Source: https://www.arnoldporter.com/en/perspectives/publications/2018/09/why-escobar-materiality-rule-applies-to-ca-fca
Timestamp: 2020-07-04 05:08:13
Document Index: 793302922

Matched Legal Cases: ['§ 3279', '§ 12651', '§ 3729', '§ 12650', '§ 3729', '§ 69']

Why Escobar Materiality Rule Applies To California FCA | Publications and Presentations | Arnold & Porter
See 31 U.S.C. § 3279(a); Cal. Gov. Code § 12651(a); see also Universal Health Servs. v. U.S. ex rel. Escobar (Escobar), 136 S. Ct. 1989, 1996 (2016); City of Pomona v. Super. Ct. (Pomona), 89 Cal. App. 4th 793, 802 (Cal. Ct. App. 2001).
See S.F. Unified Sch. Dist. ex rel. Contreras v. Laidlaw Transit, Inc. (Laidlaw), 182 Cal. App. 4th 438, 454 (Cal. Ct. App. 2010) (looking to federal cases interpreting the FCA). Congress amended the FCA in 2009 to define "material" as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." 31 U.S.C. § 3729(b)(4). The following year, the California legislature amended the CFCA to adopt a nearly-verbatim definition. Cal. Gov. Code § 12650(b)(4) ("'Material' means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money, property, or services.").
136 S. Ct. 1989.
Id. at 1996, 2002–03, 2004 n. 6. See cases cited infra notes 20–22.
United States of Am. ex rel. Mei Ling et al. v. City of Los Angeles et al. (Ling), No. CV 11-974 PSG (JCX), 2018 WL 3814498, (C.D. Cal. July 25, 2018).
U.S. ex rel. Berge v. Trs. of Univ. of Ala., 104 F.3d 1453, 1459 (4th Cir. 1997); San Francisco Unified School District ex. rel Contreras v. First Student, Inc., 224 Cal.App.4th 627, 638 (Cal. Ct. App. 2014).
Escobar, 136 S. Ct. 1989. Though Escobar discussed materiality in the context of an implied certification case, its materiality requirements have since been extended to all types of FCA cases. See, e.g., Bishop v. Wells Fargo & Co., 870 F.3d 104, 106 (2d Cir. 2017) (applying the Escobar materiality standard to an express false certification case); United States ex rel. Forcier v. Computer Sciences Corp., 12 Civ. 1750 (DAB), 2017 WL 3616665 (S.D.N.Y. Aug. 10, 2017) ("{w}hether asserted on a theory of factual falsity or legal falsity, a false claim must have influenced the government's decision to pay); United States v. Strock, No. 15-CV-0887-FPG, 2018 WL 647471, at *11 (W.D.N.Y. Jan. 31, 2018) (concluding "that Escobar's materiality standard applies to all of Plaintiff's claims brought under § 3729(a)(1)(A) regardless of whether those claims were brought under a theory of implied false certification, express false certification, or fraudulent inducement.").
Id. at 1996, 2002, 2004 n. 6.
Id. at 2002–03.
Id.; see also State v. Altus Fin., S.A. (Altus Finance), 116 P.3d 1175, 1186 (Cal. 2005) ("{S}pecific remedies under the CFCA are available not for any fraud against the government but rather one which leads to potential or actual injury to the public treasury and the taxpayer.").
Id. at 2002 (quoting 26. R. Lord, Williston on Contracts (4th ed. 2003) § 69:12, p. 549).
Id. at 1996 ("What matters is not the label that the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government's payment decision.").
Id. at 2004 n. 6.
See cases cited in infra note 20.
See, e.g., U.S. ex rel. Berg v. Honeywell Int'l, Inc., No. 17–35083, 2018 WL 3237518 (9th Cir. July 3, 2018) (affirming summary judgement for defendant partially on materiality grounds where government continued to pay claims up to five years after it became aware of fraud allegations and up to four years after it conducted its own audit); U.S. ex rel. Spay v. CVS Caremark Corp., 875 F.3d 746 (3d Cir. 2017) (affirming summary judgement for defendants on materiality grounds where the government had regularly paid similar claims despite its knowledge that the some information in those claims was inaccurate); U.S. ex rel. Petratos v. Genentech Inc., 855 F.3d 481 (3d Cir. 2017) (affirming dismissal of complaint on materiality grounds where the government did not withdrawal approval of a drug, approved three more indications of the drug, declined to intervene in the FCA action, and took no other action against the defendant after becoming aware of fraud allegations); U.S. ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645 (5th Cir. 2017) (reversing jury verdict for relator and granting judgment as a matter of law to defendant on materiality grounds where the government continued to pay claims after becoming aware of and investigating fraud allegations, refused to intervene in the FCA action, and took no other regulatory action against the defendant, and where eight of nine states refused to intervene in parallel actions under state false claims acts); Abbott v. BP Expl. & Prod., Inc., 851 F.3d 384 (5th Cir. 2017) (affirming summary judgement for defendant on materiality grounds where the government had not taken any action against the defendant after Congress had conducted hearings and a federal agency had conducted an investigation and issued a report finding the defendant to be in compliance with the regulations at issue); U.S. ex rel. Kelly v. Serco, Inc., 846 F.3d 325 (9th Cir. 2017) (affirming summary judgement for defendant partially on materiality grounds where the government continued to pay claims, despite its knowledge that the defendant was in violation of certain requirements); U.S. ex rel. McBride v. Halliburton Co., 848 F.3d 1027 (D.C. Cir. 2017) (affirming summary judgment for defendants on materiality grounds where the government continued to pay claims and did not disallow any charged costs after becoming aware of and investigating fraud allegations); U.S. ex. rel. D'Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016) (affirming dismissal of complaint partially on materiality grounds where the government continued to pay clams after becoming aware of fraud allegations); U.S. v. Sanford-Brown, Ltd., 840 F.3d 445, 447 (7th Cir. 2016) (affirming summary judgment for defendant partially on materiality grounds where the government had "already examined" the alleged misconduct "multiple times over and concluded that neither administrative penalties nor termination was warranted"). Cf. United States ex rel. Rose v. Stephens, No. 17-15111, 2018 WL 4038194 (9th Cir. Aug. 24, 2018) (concluding that a reasonable trier of fact could find that noncompliance was material when considering evidence that compliance was not only an express condition of payment, but also the magnitude of the alleged violation and the fact that the agency had imposed fines in other instances of noncompliance); U.S. ex rel. Badr v. Triple Canopy, Inc., 857 F.3d 174 (4th Cir. 2017) (reversing dismissal and reinstating complaint where the government did not renew its contract with the defendant and immediately intervened in the FCA litigation after becoming aware of fraud allegations); U.S. v. Luce, 873 F.3d 999 (7th Cir. 2017) (reversing summary judgment for the government, and affirming finding of materiality where the government continued to issue loans to the defendant but also immediately brought successful debarment proceedings against defendant after it became aware of fraud allegations). But see U.S. ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890 (9th Cir. 2017) (reversing dismissal and reinstating complaint where the government continued to pay claims and did not withdrawal drug approval after becoming aware of fraud allegations), petition for cert. filed (U.S. Jan. 3, 2018) (No. 17–936).
