- I. Introduction
- II. Legal and Factual Background of the False Claims Act
- A. The Beginnings of the False Claims Act
- B. A Brief Overview of the Mechanics of the False Claims Act
- C. Modern Shift Towards Implied False Certification Becoming a Basis for a Claim Under the False Claims Act
- III. Analysis: The Government’s Actions Must Play a Bigger Role in Establishing Materiality
- A. Simply Looking at a Defendant’s Actions Does Not Give Judges the Entire Picture
- B. The Government’s Decision to Intervene in the Qui Tam Action Should Also Play a Part in Determining Materiality
- C. The Ninth and Sixth Circuit Approaches Fail to Account for the Main Purpose of the False Claims Act
- D. Continued Payments by the Government Should Create a Rebuttable Presumption of Immateriality
- IV. Conclusion
The Government and relators frequently use the False Claims Act, 18 U.S.C. §§ 3729–3733, as a powerful tool to catch publicly funded entities that are defrauding the Government of money. The Supreme Court of the United States tackled the complex use of the FCA in Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), by holding that the “implied false certification” theory was a valid theory under the Act and by clarifying the “materiality” element of actions under the Act. However, while the Escobar Court recognized that the misrepresentation must be “material” to the Government’s decision in whether or not to accept the claim and pay the entity, the Court’s words left lower courts split on how to implement that decision. This has sparked rejected Supreme Court petitions for writ of certiorari and leaves open an opportunity to narrow the holding.
One thing the Supreme Court did make clear in Escobar was that it disagreed with the idea that a misrepresentation amounting to “any statutory, regulatory, or contractual violation” was “material” per se, as long as “the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.” The Court also made clear that there is no bright line test in determining materiality, but lower courts disagree on how much weight to give the Government’s continued payments (despite knowledge of the violation) or intervention in the decision.
There may be a few instances in which a governmental entity must uphold the status quo by continuing to fund a federally funded entity, regardless of whether it finds that the entity’s misrepresentations are material. The Ninth Circuit suggested in United States ex rel. Campie v. Gilead Sciences, Inc., that where a drug company fixes a drug to be compliant before it can be recalled, the FDA should not have to take corrective action to still sue for damages. It seems the Ninth Circuit agreed with the Government’s argument that, in that instance, the public would benefit more from accessing the corrected drug than the drug being pulled or approval being withheld because of the prior wrongdoing. This Note argues that instances in which the continued support by the Government, despite awareness of noncompliance, are outweighed by the instances in which an agency will take action when a misrepresentation is material to their payment. This Note also argues that, even where those instances such as the one proposed by the Ninth Circuit occur, a rebuttable presumption framework will consider these exceptions and allow the Government to argue that some cases render the powerful force of the FCA necessary, despite prior Government conduct that suggests otherwise.
This Note will examine the impact of the Supreme Court’s decision on materiality in Escobar and argue that looking at a government agency’s actions in response to an entity’s misrepresentations under the FCA is necessary to uphold the Rule 9(b) heightened pleading standard for fraud and necessary to prove materiality. The (1) very definition of materiality; (2) Supreme Court’s guidance in Escobar; (3) governmental agencies’ duty to do its regulatory due diligence; (4) “rigorous” analysis for materiality required; and (5) long-standing definition of “materiality” in both common and contract law call for the Government’s actions in response to misrepresentations to play a bigger role in FCA cases. This Note proposes using the “rebuttable presumption” standard to meet that need.
Part II of this Note will lay out the background of the FCA, the legislature’s intention behind the Act, why it is different from a normal fraud or breach-of-contract action, and the circuit split regarding the use of the Government’s actions as evidence of materiality. Section III.A will break down the meaning of materiality and argue that the Government’s actions, by definition, must play a role in deciding materiality. Section III.B will argue that the enforcing governmental agency’s decision to intervene, leave alone, or dismiss a qui tam case has bearing on materiality as well. Section III.C will discuss why the circuit courts that decided the issue of materiality under the FCA without looking at the Government’s actions missed a key part of the analysis, and why those courts’ concerns will be addressed with the proposed standard. Finally, Section III.D will analyze how the use of a presumption in this instance will carry out the correct policy by tilting the FCA cases in favor of the defendant when the Government has implied that the misrepresentations are immaterial by continued payments, while still leaving room for rebuttal when there is a legitimate reason the Government had to maintain the status quo.
II. Legal and Factual Background of the False Claims Act
A. The Beginnings of the False Claims Act
The FCA is a long-standing statutory scheme that was enacted during the Civil War as a way to prevent suppliers from defrauding the federal government as they furnished goods to the Union Army. It originated as a serious deterrent and has only gotten stronger. At its enactment, the Act’s damages started as double the Government’s loss with a $2,000 penalty on top, and increased to treble damages and penalties between $5,000 and $10,000 (adjusted for inflation) in 1986. The modern use of the FCA, mostly in the healthcare arena, has moved away from Congress’s original goal of preventing “the United States . . . [from being] robbed in purchasing the necessities of war,” but it has not lost its focus on enforcing serious penalties for intentionally defrauding the government. Those serious penalties must be enforced only for matters material to the paying entities.
B. A Brief Overview of the Mechanics of the False Claims Act
The FCA applies whenever a government-funded entity submits a claim for the Government’s reimbursement while knowing the claim is fraudulent or false, either by affirmatively stating something that is not true in the claim, or, as the Supreme Court in Escobar cemented, implicitly, if the entity submits a claim knowing that it did not meet a condition of payment. A relator or government agency bringing an FCA claim has to show that the adverse party (1) engaged in fraudulent conduct or made a false statement; (2) that is carried out knowingly; (3) that caused the Government to pay the adverse party money; and (4) that was material.
The Government can bring an FCA claim on its own, or a private entity, called a “relator,” can bring one on the Government’s behalf. Subject to limitations articulated by the statutes and case law, any entity can bring a qui tam suit.
C. Modern Shift Towards Implied False Certification Becoming a Basis for a Claim Under the False Claims Act
1. The 1986 Amendments to the False Claims Act.
Congress used to require “knowledge” as the scienter requirement under the FCA. This knowledge requirement originally had no further definition, but the 1986 amendments to the Act changed that, broadening the Government and relators’ use of the statute to enforce regulation. While some courts required specific knowledge, most circuits required actual knowledge prior to the 1986 amendments.
Congress’s 1986 Amendment made many changes that expanded the use of the FCA, but most relevant to this Note, it expanded the scienter requirement that would satisfy the civil use of the Act. The changes in the 1986 Amendment spurred a significant uptick in Government recoveries via the FCA, and opened the door for several new theories of liability, including the “implied certification theory.”
