless FCA cases.