# U.S. ex rel. Schutte v. SuperValu

Note: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
UNITED STATES ET AL. EX REL. SCHUTTE ET AL. v. SUPERVALU INC. ET AL. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT No. 21–1326. Argued April 18, 2023—Decided June 1, 2023
In these cases, petitioners have sued retail pharmacies under the False Claims Act (FCA), 31 U. S. C. §3729 et seq. The FCA permits private parties to bring lawsuits in the name of the United States against those who they believe have defrauded the Federal Government, §3730(b), and imposes liability on anyone who “knowingly” submits a “false” claim to the Government, §3729(a). Here, petitioners claim that respondents—SuperValu and Safeway—defrauded two federal benefits programs, Medicaid and Medicare. Both Medicaid and Medicare offer prescription-drug coverage to their beneficiaries, and both often cap any reimbursement for drugs at the pharmacy’s “usual and customary” charge to the public. But, according to petitioners, SuperValu and Safeway for years offered various pharmacy discount programs to their customers—yet reported their higher retail prices, rather than their discounted prices. Petitioners also presented evidence that the companies believed their discounted prices were their usual and customary prices and tried to prevent regulators and contractors from finding out about their discounted prices. In sum, petitioners claim that the evidence shows that respondents thought their claims were inaccurate yet submitted them anyway.
Held: The FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed. Pp. 8–17.
(a) The FCA’s text and common-law roots demonstrate that the FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs. The FCA sets out a three-part definition of the term “knowingly” that largely tracks the traditional common-law scienter requirement for claims of fraud: Actual knowledge, deliberate ignorance, or recklessness will suffice. See §3729(b)(1)(A). Each term focuses on what the defendant thought and believed: “Actual knowledge” refers to what the defendant is aware of. “Deliberate ignorance” encompasses defendants who are aware of a substantial risk that their statements are false, but intentionally avoid taking steps to confirm the statements’ truth or falsity. And “[r]eckless disregard” captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway. These forms of scienter track the common law of fraud, which generally focuses on the defendant’s lack of an honest belief in the statement’s truth. Restatement (Second) of Torts §526, Comment e. The focus is on what a defendant thought when submitting a claim—not what a defendant may have thought after submitting it. Pp. 8–11.
(b) Even though the phrase “usual and customary” may be ambiguous on its face, such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false. That is because the Seventh Circuit did not hold that respondents made an honest mistake about that phrase; it held that, because other people might make an honest mistake, defendants’ subjective beliefs became irrelevant to their scienter. Respondents make three main arguments to support that theory, but the Court finds none to be persuasive.
Second, the companies’ reliance on Safeco’s interpretation of the common-law definitions of “knowing” and “reckless” is misplaced, because Safeco interpreted a different statute with a different mens rea standard. 551 U. S., at 52. In any event, Safeco did not purport to set forth the purely objective safe harbor that respondents invoke. “Nothing in Safeco suggests that [one] should look to facts”—or, here, legal interpretations—“that the defendant neither knew nor had reason to know at the time he acted.” Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U. S. 93, 106.
Finally, respondents contend their conduct is not actionable according to the common law of fraud incorporated by the FCA because common law fraud does not encompass misrepresentations of law. Respondents then posit that their alleged claims were false only because their claims’ falsity turned in part on the meaning of the phrase “usual and customary”—which, they argue, means that their claims would be false only as misrepresentations of law. But that does not follow. Even assuming that the FCA incorporates some version of this rule, respondents did not make a pure misrepresentation of law; they did not say, for example, “this is what ‘usual and customary’ means.’ ” Rather, they made a statement that implied facts about their prices, essentially saying “this is what our ‘usual and customary’ prices are.” Petitioners’ case thus makes out a valid fraud theory even under respondents’ common-law rule. Pp. 11–16.
No. 21–1326, 9 F. 4th 455; No. 22–111, 30 F. 4th 649, vacated and remanded.
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