FCA Now

This is the second post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure, and highlighting key facets of FCA practice. Today’s post introduces the elements of an FCA Claim. The Basic Elements of an FCA Claim There are several theories of liability under the FCA and the elements of each can vary based on the conduct targeted.  But five elements are generally applicable. First—presentment.  Generally, there must be a claim for payment submitted to the federal government or its agents. A claim can include invoices, requests for reimbursement, or any demand for government funds. An obligation could be royalties due on leases or an overpayment by the government which the contractor has retained. Second—falsity, a claim, a record, or a statement must be false or fraudulent, which can include claims for services not provided or even misrepresentations about compliance with applicable statutes, regulations, or contractual provisions. Third—scienter, the person or entity must have acted “knowingly.” Under the FCA, “knowingly” means actual knowledge, deliberate ignorance, or reckless disregard of the truth or falsity of the information. Fourth—materiality, the falsity must be “material,” meaning it has a natural tendency to influence, or is capable of influencing, the payment or approval of the claim.  Fifth, the government must have been damaged. Falsity, scienter, and materiality all deserve a closer look. Falsity—there are two basic kinds of falsity, factual and legal. A claim is factually false when it asserts incorrect information. For example, a claim for payment for five hundred sheets of metal when only five sheets were delivered is factually false. A claim is legally false where a required condition of payment under a statute, a regulation, or contract is not met. For example, a healthcare provider submits a claim for services that must be provided by a licensed professional, but the service was done by a non-licensed professional. Scienter—an individual must knowingly submit, or cause to be submitted, a claim that is false or misleading. The text of the FCA defines knowing and knowingly as “actual knowledge,” “deliberate ignorance,” or “reckless disregard,” and no specific intent to defraud is required. 31 U.S.C. § 3729. Actual knowledge is direct or explicit awareness of a particular fact or situation. Deliberate ignorance is purposeful avoidance of learning the truth despite a risk of falsity. And reckless disregard is acting despite knowing there is a substantial risk of falsity. In United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023), the United States Supreme Court recently explained that scienter under the FCA refers to an individual’s subjective beliefs—i.e. whether the defendant actually knew the claim was false—not what an objectively reasonable person should have known or believed. Materiality—a crucial component of liability, a false statement or claim must be “material” to the government’s decision to pay or approve a claim. The falsehood must have a natural tendency to influence, or be capable of influencing, the government’s payment decision.  In Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), the United States Supreme Court explained that materiality is a “rigorous” and “demanding” standard. Materiality cannot be found where noncompliance with federal requirements is minor or insubstantial. Moreover, the government cannot simply create materiality by making compliance with a requirement a condition of payment, especially if the government routinely pays a claim despite knowledge of violations. For example, if the government contracts for health services and adds a requirement that contractors buy American-made staplers, but routinely pays claims on the same contracts fulfilled by contractors using foreign staplers, in all likelihood noncompliance with the stapler provision is not material under the FCA. Elements of an FCA Conspiracy Claim A conspiracy to commit a violation of the FCA can also give rise to liability. Conspiracy requires an agreement between two or more persons to commit a violation of the FCA, such as agreeing to submit or cause the submission of false or fraudulent claims to the government. Moreover, the conspirators must have the intent to achieve the objective of the conspiracy, meaning they knowingly agreed to engage in conduct that would defraud the government. Courts diverge on whether damages are required to demonstrate an FCA conspiracy. Elements of an FCA Retaliation Claim The FCA creates a private right of action for whistleblowers who experience retaliation. Unlike other FCA claims, these retaliation claims attach directly to the whistleblower and are not brought on behalf of the United States. To qualify, the whistleblower must first engage in protected activity, such as investigating, reporting, or taking action in furtherance of a potential or actual FCA violation. Second, the whistleblower’s employer must know the whistleblower engaged in protected activity. Third, the whistleblower must suffer an adverse employment action, such as termination, demotion, harassment, or some other form of discrimination. Fourth, there must be a causal connection between the protected activity and the adverse action, meaning the adverse employment decision is taken because of the individual’s involvement in protected FCA-related conduct.

