Figuring Out the FCA: Supreme Court Issues Two Decisions
In June 2023, the Supreme Court issued two opinions interpreting the False Claims Act (FCA)—U.S. ex rel. Schutte v. SuperValu, Inc., (June 1, 2023), U.S. ex rel. Proctor v. Safeway, Inc. (June 1, 2023), and U.S. ex rel. Polansky v. Executive Health Resources, Inc. (June 16, 2023). In the Supervalu/Safeway decision, which was an important victory for relators, the Court reinforced that the focus is on the subjective knowledge of a defendant for the scienter component of the FCA. In Polansky, the Court, in a ruling beneficial to defendants, held that the Government may dismiss an FCA action when it intervenes, even after the unsealing of the FCA complaint. Each decision also contains discussion about the scope of the FCA, and its statutory interpretations, which will surely lead to future challenges.
The issue in the Supervalu/Safeway decision involved the “usual and customary” prices that must be charged to Government when retailers of prescription medicines sought federal reimbursement. The relators claimed that the evidence showed that the defendant pharmacies knew that the pricing information submitted did not reflect their actual discounted pricing that was “customarily” offered. Nonetheless, the U.S. Court of Appeals for the Seventh Circuit granted summary judgment for the defendants. It ruled that the “knowingly” element for a false claim was not satisfied “unless no hypothetical reasonable person could have thought that their prices were their ‘usual and customary’ prices.” Supervalu/Safeway, 598 U.S. ___, slip. op. at 9.
Justice Thomas, in a unanimous opinion, strongly emphasized that the “scienter element” refers to the “subjective knowledge” of an FCA defendant. Relying on common law fraud tenets for his FCA analysis, he explained that  actual knowledge,  deliberate ignorance of the truth or falsity, or  recklessness disregard of the truth or falsity will suffice. Id. at 9. He rejected the Seventh Circuit’s rationale of a third-party objective standard that focused on what “someone else, standing in the [companies’] shoes may have reasonably thought” about what were the “usual and customary” prices. Id. at 7. According to the Court, if it upheld the Seventh Circuit decision allowing this “objectively” unreasonable standard, the subjective knowledge element would be eviscerated. Id. Justice Thomas explained that the FCA “tracks” the common law regarding fraud, and therefore only allows consideration of what the defendant “thought” when submitting a claim. Id. at 9.
The second opinion, Polansky, 599 U.S. was an 8-1 decision decided 15 days later with Justice Kagan writing for the majority; Justice Thomas dissented. Justice Kagan, after untangling the FCA provisions, concluded that the Government may intervene at any time during civil FCA litigation and dismiss a complaint even though it declined to intervene before unsealing. Polansky slip. op. at 11. All that is needed is for the Government to provide a “reasonable argument” for the dismissal that satisfies the standards of Fed. R. Civ. P. 41(a) governing voluntary dismissals even if the relator objects. Id. at 16.
In Justice Thomas’s dissent, he raised, for the first time, that “there are substantial arguments that the qui tam device is inconsistent with Article II and private relators may not represent the interests of the United States in litigation.” Dissent, slip. op. 7-8. He left open the issue of whether the Government has made a constitutionally allowed “partial assignment.” Id. at 9. Justice Thomas’s view is surprising, especially in light of the other Supreme Court decisions where the Government declined to intervene yet the Court (1) never raised this constitutional argument and (2) issued a ruling interpreting the FCA favorably for relators. Such an example is Cochise Consultancy, Inc. v. United States ex rel. Hunt, 587 U.S.—(2019) where Justice Thomas authored the unanimous decision extending the statute of limitations.
Although Justices Kavanaugh and Barrett, concurred “in full” with the majority Polansky opinion, they nonetheless wrote that the constitutional issue raised by Justice Thomas’ dissent should be considered in “an appropriate case.” With three Justices raising this question, it will be a topic that is carefully examined by counsel, both defense and relator, and litigated in upcoming cases.