U.S. Supreme Court Recognizes Limited Implied-Certification Theory as Basis for FCA Liability
1. Whether the First Circuit, by sua sponte identifying and relying upon a regulatory provision not invoked by respondents at any point in the proceedings below to reverse the district court’s dismissal of respondents’ complaint, has so far deviated from the adversary system’s party presentation rule “so as to call for an exercise of this Court’s supervisory power” under this Court’s Rule 10(a).
2. Whether the “implied certification” theory of legal falsity under the FCA—applied by the First Circuit below but recently rejected by the Seventh Circuit—is viable.
3. If the “implied certification” theory is viable, whether a government contractor’s reimbursement claim can be legally “false” under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment, as held by the First, Fourth, and D.C. Circuits; or whether liability for a legally “false” reimbursement claim requires that the statute, regulation, or contractual provision expressly state that it is a condition of payment, as held by the Second and Sixth Circuits.
The U.S. Chamber filed an amicus brief urging the Supreme Court to reject the First Circuit’s implied-certification theory of False Claims Act (“FCA”) liability in a case involving a counseling service’s failure to comply with state licensing requirements as a condition to payment under the FCA.
The brief argues that the implied-certification theory increases risk and uncertainty for government contractors, grantees, and program participants and invites abuse by bounty-hunting relators. Additionally, the implied-certification theory deprives defendants of fair notice about what actions may lead to FCA liability.
John P. Elwood, Craig D. Margolis, Jeremy C. Marwell, Tirzah S. Lollar, Kathleen C. Neace, and Ralph C. Mayrell of Vinson & Elkins LLP served as co-counsel for the amici with the U.S. Chamber Litigation Center.
The Supreme Court held that a defendant can be held liable under the implied certification theory when “two conditions” are met: (1) “the claim does not merely request payment, but also makes specific representations about the goods or services provided” and (2) “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” However, the Court also clarified that any such misrepresentation must meet a “demanding” materiality standard, and misrepresentations will not classify as material simply because the government conditions payment on compliance with a particular requirement or could legitimately refuse payment if it knew that the defendant did not comply with the condition. Moreover, the Court reiterated that a misrepresentation cannot be material if the noncompliance is “minor or insubstantial.”