Last week, after fourteen years of litigation, United States ex rel. Schutte v. SuperValu, Inc. arrived at its likely end after the U.S. District Court for the Central District of Illinois rejected relators’ bid for a new trial after a jury returned a defense verdict earlier this year.  Filed in 2011 and unsealed in 2015, SuperValu led to a landmark Supreme Court decision on the FCA scienter requirement in 2023, with SCOTUS holding that scienter turned on a defendant's subjective belief not what an objectively reasonable person may have thought.  After remand, the district court held a three-week jury trial in February 2025.  The jury found in favor of the relators on scienter but concluded there was insufficient evidence of damages, rendering what was ultimately a favorable verdict for the defense. The relators alleged SuperValu violated the FCA by reporting prices to Medicare and Medicaid that were higher than those “usually and customarily” charged to the public.  In particular, the relators alleged that the reported retail prices did not account for discounts that SuperValu regularly applied to the majority of drug sales to the general public.  Relators contended this violated Federal regulations requiring reimbursements paid to pharmacies by Medicare and Medicaid be limited to the “usual and customary” price of the drug as it is offered to the general public. To prove a violation of the FCA, the relators had to prove SuperValu had scienter—that SuperValu knew the claim was false.  SuperValu argued it did not knowingly submit any false claims because it adopted applied objectively reasonable interpretation of “usual and customary” by not including discounts in its reimbursement requests.  The district court and Seventh Circuit had agreed with SuperValu that this defeated the relators’ claims.  SCOTUS, in a unanimous decision, reversed, however, holding that a defendant’s subjective belief of a claim’s falsity was the relevant focus in determining scienter.  SCOTUS explained that a later-developed,  objectively reasonable interpretation could not, on its own, defeat scienter if the defendant did not subjectively believe that interpretation to be true. After remand, relators moved for summary judgment, arguing that SuperValu knew it submitted false claims because it was previously informed its discount prices were the “usual and customary” prices, SuperValu subjectively believed its discounted prices were its “usual and customary” prices, and SuperValu tried to hide its discounted prices from regulators.  The district court granted summary judgment on falsity and materiality, narrowing the jury’s factfinding to scienter and damages.  During trial, the jury was presented with two questions: (1) whether SuperValu knowingly submitted false claims, and (2) whether SuperValu’s false claims resulted in government damages.  On the first question, the jury found SuperValu did knowingly submit false claims to the government.  However, on the second, the jury found the relators failed to prove the false claims damaged the government, and the court entered judgment in favor of the defense. In post-trial motions, relators argued that causation was not a required element of liability under their theory of the FCA violation.  Because the FCA provides for two forms of damages, actual damages and civil penalties assessed on a per-claim basis, the relators argued SuperValu could still be liable for per-claim civil penalties based on the submission of knowingly false claims even absent actual damages.  The district court rejected relators’ arguments, noting that some circuits have adopted a distinction between these two types of liability, but that the Seventh Circuit has not, instead having chosen to “leave [the question] for another day.” United States ex rel. Calderon v. Carrington Morg. Servs., LLC¸ 70 F.4th 968, 978 (7th Cir. 2023).

On June 1, 2023, a unanimous Supreme Court decision sought to clarify the meaning of “scienter” in the FCA context, which deals with the defendant’s knowledge (or lack thereof) that a claim for payment was false and intent to submit the false claim.  See United States ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391 (2023) (“SuperValu”).  There, the Court ruled that “[f]or scienter, it is enough if respondents believed that their claims were not accurate.”  Id. at 1404.  According to the SuperValu decision, only that subjective belief as to the claim’s falsity matters, and whether there is an “objectively reasonable” explanation for the false claim is irrelevant.  Id. at 1399 (“The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.”). While explaining the basis for the decision, Justice Thomas wrote that “the FCA’s standards focus primarily on what respondents thought and believed,” discussing how the three different FCA knowledge standards—actual knowledge, deliberate ignorance, and reckless disregard—each rely on the defendant’s subjective knowledge.  Id. at 1400-01.  Describing “reckless disregard” in the FCA context, Justice Thomas explained that the term “captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway.”  Id. That sentence is already being used to argue that SuperValu heightened the government’s burden when it is attempting to prove reckless disregard—that to establish reckless disregard the government must show that the defendant was, as Justice Thomas described, “conscious of a substantial and unjustifiable risk that their claims are false.”  If courts rely on this as the standard for establishing reckless disregard in the future, it could heighten the government's burden as compared to tests currently used by courts.  For example, in July 2022 the Middle District of Georgia described the reckless disregard standard in the FCA context as when the defendant “knows or has reason to know of facts that would lead a reasonable person to realize that harm like a false claim is the likely result of the relevant act.” United States ex rel. Hockaday v. Athens Orthopedic Clinic, P.A., 616 F. Supp. 3d 1339, 1354 (M.D. Ga. 2022) (quoting Urquilla-Diaz v. Kaplan Univ., 780 F.3d 1039, 1058 (11th Cir. 2015)) (cleaned up). As one example of how defendants are already using the Court’s language, in a June 23 brief to the Western District of Virginia District Court discussing the impact of the SuperValu decision, the defendants in the Miller case contended that “[t]he Supreme Court clarified that the FCA’s ‘reckless disregard’ standard ‘captures defendants who are [1] conscious of a [2] substantial and [3] unjustifiable risk that their claims are false, but submit them anyway.’”  See, e.g., United States ex rel. Miller v. Reckitt Benckiser Group PLC, 1:15-cv-00017, Dkt. No. 149 at 10-11 (W.D. Va. July 7, 2023).  DOJ responded that there is no three-part test to establish reckless disregard, and instead the effect of the SuperValu decision is simply rejecting any argument that the FCA’s scienter element incorporates an objective test.  Id., Dkt. No. 150 at 3.  According to DOJ, the Court was not “establishing new and restrictive criteria” to show reckless disregard, but was merely “summarizing” existing case law.  Id. The Western District of Virginia has not yet made a ruling relevant to these arguments, but the eventual ruling will be one of the first to test a potential new argument available to FCA defendants resulting from the SuperValu decision, and may provide an additional hurdle for the government to prove reckless disregard.