2. The Implied Certification Theory.
Although the courts historically required affirmative fraud to have a claim under the FCA, the Court of Federal Claims first recognized the “implied certification theory” of the FCA in Ab-Tech Construction, Inc. v. United States. In that case, the court recognized that where Ab-Tech, a small business which was awarded a contract to construct a facility for the United States Army Corps of Engineers, deliberately withheld information from the Small Business Administration to obtain the contract, it constituted a “false claim within the meaning of the [statute].” The court interpreted the FCA to “extend ‘to all fraudulent attempts to cause the Government to pay out sums of money,’” not just “demands for money that fraudulently overstate an amount otherwise due.”
Up until Escobar was decided, the federal circuits were split on their approach to the implied certification theory. The Fourth, Fifth, Seventh, and Eighth Circuits did not recognize the theory at all; the Second, Third, Sixth, and Tenth Circuits recognized the theory but only for material misrepresentations of compliance with express conditions of payment; the First, D.C., and Federal Circuits recognized any implied certification that was material to the Government’s decision to pay out the claim; and the Ninth and Eleventh Circuits recognized “de facto” implied certification. Two of these positions tied the implied certification theory to the materiality requirement, making an implied certification a violation of the Act only if it was material to the Government. The Supreme Court addressed both issues in Escobar.
3. Escobar’s Impact and the Resulting Circuit Split.
Finally, Escobar ended the circuit split regarding the implied certification theory and held that it was a valid avenue to bring an FCA claim, at least in some circumstances. Additionally, and most relevant to this Note, the Court also held that “[a] misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable.”
The Court helped the lower courts with the materiality test by holding that: first, the labeling of a provision as a condition of payment “is relevant, but not automatically dispositive”; second, the materiality standard under an FCA claim mimics the materiality standard already standing in contract and tort law; third, the materiality standard “is demanding,” separating the FCA from an “‘all-purpose antifraud statute’ . . . or a vehicle for punishing garden-variety breaches of contract or regulatory violations”; fourth, it is not sufficient to find materiality where the Government would deny payment if it had known that the defendant did not comply with the requirement at issue; and fifth, proof of materiality can include the Government’s past acts in either continuing or denying payment for a certain violation. However, the decision left open some large holes in the interpretation of the materiality standard. To date, the Supreme Court has denied hearing several petitions for certiorari regarding clarification on its words on materiality in Escobar.
4. The Circuit Split Regarding Whether Prior Government Conduct Equates to a Lack of Materiality.
In 2016, the Supreme Court left us with factors, but not elements, when it comes to materiality. The Court opined that if the Government refuses payment for a violation, it does not automatically mean that condition is material to the Government, yet if there is proof that the Government continually pays a certain claim despite knowledge of violations, it is “strong evidence” that it is not material.
Since Escobar, lower courts have come to different conclusions on how much leeway the Government receives in its allowance to continue payments to a government-funded entity, while still reserving its right to bring an action against that entity under the FCA. On remand from the Supreme Court’s decision in Escobar, the First Circuit held that the Government’s awareness of potential misconduct did not cut against materiality. While this was at the least stringent motion-to-dismiss stage, a factor that could have played into distinguishing the First Circuit’s approach from other courts that find that the history of the Government’s actions relevant at later stages, the Fifth Circuit complicated that distinction.
In United States ex rel. Porter v. Magnolia Health Plan, Inc., the Fifth Circuit upheld a motion to dismiss, and the fact that the Mississippi Division of Medicaid (Division) did not take any action after it was informed that the defendant was allegedly in violation of the FCA contributed to its decision (in such early stages of litigation) to find immateriality. In fact, the Fifth Circuit determined that, not only did the Division’s inaction contribute to there being no dispute of material fact as of the immateriality of the alleged violation, but it was also the Division’s affirmative actions of continued payment and renewed contracts. While the Government’s action or inaction in response to being informed about an alleged FCA violation has always been a “factor” of (im)materiality under Escobar, the Fifth Circuit relied on its earlier holding in United States ex rel. Harman v. Trinity Industries to put much weight on the Government’s prior acts. Enough weight that these actions, combined with only one other factor (the boilerplate language in the contract, allegedly not complied with, was too general to give rise to an FCA claim), prevented the case from surviving a motion to dismiss.
The Fifth Circuit’s decision in Porter built off of its earlier decision in Harman, where it reversed a jury verdict for a relator in an FCA action and held for the defendant manufacturer as a matter of law. In that case, the relator was a former competitor of the defendant, Trinity Industries, Inc. (Trinity), which was the manufacturer of a guardrail system. The relator set out to catch car accidents related to deficiencies in the Trinity guardrails, and discovered five changes that were not registered with the Federal Highway Administration (FHWA). At the time of the incident at issue, a company’s guardrails had to be accepted by the FHWA in order to get reimbursement from the federal government. Trinity explained that it had “inadvertently omitted” a change from a report sent to FHWA, but FHWA simultaneously approved reimbursement to various state departments. The relator filed its FCA claim, but the FHWA subsequently released a report that all of Trinity’s new guardrails were compliant with its requirements. The jury eventually ruled for the relator, awarding him and the United States $663,360,750. The Fifth Circuit reversed the jury’s finding, in part because the Government could not establish the materiality requirement due to the Government’s approval of the guardrails and the reimbursement of states who implemented the guardrails, despite the alleged violation.
The Tenth Circuit also refused to follow in the footsteps of the First Circuit’s holding in the remand of Escobar, when it found that the Government’s prior conduct plays a major role in determining the materiality prong of an FCA claim in United States ex rel. Janssen v. Lawrence Memorial Hospital (LMH). There, the court used three factors in determining materiality pursuant to Escobar. The first of those factors is, “whether the Government consistently refuses to pay similar claims based on noncompliance with the provision at issue, or whether the Government continues to pay claims despite knowledge of the noncompliance . . . .” In applying that first factor to the facts of Janssen, the court found that falsified records of patient arrival times were immaterial to the Government, because the Centers for Medicaid & Medicare Services (CMS) continued to pay LMH’s Medicare claims, despite detailed allegations by a former employee. Even though this did not result in “actual knowledge,” because the CMS did not “independently verif[y]” the noncompliance, the total inaction evinced the Government’s nonconcern. The Tenth Circuit found that there must be awareness of actual noncompliance, not just allegations, for the Government’s prior conduct to play a role in materiality.
Similarly, in United States ex rel. McBride v. Halliburton Co., the D.C. Circuit found there to be no materiality where a relator brought a claim under the Act after the Defense Contract Audit Agency, a Governmental agency, investigated the relator’s allegations of inflated headcounts for services, before a formal complaint was filed, and did not disallow or challenge any amounts defendants had billed the Government. In fact, despite knowing of the investigations by its agency, the Government continued to award the defendants a fee for “exceptional performance.” Citing Escobar, the D.C. Circuit held that the Government’s payment to the defendants, despite the knowledge of relator’s claims, was “‘very strong evidence’ that the requirements allegedly violated by the maintenance of inflated headcounts are not material.”
