Court Concludes Government Agencies Cannot Categorize Regulatory Violations as Material as a Matter of Law
On January 7, 2022, a district court in the Western District of Kentucky dismissed DOJ’s implied false certification theory relating to allegedly medically unnecessary genetic tests, holding that the prosecutors failed to adequately plead materiality. In so holding, the court set forth a novel test for materiality that forecloses the government’s ability to argue that certain regulations are per se material based on the government’s characterization of them as conditions of payment. Instead, plaintiffs must still plead “specific facts regarding the effect of a violation of that regulation” to survive dismissal. (more…)
Fraud Theories Fail Under Rigorous Standards for “Worthless Services” and Materiality
Earlier this week, a court in the Eastern District of Pennsylvania dismissed a declined qui tam action in which the relator, a licensed nurse, alleged that an operator of treatment facilities for disabled individuals fraudulently billed Medicare and Medicaid for substandard care and retaliated against her for investigating that fraud.
Ninth Circuit Addresses Impact of Escobar’s Falsity and Materiality Requirements On Existing Circuit Precedent
In Escobar, the Supreme Court held that the implied false certification theory of liability is viable under the False Claims Act when “at least two conditions” are satisfied: “[F]irst, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” As we have previously discussed here, courts are split as to whether Escobar’s two-part test is a mandatory baseline to demonstrate an implied false certification or merely one way to plead such a claim, leaving open the door for other variants of implied certification claims not explicitly identified by the Supreme Court. Recently, in United States ex rel. Scott Rose, et al. v. Stephens Institute, No. 17-15111 (9th Cir. Aug. 24, 2018), the Ninth Circuit held that Escobar’s two-part test was mandatory—effectively overruling its pre-Escobar test for establishing implied certification claims outlined in Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010). (more…)
Recent Oral Argument Highlights the Ninth Circuit’s Continuing Struggle with Escobar
Last week’s oral argument in U.S. ex rel. Rose et al. v. Stephens Institute highlighted the Ninth Circuit’s continuing struggle with the Supreme Court’s decision in Escobar.
Stephens Institute involves allegations that the Academy of Art University (AAU) paid bonuses to recruiters in violation of an incentive compensation ban in Title IV of the Higher Education Act. According to the relator, AAU violated the False Claims Act because it implicitly and falsely certified compliance with the ban when it requested federal funds for its students under Title IV.
The Ninth Circuit took up the case on interlocutory appeal after the district court denied summary judgment to the defendants. Oral argument focused on two fundamental questions of law:
- Did Escobar establish a mandatory two-part test for claims brought under an implied false certification theory of FCA liability?
- Does a government’s practice of paying claims despite its knowledge of noncompliance render a defendant’s noncompliance immaterial as a matter of law?
District Court Rules that Claims Without Specific Misrepresentations Fail to Meet Escobar’s Test But Can Proceed Based on Fraudulent Inducement
In Escobar, the Supreme Court upheld implied certification claims “at least where two conditions are satisfied,” namely specific misrepresentations and noncompliance with a material requirement. Some courts have interpreted this phrase as defining two necessary conditions to establish implied certification liability under the FCA. Other courts view the phrase as introducing one potential path to liability, where the first condition, specific misrepresentations, is not required. Citing what has emerged as a “majority view” among district courts in the Second Circuit that the two conditions are mandatory, the Southern District of New York recently deepened the divide. See United States ex rel. Forcier v. Computer Scis. Corp., No. 12-cv-1750 (S.D.N.Y. Aug. 10, 2017). (more…)
Implications of Escobar Addressed in New Article by Sidley Lawyers
The latest edition of the Food and Drug Law Institute’s Top Food and Drug Cases 2016 & Cases to Watch 2017 contains an article by Sidley lawyers Mark E. Haddad and Naomi A. Igra about the Supreme Court’s decision in Universal Health Services, Inc. v. Escobar. The article explains the underlying facts of the case, explains the importance of the Supreme Court’s decision, and discusses the evolution of the case law on implied certification in the lower courts seeking to apply Escobar. The article is available here.
Court Rejects Armstrong’s Motion for Summary Judgment, ignoring Escobar, and Sets the Case for Trial Where Armstrong Faces Nearly $100M in Damages
On February 13, 2017, the District Court for the District of Columbia rejected motions for summary judgment filed by cyclist Lance Armstrong and his agents Capital Sports and Entertainment Holdings Inc. (CSE) in an FCA suit alleging the defendants violated the FCA by issuing payment invoices to the United States Postal Service (USPS) under sponsorship agreements while actively concealing Armstrong’s use of performance enhancing drugs (PEDs). The Court rejected Armstrong’s motion because it found that the government raised genuine issues of fact regarding the applicability of two of its three theories of FCA liability, its common-law claims, and the issue of actual damages. As a result, the Court will set the case for trial, where Armstrong may face nearly $100M in damages. A copy of the court’s order can be found here.
Court Holds That Disputes Over Medical Necessity Fail To Satisfy FCA’s Falsity Standard
In a January 19, 2017 decision, a federal judge in Utah considered whether claims submitted by a physician could be deemed “objectively false” based on alleged non-compliance with industry standards. The court concluded that allegations that a doctor failed to comply with an industry standard for medical care do not satisfy the objective falsity standard and do not render false the physician’s certification that he or she believed that the services “were medically indicated and necessary for the health of the patient.” United States ex rel. Polukoff v. St. Mark’s Hospital et al., No. 2:16-cv-00304-JNP-EJF (D. Utah Jan. 19, 2017).
Ninth Circuit Applies Escobar To Affirm Dismissal of Implied Certification Case
In U.S. ex rel. Kelly v. Serco, Inc., No. 14-56769, 2017 WL 117154 (9th Cir. Jan. 12, 2017), the Ninth Circuit affirmed a district court’s summary judgment in favor of a FCA defendant because the Relator’s implied false certification claim failed to meet the two-prong standard established by Universal Health Services, Inc. v. United States ex rel. Escobar et al., 136 S. Ct. 1989 (2016).
Divide Deepens Over Whether Escobar Requires Specific Misrepresentations To State An Implied Certification Claim
As we reported earlier, district courts have split on whether Escobar’s so-called “two-part test” is the sole means of establishing implied certification liability under the FCA. In Escobar, the Supreme Court held that implied certification liability may exist where: (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. While some courts have determined that Escobar’s two-part test is the exclusive means of establishing implied certification liability, DOJ and various qui tam relators have argued that implied certification claims may proceed—at least in some cases—without establishing “specific misrepresentations” about the goods or services provided.
