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Sins of Omission: U.S. Supreme Court approves implied false certification

Under the doctrine of “implied false certification,” a plaintiff in a False Claims Act suit can claim that a government contract impliedly made a false certification by requesting payment without disclosing that it is in violation of government requirements. Before June 16, 2016, the U.S. Circuit Courts of Appeal were split on the question of whether implied false certification was a basis for liability under the False Claims Act. While the Fifth Circuit and Seventh Circuit held that implied false certification was not a permissible basis for liability, several circuits (including the Eleventh, which includes Alabama) held that it was. In Univ. Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. ____ (2016) (No. 15-7 October 2015 term) the U.S. Supreme Court resolved this circuit split, and held that implied false certification may, in certain circumstances, be a basis for False Claims Act liability.

New formulation

Under the court’s new formulation, implied false certification requires a plaintiff to meet two conditions:

  1. The defendant’s claim for payment does not merely request payment, but also makes specific representations about the goods and services provided.
  2. The defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.

The best practice is, of course, for a contractor to comply with all statutory, regulatory, and contractual requirements. However, billing parties are often subject to thousands of complex statutory and regulatory provisions. Sometimes noncompliance is inevitable. If a contractor has not complied with all requirements, particularly material ones, the best policy would be to disclose that noncompliance.

How to determine which requirements are material?

Even though the False Claims Act contains a definition of materiality (28 U.S.C. § 3729(b)(4)), the court declined to decide whether that was the appropriate standard for materiality in a False Claims Act suit arguing implied false certification. Moreover, the Escobar Court rejected the First Circuit’s test that materiality of statutory, regulatory, or contractual requirements hinged on whether the requirement was an explicit condition of payment. Instead adopting a bright-line rule, the court said that, to determine whether a requirement is material, a court should look to the effect on the likely behavior of the recipient of the alleged misrepresentation. The court went on to explain that the government’s designation of a requirement as a condition of payment was a relevant factor in determining whether the requirement is material, but that a court should also look to whether the defendant knows the government consistently refuses to pay claims in the cases based on noncompliance with the requirement. Further, the Court stated, if the government knows that the particular requirement was not met but pays the claim anyhow, there is a strong case the requirement was not material.

Items on this web page are general in nature. They cannot—and should not—replace consultation with a competent legal professional. Nothing on this web page should be considered rendering legal advice.

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Sunday, 21 January 2018

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