The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we are taking a closer look at recent legal developments involving the FCA. This week, we examine recent court decisions following Escobar that considered the express certification theory of FCA liability.
While Escobar focused on implied certification liability, its guidance as to the FCA’s materiality requirement should apply equally to FCA cases where falsity is premised on an express certification. See U.S. ex rel. Thomas v. Black & Veatch Special Projects Corp., 820 F.3d 1162, 1174 (10th Cir. 2016) (pre-Escobar decision explaining that “[a]lthough express and implied claims differ, both nonetheless share some common elements, including a materiality requirement”); United States v. Fulton Cnty., Ga., 2016 WL 4158392, at *5 (N.D. Ga. Aug. 5, 2016) (post-Escobar decision stating that “[t]he misrepresentation, whether express or implied, must be material to the other party’s course of action”).
In addition, although Escobar did not discuss the parameters of the express false certification theory of liability, it did disavow open-ended FCA liability, remarking that “if the Government required contractors to aver their compliance with the entire U.S. Code and Code of Federal Regulations,” then “failing to mention noncompliance with any of those requirements would always be material,” which is “an extraordinarily expansive view of liability” that the FCA “does not adopt.”
But how courts view the scope of the express certification requirement and whether courts apply the materiality requirement as strongly in express certification cases will be important issues to watch moving forward, as they could curtail the import of Escobar to the detriment of healthcare providers. For instance, in U.S. ex rel. Dresser v. Qualum Corp., 2016 WL 3880763 (N.D. Cal. July 18, 2016), the district court rejected the government’s implied certification claim because the government failed to satisfy Escobar’s materiality standard by generally alleging that it would not have paid defendants’ claims had it known of the alleged noncompliance with Medicare staffing regulations. Yet, the district court allowed the government’s express certification claim to proceed where the defendant certified in a CMS-1500 claim form that it had complied with “all applicable Medicare and/or Medicaid laws, regulations, and program instructions for payment.” In the context of this broad express certification, the district court found the materiality requirement satisfied—without explanation—by the government’s conclusory allegation that it would only pay for sleep tests that complied with the Medicare staffing regulations at issue.
Other courts have denied FCA claims based on broad certifications, like the one at issue in Dresser, which did not reference compliance with the particular requirement the defendant allegedly violated. In U.S. ex rel. Bishop v. Wells Fargo & Co., 823 F. 3d 35, 45-46 (2d Cir. 2016), the Second Circuit rejected an attempt by relators to premise FCA liability on defendant’s broad certifications in a lending agreement of compliance with “any laws or regulations” that “could have any adverse effect” with the agreement. To hold otherwise, the Second Circuit explained, would not “sufficiently cabin” the express certification requirement, as the defendant’s banks are “subject to thousands of laws and regulations that could plausibly affect” the terms of the lending agreement. U.S. ex rel. Tessler v. City of New York, 2016 WL 7335654, at *4 (S.D.N.Y. Dec. 16, 2016), similarly held that a certification of compliance with “applicable implementing” statutes and regulations could not form the basis of an express certification FCA claim because “the representation has to refer to compliance with a particular law.”