The Fifth, Tenth, and D.C. Circuits are part of a group of lower courts that ran with the Supreme Court’s explanation in Escobar that continued payments by the Government was “strong evidence” of immateriality. The First Circuit in D’Agostino v. EV3, Inc. held that the fact that CMS did not “den[y] reimbursement for [the medical product in question] in the wake of [the relator]'s allegations cast[ed] serious doubt on the materiality of the fraudulent representations,” and the lack of withdrawal of the product by the Food and Drug Administration (FDA) after the alleged fraud surfaced, “preclude[d] [the relator] from resting his claims on a contention that the FDA’s approval was fraudulently obtained.” Likewise, the Seventh Circuit held that even if the alleged misrepresentations “entitled the [G]overnment to decline payment,” it was not enough to establish materiality where “the subsidizing agency and other federal agencies . . . ‘have already examined [the defendant] multiple times over and concluded that neither administrative penalties nor termination was warranted’” in United States v. Sanford-Brown, Ltd. Finally, the Tenth Circuit found that the CMS’s “inaction in the face of detailed allegations from a former employee suggests immateriality.”
However, the Ninth Circuit’s outlook stands in stark contrast, focusing on the Supreme Court’s holistic statement that a requirement is not material to the Government if the “noncompliance is minor or insubstantial,” rather than the Supreme Court’s words that continued Government payments are “strong evidence” of immateriality. Relying on this view, the Court found that a governmental agency “can demonstrate that requirements . . . are material without directly limiting, suspending, or terminating” an entity’s access to funds.
In United States ex rel. Rose v. Stephens Institute, the defendant was an art school in California that implemented an incentive program to get the admissions faculty to enroll more students, making their salary increase effectively dependent on exceeding an enrollment goal. At the time, the school was receiving federal financial aid for its students in return for its pledge that it would follow certain requirements under Title IV of the Higher Education Act. Relators brought an FCA action, and the Ninth Circuit affirmed the district court’s rejection of the defendant school’s motion for summary judgment, holding that the defendant could not argue immateriality because (1) compliance was a condition of the Government’s payment; (2) the Department of Education’s “past enforcement activities” demonstrated that it cares about violations of the incentive compensation ban; and (3) the magnitude of the violation was reflected in “the substantial size of the forbidden incentive payments.”
Additionally, the Ninth Circuit decided to focus on the “magnitude of the violation,” noting that the Supreme Court asserted that there could not be materiality “where noncompliance is minor or insubstantial.” In neither of these reasonings did the Ninth Circuit focus on whether the Government had actual knowledge of the violations or whether the Government ceased or restricted the financial aid payments to the defendant in that case.
The Ninth Circuit reached a similar decision in United States ex rel. Campie v. Gilead Sciences, Inc., reversing the district court’s dismissal of a relator’s complaint on grounds that the relator did sufficiently plead an FCA violation. The court rejected the defendant’s argument that continued approval by the FDA of its drug, despite the agency’s knowledge of the FDA violations, meant that the violations were not material to the Government. The court held that the defendant’s view would “read too much into the FDA’s continued approval—and its effect on the government’s payment decision.” In fact, the court went so far as to say that “[m]ere FDA approval cannot preclude FCA liability, especially where, as here, the alleged false claims procured certain approvals in the first instance,” holding that it would be inconsistent with Escobar to hold otherwise.
The Sixth Circuit joins the Ninth Circuit’s approach, finding that the Government’s actions in the course of dealing with the defendant are not dispositive of the materiality determination. In Prather v. Brookdale Senior Living Communities, the district court below granted defendants’ motion to dismiss on many grounds, including failure to plead “what false statements were made by the defendants to the government . . . or what reimbursement the defendants received.” On appeal, the Sixth Circuit reversed, saying that the relator sufficiently pled a claim regarding the submission of false or fraudulent claims for payment and the fraudulent retention of payments, without requiring the relator to plead anything regarding the Government’s payments or past acts.
The Third Circuit, while focusing on the Government’s decision to pay, has not considered whether Government payment in the face of actual or constructive knowledge of an alleged FCA violation equates to immateriality, but has held that it is material if the government entity would have withheld payment had they known of the violation. Some district courts have addressed the weight of continued Government payments head-on, forming a tributary split as well. For example, the Central District of California found that noncompliance was not material where the Medicare administrative contractor had been aware of the noncompliance for a sufficient time to take action, yet continued payments to the defendant and never tried to recoup any payments. Yet, the Eastern District of Michigan denied the defendant’s assertion that the allegations were immaterial, even though the Government continued payment after it was given notice of the allegation of noncompliance.
III. Analysis: The Government’s Actions Must Play a Bigger Role in Establishing Materiality
Determining materiality is complex but there is one bright line the Supreme Court can draw: the Government or a relator cannot, as a matter of law, plead a claim under the FCA without any evidence of the Government’s past actions in paying or not paying in the face of that particular type of violation. In the alternative, courts should require the plaintiff to show that the Government paid in particular instances (much like “course of dealing” or “course of performance,” respectively, in contract law) with actual knowledge of the violations. Additionally, in looking at the Government’s actions in response, the Government’s continued payments despite knowledge of a potential misrepresentation, or the Government’s declination to intervene, should create a rebuttable presumption of immateriality.
A. Simply Looking at a Defendant’s Actions Does Not Give Judges the Entire Picture
While some lower federal courts, like the Ninth and Sixth Circuits, find that the lack of the Government’s actions in finding materiality do not matter, the Act on its face calls for the grant of a motion to dismiss or motion for summary judgment should there be no indication of the Government’s actions in an FCA claim. Materiality, in the context of an FCA claim, is the importance of the noncompliance to the Government. Putting it in context to materiality to the Government differentiates it from just another breach of contract or fraud case.
The definition of “materiality” in both contract and common law requires looking at the Government’s actions, and, arguably, the Rule 9(b) heightened pleading standard requires the pleading of the effect on the Government in order to satisfy the new materiality standard from Escobar in FCA cases. If a court were only to look at the defendant’s actions, it would be violating the Supreme Court’s disposition that the materiality standard under an FCA claim must be a “rigorous” analysis.
It is important to look at why the Supreme Court addressed the materiality standard to begin with. The Ninth and Sixth Circuits’ interpretation that the trial court can decide materiality without looking at government action renders the Escobar Court’s words on materiality frivolous. This idea is well articulated by Judge Smith’s dissent in Rose, who, in response to the majority only using Escobar as a “gloss” on their standing requirements, stated:
Descriptions of how the test is to be applied [in Escobar] are not just “flavor[ing],” they are the key in conducting the analysis the Supreme Court has instructed us to do. Anything less is insufficient . . . . [T]he evidence (regarding the government’s response to a misrepresentation) must be specific or directly analogous to the current alleged misrepresentation. Anything else would not be sufficiently “demanding” or “rigorous” to determine the Government’s “likely or actual behavior.”
