Photo of Bexis

Today’s guest post is courtesy of Reed Smith’s Lindsey Harteis. She’s been following the big-deal UHS v. Escobar False Claims Act that the Supreme Court could decide any day now (or could wait until the end of June), which involves the existence and (perhaps) extent of the so-called “implied certification” theory of FCA liability.

As always our guest posters deserve all the credit, and any blame, for the contents of their posts.

Finally – be sure to read the IMPORTANT ANNOUNCEMENT at the end of this post. DDLaw blog is getting ready to move, and that means you’ll have to resubscribe to continue getting our posts. But don’t worry, it’s easy.


We spent this past weekend chasing our ten-week old Samoyed puppy around the backyard, where he ventured “down in the weeds” more than a few times. This caused the OCD in us to go over him multiple times with a fine-toothed comb: We reasoned that he was bound to pick up some ticks. Lucky for us, he didn’t. But it got us thinking that when courts go down in the weeds like our dog did, they are bound to pick up a few nasty buggers themselves. In the oral argument for the appeal in United Health Services v. Escobar, 780 F. 3d 504 (1st Cir. 2015), the Court definitely took a run through the weeds. (We blogged briefly on the case here). We’re taking our fine tooth comb through the oral argument to look for ticks, and we fear we’re bound to find in this ruling another “corpus juris festooned with various duties.”

That’s a quote from a Justice we missed dearly while listening to the oral argument in this case. Justice Scalia used it in his concurring opinion in Skilling v. United States, 561 U.S. 358 (2010), which limited a fraud statute in the criminal context due to vagueness and via the 5th Amendment Due Process route.

Skilling reminds us of United Health Services for a couple of reasons: (1) It dealt with defining the contours of a sort of fraud – honest services fraud – for which the lower courts took an expansive view that wasn’t foreseeable based on the plain language in the statute; (2) Scalia was accusing the Courts of Appeals of invention of law rather than interpretation in their rulings on what constituted honest services fraud; and (3) the case involved a fusion of Restatement and black letter law in an unrelated area (Agency and Trusteeship) but was a criminal case.

There are definite parallels. Again, United Health Services presents an opportunity for the high court to define the contours of an actionable sort of fraud, this time fraud in submitting claims for payment to the government. Here, the punitive lever is the False Claims Act (“FCA”). This case also features a situation where Courts of Appeals, beginning with Ab-Tech in 1994 (discussed below) seem to have wielded legislative power instead of judicial restraint. United Health Services also involved, at least in oral argument, the suggestion by more than one justice that the proper standard might invoke principles from an entirely different area of law – and invoked Hornbook contract law when trying to grasp at a standard for liability.

Before we take you much deeper in the weeds, here’s how United Health Services came to be before the eight justice court. Beginning with Ab-Tech Cons., Inc. v. United States, 31 Fed. Cl. 429 (1994), federal courts birthed a new theory that expanded FCA liability. The theory is called “implied certification.” This theory expanded the scope of FCA liability to allow a claim where a company submitted a claim for payment to the government after making an “implied certification” that it was in compliance with the conditions to participating in a SBA program, namely using third party contractors that are minority owned, to further the interests of the program. In fact, the company did not use any third party contractors that met the criteria for its participation in the program. So, the Federal Circuit held, this was a false claim for payment that violated the FCA.

Over the last twenty years, some federal courts have run amok with this theory, expanding it in every direction. They have created a significant problem of identifying types of regulatory noncompliance which are relevant enough to trigger a finding of a “false or fraudulent claim,” whether the certification of regulatory compliance should be explicit (or if a mere failure to disclose noncompliance triggers liability), and even what sense the courts use the word “material,” to sort the actionable FCA claims due to a regulatory violation from inactionable ones.

On the United Health Services appeal, the First Circuit had no problem stepping into the shoes of not only the Massachusetts Legislature and Congress, but also those of executive agencies by invoking multiple regulations (some of which contradicted one another about the qualifications a provider should have in order to bill for services), and interpreting the regulations based on a statement by a non-promulgating entity in favor of a finding of fraud. What’s more – the First Circuit seemingly usurped the role of counsel and cited a regulation not cited in the Complaint, in any appellate brief and not even in the state government’s amicus brief – to make the finding of fraud. To us, this looks like anything but calling balls and strikes.

Here the regs used as the basis of liability not only lacked an explicit indication that, when read together, they created preconditions of payment, but the court had to layer three separate regulations (not all of which clearly cross-referenced one another) on top of each other to conclude this “precondition of payment” was violated. Further, this isn’t something either the Massachusetts Government or Federal Government thought they did. They both declined to intervene in the suit altogether.

The regulatory agencies at issue all reviewed the facts in this case, and two of them entered into agreements with the provider to restore compliance. Just one individual was issued a $1,000 civil penalty for holding herself out as a therapist without the appropriate license. It seems to us that if the Government doesn’t think a provider has submitted a false claim due to some “implied certification” by the claimant, then a relator shouldn’t be able to replace the Government or contracting party and offer a different interpretation of how material the alleged regulatory breach was, or even if there was a breach at all.

