In February, the Sixth Circuit in U.S. ex rel. Wall v. Circle C Construction rejected the government’s FCA damages theory that it is entitled to three times the amount of the total contract value, regardless of any value received, because the claim for payment was “tainted” by the underlying legal violation. In a “Feature Comment” published in The Government Contractor, C&M attorneys explore the origins of the tainted claim damages and plaintiffs’ increasing reliance on the theory in cases where the market value of the harm is not readily calculable such as in cases of fraudulent inducement and small business fraud.
Last week, in a case that will have a significant impact on the government contracting industry, the Supreme Court granted certiorari in Universal Health Services, Inc. v. United States ex rel. Escobar, a False Claims Act (FCA) case from the First Circuit. By agreeing to hear the case, the Court appears set to resolve a circuit split over the implied certification theory of legal falsity under the FCA. Specifically, the court will consider whether (1) the implied certification theory of legal falsity under the FCA is viable; and (2) if the theory is viable, a government contractor’s reimbursement claim can be legally false when the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment but is deemed “material” to the government’s decision to pay the claim.
At present, eight of the thirteen circuits have accepted the implied certification theory in some form, with only the Seventh Circuit rejecting the theory outright, but the eight circuits have reached varying conclusions about the appropriate scope of the theory. The Sixth and Second Circuits have held that liability for a legally false reimbursement claim requires that the contract, statute, or regulation expressly state that it is a prerequisite of payment. On the other hand, the Fourth, First, and D.C. Circuits have generally held that a government contractor’s reimbursement claim can still be legally false, and thus subject it to FCA liability, even if the provider failed to comply with a contract, statute, or regulatory provision that does not state that compliance is a prerequisite of payment. Under this theory, a contractor can face liability even if it failed to comply with one of the technical requirements imposed by the contract, so long as that requirement was somehow material to payment. The Court’s decision will have implications for any business that submits claims for payment to the federal government, and will likely eliminate the possibility of different outcomes for attaching FCA liability—under factually identical circumstances—based on where the case is filed.