In Escobar, the Court explicitly shifted the focus to the effect on the Government; this cannot be ignored.
B. The Government’s Decision to Intervene in the Qui Tam Action Should Also Play a Part in Determining Materiality
In determining whether an action is material, the courts should not only look to the government entity’s tendency to pay out false claims; the actions of the enforcement agencies should also weigh into the courts’ determination. Because a relator is bringing a claim on behalf of the Government, numerous courts have found that the Department of Justice’s decision not to intervene weighs against materiality. For example, in United States v. Triple Canopy, Inc., the Fourth Circuit found that the defendant’s misrepresentation was material to the Government’s payment decision because (1) “the Government did not renew its contract . . . with Triple Canopy” and (2) the Government “immediately intervened in the litigation.” Because the Supreme Court held that the paying Government agency does not have to label an action a condition of payment for the condition to be material to its decision to pay, the Government’s actions in response to misrepresentation serves as the evidence of this materiality when it is not labeled. Because the executive branch is ultimately the entity with prosecuting power, it should be the one to decide what is material enough to proceed.
C. The Ninth and Sixth Circuit Approaches Fail to Account for the Main Purpose of the False Claims Act
“Escobar rejects a system of government traps, zaps, and zingers that permits the government to retain the benefit of a substantially conforming good or service but to recover the price entirely—multiplied by three—because of some immaterial contractual or regulatory non-compliance.” Materiality is what separates an FCA claim from an “‘unsubstantial’ or a ‘garden-variety’ breach of contract or regulatory violation.” Therefore, it only makes sense that the Government’s reactions to finding out about the potential fraud must be accounted for as the relator pleads materiality.
Although the FCA indirectly affects the individual by ensuring that the public’s tax money goes to appropriate causes, it is meant to protect the public as a whole. Therefore, materiality under FCA qui tam cases should not be measured upon materiality to the relator or in the abstract, but in terms of meaning to the paying government entity.
The issue with the Ninth Circuit’s “magnitude” argument in Rose is that it is based in the amount of money at issue. Rather than focusing on whether the school’s incentive program was of the type that would influence the Department of Education’s decision to give federal funding, as Escobar requires, it created an arbitrary standard. Because the incentives in question were in the tens of thousands of dollars, rather than “cups of coffee or $10 gift cards,” the Ninth Circuit found the violation substantial. Chastising the majority’s analyzation on materiality in the dissent, Judge Smith thought it wrongly ignored the “very clear standard for evaluating” materiality in Escobar—including (1) the fact that the “primary inquiry” should be the “‘likely or actual behavior of the recipient of the alleged misrepresentation,’” and (2) the “contract [and] tort guideposts provided.”
Similarly, in Brookdale, immediately after citing Escobar in stating that “[m]ateriality look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation,” the Sixth Circuit focused on the “holistic” take on materiality that it believes the Supreme Court handed down. The court found materiality based on the violated timing requirement without considering any allegations pertaining to past government action including in the pleading and affirmatively stated that “the district court went . . . too far” in “dr[awing] a negative inference from the absence” of these allegations, and that “a relator . . . is not required to make allegations regarding past government action” “at the motion-to-dismiss stage” despite the “demanding standard” a relator faces for pleading materiality.
Judge McKeague articulated in his dissent the importance of “[t]he government’s payment habits” in pleading materiality by stating that the absence of this evidence in the record did not get the relator any closer to her goal in meeting the requirement of pleading materiality with particularity under Rule 9(b). The dissent went on to state that evidence that the Government refuses to pay claims based on noncompliance “is almost certainly material,” while continued payments despite knowledge of the violations would make the relator “hard-pressed to demonstrate materiality.” Judge McKeague articulated the essence of this Note’s argument. The Government’s payment history is essential to pleading materiality and should be elevated from a mere factor to a necessary component of an FCA claim.
D. Continued Payments by the Government Should Create a Rebuttable Presumption of Immateriality
The Supreme Court called for the use of the continued payment of a federal agency, despite its knowledge of potential fraud, as a factor in determining materiality. However, it only makes sense that the paying government entity’s “course of dealing” and the enforcing agency’s decision to intervene or dismiss should play a bigger role based on (1) the definition of materiality; (2) the Court’s shift of focus in Escobar; and (3) the effort to separate traditional breach of contract and fraud claims from the higher standard sought for FCA claims.
So how does this “bigger role” play out practically? By creating a rebuttable presumption. If there is proof that the Government entity to which the defendant made a misrepresentation continued paying despite knowledge of the misrepresentation, it would create a rebuttable presumption that the misrepresentation was immaterial, instead of merely being a factor to be weighed. Therefore, the Government would have to produce evidence to rebut the presumption, such as a strong governmental interest in keeping the status quo until it could act on the misrepresentation in order to rebut the fact that its continued payment was an implied consent of the potential or actual wrongdoing. This procedure would replace the FCA defendant’s duty to raise a consent-like defense, as seen in many lower courts that dismissed based on lack of materiality.
1. Why a Rebuttable Presumption?
There are generally three reasons to create a rebuttable presumption: common sense, experience, or statistics dictate it; policy concerns dictate it; or the party without the burden of persuasion holds access to the necessary evidence and must be compelled to bring it forward. The presumption proposed in this Note would touch on the first two. First, in quite a circular (but important) point, common sense dictates that if the governmental agency is aware of a defendant’s misrepresentations and continues payment it is not material to their payment decision, which is a required finding for an FCA claim. Second, there is a general presumption in government that each agency is afforded deference, or at least respect, in its decisions and actions that it is entrusted to make. Therefore, if a particular agency had knowledge of the defendant’s wrongdoing and still decided to continue payment, as a policy matter, it should be presumed immaterial. For example, if the CMS decides to reimburse a Medicare claim, despite its knowledge that all of the conditions of payment may not be fulfilled, it exercised its judgment in finding the noncompliance immaterial. If the Department of Justice or the United States Attorney’s Office decides not to intervene or dismisses a relator’s case, it exercises its right to choose not to pursue something despite the chance that there is minor wrongdoing by the entity. Although this decision by the enforcing authority could be based on merit, it can also be based on the amount of manpower it has or “a cost benefit analysis,” i.e., whether the claim is material enough to use governmental resources to pursue it. For example, the First Circuit in D’Agostino disagreed with the logic behind “retroactively eliminat[ing] the value of FDA approval and effectively requir[ing] that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so.” Finding that ignoring the Government’s decision on pursuing action for a misrepresentation would undermine the purpose for the FCA, the court stated: “The FCA exists to protect the government from paying fraudulent claims, not to second-guess agencies’ judgments about whether to rescind regulatory rulings.” This prosecutorial discretion should not be easily second guessed by relators or the courts.
