The U.S. Supreme Court will hear oral argument on April 19, 2016, in United Health Services v. United States ex rel. Escobar, No. 15-7, a case likely to resolve the current split among federal appellate courts on the so-called “implied certification” theory of liability under the federal False Claims Act (FCA).

The FCA imposes significant financial penalties for “knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval.”1 The FCA also prohibits contractors from making false statements “material to a false or fraudulent claim.”2 The FCA has long been the Government’s favorite enforcement tool against contractors it believes have committed fraud in connection with a federal contract.

The FCA has been fairly uniformly understood to create liability for a contractor who expressly certifies compliance with certain requirements that are material to payment when in fact the contractor has not complied with such requirements. If, for example, a contractor specifically certified compliance with the Service Contract Act, and the contractor was not in fact compliant with that statute, the contractor potentially could face liability for “express” false certification in connection with its sales to the Government.3

The federal appellate courts have divided, however, regarding FCA liability for “implied” false certification—or liability where a contractor is out of compliance with a statute, regulation or contract requirement, but the contractor does not expressly certify such compliance. If, hypothetically, a contractor was required to comply with the Service Contract Act but never specifically certified such compliance, and later it was revealed that the contractor knowingly failed to comply with that statute or any of its numerous associated regulations, the government might rely on the “implied certification” theory to impose FCA liability on the contractor merely for submitting an invoice requesting payment at the time of the non-compliance.

The federal contractor community (including many health care providers) has long complained that implied certification creates undue and unjustified liability—with the potential for the government to escalate minor statutory, regulatory or contractual non-compliances into FCA actions. Last year, the U.S. Court of Appeals for the Seventh Circuit agreed and rejected the theory altogether, writing that it would be “unreasonable for us to hold than an institution’s continued compliance with the thousands of pages of federal statutes and regulations incorporated by reference into the [government contract in question] are conditions of payment for purposes of liability under the FCA.”4 The Seventh Circuit, however, currently holds the minority view. Several federal appellate courts—including the First, Second, Third, Fourth, Sixth, Ninth, Tenth, Eleventh and D.C. Circuits—have recognized at least some form of implied certification liability under the FCA.