The U.S. Supreme Court heard arguments in April 2016 in a False Claims Act (“FCA”) case that could expand the scope of the statute and create a single interpretation among U.S. Circuit Courts. Under the FCA (31 U.S.C. § 3729), anyone who knowingly presents a “false or fraudulent” claim to the government for payment or approval or knowingly makes or uses a false record or statement material to a false or fraudulent claim is civilly liable to the federal government. The essence of the case is twofold.
• First, is the “implied certification” theory of legal falsity under the FCA is viable.
• Second, if is viable, can a government contractor’s reimbursement claim be legally “false” if they failed to comply with a statute, regulation, or contractual provision that does not state it is a condition of payment; or whether liability for a legally “false” reimbursement claim requires the statute, regulation, or contractual provision specifically state it is a condition of payment.
If the Supreme Court rules in favor of an “implied certification” theory, government contractors could find themselves violating the FCA by not following regulations and contractual provisions that they never certified they were in compliance with.
This could have major ramifications for contractors. Those found in violation of the FCA may receive punishment, including paying the government three times the damages the government suffered as a result of the violation, penalties ranging from $5,500-$11,000 for each violation of the FCA, and possible imprisonment.
While the FCA does not define what constitutes a “false” claim, U.S. circuit court opinions address both types of falsity under the FCA: (1) claims that are factually false (the contractor did not provide the products or services for which they are seeking payment); and (2) claims that are legally false, (the contractor did not comply with a condition of payment).
Some circuits have held that in order for a contractor’s claims to be legally false, they had to have expressly certified they acted in compliance with the conditions of payment. However, other circuits have endorsed a theory of “implied certification,” holding that when contractors submit claims for reimbursement, they are implying that they have complied with the required contract terms and conditions.
While the court case in question (Universal Health Services, Inc. v. U.S. and Massachusetts, ex rel. Julio Escobar and Carmen Correa, 780 F.3d 504 (1st Cir. 2015)) has nothing to do with government contracts, a specific interpretation of the FCA by the Supreme Court could impact them.
The U.S. Supreme Court accepted the case in December 2015. It agreed to address: (1) whether the implied-certification theory is viable; and (2) if it is, whether a government contractor’s reimbursement claim is considered false if the contractor did not comply with regulation that does not state it is a condition of payment (as held by the First, Fourth, and D.C. Circuits), or whether a regulation must expressly state that it is a condition of payment (as held by the Second and Sixth Circuits).
During the hearing it has been argued that a decision by the Supreme Court that endorses an implied-certification theory would broaden the scope of the FCA in circuits that have rejected such a theory and could have wide-ranging effects on government contractors who could be harshly penalized for minor non-compliance with regulations that have almost nothing to do with contract performance.
If the Supreme Court were to rule that the implied-certification theory is valid, and a statute, regulation or contractual provision need not state it is a condition of payment to expose contractors to FCA liability, contractors will need to be very careful and comply with all applicable regulations and contractual provisions or risk penalties. Government contracts can contain hundreds of pages and include literally thousands of statutes and regulations by reference. Under this potential ruling, contractors would be liable under the FCA for damages and penalties for not complying with each one of them, whether the contractor even realized or not that they were in violation of a referenced clause.
The Supreme Court is expected to rule by the end of June. For an up to the minute report on the status of the case go to http://www.scotusblog.com/case-files/cases/universal-health-services-v-united-states-ex-rel-escobar/