2. How Courts Can Implement the Rebuttable Presumption.
Practically, this rebuttable presumption would function similarly to the presumption of assent in an implied-in-fact contract. In contract law, “[a]ssent to the terms of the agreement can be implied from the circumstances, and conduct inconsistent with a refusal of the terms raises a presumption of assent upon which the other party can rely.” For example, in Maine Community Health Options v. United States, the Court of Federal Claims found that the Government had assented to a contract with the plaintiff where the Government agency reimbursed plaintiff for fulfilling certain conditions under its cost-sharing reduction program for more than three years.
The plaintiff(s) would have to plead either (1) that the paying governmental entity did not know about the alleged noncompliance for a reasonable amount of time to take action or (2) what the paying governmental entity’s actions were in the face of awareness of the violation, pursuant to the heightened Rule 9(b) pleading standard for fraud. The continued payments by the governmental agency or the refusal of the Department of Justice to intervene might also be analogized to the “course of conduct” theory under contract law, meaning that repeated conduct between the parties can show an “objective manifestation of intent” by the parties to be in agreement. Therefore, the Government’s continued approval of the allegedly noncompliant actions by the defendant through continued payment or declination of intervention in a relator’s action would create a rebuttable presumption of immateriality through an implied assent of the conduct, even if it was found to be noncompliant.
3. Striking a Balance.
The Ninth Circuit raised legitimate concerns in relying too much on past Government actions when determining materiality in certain cases. In Campie, the Ninth Circuit found that “there are many reasons the FDA may choose not to withdraw a drug approval, unrelated to the concern that the government paid out billions of dollars for nonconforming and adulterated drugs.” The court also raised concern that the approval itself was fraudulently obtained, so continued payments pursuant to it could not count towards finding immateriality.
While the court did not go into detail on what those concerns were, using a rebuttable presumption would shift the burden to the paying Government, giving it a chance to make its argument why its continued payments to the entity in violation were for other reasons, other than immateriality. The burden is properly placed on the Government or relator in these instances because if the Government stands to recoup large amounts of money—times three—it needs to show the district court why it did not take action, but now is claiming it was vitally important to its payment.
The FCA is not, and was never meant to be, an “‘all-purpose antifraud statute’ . . . for punishing garden-variety breaches of contract or regulatory violations.” What differentiates the FCA from other common actions is the materiality to the Government’s payment decision. Therefore, the actual actions of the Government, whether it continues payment, or takes action pursuant to the fraudulent-like conduct, should play a bigger role in the determination of materiality in FCA cases. If the Government continues payment or takes no punitive action against the entity likely in violation, it should create a rebuttable presumption that the violation is immaterial, only to be overcome by the Government’s explanation of why it was imperative to maintain the status quo.
See Daniel Seiden, Fraud Law Circuit Splits Endure as Top Court Ruling Turns 3 (1), Bloomberg L. (June 14, 2019, 9:30 AM), https://news.bloomberglaw.com/federal-contracting/circuit-splits-over-fraud-law-endure-as-top-court-ruling-turns-3 [https://perma.cc/CKZ3-ZYXN]; Brian P. Dunphy & Nicole E. Henry, Third Time’s Not the Charm: Supreme Court Again Declines to Weigh in on Escobar*'s “Materiality” Standard*, Nat’l L. Rev. (Mar. 25, 2019), https://www.natlawreview.com/article/third-time-s-not-charm-supreme-court-again-declines-to-weigh-escobar-s-materiality [https://perma.cc/528G-9NUV]; Press Release, U.S. Dep’t of Just., Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986 (Jan. 31, 2012), https://www.justice.gov/opa/pr/justice-department-celebrates-25th-anniversary-false-claims-act-amendments-1986 [https://perma.cc/DPU8-X9MC].
See Dunphy & Henry, supra note 1.
Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2004 (2016).
Id. at 2003.
See Seiden, supra note 1.
United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 906–07 (9th Cir. 2017).
Id.; see also Brief for Benjamin C. Mizer et al. as Amicus Curiae Supporting Appellants at 25–26, United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890 (9th Cir. 2017) (No. 15-16380).
Fed. R. Civ. P. 9(b).
Escobar, 136 S. Ct. at 1996 (quoting United States v. Bornstein, 423 U.S. 303, 309 (1976)); The False Claims Act: A Primer, U.S. Dep’t Just., https://www.justice.gov/sites/default/files/civil/legacy/2011/04/22/C-FRAUDS_FCA_Primer.pdf (last visited Mar. 14, 2020).
U.S. Dep’t Just., supra note 9.
In 2019, the Department of Justice recovered more than $3 billion under the FCA; more than 85% of that was recovered from the healthcare industry. Press Release, U.S. Dep’t of Just., Justice Department Recovers Over $3 Billion from False Claims Act Cases in Fiscal Year 2019 (Jan. 9, 2020), https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019 [https://perma.cc/9TKU-HKVR]; 2019 Year-End False Claims Act Update, Gibson Dunn (Jan. 31, 2020), https://www.gibsondunn.com/2019-year-end-false-claims-act-update/ [https://perma.cc/D7SS-QPXC].
See United States v. McNinch, 356 U.S. 595, 599 (1958); U.S. Dep’t Just., supra note 9.
See 31 U.S.C. §§ 3729(a)(1)(A)–(B); Escobar, 136 S. Ct. at 2001.
United States ex rel. King v. Solvay Pharm., Inc., 871 F.3d 318, 324 (5th Cir. 2017).
31 U.S.C. § 3730(b); Alice G. Gosfield, Medicare and Medicaid Fraud and Abuse § 5:22, Westlaw (database updated July 2020).
31 U.S.C. § 3730(b).
See H.R. Rep. No. 99-660, at 2 (1986); James Wiseman, Reasonable, but Wrong: Reckless Disregard and Deliberate Ignorance in the False Claims Act After Hixson, 117 Colum. L. Rev. 435, 445–47 (2017).
Wiseman, supra note 18, at 445–46.
False Claims Amendments Act of 1986, Pub. L. No. 99-562, § 2, 100 Stat. 3153. The amendment also increased damages to treble damages (from double); increased the added penalty from $2,000 to between $5,000 and $10,000; increased the award available to qui tam relators from 25% to 30%; and added an express cause of action for avoiding payment from an entity to the Government, which would become known as “reverse false claims.” Id. §§ 2, 3; 31 U.S.C. § 3729(a)(1)(G); United States ex rel. Bain v. Ga. Gulf Corp., 386 F.3d 648, 652–53 (5th Cir. 2004).
See Press Release, U.S. Dep’t of Just., supra note 1 (explaining that the Government recovered more than $30 billion since the amendments as of 2012); Christopher L. Martin, Jr., Note, Reining in Lincoln’s Law: A Call to Limit the Implied Certification Theory of Liability Under the False Claims Act, 101 Calif. L. Rev. 227, 239 (2013).