U.S. ex. rel. Durkin v. Cty. of San Diego (Durkin), No.: 15cv2674-MMA (WVG), 2018 WL 3361148, at *5 (S.D.C.A. July 10, 2018) ("The Supreme Court construed the scienter requirement together with the materiality requirement to mean that a claimant must not only know about a violation of a particular statutory or regulatory provision, but that the claimant must also know that compliance with that provision is material to the government's payment decision."); U.S. v. Salus Rehab. LLC (Salus), 304 F.Supp.3d 1258, 1262 (M.D.F.L. 2018) ("In other words, the False Claims Act requires the relator to prove both that the non-compliance was material to the government's payment decision and that the defendant knew at the moment the defendant sought payment that the non-compliance was material to the government's payment decision.").
No. CV 11-974, 2018 WL 3814498, at *22 (C.D. Cal. July 25, 2018).
89 Cal. App. 4th 793.
Id. (quoting U.S. ex rel. Berge v. Trs. of Univ. of Ala., 104 F.3d 1453, 1459 (4th Cir. 1997)).
224 Cal. App. 4th 627, 638 (Cal. Ct. App. 2014).
Id. at 630–31.
Id. at 642 (citing federal cases).
Id. at 644–45. The Court did note, however, "{A} showing in a motion for summary judgement or at the trial that the alleged breach would not have affected the payment decision will defeat a CFCA claim." Id. at 645 (citing Laidlaw, 182 Cal. App. at 456).
U.S. v. Gatan, Inc. (Gatan), No. 2:12–cv–00106–MCE–CKD, at *4–5 (E.D.C.A. Nov. 27, 2017), appeal docketed sub nom., Bailey, et al. v. Gatan, Inc., No. 17-17530 (9th Cir. Dec. 22, 2017); U.S. v. Somnia, Inc., No. 1:15–cv–00433–DAD–EPG, at *1–2, 8–9 (E.D.C.A. Feb. 2, 2018). In a third case, United States v. Boston Sci. Corp., No. 11-CV-2453 (JNE/SER), 2017 WL 3732099, at *5 n.2 (D. Minn. Aug. 29, 2017), the court applied an identical materiality standard under the CFCA and FCA, but noted that "{t}he parties agree that analysis of Higgins' second claim, which alleges violation of the California False Claims Act, should be consistent with an analysis of the federal claim."
E.g., Amicus Brief of the Cal. Attorney Gen. at *4, L.A. Cty. Metro. Transp. Auth. v. Parsons-Dillingham Metro Rail Constr. Manager Joint Venture, No. B255450, 2018 WL 1044591 (Cal. App. 2 Dist. Feb. 26, 2018) {hereinafter MTA Amicus Brief}; Amicus Brief of the Cal. Attorney Gen. at *5–8, Overaa v. Super. Ct. of Cal. for the Cty. of Alameda, No. A152801, 2017 WL 6371761 (Cal. App. 1 Dist. Dec. 5, 2017) {hereinafter Overaa Amicus Brief}.
MTA Amicus Brief at *9–10; Overaa Amicus Brief at *10.
L.A. Cty. Metro. Transp. Auth. v. Parsons-Dillingham Metro Rail Constr. Manager Joint Venture (MTA), No. B255450, 2018 WL 1044591, at *6 n. 11 (Cal. App. 2 Dist. Feb. 26, 2018) ("In its answer to the amicus brief {the defendant} explains that {Escobar} was decided after the federal circuit opinions upon which the Contreras court relied and points out, as discussed, that Escobar made clear the actual effect of an alleged false statement is 'very strong evidence' of whether that statement was material." (citation omitted)). Although the MTA Court affirmed the judgment for the defendant on falsity grounds, it stated that it alternatively could have rested its decision on materiality grounds. MTA, No. B255450, at *9 n. 16 (citing Escobar, 136 S. Ct. at 2002–03).
Cal. R. 8.1115(a).
See Altus Finance, 116 P.3d at 1184 ("{T}he CFCA 'is patterned on similar federal legislation' and it is appropriate to look to precedent construing the equivalent federal act." (citations omitted)); Pomona, 89 Cal. App. 4th at 802 ("Given the lack of California authority and the very close similarity of {the CFCA} to the {FCA}, it is appropriate to turn to federal cases for guidance in interpreting the {CFCA}.").