Source: https://www.contractorsperspective.com/tag/implied-certification/
Timestamp: 2019-04-19 07:22:42+00:00

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Contractors are now familiar with the Supreme Court’s June 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar [PDF]. That decision recognizes False Claims Act liability for implied false certifications. But it also holds that FCA liability is available only when the false statement or omission is “material” to the Government’s decision to pay a claim. Our discussion of Escobar is available here.
Over the last 18 months, courts across the country have been asked to determine the impact of the Escobar decision. Ten of the eleven U.S. Circuit Courts of Appeal have interpreted Escobar. Numerous U.S. District Courts have applied Escobar in resolving pre-trial motions. Cases based on “garden-variety breaches of contract or regulatory violations” are being thrown out. Even jury verdicts are being overturned for insufficient evidence of materiality. There is one inescapable conclusion from these post-Escobar decisions: materiality matters.
The Supreme Court’s unanimous decision in Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7 (U.S. June 16, 2016), upholds the viability of the implied certification theory of False Claims Act liability. But it also makes cases arising from minor instances of noncompliance much harder to prove. The Court held that a knowing failure to disclose a violation of a material statutory, regulatory, or contractual requirement can create False Claims Act liability. The requirement need not be an express condition of payment, but it must be material to the Government’s decision to pay.
Those hoping that the Court would eliminate implied certification altogether will be disappointed with the decision. It opens up the possibility of new False Claims Act cases in the Seventh Circuit and in other jurisdictions that had rejected the implied certification theory or limited its application to conditions of payment. Some cases that might have been thrown out on a motion to dismiss might stand a better chance of surviving through discovery and trial.
The Court nevertheless takes strong steps to limit misuse of the implied certification theory. According to the opinion in Escobar, liability under the implied certification theory can be imposed only when two conditions are satisfied. First, the claim for payment must make “specific representations about the goods or services provided.” An invoice that makes no affirmative statement about the quality of a contractor’s goods or services cannot be the basis for an implied certification.
In some courts in the United States today, a government contractor or a healthcare provider seeking reimbursement from a federal program can violate the False Claims Act even when its work is satisfactory and its invoices are correct. Under the theory of “implied certification,” a minor instance of non-compliance with one of the thousands of applicable statutes, regulations, and contract provisions can be the basis for a federal investigation, years of litigation, as well as fines, penalties, suspension and debarment, even imprisonment of company personnel.
This week, the Supreme Court heard oral arguments in Universal Health Services, Inc. v. United States ex rel. Escobar, Docket No. 15-7, a case involving the viability of the implied certification theory. Here, we look at the questions posed during oral argument to see if we can infer how the Court might resolve the case.
The Supreme Court agreed to consider two questions posed in Escobar. First, the Court agreed to address the current split in the circuits as to the viability of the implied certification theory. The First Circuit’s decision in United States ex rel. Escobar v. Universal Health Services, Inc., 780 F.3d 504 (1st Cir. 2015), broadly adopts implied certification. The Seventh Circuit’s decision in United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015), firmly rejects it.
FCA decision a silver lining for KBR, but what about everyone else?
Is every routine contract dispute a potential false claim? Is it a false claim to adopt an interpretation of an ambiguous contract provision that was the subject of debate within the company? As a matter of law and common sense, the answer to these questions must be “no.” But Chief Judge Royce Lamberth’s August 3 decision in United States v. Kellogg Brown & Root Services, Inc., No. 10-cv-530 (D.D.C. Aug. 3, 2011) [pdf], casts sobering doubt on this answer.

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