Blank Rome LLP is pleased to announce that nine attorneys from the firm’s nationally recognized Government Contracts group have been appointed to leadership roles in the American Bar Association’s (“ABA”) Public Contract Law Section for the 2023–2024 term, marking the highest number of ABA Public Contract Law Section leadership positions held by our attorneys in the firm’s history.
Visit our website to learn more about their roles and the Section of Public Contract Law.
2023 is shaping up to be a major year in False Claims Act (“FCA”) practice, with the Supreme Court weighing in on both FCA scienter (in SuperValu) and the reach of the government’s dismissal authority (in Polansky), and the government focusing its enforcement efforts around antitrust, cyber, and national security. We focus today on the United States ex rel. Schutte v. SuperValu, Inc. decision, in which the Supreme Court held that a contractor’s subjective belief about its compliance at the time it submitted claims for payment is relevant to whether it had the requisite scienter for FCA liability. Much has been written on this case, with most articles exploring esoteric concepts like “scienter,” “falsity,” and the “objectively reasonable person.” But assuming—as we do—that the decision will reduce the prospect of successful early dispositive motions, what practical steps can contractors take to reduce their False Claims Act exposure and avoid litigation in the first place? We offer three suggestions.
We begin with a basic refresher on the issue presented in SuperValu. A defendant is not liable under the False Claims Act unless it “knowingly” (including acting with “reckless disregard”) submits a false claim to the government. The “knowing” scienter element—particularly around reckless disregard—can be difficult to prove in the world of complex and often ambiguous laws and regulations that govern contractors’ compliance. The federal circuits had split on the issue of whether a defendant’s subjectiveinterpretation at the time it submitted claims for payment to the government was relevant to determining FCA “knowledge” if the defendant could later show that the underlying rule was ambiguous and its conduct (regardless of its contemporaneous understanding or belief) was consistent with an objective, reasonable interpretation of the unsettled requirement. SuperValu resolved the debate by holding that whether a defendant knowingly violated the FCA—and satisfied the scienter element—must consider the defendant’s real-time “knowledge and subjective beliefs.” United States ex rel. Schutte v. SuperValu, Inc., 143 S. Ct. 1391 (2023).
A successful False Claims Act (“FCA”) claim must show that the defendant submitted a false claim or statement “knowingly.” The “knowing” element—the scienter prong—depends on whether the defendant actually knew that the claim or statement was incorrect, or recklessly disregarded the facts or legal requirements that rendered the claim “false.” But, of course, government regulations, contract terms, and grant requirements can be incredibly complex and difficult to understand. When the ground rules are unclear, how does a company “know” that its claims for payment may be false under the FCA?
What does the FCA say about “knowing”?
The FCA defines “knowing” as (1) having “actual knowledge of the information;” (2) acting “in deliberate ignorance of the truth or falsity of the information;” or (3) acting “in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b). A “specific intent to defraud” is not required for liability under the FCA.
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Law360, February 17, 2023
Blank Rome’s Government Contracts group was recently named a 2022 Practice Group of the Year by Law360, which honors “the attorney teams behind litigation wins and major deals that resonated throughout the legal industry this past year.” Blank Rome is one of five firms recognized in the Government Contracts practice group category nationwide.
Read the group’s full Practice Group of the Year profile, as published in Law360, on our website.
The federal False Claims Act (“FCA”) is one of the United States’ most effective tools to detect and prevent fraud against the Government. One reason the FCA is so effective is that it encourages the employees of an organization to come forward as claimants and receive a share of any financial recovery to the Government. Recognizing the central role of these whistleblowers in the FCA’s enforcement scheme, Congress included an anti-retaliation provision in the statute that protects them when they report suspected fraudulent conduct. Under the FCA’s anti-retaliation provision, employees, contractors, or agents can sue for damages on their own behalf if they are “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done” in connection with a reported FCA violation. 31 U.S.C. § 3730(h)(1). Likewise, nearly every state also affords some degree of whistleblower protection, either statutorily or in the common law.