Seemingly, the First Circuit believed as long as some court is willing to divine material noncompliance, it doesn’t matter if the Government thinks there was noncompliance or if the Government thinks it was material – or even if the Government is willing to pay the claim at all. Indeed, the First Circuit says, even if the Government doesn’t lift a finger and intervene in the suit, the relator can play a plaintiff’s lawyer game of after-the-fact “gotcha!” and that’s precisely what Defense counsel argued before the Supreme Court.

To get a sense of where the Supreme Court is on all this, we listened to the oral argument, which occurred on April 19, 2016. Justice Breyer described the problem as how to distinguish the regulations for which a breach is fraudulent and contains an implicit promise not to breach versus those in a sea of “millions of regulations” – and for which a breach is less than fraudulent. Breyer was grabbing at contract principles of materiality – and suggested that perhaps violations and nondisclosure of violations that would be “material” to the government’s decision to pay a claim would be actionable.

The chief problem with such reasoning is that is that FCA cases often don’t involve contracts. But that didn’t stop the justices from trying to invoke contract law. Chief Justice Roberts approached the idea of phrasing liability in terms of whether the Government might “repudiate” or deny payment of the claim on the basis of the regulatory infraction. A second problem is how anybody could get in the Government’s head in a case like this where the Government didn’t see fit to intervene. A third and perhaps more significant problem, as counsel for the provider argued, is that materiality is a separate FCA requirement apart from any contract law understanding of that term. It makes no sense that contract-variety materiality is an appropriate substitute for the falsity or mens rea elements of a FCA claim.

Justices Sotomayor and Kagan seemed downright annoyed that the First Circuit ventured into the regulatory weeds in the first place. To them, this case was as simple as the reason the FCA was enacted. Back then, the “Lincoln law” was enacted because government contractors provided cardboard boots, dead mules and guns that didn’t shoot for the Civil War. Kagan likened the provision of services by someone who is not a doctor, when the state was charged for a doctor’s services, to providing a gun that doesn’t shoot and then claiming payment for a gun.

To us, DOJ’s primer on what constitutes a FCA violation is instructive: “A person does not violate the False Claims Act by submitting a false claim to the government; to violate the FCA a person must have submitted, or caused the submission of, the false claim (or made a false statement or record) with knowledge of the falsity, knowledge of false information is defined as being (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.” If the United States via DOJ doesn’t think a regulatory infraction is a false claim, it seems that should be good enough for the Court. The fact of a regulatory violation shouldn’t be confused with the submission of false information.

A regulatory infraction might have happened here. Maybe, although the Government isn’t convinced. But that’s a different thing from submitting an explicitly false claim to the Government and a thing that has separate regulatory and other remedies. As defense counsel argued, the Government holds all the keys in how it can address regulatory infractions, but the FCA is not one of them. We didn’t do the math, but are willing to bet that the majority of implied certification theory-founded FCA claims are products of relators and their counsel and not the United States Government.

At least three and maybe even all the justices think fraud occurred on the facts here. But it remains to be seen if they agree about which of those facts made for the fraud, which of those regulations they might be willing to invoke to make a finding of fraud, and whether they need or can agree to invoke the implied certification theory to get there. We’re still hoping for a deus ex machina here. The Court should avoid the regulatory weeds – and the implied certification theory – whatever it decides. And on our next walk, we too will avoid the weeds. Stay tuned and we’ll be sure to announce the fate of the theory – and this case – as soon as it drops from the high Court.


IMPORTANT ANNOUNCEMENT – When we created the Drug and Device Law Blog back in 2008 nobody we frankly didn’t know if anything would come of it. So we used the Google Blogger software program because the price was right (it was free). Unfortunately, we got what we paid for. For about six months we’ve had problems with emails to our loyal subscribers, and Google hasn’t been able to fix it. So next week we’re moving to an upgraded – and supported − platform. What does that mean for you, our loyal readers?

  • All our new posts (and all our old ones) will be located at a new URL, but don’t worry: If you type in (or use a bookmark) for this site in the future, you’ll be redirected to the new Drug and Device Law blog site.
  • We’re sorry for the inconvenience, but privacy laws won’t let us resubscribe you automatically. But we’re making it as easy as we can for you. All you need to do is fill out a new, really short (three things) e-mail sign-up form to continue to receive our blog posts by e-mail. You can fill out the form right now, right here, and you’ll continue to get all of our posts at the after we’ve moved to the new site. As you did the first time you subscribed to DDLaw by email, you’ll get a confirmation e-mail to the address you provide, and once you click to confirm your subscription, we’re in business.
  • The change over also means we have to go silent for a couple days so the techies can do their thing. We won’t be able to post on May 23 or May 24 as the blog is moved, but you’ll still be able to visit our site and read any and all of our previous posts. We’ll be back with our usual updates and analysis on drug and device product liability cases on May 25, so don’t put it off − sign up today.