False Claims Act -- 2016

Universal Health Services, Inc. v. United States   (U.S. Supreme Court)

Opposing false certification litigation under the False Claims Act

Manufacturers are very concerned that the False Claims Act (FCA), governing fraudulent claims submitted by government contractors to the government, is turning into an all-purpose fraud statute, particularly since the FCA gives plaintiffs huge incentives to sue. The potential for abuse of this statute is great, with the opportunity for almost boundless liability in the form of treble damages, civil penalties and attorneys' fees.

The NAM filed an amicus brief on the merits of this case now before the Supreme Court involving an FCA claim based on "implied false certifications." The plaintiff's legal theory, accepted by a federal court of appeals, is that each time a company submits a bill to the government for goods or services, it implicitly communicates that it has conformed to every statutory, regulatory and contractual provision to which the transaction is subject.

In our brief, we opposed this theory, arguing that there is a sharp distinction between regulatory or contractual violations and false or fraudulent claims. Congress did not intend for such violations to be considered fraud under the FCA, and there are other sanctions available. The Supreme Court should end this creative legal overreach, which has helped fuel a doubling of FCA litigation over the past decade. False certification litigation is a blunt instrument that is prone to abuse, and the statute should remain one for fighting fraud, not for private enforcement of regulations or government contract provisions.

Joining in the NAM's brief were the American Medical Association, the National Association of Chain Drug Stores, the American Tort Reform Association, and the NFIB Small Business Legal Center.

On June 6, 2016, the Court ruled unanimously that the lower court went too far. The Justices outlined the factors a court should use to determine whether there has been a violation of the False Claims Act, and sent this case back to the lower courts for further deliberations using these new guidelines. It ruled that "the implied false certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations half-truths." It also held that that FCA liability "for failing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payment. . . [N]ot every violation of such a requirement gives rise to liability."

Determining whether an action is material is intended to be a "rigorous" and "demanding" inquiry. The fact that the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated "is very strong evidence that those requirements are not material." The FCA "is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations."

Thus, future litigation will require an extensive case-by-case analysis of whether the defendant knowingly violated a requirement that they knew was material to the government's payment decision.

Related Documents:
NAM amicus brief  (January 26, 2016)


© 2019 National Association of Manufacturers