In a recent opinion, the Seventh Circuit joined its sister circuits in holding that under the FCA, a defendant’s conduct must proximately cause injury to the government in order to incur liability for that injury. United States v. Luce, No. 16-4093, 2017 WL 4768864 (7th Cir. Oct. 23, 2017). This decision resolves a circuit split that arose in 1992 when the Seventh Circuit parted company with the Third Circuit—the only other circuit at that time to have addressed the issue. At that time, the Seventh Circuit held that the FCA required only a “but-for” standard of causation, meaning that a defendant could be held liable under the FCA even if the Government’s loss was not caused directly by the defendant’s conduct so long as the government would not have suffered the loss if not for the defendant’s conduct. In addition to the Third Circuit, the other circuits that have since addressed this issue—the Fifth, D.C., and Tenth Circuits—have held that the higher standard of “proximate causation” applies to FCA cases.
Seventh Circuit Reconsiders its But-For Standard in Light of Escobar
In Luce, the defendant argued the Seventh Circuit’s but-for test was no longer viable following the Supreme Court’s declaration in Universal Health Services, Inc. v. United States ex rel. Escobar, ––– U.S. ––––, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016) that common law fraud requirements should be applied in FCA cases because common law fraud calls for proximate causation. The Seventh Circuit noted that nothing in Escobar addressed the issue of causation or the circuit split and that it dealt instead with the implied certification theory and materiality standards.1 However, the Seventh Circuit stated it was overruling its earlier decision in light of the guidance from the Supreme Court in Escobar, the decisions by other Circuits to adopt a proximate causation standard, and its own revised reading of the statutory language.
Proximate Causation Standard States that Defendant Must Cause Government’s Loss
The proximate causation standard requires that the defendant’s action be both a cause in fact and a legal cause of the government’s loss. To be a cause in fact, the defendant’s conduct must be a “material and substantial factor in bringing about” the government’s losses. To be a legal cause, the losses suffered by the government must be “within the foreseeable risk of harm” created by the defendant’s conduct. See Luce, No. 16-4093 at *11.
Decision Raises the Bar for the United States and FCA Relators in the Seventh Circuit
Going forward plaintiffs seeking to bring FCA cases in the Seventh Circuit will have to meet the same high bar with respect to causation already called for in other areas of the country, improving defendants’ chances of defeating such actions.