On August 30, 2022, the D.C. Circuit Court of Appeals brought renewed attention to the conundrum of False Claims Act (“FCA”) damages by applying a pro tanto allocation rule to a partially settled case. In United States v. Honeywell International Inc., No. 21-5179, 2022 WL 3723020 (D.C. Cir. Aug. 30, 2022), the court reasoned that, because the government had already recovered its full alleged damages through co-defendants’ settlements, it could not seek additional damages from the remaining defendant, regardless of that defendant’s alleged misconduct.
The FCA’s Treble Damages Provision
Under the FCA, 31 USC § 3729-3733, “any person” found to have violated the statute:
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted … plus 3 times the amount of damages which the Government sustains because of the act of that person.
In United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943), the Supreme Court described “damages which the Government sustains because of the act of that person” as the amount the government would have paid for the fraudulent goods or services had it known the relevant facts. The Court further rationalized that allowing damages to be multiplied per the statute was consistent with the common law tradition of civil punitive damages. In the 80 years since Marcus, courts have continued to grapple with the nature and calculation of FCA damages: whether they are punitive or compensatory; whether they are sufficiently predictable to encourage settlement; and whether they serve as a sufficient deterrent for wrongful conduct.
In its upcoming term, the U.S. Supreme Court is poised to address the issue of whether the United States can seek to dismiss a whistleblower’s False Claims Act (“FCA”) lawsuit after it has elected not to participate in the case. And, if it can seek dismissal, what standard should apply?
On June 21, 2022, the Court agreed to consider the matter of United States ex rel. Polansky v. Executive Health Resources, Inc. (Case No. 19-3810). In his cert petition, the whistleblower presses the theory that after the United States declines to intervene in an FCA qui tam case, it lacks any authority to dismiss the action. At a minimum, the petitioner argues that the Court should resolve a long-standing split among the Circuit Courts regarding the standard that applies to such a motion—a split that has splintered even further in response to an uptick in such motions since 2018.
The attention-grabbing headline from the Department of Justice’s (“DOJ”) annually released statistics on False Claims Act (“FCA”) settlements and judgments is that the government recovered more than $5.6 billion from FCA cases in fiscal year (“FY”) 2021. While this is the second largest annual recovery in FCA history and the largest since 2014, procurement fraud cases represented a substantially smaller percentage of the total recoveries than in years past. Healthcare resolutions dominated, accounting for more than five billion of the $5.6 billion in settlements and judgments. In previous years, healthcare matters have accounted for closer to two-thirds of the total recoveries, making last year’s outsized healthcare figure—driven by the blockbuster opioid settlements of late 2020—an outlier.
Beyond the top-line dollar figures, the report shows that FCA activity continues at a healthy, if not fully robust, pace. The COVID-19 pandemic continues to impact qui tam filings; the number of new whistleblower suits dropped to 598 in FY 2021, a ten-year low. The number of DOJ-initiated matters remains higher than the near-term average, particularly in healthcare, but also in Department of Defense (“DOD”)-related cases. Contractors, healthcare providers, and others—especially those who received federal funding through pandemic aid programs—can anticipate that FCA investigations and resolutions will play out over the next several years.
Jennifer’s session, “FCA/FCPA: Fraud and Enforcement,” will take place on Thursday, January 27, from 12:00 to 1:50 p.m. EST, and will break down the top trends in enforcement of the False Claims Act (“FCA”) and Foreign Corrupt Practices Act (“FCPA”).
Other panels include:
Investigations, Disclosures, S&D
Labor and Employment
Costs, Pricing, and Audits
Grants and Cooperative Agreements
Cybersecurity and Information Technology (“CMMC”)
Claims, Disputes, and Terminations
Small Business Contracting
Mergers and Acquisitions
Statutes, Regulations, EOs, and Policies
CLE may be available.
Blank Rome is pleased to be a sponsor of this program.
For more information and to register, please visit the event webpage.