Law360 (March 20, 2023, 6:13 PM EDT) — The U.S. Supreme Court said Monday that the federal government could participate in arguments over whether the False Claims Act covers false claims with “objectively reasonable” explanations, after the government argued it had a “substantial interest” in the case.
The high court agreed to the U.S. solicitor general’s Mar. 3 motion to be a part of Apr. 18 oral argument in the case, which seeks to overturn two Seventh Circuit rulings that retail chains Safeway Inc. and SuperValu Inc. had made “objectively reasonable” interpretations of ambiguous policy in the “usual and customary,” or U&C, prices they offered to Medicare and Medicaid for generic drugs.
In the government’s motion to participate in argument, it had said that the case presented “an important question concerning the scienter requirements of the False Claims Act,” the requirement that FCA defendants have to have acted with knowledge of the falsity of their claims, or at least with “deliberate ignorance” or “reckless disregard” of the truth.
The issue at the heart of the case was whether an FCA defendant who subjectively believed, or at least “had strong reason to believe,” that a claim they made was false could be considered not to have acted “knowingly” if they can show their claim “was consistent with an incorrect but objectively reasonable interpretation of those legal requirements,” according to the government.
“The United States has a substantial interest in the resolution of that question,” the government said. “The FCA is the primary tool by which the federal government combats fraud in federal contracts and programs, and the particular fraud alleged in these cases concerns millions of dollars in overbilling to federal healthcare programs including Medicaid and Medicare Part D.”
The justices, however, declined the government’s motion for an enlargement of time for oral argument, granting it 10 minutes to argue alongside 20 minutes for relators Tracy Schutte, Michael Yarberry and Thomas Proctor, and 30 minutes for SuperValu and Safeway. The government had sought 20 minutes for the relators, 15 minutes for its argument and a corresponding 35 minutes for the companies.
Counsel for the relators and the companies and a representative for the U.S. Department of Justice all declined to comment on the order Monday.
The dispute stems from Schutte, Yarberry and Proctor’s allegations that the retailers had failed to include all discounts available to retail customers in the U&C pricing they offered to the government programs.
In underlying August 2021 and April 2022 rulings, the Seventh Circuit had found that the retail chains had made objectively reasonable determinations of ambiguous regulatory guidance regarding U&C pricing that they weren’t otherwise warned away from by “authoritative guidance,” even if their interpretations had been wrong and therefore hadn’t acted with scienter.
In doing so, the circuit court majority adopted the so-called Safeco standard from the high court’s 2007 decision in Safeco Insurance Co. of America v. Burr , a Fair Credit Reporting Act case in which the justices found that “objectively reasonable” compliance lapses weren’t “willful” violations.
U.S. Circuit Judge David F. Hamilton had dissented from both rulings, arguing the decisions had effectively created “a safe harbor for deliberate or reckless fraudsters whose lawyers can concoct a post hoc legal rationale that can pass a laugh test.”
The relators, backed by a slew of amicus briefs from groups such as the National Whistleblower Center, more than 30 state attorneys general and the federal government itself, have argued to the high court that the Seventh Circuit “turned the law on its head” by ignoring subjective intent in determining scienter.
Letting those circuit court rulings stand “could significantly disrupt government programs involving everything from medical insurance to military equipment,” the government had alleged in a December brief that had urged the justices to take up the dispute.
“Limited resources and administrative complexity make it impossible to preemptively address every potential ambiguity that motivated attorneys might later identify,” the government said.
Safeway and Supervalu’s own combined brief is expected to be filed with the court Tuesday. SuperValu had argued in a June 2022 brief, ahead of the justices agreeing to take up the dispute and consolidating the two cases in January, that the Seventh Circuit’s decisions had been in line with “overwhelming appellate consensus” on adopting and then applying the Safeco standard in the FCA context.
“All [the Safeco standard] does is ensure that defendants will not be saddled with treble damages and per-claim penalties merely for adopting a wrong but ‘not objectively unreasonable’ view of an unsettled legal obligation,” SuperValu said.
The government is represented by Elizabeth B. Prelogar, Malcolm L. Stewart and Benjamin W. Snyder of the Office of the Solicitor General and Brian M. Boynton, Michael S. Raab, Charles W. Scarborough and Joshua Dos Santos of the U.S. Department of Justice’s Civil Division.
The whistleblowers are represented by Tejinder Singh of Sparacino PLLC; John Timothy Keller and Dale J. Aschemann of Aschemann Keller LLC; Rand J. Riklin of Goode Casseb Jones Riklin Choate & Watso; Paul B. Martins, Julie Webster Popham and James A. Tate of Helmer Martins Tate & Garrett Co. LPA; Glenn Grossenbacher of the Law Office of Glenn Grossenbacher; Jason M. Idell of Idell PLLC; Gary M. Grossenbacher; and C. Jarrett Anderson of Anderson LLC.
SuperValu and Safeway are represented by Carter Phillips, Kwaku Akowuah, Rob Hochman, Jaime Jones, Tacy Flint and Josh Fougere of Sidley Austin LLP.
The cases are U.S. ex rel. Thomas Proctor v. Safeway Inc., case number 22-111 and U.S. ex rel. Tracy Schutte et al. v. SuperValu Inc. et al., case number 21-1326, before the U.S. Supreme Court.
–By Daniel Wilson. Additional reporting by Elliot Weld and Jeff Overley. Editing by Andrew Cohen.
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