The Supreme Court vacated and remanded two decisions of the U.S. Court of Appeals for the Seventh Circuit, ruling that the proper standard for determining scienter in a False Claims Act case was whether the defendant had the subjective belief that the claim was false at the time it was submitted, rather than whether the actions were consistent with an objectively reasonable interpretation of the applicable statute or regulation. This decision narrows the argument that a company can win a False Claims Act case by showing an objectively reasonable interpretation of an ambiguous statute or regulation.
37 Nash & Cibinic Rep. NL DATE JULY
Nash & Cibinic Report | July 2023
The Nash & Cibinic Report
Ralph C. Nash
DATELINE JULY 2023
On June 1, 2023, the Supreme Court issued a unanimous decision vacating and remanding two decisions of the U.S. Court of Appeals for the Seventh Circuit, U.S. ex rel. Schutte v. SuperValu Inc., and U.S. ex rel. Proctor v. Safeway, Inc., 143 S. Ct. 1391 (2023), 65 GC ¶ 156. The consolidated cases concerned the single issue of determining scienter when a Government regulation is ambiguous. The Seventh Circuit had ruled that a defendant in a False Claims Act case could not have “knowingly” submitted a false claim if its actions were consistent with an objectively reasonable interpretation of the applicable statute or regulation. The Supreme Court held that this was an incorrect standard—that the proper standard was whether the defendant had the subjective belief that the claim was false at the time it was submitted.
In these cases, there had been evidence that the two defendants had been told of the Government’s interpretation before they submitted their claims for drugs. Thus, the Court reasoned that this could have demonstrated that such knowledge showed a subjective belief (knowledge) that the claims were false. This conclusion may have been bolstered by evidence that the defendants had taken steps to hide the fact that they knew of the Government’s interpretation of the relevant regulation.
The Court’s decision is very narrow but it puts to rest any argument that a company can win a False Claims Act case merely by showing that there is an objectively reasonable interpretation of an ambiguous statute or regulation. If a qui tam plaintiff or the Government can show that the defendant knew of the Government’s interpretation and failed to follow it, there may well be liability under the False Claims Act. RCN
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