Supreme Court to Resolve Circuit Split, Decide Viability of Plaintiff-Friendly Implied Certification Theory for FCA Liability

Daniel Broderick

BroderickDWith the filing of relators’ brief in United Health Services, the Supreme Court is one step closer to resolving one of the most controversial issues in False Claims Act (“FCA”) jurisprudence:  whether “implied certification” is a valid liability theory under the FCA.

Under the implied certification theory, the plaintiff may allege that, by submitting any claim for payment to the government, a contractor impliedly certifies compliance with all applicable statutory, regulatory, and contractual requirements.  Thus, under this theory, even where the contractor provided all of the goods and services for which it seeks payment, the government is allegedly wronged because it would not have paid for the items or service if it was aware of the contractor’s noncompliance with these other requirements.

Because the FCA makes it unlawful to knowingly submit a false or fraudulent claim for payment to the government—and imposes treble damages plus civil penalties ranging from $5,500 to $11,000 per claim—plaintiffs  are strongly incentivized to assert the “implied certification” theory, which does not require the more difficult showing of an express false statement.  Not surprisingly, the aggressive use of the implied certification theory has contributed to much of the recent increase in government enforcement actions and billions of dollars in recovery, including by settlements designed to avoid the legal uncertainty and the potentially significant damages and penalties under the FCA.  The Supreme Court agreed in December to hear the case to resolve a circuit split as to whether implied certification is viable.

In January, the petitioners, United Health Services (“UHS”), argued that the implied certification theory (which they term “Frankenstein’s monster”) unfairly and unnecessarily threatens gargantuan penalties and damages for failures to satisfy every regulation imposed by sprawling government programs, without an express showing that the alleged noncompliance was material to any government payment decision.  Absent an express, false condition of payment, UHS argued that the theory transforms the FCA into a blunt instrument of contract compliance, for which procuring agencies have a variety of alternative and less draconian remedies at their disposal, rather than the anti-fraud statute that the FCA is intended to be.  The theory, they say, would thus contravene the purpose of the FCA by improperly converting breach of contract actions into fraud cases.

The respondents, however, have not pulled any punches.  The United States argues that “[b]y requesting payment from the government, the claimant implies that it has held up its own end of the deal — a representation that is false if in fact it has not done so.”  Moreover, according to the government, fraud “liability can occur even if the violated regulations are not express conditions of payment,” because the alternative “would be to give persons who request government funds advance notice of which contractual and legal requirements they can knowingly disregard without fear of FCA liability.”

For their part, relators Escobar and Correa largely echo these assertions, contending that the submission of ineligible claims are a false or fraudulent claim for payment and that “policy arguments cannot justify engrafting [onto the FCA] a requirement that is found nowhere in the statute’s text and that directly contravenes Congress’ broad remedial purposes in passing the Act.”  The relators also claim that UHS’s efforts to limit implied certification to formal “conditions of payment” has no basis in the statute, which punishes both the submission of false claims and the use of a “false record or statement” in connection therewith.

These stunning assertions by the respondents, if adopted by the court, will eviscerate the line between routine contract administration matters (over which procuring agencies have a number of contractual remedies at their disposal) and actionable fraud.  The respondents’ positions will inundate the courts with a mass expansion in FCA filings, since every violation of any contractual, regulatory, or statutory provision, no matter how immaterial, will be actionable.  While the government or a relator must still prove that a contractor knowingly submitted false claims, the positions advanced by the respondents will be of little comfort to contractors who still must face the heavy costs, burden, and reputational fallout from being subjected to an FCA lawsuit.

While a date for oral argument has not been set, a decision is expected in late June.