Reflections on Certification, Interpretation, and the Quest for Fraud That 'Counts' under the False Claims Act

Abstract

Sometimes, we lie when we speak; sometimes, we lie when we don’t. Striking the right balance is the essence of the June 2016 Supreme Court opinion in Universal Health Services, Inc. v. United States ex rel. Escobar, which challenged the applicability of the Civil False Claims Act (FCA) to a defendant who falsely implied that it was in compliance with Medicaid requirements in order to obtain payment from the government. In a unanimous opinion, the Justices affirmed the validity of the implied certification theory but warned that misrepresentations must meet a demanding “materiality” standard to be actionable. While both parties were quick to claim victory, in the long run the decision is likely to satisfy no one and to raise as many questions as it answers.

Ironically – or perhaps fittingly – for a case expected to redefine the contours of fraudulent omissions, the opinion was notable as much for what it didn’t say as for what it did. Without citing to the extensive appellate FCA case law on either implied certification or materiality, and relying little on the statutory text itself, the Justices drew primarily from the common law. They explicitly declined to set bright-line rules, opting instead for a fact-intensive, commonsense approach more reminiscent of Justice Stewart’s famous proclamation regarding pornography (“I know it when I see it”).

This essay confronts the fundamental question underlying implied certification litigation: what type of fraud should “count” under the FCA? Neither the statutory language nor 150 years of case law – nor Escobar itself – has provided a coherent mechanism for distinguishing irrelevant noncompliance from more significant misrepresentations that go to the heart of what the government believes it is buying. Situating Escobar within the historical context of FCA certification theories, this essay identifies the crucial issues left open by the opinion, including how, when, and by whom this new materiality standard will be assessed. Escobar not only represents a lost opportunity to resolve these debates; it introduces confounding new questions that virtually guarantee befuddled litigants will have no choice but to seek clarity through future litigation.