The Supreme Court will hear arguments this spring about the “biggest threat” the False Claims Act has faced since it was modernized four decades ago.

It’s an issue that could undercut the FCA’s ability to hold bad actors accountable and recover taxpayer money—$72 billion and counting since the statute was revamped in 1986.

The issue arose from the Seventh Circuit’s decision in U.S. ex rel. Schutte v. SuperValu Inc. nearly two years ago. That ruling defines the FCA’s knowledge of fraud requirements in a way that allows companies to use a lawyer-crafted after-the-fact interpretation of the law, even if it’s wrong, as a defense for submitting false claims to the government even when the defendant thought at the time it submitted the claims that it was unlawful.

On one side of the issue: whistleblowers with supporting briefs by the U.S. Department of Justice and Solicitor General; U.S. Sen. Charles Grassley (R-Iowa), who championed the modernization of the FCA in 1986; the Attorneys General of 33 states and supporters of government and taxpayer spending accountability, including the Taxpayers Against Fraud Education Fund (TAF).  Keller Grover attorney Kate Scanlan is a member and chair of TAF’s Public Education Committee.  

On the other side: SuperValu and Safeway, two government contractors who, according to the whistleblowers’ complaints, defrauded Medicare and Medicaid of millions of dollars by overcharging the government for prescription drugs. 

InSuperValu, a whistleblower alleged in a 2011 lawsuit that the supermarket chain violated the FCA by reporting list prices of prescription drugs for Medicare reimbursement that were eight to 15 times higher than what it charged non-insured customers for the same drugs.

But a U.S. District Judge granted summary judgment to SuperValu because even though the court found that the company’s reported prices were false, SuperValu’s after-the fact interpretation of the law was objectively reasonable, even if it was wrong. The Seventh Circuit upheld that ruling and several other federal appellate courts have adopted the objectively reasonable standard of knowledge.

To violate the FCA, defendants must have made a false claim knowing it was false. The law defines knowledge of false information as (1) actual knowledge, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard of the truth or falsity of the information. 

Lawyers for the federal government, Grassley, and taxpayer advocates want the Supreme Court to overturn SuperValu and adopt a subjective knowledge standardjoined the whistleblower in urging the Court to reject the 7th Circuit’s reasoning.

In an amicus brief filed at the invitation of the Court, the DOJ and Solicitor General argued that when a defendant has submitted false claims with a culpable state of mind, “it cannot escape liability merely by showing that its claims were consistent with an objectively reasonable (but wrong) understanding of the law.” 

 

The Taxpayers Against Fraud Education Fund , of which Keller Grover attorney Kate Scanlan is a member and chair of its Public Education Committee, also filed an amicus brief, arguing the “FCA’s plain language allows for consideration of a defendant’s subjective knowledge.”

 

“The Seventh Circuit’s rule (gives) defendants with subjective knowledge of their own wrongdoing a get-out-of-liability-free card, which they or their lawyers can play at any time,” the brief said. “If adopted by this Court, the rule would not only rewrite the FCA’s knowledge standard, but would also severely hamstring the United States’ ability to protect taxpayer dollars from fraud. 

 

“The Court should reverse and reaffirm the FCA’s text, which acknowledges that a defendant’s contemporaneous subjective knowledge matters. In addition, the Court should reject the Seventh Circuit’s narrow view of interpretative guidance and hold that relevant guidance in FCA cases is a context-specific factual question.”

 

Earlier this year Senator Grassley also asked urged the Supreme Court to hear SuperValu and Safeway because of the important implications the faulty reasoning in the 7th Circuit’s opinions would have on the government’s fraud fighting ability. Three of his attorneys wrote an op-ed for Fortune magazine in which they lay out the stakes, which are stark.

 

“This case is the biggest threat to an anti-fraud statute that has, since its modernization 40 years ago, allowed the government to recover over $46 billion from companies that have defrauded the American public. It means that a company can get off the hook by saying: ‘I knew what I did was wrong, and I did it on purpose. But I’ve just hired lawyers who say someone else might possibly not have known that.’

 

“It’s surprising this sort of argument could get any traction in the first place. It makes no sense. If an ordinary criminal tried that excuse for any crime, they would be laughed out of the courtroom. If not overturned, the decision will essentially give corporations license to defraud the government. That’s paid for by all of us taxpayers.

 

“Government fraud is notoriously difficult to catch without whistleblowers. As Senator Grassley once said, trying to do so without whistleblowers is ‘about as useful as harvesting acres of corn with a pair of rusty old scissors.’ If this case stands, a rusty pair of scissors is all the government will have left to fight fraud—and that will neither punish nor deter wrongdoers.”

 

Whistleblowers who see fraud being committed and who are willing to speak up about it deserve the support of the government. They also need lawyers who understand the implications of changes to the FCA, and who are willing to fight for changes to the law so that they can right the wrongs they’ve witnessed and return money back to the taxpayers.

 

The lawyers at Keller Grover have three decades of experience representing whistleblowers and can advise potential whistleblowers about the best path forward from the very beginning, helping minimize the impact of reporting, protect rights and achieve the best possible outcome for their situation. If you have information about government fraud, contact us for a confidential, free consultation.