Supreme Court Reverses Seventh Circuit Cases Based on State of Mind Standard
The Supreme Court has unanimously ruled that the Seventh Circuit erred in dismissing two separate suits brought under the False Claims Act (“FCA”) by whistleblowers alleging Medicare/Medicaid fraud over prices charged by Supermarket chains Safeway Inc. and SuperValu Inc. for prescription drugs. The opinion addresses a key requirement of the False Claims Act (“FCA”), which imposes liability on anyone or any company that “knowingly” submits false or fraudulent claims to the government. The suits were dismissed based on the companies’ defense that they did not knowingly submit false claims due to some ambiguity in the policy and that a “objectionable reasonableness” of a similar party could have reached the same conclusion, but the Supreme Court rejected this reasoning and instead set the standard as based on the defendant’s “knowledge and subjective beliefs.”
The FCA has long been a tool used by the Department of Justice (“DOJ”) to recover funds mainly in the healthcare and defense contracting industries, totally over $70 billion since 1986. In practice, this new standard could lead to prolonged litigation, as companies will no longer be able to rely on defining what an “objectionable” party would find as a reasonable interpretation of a policy, but rather be subject to further investigation into what that specific party knew at the time of submitting what turned out to be a false claim. Certainly, defendants can still prevail when defending lawsuits against claims brought under the FCA, but the litigation may look a lot different than in the past and companies may likely be more inclined to attempt to settle allegations brought by the DOJ and/or whistleblowers.
