The False Claims Act (FCA) is the government’s most powerful civil tool to investigate and pursue claims against businesses and individuals who submit false or fraudulent claims to the government.
Every year, the Department of Justice (DOJ) obtains billions of dollars in FCA settlements and judgments (mostly settlements), the majority of which involve healthcare providers accused of submitting false claims to federal healthcare programs.
Violations of the FCA can result in treble 3(x) damages plus penalties of up to $28,619 per claim, often turning cases involving relatively low reimbursement into significant judgments. For example, in 2021, the Eleventh Circuit Court of Appeals upheld an FCA judgment of $1,177,000 against a physician practice where the Medicare reimbursement at issue was only $755.54.
Outside of the healthcare industry, federal government contractors of all types and sizes face FCA risk. For example, in June 2025, Otis Elevator Company agreed to pay over $600,000 to resolve allegations that it violated the FCA when it invoiced the Tennessee Valley Authority for contractual services that it did not perform. The month prior, a Utah-based defense contractor agreed to pay $62 million to resolve allegations that it violated the FCA by failing to disclose “accurate, current, and complete cost or pricing data” for communications equipment sold to various federal agencies.
Businesses that obtain funds pursuant to federal grants also face the prospect of significant FCA liability. For example, in July 2025, Delta Air Lines agreed to pay $8.1 million to resolve allegations that it violated the FCA by awarding compensation to certain corporate officers and employees that exceeded the compensation limits that Delta had agreed to as part of its participation in a COVID-era government grant program. In its press release announcing the settlement, the DOJ alleged that Delta entered into agreements with the Department of Treasury under which Delta agreed to compensation limits for certain corporate officers and employees, but then exceeded those compensation limits and inaccurately certified compliance with the contractual requirements in quarterly reports to the Treasury.
FCA cases like the one against Delta raise the question: where is the line between a standard breach of contract case – where, just like any party aggrieved by a contractual violation, the government can sue to recover its actual damages – and an FCA case, where liability can be much more significant? The answer depends on various factors, most importantly the defendant’s statement of mind and whether the falsity was “material” to the government’s decision to pay.
Knowledge
In order to prove an FCA violation, the plaintiff (the government or a private whistleblower on behalf of the government) must prove that the defendant acted “knowingly.” That term is defined broadly and includes not only actual knowledge, but deliberate ignorance and reckless disregard as well. The FCA makes clear that no proof of specific intent to defraud is required to prove an FCA violation. Courts have noted that this broad definition includes “the ‘ostrich’ type situation where an individual has ‘buried his head in the sand’ and failed to make simple inquiries which would alert him that false claims are being submitted.” Urquilla-Diaz v. Kaplan Univ., 780 F.3d 1039, 1058 (11th Cir. 2015). Importantly, FCA liability “does not attach to innocent mistakes or simple negligence.” Id.
So, in a situation where the entity in question submitted a false or fraudulent claim (for example, a claim that did not comply with a contractual requirement) but did so innocently, or even negligently, that is not enough to turn a breach of contract claim into an FCA case. However, where there is evidence that the defendant “turned a blind eye” or “buried his head in the sand,” that could be be sufficient to impose FCA liability.
Materiality
Another important requirement of an FCA claim is proof that the falsity was material to the government’s decision to pay the claim at issue. The FCA defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” In a seminal FCA case from 2016 called Universal Health Services v. Escobar, the United States Supreme Court held that the FCA is not “an all-purpose antifraud statute . . . or vehicle for punishing garden-variety breaches of contract or regulatory violations.” 579 U.S. 176, 194 (2016). The Court in Escobar explained that the FCA’s materiality standard is “demanding” and that:
A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial.
Id. This requirement also prevents a standard breach of contract claim from turning into an FCA case. In fact, the Supreme Court in Escobar expressly rejected the government’s contention that “any statutory, regulatory, or contractual violation is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.” Id. at 195. The Court concluded its decision by emphasizing that the FCA “is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations.” Id. at 196.
The Bottom Line
The bottom line is that breaching a contract with a federal government agency can result in substantial liability under the FCA, but only if it is done with the requisite knowledge (including recklessness) and the falsity is material to (has a “natural tendency to influence”) the government’s decision to pay. Where there is no evidence of either or both of these factors, the proper remedy is for the government to bring a claim for breach of contract, not a claim under the FCA.
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The attorneys at Chilivis Grubman represent businesses and individuals in connection with False Claims Act investigations and litigation. If you need assistance with such a matter, please contact us.