Amicus Briefs Ask Supreme Court to Rein In The Implied Certification Theory (Part Two)

As we previously reported, the Supreme Court’s pending decision in United Health Services, Inc. v. United States ex rel. Escobar has attracted a number of amicus briefs encouraging the Supreme Court to reject the implied certification theory altogether, or at the very least significantly cabin its scope.  Below we summarize the highlights of several additional amicus briefs filed in support of the petitioner.

While healthcare provider groups were most heavily represented among the amici, three of the largest trade associations for manufacturers also filed briefs.  The Pharmaceutical Research and Manufacturers of America (“PhRMA”) and the Advanced Medical Technology Association (“AdvaMed”) filed an amicus brief illuminating the sharp rise not only in qui tam suits but also settlements.  Companies often fold and settle when faced with potential fines so excessively out of proportion to government loss they have drawn challenges under the Excessive Fines Clause of the Eighth Amendment (as well as independent requests for Supreme Court clarification, as discussed here).  This pressure further “fuels the expansion of the implied-certification theory, as the theory is only rarely put to the test through the full crucible of trial and appellate review, further exacerbating its unpredictability.”  In other words, they argue, the growth in lawsuits and settlement payouts is not a sign that fraud is increasing, but rather is a “symptom” of the ever-expanding efforts to leverage creative new theories of liability under the implied certification theory.  While the government often maintains that materiality and scienter offer sturdy safeguards against baseless payouts, these “fact-intensive” inquiries provide little protection against denied motions to dismiss and expansive discovery.

The Generic Pharmaceutical Association (“GPhA”) further underscores the risk of FCA liability based on alleged noncompliance with regulatory requirements.  As GPhA explains, because the FCA applies to those who “cause” the submission of a false claim, “anyone who makes a product that is later resold to the government, or reimbursed by the government, becomes a potential target—based on certifications supposedly made to the government by someone else.”  Per-claim penalties quickly accrue in these circumstances for each prescription filled, with no opportunity for courts to intervene and exercise judicial discretion to limit the total penalties.  GPhA also emphasizes the policy implications of expansive FCA liability.  Forcing generic drug manufacturers to expend resources to police their customers for regulatory lapses places pressure on already low profit margins.

Industries outside of healthcare also provided perspectives on how the implied certification theory has affected their members.  For example, CTIA–The Wireless Association (“CTIA”) describes the potent effect of combining the implied certification theory with the lower Rule 9(b) pleading standard adopted by some circuits.  Under this more lenient standard, relators no longer need to plead the full “who, what, where, when, and how” of the fraud they allege, but rather, can merely describe a general scheme.  According to the CTIA, the broad scope of the implied certification theory, when combined with this lower bar to surviving a motion to dismiss, has multiplied low-merit FCA suits.  If the Court recognizes the implied certification theory as viable, the CTIA urges the Court to “affirm the responsibility of relators to plead their claims with particularity, including the basic obligation to allege the details . . . of at least one allegedly fraudulent claim.”

An amicus brief filed by the Washington Legal Foundation (“WLF”) focuses on how the modern-day invention of the implied certification theory is inconsistent with how fraud was understood at the common law.  As the WLF explains, “the common law has never classified as ‘fraudulent’ a failure to disclose the noncompliance when seeking contract payments, in the absence of a special duty of disclosure toward the other party.”  The one exception, according to the WLF, is omissions that mislead the government.  The WLF proposes that “if the implied certification theory is to be recognized at all, it should be limited to FCA cases in which the statutory, regulatory, or contractual provision allegedly violated states expressly that claims will not be paid unless the claimant has complied with the provision.”

The First Circuit rejected such a limitation, believing it lacked any basis in the statutory language of the FCA.  The WLF responds that the First Circuit’s “reasoning gets the argument backward: it is the implied certification theory itself that lacks a statutory basis.”  Aside from common law arguments, the WLF also raises practical concerns regarding the resulting scope of criminal liability.  When Congress first passed the FCA, the law provided for both civil and criminal liability.  While the law was later separated into civil and criminal provisions, Congress likely intended the scope of a “false or fraudulent claim” to be the same under both the civil and criminal FCA.  The WLF believes the Rule of Lenity would require a court to adopt its proposed limitation on the implied certification theory in the context of the criminal FCA.  Accordingly, the WLF encourages the Court to apply the Rule of Lenity in the civil context to avoid “creating conflicting interpretations for closely related statutes that employ identical language.”

The PhRMA/AdvaMed brief can be found here, the GPhA brief here, the CTIA brief here, and the WLF brief here.