Fourth Circuit En Banc Vacates Application of Safeco to FCA Cases
The Fourth Circuit, evenly divided while sitting en banc, recently unwound a panel decision finding that Safeco’s “reckless disregard” standard applies to the False Claims Act (“FCA”).
In January 2022, a panel of the Fourth Circuit held, joining every other circuit to have considered the issue, that when allegations of false claims are premised on violations of ambiguous laws or regulations, the defendant’s scienter is properly assessed using the standard for “reckless disregard” established by the Supreme Court in Safeco Insurance Company of America v. Burr, 551 U.S. 47 (2007). Under Safeco, courts ask whether a defendant’s interpretation of the ambiguous law or regulation at issue was objectively reasonable and whether authoritative guidance might have warned the defendant away from that interpretation. As discussed here, applying Safeco, the panel affirmed the district court’s dismissal of the case.
Fourth Circuit Underscores the Risk of Commission-Based Compensation Agreements with Independent Contractors
In a recent decision, the Fourth Circuit Court of Appeals for the second time in two years held that commission-based compensation arrangements with independent contractors cannot be safe harbored and do violate the Anti-Kickback Statute and FCA. See United States ex rel. Nicholson v. Medcom Carolinas, Inc., No. 21-1290 (4th Cir. July 21, 2022).
Fourth Circuit Applies Safeco to FCA Claims, Accuses CMS of “Maintaining Strategic Ambiguity” Around Medicaid Drug Rebate Program Requirements
In a recent 2-1 decision, the Fourth Circuit joined every other circuit to have considered the issue in applying Safeco’s “reckless disregard” standard to legally false FCA claims based on alleged violations of ambiguous laws and regulations. Under Safeco, courts ask whether a defendant’s interpretation of the ambiguous law or regulation at issue was objectively reasonable and whether authoritative guidance might have warned the defendant away from that interpretation. The Fourth Circuit found that the Safeco standard “duly ensures that defendants must be put on notice before facing liability for allegedly failing to comply with complex legal requirements. Without such notice, defendants are not likely to receive due process.”