Opinion ID: 217885
Heading Depth: 2
Heading Rank: 1

Heading: Implied Conditions of Payment

Text: The district court gave little explanation for its holding that a claim can only be impliedly false or fraudulent for non-compliance with a legal condition of payment if that condition is expressly stated in a statute or regulation. It stated that a claim for payment can be false if submission implies that [the claim] has complied with any preconditions of payment. Hutcheson, 694 F.Supp.2d at 62 (citing United States ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1218 (10th Cir.2008); United States ex rel. Augustine v. Century Health Sys., Inc., 289 F.3d 409, 415 (6th Cir.2002); Mikes, 274 F.3d at 699). It then agreed with the Mikes decision that liability under the implied theory should be restricted to compliance with expressly stated preconditions of payment found in the relevant statute or regulations. Id. (citing Mikes, 274 F.3d at 700). To be clear, the district court held both that implied conditions of payment can only be found in statutes and regulations, and that these sources must expressly state the obligation. We reject both requirements. Blackstone defends this holding in two ways. First, it argues that this court should follow case law from beyond this circuit that it asserts applied this rule. In particular, Blackstone relies on the Second Circuit's decision in Mikes, 274 F.3d 687, the Ninth Circuit's decision in Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir.2010), and the Tenth Circuit's decision in Conner, 543 F.3d 1211. Second, Blackstone argues that a rule contrary to the one adopted by the district court would yield broader FCA liability than Congress intended. It argues that such a rule would encompass all violations of law or regulations by parties that interact with entities that submit claims for government payment. Both of these arguments fail. This court is not bound by the case law Blackstone cites, and the text of the FCA does not exhibit an intent to limit liability in this fashion. Neither party argues that this court or the Supreme Court has expressly spoken to whether a precondition of payment must be explicitly stated in a statute or regulation to give rise to a false or fraudulent claim. Although Hutcheson has invoked the Supreme Court's decision in United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943), and this court's decision in Murray & Sorenson v. United States, 207 F.2d 119 (1st Cir.1953), she has not argued that these cases speak directly to the issue here. These decisions did not distinguish between factual and legal misrepresentations and so had no reason to address the precise source of the government's expectation that the claims at issue in those cases would be unaffected by collusion, see Hess, 317 U.S. at 544-45, 63 S.Ct. 379, and inside tips, see Murray & Sorenson, 207 F.2d at 123-24. It is true that the Second Circuit held in Mikes that implied false certification is appropriately applied only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid. Mikes, 274 F.3d at 700 (first emphasis added). It is also true that the Ninth Circuit used similar, but not identical, language in Ebeid, holding that [i]mplied false certification occurs when an entity has previously undertaken to expressly comply with a law, rule, or regulation. Ebeid, 616 F.3d at 998; see also United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1267 (9th Cir.1996) (stating, in more general terms, that [m]ere regulatory violations do not give rise to a viable FCA violation). Other courts, however, have found that a claim may be false or fraudulent due to an implied representation of compliance with a precondition of payment that is not expressly stated in a statute or regulation. The Tenth Circuit's decision in Conner, upon which Blackstone mistakenly relies, held that for purposes of an implied false certification theory, . . . the analysis focuses on the underlying contracts, statutes, or regulations themselves to ascertain whether they make compliance a prerequisite to the government's payment. Conner, 543 F.3d at 1218 (emphasis added). The Tenth Circuit has found claims false or fraudulent because a defendant failed to comply with the terms of underlying contractual provisions. See Shaw, 213 F.3d at 531-32; see also Lemmon, 614 F.3d at 1170 (finding that a defendant's failure to comply with certain regulations whose requirements were incorporated into a government contract rendered a claim false or fraudulent). The D.C. Circuit also recently held that non-compliance with contract terms may give rise to false or fraudulent claims, even if the contract does not specify that compliance with the contract term is a condition of payment. United States v. Sci. Applications Int'l Corp. (SAIC), 626 F.3d 1257, 1269 (D.C.Cir.2010). In SAIC, the court rejected the defendant's argument that legal preconditions of payment must be expressly designated as such to give rise to false or fraudulent claims. Id. at 1268. It held that nothing in the statute's language specifically requires such a rule and that adopting one could foreclose FCA liability in situations that Congress intended to fall within the Act's scope. Id. In response to the defendant's argument that its holding would overextend liability under the FCA, the court stated that this concern does not call for adopting a circumscribed view of what it means for a claim to be false or fraudulent, but rather calls for strict enforcement of the Act's materiality and scienter requirements. Id. at 1270. We agree. Like the rule advanced by the defendant in SAIC, the rule advanced by Blackstone that only express statements in statutes and regulations can establish preconditions of payment is not set forth in the text of the FCA. We are not persuaded, moreover, by the concerns that prompted the Second Circuit to adopt such a rule in Mikes, nor are we persuaded that the Second Circuit would extend that rule to situations like the one before us. [11] The plaintiffs in Mikes alleged that Medicare claims submitted by the defendant health care providers were false or fraudulent because the underlying medical treatment had failed to meet a standard of care. Mikes, 274 F.3d at 696. The court reasoned that to find these claims false or fraudulent would allow the government and relators to supplant private plaintiffs in medical malpractice suits. Id. at 700. The risk of federalization of what have been private party tort actions is not a foregone conclusion of declining to adopt a rule that preconditions of payment must be expressly stated in a statute or regulation; nor is that risk sufficient to justify such a rule. This is so because other means exist to cabin the breadth of the phrase false or fraudulent as used in the FCA. The text of the FCA and our case law make clear that liability cannot arise under the FCA unless a defendant acted knowingly and the claim's defect is material. [12] The knowledge requirement is expressly stated in the statute and defined at 31 U.S.C. § 3729(b), and this court has long held that the FCA is subject to a judicially-imposed requirement that the allegedly false claim or statement be material. [13] United States ex rel. Loughren v. Unum Grp., 613 F.3d 300, 306-07 (1st Cir.2010).