On June 1, 2023, a unanimous U.S. Supreme Court ruled that whether an entity "knowingly" submitted a false claim to the government in violation of the Civil False Claims Act (FCA) depends on whether the defendant subjectively knew, or believed, its statements or representations to the government in connection with the claims for payment were truthful or accurate—not on what an objectively reasonable person may have known or believed.
The FCA imposes liability on anyone who "knowingly" submits a false claim for payment or approval to the government. To succeed on an FCA claim, the government or qui tam whistleblower plaintiff must show (1) that the claim was false and (2) that the defendant knew the claim was false.1 The knowledge element can be satisfied by establishing "actual knowledge" of falsity, "deliberate ignorance," or "reckless disregard" of the truth.2
In United States ex rel. Schutte v. SuperValu, Inc., the Supreme Court ruled that the knowledge test will be assessed based on "what the defendant knew when presenting the claim," not "post hoc interpretations that might have rendered their claims accurate."3
This new ruling resolves confusion among various federal courts concerning how the knowledge test should be evaluated when reviewing potential FCA violations. Previously, five circuit courts had held that a company doing business with the government did not knowingly make a false claim if the company's statements, or representations, in question would have been considered accurate under a reasonable interpretation of the governing law, even if the company subjectively knew that the claim was false.4 SuperValu eliminates the objective interpretation of the FCA's knowledge element. Courts now will only consider whether a company subjectively knew its statements, or representations, to the government relating to its claims for payment were false when made. The Supreme Court held that the knowledge test can be satisfied if it can be shown that the defendant:
- actually knew that its claims to the government were not accurate when they were made;5
- was aware of a substantial risk that its claims were not accurate and intentionally avoided learning whether its claims were accurate;6 or
- was aware of a substantial and unjustifiable risk that its claims were false but submitted the claims for payment anyway.7
Unfortunately, the Court did not provide guidance to explain what risks may be considered "substantial and unjustifiable," leaving it to future FCA decisions to define those terms in this context.
Key Takeaways for Government Contractors
The SuperValu decision is relevant to any company doing business with the federal government because there is always potential FCA exposure when government or qui tam plaintiffs painstakingly assess the accuracy of a company's statements or representations made to the government, such as in connection with the submission of claims for payment under contracts, grants, and federal programs. Going forward, government and qui tam plaintiffs can establish the FCA's knowledge standard by alleging that the company subjectively knew its statements regarding its products, services, costs, or compliance with applicable regulations or requirements were false when made. Defendants no longer will be able to escape FCA liability (or prevail on early motions to dismiss) by arguing, in hindsight, that their statements or representations were objectively reasonable.8
To minimize potential FCA exposure in the wake of SuperValu, companies should carefully evaluate the content of their statements and representations to the government based on all information available to the company to ensure that they are accurate. This can be difficult at times if the regulations or requirements at issue are ambiguous. Creating a contemporaneous record, documenting the company's understanding of/belief in the accuracy of its representations, will be crucial in defeating the government's or qui tam plaintiffs' efforts to establish the FCA's knowledge prong in what now necessarily will be a fact-intensive inquiry at summary judgment or later at trial. Companies should be particularly mindful of their internal and external communications concerning the accuracy of the statements or representations in question, as this certainly will be a major focus in assessing the company's contemporaneous knowledge.
Footnotes
1. 31 U.S.C. § 3729(a)(1)(A).
2. United States ex rel. Schutte v. SuperValu, Inc., No. 21—1326, slip op. at 9 (June 1, 2023).
3. United States ex rel. Schutte v. SuperValu, Inc., No. 21—1326, slip op. at 11 (June 1, 2023).
4. United States ex rel. Schutte v. SuperValu, Inc., 9 F.4th 455 (7th Cir. 2021); United States ex rel. Streck v. Allergan, 746 F. App'x 101, 106 (3d Cir. 2018); United States ex rel. McGrath v. Microsemi Corp., 690 F. App'x 551 (9th Cir. 2017); United States ex rel. Donegan v. Anesthesia Assocs. of Kan. City, 833 F.3d 874 (8th Cir. 2016); United States ex rel. Purcell v. MWI Corp., 807 F.3d 281 (D.C. Cir. 2015).
5. SuperValu, No. 21—1326, slip op. at 16; see 31 U.S.C. § 3729(b)(1)(A)(i).
6. SuperValu, No. 21—1326, slip op. at 16; see 31 U.S.C. § 3729(b)(1)(A)(ii).
7. SuperValu, No. 21—1326, slip op. at 16; see id. § 3729(b)(1)(A)(iii).
8. SuperValu, No. 21—1326, slip op. at 16.
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