Last week, the United States Supreme Court consolidated and agreed to hear two False Claims Act (FCA) qui tam cases out of the Seventh Circuit Court of Appeals. The issue in those cases is whether and when a defendant’s contemporaneous subjective understanding or beliefs about the lawfulness of its conduct are relevant to whether it “knowingly” violated the FCA.
The first case was brought by a qui tam plaintiff – Thomas Proctor – against Safeway, Inc., a national grocery chain. Proctor alleged that Safeway violated the FCA by overcharging the government for prescription drugs by knowingly misreporting the usual and customary (U&C) prices for those drugs. The District Court granted Summary Judgment in favor of Safeway, and the Seventh Circuit affirmed, holding that Safeway did not act “knowingly” as defined by the FCA because an objectively reasonable (although wrong) interpretation of U&C prices would have allowed Safeway to make the reports it did, and no authoritative guidance foreclosed that interpretation. The Seventh Circuit held that evidence of Safeway’s subjective understanding or beliefs about U&C prices–which the plaintiff claims showed that Safeway executives believed that their reporting was incorrect—was “irrelevant” to whether Safeway acted knowingly. Instead, the Seventh Circuit held that Safeway could prevail by showing that its conduct fell within an objectively reasonable interpretation of U&C, even if it did not actually believe that interpretation to be correct at the time it submitted the claims at issue.
The second case was brought by two qui tam plaintiffs—Tracy Schutte and Michael Yarberry—against another grocery chain, SuperValu Inc. The facts and legal arguments in the SuperValu case are nearly identical to those in the Safeway case and, similar to Safeway, the Seventh Circuit in SuperValu held that the defendant’s subjective belief was irrelevant to the FCA’s scienter inquiry; as long as the defendant’s conduct fell within an objectively reasonable interpretation of the law, it does not matter what the defendant knew or believed at the time it submitted the claims at issue.
Three important amicus briefs asking the Supreme Court to accept the cases were filed, authored by Senator Chuck Grassley (dubbed as the modern “father” of the FCA), Taxpayers Against Fraud Education Fund (the leading organization representing FCA qui tam plaintiff lawyers), and the United States. All of these amici argued that the Seventh Circuit’s holdings were inconsistent with the intention of the FCA and its scienter requirement.
The cases are United States ex rel. Proctor v. Safeway, Inc. (22-111) and United States ex rel. Schutte v. SuperValu Inc. (21-1326).