Universal Health Services Urges Court to Reject Implied Certification Theory of Liability

On March 28, 2016, Petitioners in Universal Health Services v. United States ex rel. Escobar filed their reply brief reinforcing their argument that the implied certification theory of liability is not a valid basis of liability under the False Claims Act (“FCA”).  Alternatively, Petitioners argue that if the Court accepts the implied certification theory of liability, the theory must be limited to noncompliance with an express condition of payment.

Petitioners’ Assert Implied Certification Fails as a Basis for Liability Under the FCA

Petitioners’ Reply reiterates that Relators’ interpretation of the False Claims Act imposes liability for conduct for which there is no historical precedent.  In Petitioners’ view this is impermissible, among other reasons, because “contractors have no way to identify which duties, among the thousands they face, will be cited years later to justify calling them fraudsters and imposing liability….” Reply at 2.

Addressing the “plain language” of the FCA, Petitioners argue that Relators’ position that submission of a claim necessarily implies compliance with all material requirements relating to payment fails to comport with the definition of “claim,” which the FCA defines as “‘any request or demand … for money or property’ with a specified nexus to federal funding.”  Reply at 3.  In other words, Relators are incorrect that a claim for payment asserts a legal right to the payment.

Petitioners also explain that common-law fraud principles are inapplicable to FCA cases because the FCA has not adopted all common-law fraud principles.  In support of their position, Petitioners note that the Supreme Court has previously rejected Relators’ argument in Neder v. United States, 527 U.S. 1 (1999).  As Petitioners explain, Neder stated that although federal mail fraud, wire fraud, and bank fraud statutes did not incorporate all the elements of common law fraud, because the government had failed to show that the statutes’ language was inconsistent with the common law requirement of materiality, materiality was an element of the offense under the three fraud statutes.

Next, Petitioners assert that Relators’ invocation of the “square corners” principle to show that the Government is owed special treatment is flawed.  Petitioners argue that the Supreme Court has never understood “square corners” as an adequate basis upon which to impose punitive liability and that “vague notions” of statutory purpose are insufficient to overcome the statute’s text.   Reply at 9.

With respect to Relators’ statutory purpose and legislative history arguments, Petitioners argue that both are unpersuasive because even the expansive language in the quotations, cited by Relators, is fundamentally tied to conduct that would be recognized as fraud under common-law principles.  Further, in rejecting Relators’ argument that the legislative history of the 1986 amendments to the FCA compelled the acceptance of the implied certification theory,  Petitioners state that legislative history cannot be invoked to overrule the plain meaning of the statutory text.

Finally, Petitioners highlight Relators’ failure to address the reality of government contracting, including the cost of compliance under the implied certification theory of liability for contractors, as well as the violation of principles of basic fairness of subjecting subcontractors to the “vast web of legal rules” based on implied certifications.  Reply at 16.

If the Court Adopts the Implied Certification Theory, the Theory Should be Limited to Certifications Based on Noncompliance with an Express Condition of Payment

In arguing for limiting the scope of an implied certification theory to express conditions of payment, Petitioners argue that “[w]ithout clear notice that compliance with a given rule is a condition of payment, there is no basis to conclude that the act of submitting a claim says anything about the condition.” Reply at 18.  Furthermore, Petitioners argue that in an implied certification case, scienter depends on whether the conclusion that a legal requirement was not a precondition of payment was “objectively unreasonable.”

With respect to Relators’ policy arguments in favor of an expansive theory, Petitioners argue that agencies could adapt to the requirement of an express payment condition and, secondarily, that other judicial and administrative remedies, beyond the FCA, exist to police compliance with federal contracting standards.

Additionally, Petitioners reject Relators’ assertion that the elements of scienter and materiality alone are sufficient to ensure dismissal of meritless FCA cases.  Petitioners explain that determinations regarding scienter and materiality are fact-bound inquiries that are often not amendable to a motion to dismiss.

The case has been set for oral argument on April 19, 2016.