Earlier this month, the Southern District of New York dismissed the remaining claim in United States ex rel. Kolchinsky v. Moody’s Corp., ruling that Moody’s alleged “false claim” was not material under the standards set in Universal Health Services, Inc. v. United States ex rel. Escobar. The analysis of this case is instructive for other FCA cases, including health care fraud, for the court’s analysis on dismissal of FCA claims on materiality grounds. The court had previously dismissed the Relator’s claims in February but gave leave for him to amend his complaint with respect to claims about certain inaccuracies in Moody’s Ratings Delivery Service. The Relator filed an amended and somewhat more specific complaint thereafter, alleging that Moody’s provided ratings it knew to be inaccurate directly to its subscribers, which included the federal government.
The court reiterated the Second Circuit’s holding in Bishop v. Wells Fargo & Co. that the “FCA was not intended to police general regulatory noncompliance,” and “ does not encompass those instances that are irrelevant to the government’s disbursement decisions.” In Moody’s case, the court pointed to its previous opinion from February, showing that numerous inquiries by the federal government were initiated into Moody’s alleged ratings inaccuracies well before the limitation period cutoff in summer 2009. Using these inquiries as proof that the government knew that “certain requirements were violated” yet continued to pay, the court cited Universal Health for the conclusion that Moody’s ratings inaccuracies were not material for the purposes of the False Claims Act.
More specifically, the court formulaically stated that because the government was “on notice of the very facts relied upon to support the fraud alleged . . . [and] nonetheless continued to pay Moody’s for its credit-ratings products each year [these facts] plead [the Relator] out of court because, when the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”