Ninth Circuit Asked To Clarify Scope of Falsity and Materiality Post-Escobar

In Escobar, the Supreme Court held that implied certification liability under the FCA may exist where the following two conditions are met: (1) the claim does not merely request payment, but also makes specific representations about the goods or services provided; and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading.  This has come to be referred to in post-Escobar briefing as the “two-part test.”  However, DOJ has been engaged in an aggressive campaign of filing statements of interest in courts throughout the country arguing that the two-part test is not the exclusive means of establishing implied certification liability post-Escobar, seeking to maintain an expansive scope for the implied certification theory.  The hook for DOJ’s argument is the statement elsewhere in Escobar that “We need not resolve whether all claims for payment implicitly represent that the billing party is legally enti­tled to payment.”  District courts have split on whether Escobar’s two part test is the exclusive means of establishing implied certification liability.

Earlier this week, a judge in the Northern District of California asked the Ninth Circuit to weigh in on the dispute.  The district court had previously held that the two-part test was not the exclusive means to establish implied certification liability, and that Escobar did not disturb the Ninth Circuit’s prior ruling in Eibed ex re. United States v. Lungwitz, 616 F. 3d 993 (9th Cir. 2010) permitting implied certification liability to be found “when an entity has previously undertaken to expressly comply with a law, rule, or regulation, and that obligation is implicated by submitting a claim for payment even though a certification of compliance is not required in the process of submitting the claim.”  However, over DOJ’s objection, the district court has certified the following question for interlocutory appeal to the Ninth Circuit:  “Must the ‘two conditions’ identified by the Supreme Court in Escobar always be satisfied for implied false certification liability under the FCA, or does Eibed’s test for implied false certification remain good law?”

The district court also certified for interlocutory appeal two questions relating to the scope of the materiality requirement, including whether the Ninth Circuit’s prior finding that violation of a particular legal requirement is material remains binding since it was not based on Escobar’s outcome materiality standard, which looks at how the affected agency has acted on alleged violations in the past.

The parties will now seek to persuade the Ninth Circuit to hear the appeal.  Regardless of whether the court takes the case, it demonstrates that Escobar left important questions regarding the scope of falsity and materiality on which district courts are already reaching divergent conclusions.