By Jennifer Freel, Laura M. Kidd Cordova, & Bethany Pickett Shah
The United States Supreme Court recently granted certiorari in two cases from the Seventh Circuit that will finally resolve a long-running split on the question of “science” under the False Claims Act (FCA)—that is, whether a defendant can “with “knowingly” violates the FCA if the relevant legal requirement is unclear and the defendant’s conduct is otherwise “objectively reasonable.” How do courts answer this question? United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway, Inc. could significantly affect businesses and individuals potentially subject to FCA investigations or prosecutions.
A defendant can only violate the FCA if the defendant acted “knowingly.” The law itself provides that this requirement of knowledge can be met by actual knowledge, willful ignorance, or reckless disregard; it is not necessary that the defendant have specific intent to defraud the government. However, due to the complexity of federal laws and regulations, it is common for defendants to claim that their interpretation of government law is reasonable and therefore their actions fail to meet the requirement of legal knowledge. The question presented to courts, then, is whether defendants can knowingly violate the FCA if their conduct was “reasonably reasonable” in light of prevailing law, regardless of their subjective intent.
At the Supervalu and Safeway, panels of the Seventh Circuit split, adopting the objective reasonableness standard, holding that subjective intent is irrelevant as long as the defendant’s conduct was objectively reasonable—even if the defendant’s interpretation of the law is ultimately found to be erroneous—and there is no “authority.” guidance” from a court or agency that would have alerted the defendant that their interpretation was incorrect. Both the Eighth and D.C. Circuits have adopted positions similar to the Seventh Circuit.
In contrast, the Sixth, Ninth, Tenth, and Eleventh Circuits have held that a court must ask whether a defendant subjectively knew or should have known that his conduct violated a statute or regulation.
The government, for its part, argues against adopting an objective reasonableness standard in both cases. Its position is that subjective intent must be relevant: a defendant cannot escape FCA liability by asserting a reasonable (but incorrect) interpretation of the governing rules if the defendant did not take that interpretation at the time of the relevant conduct.
Which of these interpretations the court accepts will have a significant impact on how litigants approach FCA cases – whether the case is based on objective arguments about how the law should be interpreted or on factual inquiries about the status quo. The subjectivity of the accused’s mind is reduced. Businesses and companies seeking to protect themselves from FCA liability should be prudent in responding to the Court’s decision. The Jackson Walker team is ready to advise clients on how to address these critical questions.
The views expressed are those of the authors and do not necessarily reflect the views of the company, its customers, or any of its affiliates or affiliates. This article is for informational purposes only and does not constitute legal advice. For questions related to the False Claims Act, please contact Jennifer FreelLaura M. Kidd Cordova, Bethany Pickett Shah, or member White Street Investigation & Defense usage
Jennifer S. Freel is a former Assistant United States Attorney for the Western District of Texas. They provide advice to businesses and individuals being investigated by the government and conduct internal audits for companies seeking an independent party. He also represents clients in civil disputes at the pretrial, trial and appellate levels in state and federal court. He is an elected Fellow of the Texas Bar Foundation, a member of the Board of Directors of the Texas Supreme Court Historical Society, past president of the Criminal Law Section of the Federal Bar Association, and past president of the Austin Chapter of the Federal Bar. Association. He has been featured in Texas Attorneys for Prosecution: White-collar Crime and Government Investigations by Chambers USA: America’s Leading Lawyers for Business from 2021, and was named in The best lawyers in America for Criminal Defense: White Collar (Austin) in 2022.
Laura M. Kidd Cordova He is a former assistant chief of the fraud division of the criminal division of the United States Department of Justice. He manages sensitive internal investigations, leads high-profile government investigations, and defends clients in complex criminal and civil cases. He has extensive experience representing clients throughout the health care industry in criminal and civil False Claims Act matters involving claims of health care fraud, violations of the Anti-Kickback Act, and procurement fraud. Laura was recognized in the The best lawyers in America for Commercial Litigation (2023) and Lawdragon 500 Future Litigators in America (2022).
Bethany Pickett tried four federal jury trials and presented oral argument before the United States Court of Appeals for the Fifth Circuit. Prior to joining the firm, Bethany served as a Special Assistant United States Attorney in the Eastern District of Texas, representing the United States in complex criminal and civil cases. Before becoming a federal prosecutor, Bethany worked at the White House as an Assistant Deputy Counsel to the President and at the Department of Justice as a Counsel in the Civil Rights Division and in the Office of Legal Policy. In 2019, she received the Attorney General’s Award for Distinguished Service for her work at the United States Department of Justice.