Ab-Tech Constr., Inc. v. United States, 31 Fed. Cl. 429 (1994), aff’d, 57 F.3d 1084 (Fed. Cir. 1995) (unpublished table opinion); Martin, supra note 21, at 230.
Ab-Tech, 31 Fed. Cl. at 432–34.
Id. at 433 (emphasis added) (quoting United States v. Neifert-White Co., 390 U.S. 228, 233 (1968)).
See United States ex rel. Godfrey v. KBR, Inc., 360 F. App’x 407, 412 (4th Cir. 2010) (per curiam); United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 268 (5th Cir. 2010); United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 917 (7th Cir. 2005); United States ex rel. Lee v. Fairview Health Sys., No. Civ. 02-270 RHK/SRN, 2004 WL 1638252, at *3 (D. Minn. July 22, 2004) (pointing out that the theory was not recognized by the Eighth Circuit at the time); United States ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94, 114 (2d Cir. 2010); United States ex rel. Wilkins v. United Health Grp., 659 F.3d 295, 309 (3d Cir. 2011); Chesbrough v. VPA, P.C., 655 F.3d 461, 468 (6th Cir. 2011); United States ex rel. Lacy v. New Horizons, Inc., 348 F. App’x 421, 428 (10th Cir. 2009); United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 386–88 (1st Cir. 2011); Ab-Tech, 31 Fed. Cl. at 434; United States ex rel. Siewick v. Jamieson Sci. & Eng’g, Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000); Martin, supra note 21, at 242 (showing a table of the circuit splits).
See Hutcheson, 647 F.3d at 388 (holding that the view that a condition of payment had to be expressly stated in an agreement before giving rise to an implied certification is not justified because “other means exist to cabin the breadth of the phrase ‘false or fraudulent’ as used in the FCA,” and the law is clear that one only needs knowledge of the claim’s defect and materiality to satisfy the statute); Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001), overruled by Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (recognizing that its holding, that a claim is only “legally false” where there are violated express conditions of payment, is related to materiality).
Escobar, 136 S. Ct. at 1989.
Id. at 1995–96; Universal Health Services v. United States ex rel. Escobar, SCOTUSblog, https://www.scotusblog.com/case-files/cases/universal-health-services-v-united-states-ex-rel-escobar [https://perma.cc/3X3W-FNWK] (last visited Mar. 12, 2020); Greg Herbers, After SCOTUS’ ‘Escobar’ Decision, Courts Increasingly Sink Implied-Certification FCA Suits, Forbes (Mar. 17, 2017, 8:53 A.M.), https://www.forbes.com/sites/wlf/2017/03/17/after-scotuss-escobar-decision-courts-increasingly-sink-implied-certification-fca-suits/#560737b76889 [https://perma.cc/KBP6-RPQT]; Jacob J. Stephens, Note, *Dicta Me This: Implied False Certification to Materiality Under the False Claims Act Post-*Escobar, 44 U. Dayton L. Rev. 273, 282 (2019).
Escobar, 136 S. Ct. at 1996.
Id. at 2002–04.
Tiphanie Miller, Materiality and the False Claims Act After Escobar, 35 Del. Law., Spring 2017, at 24, 25.
See Brookdale Senior Living Cmtys., Inc. v. United States ex rel. Prather, 139 S. Ct. 1323 (2019); Gilead Scis., Inc. v. United States ex rel. Campie, 139 S. Ct. 783 (2019); United States ex rel. Harman v. Trinity Indus., Inc., 139 S. Ct. 784 (2019); Stephens Inst. v. United States ex rel. Rose, 139 S. Ct. 1464 (2019); Mateski v. Raytheon Co., 139 S. Ct. 2039 (2019) (all denying FCA certiorari based on materiality or a related issue); see also Dunphy & Henry, supra note 1.
Escobar, 136 S. Ct. at 2003–04.
See Seiden, supra note 1.
United States ex rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103, 112 (1st Cir. 2016).
United States ex rel. Porter v. Magnolia Health Plan, Inc., No. 18-60746, 2020 WL 1887791, at *4–5 (5th Cir. Apr. 15, 2020).
Id. at *4.
Id.; Escobar, 136 S. Ct. at 2003–04.
Porter, 2020 WL 1887791, at *4.
United States ex rel. Harman v. Trinity Indus., Inc., 872 F.3d 645, 647, 668 (5th Cir. 2017).
Id. at 648–49.
Id. at 649.
Id. at 648.
Id. at 650.
Id. at 651.
Id. at 661, 668, 670. The court goes on to state that it follows Escobar’s approval of the Circuit’s “natural tendency” test that asserts that “material” means being “capable of influencing, the payment or receipt of money or property.” Id. at 661. Since then, the FHWA has put out a memorandum establishing that despite the unreported modifications, the modified guardrails became eligible in 2005 and continue to be eligible. Id.
United States ex rel. Janssen v. Lawrence Memorial Hosp., 949 F.3d 533, 541 (10th Cir. 2020) (“[R]elevant factors include . . . (1) whether the Government consistently refuses to pay similar claims based on noncompliance with the provision at issue, or whether the Government continues to pay claims despite knowledge of the noncompliance; (2) whether the noncompliance goes to the ‘very essence of the bargain’ or is only ‘minor or insubstantial’; and (3) whether the Government has expressly identified a provision as a condition of payment.”); see also J. Andrew Jackson et al., Tenth Circuit Rejects False Claims Act Theory About Falsified Records on Materiality Grounds, JD Supra (Mar. 4, 2020), https://www.jdsupra.com/legalnews/tenth-circuit-rejects-false-claims-act-89189/ [https://perma.cc/4PHN-RKS4].
Janssen, 949 F.3d at 541.
Id. at 541–42.
Id. at 542.
Jackson et al., supra note 49.
United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1028–29 (D.C. Cir. 2017).
Id. at 1034.
Id. (quoting Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016)).
D’Agostino v. EV3, Inc., 845 F.3d 1, 7 (1st Cir. 2016).
Id. at 8.
United States v. Sanford-Brown, Ltd., 840 F.3d 445, 447–48 (7th Cir. 2016) (emphasis added).
United States ex rel. Janssen v. Lawrence Mem’l Hosp., 949 F.3d 533, 542 (10th Cir. 2020) (first citing United States ex rel. Berg v. Honeywell Int’l, Inc., 740 F. App’x 535, 538 (9th Cir. 2018); and then citing D’Agostino, 845 F.3d at 7).
See Daniel Seiden, Supreme Court Rejects Two More False Claims ‘Materiality’ Cases, Bloomberg L. (Apr. 1, 2019, 10:08 AM), https://news.bloomberglaw.com/federal-contracting/supreme-court-rejects-two-more-false-claims-materiality-cases [https://perma.cc/EEB4-JC95]; Seiden, supra note 1.
