The False Claims Act does not define what types of claims are “false.” Consequently, one of the key battles at the motion to dismiss stage in FCA litigation is whether the conduct alleged by the plaintiff can give rise to a “false” claim as a matter of law. For the past decade, courts addressing this issue have held that the FCA recognizes two categories of actionable false claims – factually false claims and legally false claims. Courts have also recognized that there are at least two subcategories of legally false claims – express certification claims and implied certification claims. A factually false claim is one that involves an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided. A legally false claim is one that is not factually false (i.e., not false on its face), but is false for an extrinsic legal, regulatory or contractual reason; for example, by incorrectly certifying compliance (either expressly or impliedly) with a statute, regulation, or contractual obligation that is a prerequisite to government payment.
In a pair of recent cases, the First Circuit held that this categorical framework for determining falsity is too restrictive and rejected it. See United States ex rel. Hutcheson et al. v. Blackstone Medical, Inc., 2011 WL 2150191 (1st Cir. June 1, 2011); New York ex rel. Westmoreland et al. v. Amgen, Inc. et al., 2011 WL 2937420 (1st Cir. July 22, 2011). In doing so, the First Circuit observed that “[t]he text of the FCA does not refer to ‘factually false’ or ‘legally false’ claims, nor does it refer to ‘express certification’ or ‘implied certification.” Blackstone, at *7. The First Circuit reasoned that “[j]udicially-created categories sometimes can help carry out a statute’s requirements, but they can also create artificial barriers that obscure and distort those requirements.” Blackstone, at *7. According to the First Circuit, “in enacting the FCA, ‘Congress wrote expansively, meaning to reach all types of fraud, without qualification, that might result in financial loss to the Government.’” Blackstone, at *12.
In the First Circuit’s view, the appropriate test to determine falsity under the FCA is a “fact-intensive” and “context-specific” inquiry into whether the claims presented to the government misrepresented that there had been compliance with a material precondition of payment recognized by the particular government program at issue. Amgen, at *6; Blackstone at *13. In Blackstone, which involved the federal FCA, the First Circuit applied this new falsity test to claims allegedly tainted by kickbacks under the federal Medicare program. In Amgen, which involved analogous state FCAs in New York, Massachusetts, California, Georgia, Illinois, Indiana, and New Mexico, the First Circuit applied the new test to allegedly kickback tainted claims under the state Medicaid programs in those seven states.
This week, we are publishing a series a posts discussing the First Circuit’s recent Blackstone and Amgen decisions. Parts II and III will examine the application of the First Circuit’s new falsity test to the claims at issue in the Blackstone and Amgen cases. Part IV will explore the potential consequences of the First Circuit’s new falsity test and will suggest measures companies may want to consider to minimize FCA exposure. Part V will discuss why, and how, the U.S. Supreme Court should resolve the circuit split created by the First Circuit.