FCA: Key Takeaways from Supreme Court Decisions

Court watchers and reporters have paid most of their attention to the affirmative action and student loan cases decided this term. But we reported that earlier this month the Court also decided a series of consequential False Claims Act (“FCA”) cases. We provided a summary alert of those decisions (found here) and now elaborate on their key takeaways, impacting FCA defendants and, specifically, their defenses to FCA claims.

As a refresher, under the FCA, a qui tam claimant or “relator” with evidence of fraud against federal programs or contracts sues the wrongdoer, purportedly on behalf of the United States government. The government has the right to intervene and join in the action. If the government declines, the private plaintiff may proceed on their own. Two issues have plagued lower courts and the defense bar for years: (1) abusive whistleblower suits lacking in merit and intended to harass companies into settling claims, and (2) the proper framework for determining a defendant’s knowledge of the representations it made to the government.

In early June, the Supreme Court issued its unanimous decision in a pair of consolidated FCA cases, U.S. ex rel. Schutte v. SuperValu Inc., No. 21-1326, and U.S. ex rel. Proctor v. Safeway, Inc., No. 22-111, addressing whether subjective intent is relevant to FCA claims. The Court answered “yes,” holding that FCA liability turns on what the specific defendant actually believed about the truth or falsity of its representations, not on what an objectively reasonable person may have believed. The facts and procedural history of those cases are reported in our initial summary alert, found here.

And in late June, the Court issued an 8–1 decision in United States ex rel. Polansky v. Exec. Health Res., Inc., No. 21-1052, holding that the government’s view on whether an FCA case should be dismissed is “entitled to substantial deference” and that it may move to dismiss an FCA case even if it declined to intervene in the case in the first instance. The Supreme Court clarified that the government has the authority to dismiss an FCA suit at any stage of litigation, even over a relator's objections and even after protracted litigation, so long as the government intervenes before moving to dismiss the lawsuit.  

But there is more. The dissenting opinion by Justice Clarence Thomas, who authored the unanimous decision in SuperValu/Safeway, questioned the constitutionality of the FCA’s provisions allowing private parties to bring FCA actions on behalf of the government. Justices Brett Kavanaugh and Amy Coney Barrett, concurring in the Court’s decision, agreed with Justice Thomas’s view that there are “substantial arguments” that permitting private relators to represent the government is “inconsistent” with Article II of the Constitution, which the dissenting Justices read as vesting all power to bring such claims in the Executive Branch of our government. The dissent urges the Court to address this “Article II issue” when presented in a future case. 

Key Takeaways for FCA Defendants

First, companies doing business with the government should strengthen, and engage counsel to better utilize, relationships with their government agency counterparts. Seeking clarification of ambiguous regulations or contract provisions can be helpful and cost effective relative to the cost of investigation and litigation.

Second, companies should document advice received from an agency counterpart and engage counsel to conduct periodic contract and policy reviews. It is not uncommon for an agency contract attorney to provide an earnest view on an ambiguous regulation or contract provision. The company may then rely on that opinion, only to later discover that the federal government has a much different view. The ability of a company to support its business decisions with documentation is a powerful tool to minimize legal exposure and reduce the lifecycle, and therefore cost, of defending a qui tam suit.

Third, companies should capitalize on their understanding of the government’s enforcement priorities, the cost of litigation, the likelihood of success on the merits, and the qui tam claimant’s credibility—all reasons the government cited when seeking to dismiss the suit in Polansky—when developing a strategy to resolve a predatory FCA case.

Fourth, despite the zero success rate for these arguments in the lower courts, defense practitioners should heed the invitation of the dissenting bloc of Justices in Polansky and raise and preserve Article II arguments, especially given the explosion of qui tam FCA litigation. 

If you have any questions about the information in this supplemental update, please contact Chantel Febus, James Azadian, Jonathan Feld, or your Dykema relationship attorney.