United States ex rel. Rose v. Stephens Inst., 909 F.3d 1012, 1022 (9th Cir. 2018), cert. denied, 139 S. Ct. 1464 (2019). But see Godecke ex rel. United States v. Kinetic Concepts, Inc., 937 F.3d 1201, 1213–14 (9th Cir. 2019) (finding that the relators had adequately pled materiality after considering the fact that the evidence did not show that the Government had paid anything to the defendant in the face of actual knowledge of the allegations).
Rose, 909 F.3d at 1015–16.
Id. at 1016.
Id. at 1020–22.
Id. at 1022 (quoting Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016). The court draws on the following example: If the incentives for enrollment were “cups of coffee or $10 gift cards” there would not be a viable claim, but because the employees “stood to gain as much as $30,000 and a trip to Hawaii,” it was at least enough to survive summary judgment. Id.
To be clear, the Ninth Circuit did address the fact that the Government’s continued payment in the face of “actual knowledge” would be a scenario that would be “strong evidence” of immateriality according to Escobar, but dismissed that scenario by stating that the record could not establish that the Department did have that requisite knowledge. Id. at 1021.
Again, the court acknowledged the defendant’s argument that these payments continued but argued instead that the Government got its money back in different avenues. Id.
United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 908–09 (9th Cir. 2017).
Id. at 906.
Id. at 905 (emphasis added).
United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 838 F.3d 750, 775 (6th Cir. 2016); see also Dunphy & Henry, supra note 1.
United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., No. 3:12-CV-00764, 2015 WL 6812581, at *21 (M.D. Tenn. Nov. 5, 2015).
See Prather, 838 F.3d at 761–75; Dunphy & Henry, supra note 1.
United States ex rel. Doe v. Heart Sol., PC, 923 F.3d 308, 318 (3d Cir. 2019).
United States ex rel. Hartpence v. Kinetic Concepts, Inc., No. 2:08-CV-01885-CAS-AGR, 2019 WL 3291582, at *13 (C.D. Cal. June 14, 2019); Bass, Berry & Sims, Healthcare Fraud & Abuse Review 2019, at 12 (2019).
U.C.C. § 1-303 (Am. L. Inst. & Unif. L. Comm’n 1977).
See Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002 (2016) (“Under any understanding of the concept, materiality ‘look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.’” (quoting 26 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 69:12 (4th ed. 2003))).
See Material, Black’s Law Dictionary (11th ed. 2019) (“Of such a nature that knowledge of the item would affect a person’s decision-making.”).
See United States ex rel. Mateski v. Raytheon Co., 745 F. App’x 49, 50 (9th Cir. 2018), cert. denied, 139 S. Ct. 2039 (affirming the district court’s dismissal of relator’s FCA claim for failure to meet the Rule 9(b) heightened pleading standard, and connecting that failure to the additional inability for the court to find the materiality; and stating that “[w]ithout more particularity regarding the false claims, we cannot assess whether noncompliance was material or minor”). Federal Rule of Civil Procedure 9(b) provides: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).
Escobar, 136 S. Ct. at 2002–03.
United States ex rel. Rose v. Stephens Inst., 909 F.3d 1012, 1023–25 (9th Cir. 2018) (Smith, J., dissenting) (quoting Escobar, 136 S. Ct. at 2002–03).
Rose, 909 F.3d at 1024–25 (Smith, J., dissenting).
See United States ex rel. Badr v. Triple Canopy, Inc., 857 F.3d 174, 179 (4th Cir. 2017) (considering the Government’s immediate intervention in determining materiality); United States ex rel. Petratos v. Genentech Inc., 855 F.3d 481, 490 (3d Cir. 2017) (considering the Government’s failure to intervene in six years as a factor in determining materiality); Cimino v. Int’l Bus. Machs. Corp., No. 13-CV-00907 (APM), 2019 WL 4750259, at *7 (D.D.C. Sept. 30, 2019) (finding that “the decision to intervene is not ‘dispositive,’ [but] it is entitled to some ‘respect,’ . . . especially . . . when the government conducted an extensive investigation spanning four years” (quoting United States ex rel. Head v. Kane Co., 798 F. Supp. 2d 186, 197 n.14 (D.D.C. 2011))); United States ex rel. Longo v. Wheeling Hosp., Inc., No. 5:19-CV-192, 2019 WL 4478843, at *10 (N.D.W. Va. Sept. 18, 2019) (considering the fact that the Government intervened as a “final factor [that] strongly militates in favor of materiality”); United States ex rel. MacDowell v. Synnex Corp., No. C 19-00173 WHA, 2019 WL 4345951, at *4 (N.D. Cal. Sept. 12, 2019) (“[T]he fact that the government has declined to intervene in the seven years since relator instituted this action weighs toward finding a lack of materiality”); Polansky v. Exec. Health Res., Inc., 422 F. Supp. 3d 916, 938 (E.D. Pa. 2019) (“[T]he Government’s actions in this case—declining to intervene and moving for dismissal—are probative of the lack of materiality.”).
See Triple Canopy, Inc., 857 F.3d at 179; Petratos, 855 F.3d at 490; Cimino, 2019 WL 4750259, at *7; Longo, 2019 WL 4478843, at *10; MacDowell, 2019 WL 4345951, at *4.
Triple Canopy, Inc., 857 F.3d at 179.
Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 1996, 2003 (2016).
United States v. Nixon, 418 U.S. 683, 693 (1974) (citing Confiscation Cases, 74 U.S. (7 Wall.) 454, 458–59 (1869)); United States v. Cox, 342 F.2d 167, 171 (5th Cir. 1965), cert. denied sub nom. Cox v. Hauberg, 381 U.S. 935 (1965).
United States ex rel. Ruckh v. Salus Rehab., LLC, 304 F. Supp. 3d 1258, 1263 (M.D. Fla. 2018).
Id. at 1262–63 (quoting Escobar, 136 S. Ct. at 2003).
Id. at 1260, 1262.
United States ex rel. Rose v. Stephens Inst., 909 F.3d 1012, 1022 (9th Cir. 2018).
Escobar, 136 S. Ct. at 2002–03.
Rose, 909 F.3d at 1022.
Id. at 1024–25 (Smith, J., dissenting).
United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 892 F.3d 822, 831 (6th Cir. 2018), cert. denied, 139 S. Ct. 1323 (2019).
Brookdale, 892 F.3d at 833–34.
Id. at 845–46 (McKeague, J., dissenting).
Id. at 845 (McKeague, J., dissenting).
Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003–04 (2016).
See supra Section III.A.
There is even room for debate regarding what the Government must have “knowledge” of when reviewing its past actions. For example, the District of Massachusetts and the Eastern District of Michigan have both held that where the Government is aware of allegations, but does not know of an actual violation, the Government’s continued payment in the face of this awareness does not weigh against materiality. United States ex rel. Clarke v. Aegerion Pharm., Inc., No. 13-CV-11785-IT, 2019 WL 1437914, at *7 (D. Mass. Mar. 31, 2019); United States ex rel. Rahimi v. Rite Aid Corp., No. 2:11-CV-11940, 2019 WL 1426333, at *6–7 (E.D. Mich. Mar. 30, 2019).
