Goldberg Kohn Litigation Group Chair David Chizewer is quoted in "SCOTUS Tosses 7th Cir. FCA Scienter rulings, Saying 'Subjective Beliefs' Matter," published in the June 2, 2023, edition of WestLaw Today.
The article concerns the U.S. Supreme Court's revival of two False Claims Acts suits, giving the whistleblowers a chance to show whether pharmacy operators subjectively believed they were submitting inaccurate claims to Medicare and Medicaid for prescription drugs when they omitted customer discounts. United States et al. ex rel. Schutte et al. v. SuperValu Inc. et al., No. 21-1326; United States et al. ex rel. Proctor v. Safeway Inc., No. 22-111, (U.S. June 1, 2023).
The June 1, 2023, decision vacated and remanded two 7th U.S. Circuit Court of Appeals rulings that SuperValu Inc. and Safeway Inc. did not submit false claims "knowingly," or with scienter, under the FCA, 31 U.S.C.A. § 3729(b)(1)(A), when they used an "objectively reasonable" interpretation of the unclear regulatory term "usual and customary price."
In the unanimous opinion, authored by Justice Clarence Thomas, the court sided with whistleblowers Tracy Schutte, Michael Yarberry and Thomas Proctor, who argued that the FCA requires an inquiry into the defendants' subjective understanding of whether their conduct was legal to determine whether they knowingly submitted false claims.
David Chizewer, who is not involved in the cases, is quoted as saying that going forward, "evidence of a contractor's efforts to understand how regulations apply to a particular set of facts, and its contemporaneous beliefs about its conduct, will be critical evidence in FCA cases."
David was also interviewed about the U.S. Supreme Court's decision by BloombergLaw and is quoted in "Supreme Court Reopens Fraud Suits Against SuperValu, Safeway."
Ambiguity Doesn't Preclude Liability
The high court said the FCA defines "knowingly" using three standards: "actual knowledge" of falsity; "deliberate ignorance" of whether information is true or false; and "reckless disregard" for whether information is true or false. With all three standards, the focus is on what the defendant thought or believed when presenting the claim, the court said.
The court rejected the 7th Circuit's holding that because other parties could misinterpret the term "usual and customary price," the defendants' subjective beliefs about the phrase were irrelevant to determining if they acted with fraudulent intent when they filed claims with Medicare and Medicaid.
"The FCA's scienter element refers to respondents' knowledge and subjective beliefs — not to what an objectively reasonable person may have known or believed," Justice Thomas wrote.
"Even though the phrase 'usual and customary' may be ambiguous on its face, such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false," Justice Thomas added.
The defendants' and the 7th Circuit's reliance on Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), was misplaced because that decision interpreted a different statute and considered whether a defendant's actions were willful, the opinion said.
"The FCA's scienter standards are plainly satisfied by a defendant's conscious belief that his claims are false," Justice Thomas said.
If the whistleblowers can show the pharmacy operators acted with any of the FCA's three standards of "knowingly," "then it does not matter whether some other, objectively reasonable interpretation of 'usual and customary' would point to respondents' higher prices. For scienter, it is enough if respondents believed that their claims were not accurate," the court said.