On Tuesday, April 18, 2023, the U.S. Supreme Court heard oral argument on two consolidated cases from the Seventh Circuit, U.S. ex rel. Schutte v. SuperValu Inc. and U.S. ex rel. Proctor v. Safeway, regarding the proper scienter standard in False Claim Act (“FCA”) cases. 

Under the FCA, a person is liable to the government for “knowingly” submitting a false claim for payment. The statute defines “knowingly” as actual knowledge, deliberate ignorance, or reckless disregard. Divided panels of the Seventh Circuit held in both cases that a defendant’s subjective belief regarding the falsity of the claim is never relevant, and a post hoc objectively reasonable interpretation of the claim would immunize them from FCA liability. In other words, the Seventh Circuit held that even if a defendant subjectively believed a claim was false, they could nonetheless escape FCA liability if they could craft an objectively reasonable interpretation of the claim that was not false. 

The Supreme Court seemed poised to reject the Seventh Circuit’s interpretation of the knowledge element, indicating that a defendant’s subjective belief regarding falsity is relevant to the question of whether the defendant had knowledge, although it remains unclear how broadly the Supreme Court will rule. A narrow ruling from the Supreme Court would simply remand the cases back to the Seventh Circuit for reconsideration in light of the defendants’ subjective beliefs as to the falsity of the claims. A broader ruling could go further and address hypothetical scenarios not directly before the court, which would provide clarity to FCA litigants moving forward regarding the scope of the “knowledge” element. Attorneys for the defendant companies cautioned against a too-broad reading of the “knowledge” element, saying it would be disastrous if the court held that even if a defendant had considered an objectively reasonable interpretation at the time and guessed wrong, it would lose under the FCA.

The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with False Claims Act investigations and litigation.  If you need assistance with such a matter, please contact us today.