See Fed. R. Evid. 301.
See United States ex rel. Marshall v. Woodward, Inc., 812 F.3d 556, 563 (7th Cir. 2015) (“The government learned of plaintiffs’ concerns, thoroughly investigated them, and determined that they were meritless. . . . Therefore, the government’s actual conduct suggests that the allegedly false statements were immaterial.”); Brief for Defendant-Appellee Woodward, Inc. at 38, United States ex rel. Marshall v. Woodward, Inc., 812 F.3d 556 (7th Cir. 2015) (No. 15-1866), 2015 WL 4742899 (making the argument that there could be no materiality where the paying entity “knew what [it was] getting and decided to accept, . . . because it was 100% satisfied with the . . . products” despite a “minor technical violation”(first quoting United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 855 (7th Cir. 2009); then quoting Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 733 (7th Cir. 1999); then quoting United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1019 (7th Cir. 1999))); United States v. Sanford-Brown, Ltd., 840 F.3d 445, 447 (7th Cir. 2016) (finding no materiality where “the subsidizing agency and other federal agencies in this case have already examined SBC multiple times over and concluded that neither administrative penalties nor termination was warranted” (quoting United States v. Sanford-Brown Ltd., 788 F.3d 696, 712 (7th Cir. 2015))).
Paul F. Rothstein, Demystifying Burdens of Proof and the Effect of Rebuttable Evidentiary Presumptions in Civil and Criminal Trials 17–18 (Oct. 4, 2017) (unpublished manuscript), https://scholarship.law.georgetown.edu/facpub/2001/ [https://perma.cc/98TU-K5VY].
Although this seems like an obvious point, it is important to remember that materiality is based on the perception by the paying entity, not on the defendant’s actions in and of themselves, or else it would be a simple breach of contract. Universal Health Servs., Inc., v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003–04 (2016).
Id. at 2002.
See United States v. Mead Corp., 533 U.S. 218, 227–28 (2001) ((1) upholding Chevron in finding that where Congress explicitly delegates the power to the agency to create regulation to fill in a gap in a statute, the agency should be awarded complete deference unless the “ensuing regulation” was “procedurally defective, arbitrary or capricious in substance, or manifestly contrary to the statute” and (2) expressing that even where the agency is not given express delegation to fill a gap, “'[t]he well-reasoned views of the agencies implementing a statute ‘constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance,’ and ‘[w]e have long recognized that considerable weight should be accorded to an executive department’s construction of a statutory scheme it is entrusted to administer’” (first quoting Bragdon v. Abbott, 524 U.S. 624, 642 (1998); and then quoting Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 844 (1984))); Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (“[W]e must defer to the Secretary’s interpretation unless an ‘alternative reading is compelled by the regulation’s plain language or by other indications of the Secretary’s intent at the time of the regulation’s promulgation.’” (quoting Gardebring v. Jenkins, 485 U.S. 415, 430 (1988))). See generally Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (upholding deference to agencies’ interpretations of their own “genuinely ambiguous regulations”).
See Wayne R. LaFave et al., The Prosecutor’s Discretion, 4 Crim. Proc. § 13.2(a) (4th ed.) (describing the factors that must be weighed in deciding whether to exercise prosecutorial power).
See United States ex rel. Williams v. Bell Helicopter Textron Inc., 417 F.3d 450, 455 (5th Cir. 2005) (finding that under 31 U.S.C. § 3730(c) of the FCA, the Government may opt out of intervening for reasons other than merit, including as “the result of a cost-benefit analysis” (quoting United States ex rel. Berge v. Bd. of Trs. of the Univ. of Ala., 104 F.3d 1453, 1458 (4th Cir. 1997))); Christina Orsini Broderick, Note, Qui Tam Provisions and the Public Interest: An Empirical Analysis, 107 Colum. L. Rev. 949, 966–67 (2007).
D’Agostino v. EV3, Inc., 845 F.3d 1, 8 (1st Cir. 2016).
Id. (citing United States ex rel. D’Agostino v. EV3, Inc., 153 F. Supp. 3d 519, 539 (D. Mass. 2015), aff’d, 845 F.3d 1 (1st Cir. 2016)) (“[W]here the FDA was authorized to render the expert decision on . . . use and labeling, it, and not some jury or judge, is best suited to determine the factual issues and what their effect would have been on its original conclusions.”).
See Williams, 417 F.3d at 455 (stating that “it is not the court’s duty to speculate as to the costs and benefits associated with [the government’s] strategy” of deciding not to intervene); Stephanos Bibas, Sacrificing Quantity for Quality: Better Focusing Prosecutors’ Scarce Resources, 106 Nw. U. L. Rev. Colloquy 138, 139 (2011), https://scholarlycommons.law.northwestern.edu/nulr_online/65/ [https://perma.cc/6TZQ-TK3G] (suggesting that prosecutors are inherently limited in scope by the combination of legislative overcriminalization and limited budgets).
1 Williston on Contracts § 1:5 (4th ed.); see also Restatement (Second) of Contracts § 4 cmt. a (1981) (confirming that assent to a contract may be implied).
Wong v. Bailey, 752 F.2d 619, 621 (11th Cir. 1985).
Me. Cmty. Health Options v. United States, 142 Fed. Cl. 53, 75–76 (2019) (reasoning that the “quid pro quo nature” of the payments by the CMS to the plaintiff created the Government’s assent to the terms of the implied contract).
See Fed. R. Civ. P. 9(b); Matt Curley, FCA Deeper Dive: Rule 9(b) and Pleading Actual Claims, Bass, Berry & Sims: Inside FCA (May 2, 2017), https://www.insidethefca.com/fca-deeper-dive-rule-9b-and-pleading-actual-claims/ [https://perma.cc/3G2G-W2XS].
See Kern v. Levolor Lorentzen, Inc., 899 F.2d 772, 775–76 (9th Cir. 1990) (recognizing that “California courts have established . . . that an employer’s course of conduct can create implied-in-fact contractual terms of employment”); Rockaway Beverage, Inc. v. Wells Fargo & Co., 378 F. Supp. 3d 150, 161 (E.D.N.Y. 2019) (citing Brown Bros. Elec. Contractors, Inc. v. Beam Constr. Corp., 361 N.E.2d 999, 1001 (N.Y. 1977)) (holding that defendants established an implied-in-fact contract with Rockaway by providing credit card processing services to it for a “nearly two-year period”).
United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 906 (9th Cir. 2017).
Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016) (quoting Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 672 (2008)); U.S. Dep’t Just., supra note 9.
Escobar, 136 S. Ct. at 2002.