Opinion ID: 171442
Heading Depth: 4
Heading Rank: 2

Heading: Scienter Element

Text: Armed with these undisputed facts, the district court concluded that no reasonable jury could find that defendants acted with the requisite scienter in certifying NMSU as a minority institution. The district court reasoned that [g]iven this statutory and regulatory background apparently authorizing the DOD to rely on the DOE's MI determinations .... [and] given the government's assurances, Defendants' failure to research the statutes and investigate the facts themselves constituted [at most] only negligent behavior, rather than reckless or deliberate action. 400 F.Supp.2d at 1286. Relators challenge this analysis. They claim that a reasonable jury could find that defendants' reliance upon DoD and DoE documents in certifying NMSU's minority-institution status exceeded mere negligence. Specifically, they argue that defendants acted with deliberate ignorance by relying blindly upon the DoE's lists, by ignoring signs that NMSU did not in fact meet the applicable statutory criteria, and by failing to verify independently whether NMSU satisfied these criteria. As an initial matter, we agree that relators identified enough evidence from which a reasonable jury could find that defendants acted negligently. The primary support for finding negligence is the evidence suggesting that NMSU lacked the necessary data to determine whether it qualified as a minority institution under the relevant statutory criteria. For instance, defendants should have known from the DoD's April 1994 memorandum that NMSU contained a minority enrollment of 35.25%, less than the 50% required to qualify as a minority institution. See 20 U.S.C. § 1135d-5(3) (1994) (recodified at 20 U.S.C. § 1067k(3) (2000)). Other evidence in the record also suggests that NMSU did not meet the 50% minority enrollment threshold for many, if not all, of the years during this period. [16] Furthermore, Mr. Birx admitted in April 2000 that NMSU had not adequately tracked low-income, first-generation Hispanic students, thereby lacking information as to whether NMSU qualified as a Hispanic-serving institution. See 20 U.S.C. § 1101a(a)(5) (2000). Therefore, despite their obligation to know the law and to act with scrupulous regard for the requirements of law, Heckler v. Cmty. Health Servs. of Crawford County, Inc., 467 U.S. 51, 63, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984), it appears that defendants breached this duty by never independently verifying whether NMSU satisfied the statutory criteria for minority-institution eligibility. Nonetheless, numerous courts have observed that simple negligence does not violate the FCA. See, e.g., United States ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 742 (7th Cir.2007) (declaring that under § 3729(b)'s definition of knowingly, `innocent' mistakes or negligence are not actionable), cert. denied, ___ U.S. ___, 128 S.Ct. 1246, 170 L.Ed.2d 66 (2008); United States ex rel. Ali v. Daniel, Mann, Johnson & Mendenhall, 355 F.3d 1140, 1150 (9th Cir.2004) (Negligence and innocent mistake are insufficient to meet the intent requirement under the FCA.); United States ex rel. Quirk v. Madonna Towers, Inc., 278 F.3d 765, 767 (8th Cir. 2002) ([I]nnocent mistakes and negligence are not offenses under the Act. (quotation marks omitted)); see also United States ex rel. Hefner v. Hackensack Univ. Med. Ctr., 495 F.3d 103, 110 (3d Cir.2007) (citing Wang v. FMC Corp., 975 F.2d 1412, 1420-21 (9th Cir.1992), for the proposition that poor job performance and innocent mistakes are not actionable under the False Claims Act). We agree with their reading of the FCA. And, after reviewing the summary judgment record as a whole, we believe that no reasonable jury could find that any of the defendants acted in more than a negligent manner. Three reasons support our conclusion: (1) the lack of scienter-based evidence in the record; (2) the government knowledge inference; and (3) the text of the applicable statutory and regulatory scheme.
We are initially struck by what is not in the record. For instance, relators identify no deposition testimony from any defendant relevant to the issue of scienter. Nor did relators submit any such testimony in response to defendants' summary judgment motion. [17] Moreover, although relators alleged that each defendant made at least one false certification, they adduced virtually no evidence of defendants' conductor knowledgeprior to April 19, 2000. Indeed, there is no evidence that defendants intentionally ignored the statutory criteria; that they appreciated the significance of, yet disavowed, statistical data foreclosing NMSU's eligibility as a minority institution; or that they purposefully refused to verify the relevant demographics of NMSU's student body. And there is certainly no evidence of a conspiracy to defraud. We find these evidentiary failures to be particularly significant in light of relators' obligation at the summary judgment phase to produce sufficient evidence that each individual defendantnot the PSL as an institutional wholeknowingly submitted a false claim. See Madonna Towers, 278 F.3d at 769 (affirming summary judgment for the operator of a nursing facility because relator's sole evidence of scienterdeposition testimony by facility officials that they did not seek legal advice concerning the propriety of their billing practices,failed to even suggest that anyone suspected something [was] wrong but deliberately avoided learning more so that a fraudulent scheme could continue). Relators cite several pieces of evidence that purportedly raise an inference of scienter as to all defendants: (1) the list attached to the April 1994 memorandum which identified NMSU as having a minority enrollment of 35.25%; (2) a December 1, 1999, e-mail discussing NMSU's capacity to track the first-generation and low-income data of its student body; and (3) Mr. Rogers's report of his April 19, 2000, meeting with Mr. Birx. None of these documents supports an inference of the requisite scienter. The April 1, 1994, list was issued in conjunction with a memorandum that informed NMSU that, if it appeared on the DoE's list, it was eligible for the DoD set-aside program. We fail to see how NMSU's appearance on a list confirming DoD set-aside eligibility generates knowledgeor avoidance of knowledgeof ineligibility. The record is also barren as to whether any of the defendants recognized the significance of the minority enrollment statistic in 1994 or in any subsequent year. More importantly, even if certain defendants should have known from the April 1, 1994, list that NMSU did not qualify under 20 U.S.C. § 1135-d5(3), which imposed the 50% minority-enrollment threshold, the list did not foreclose NMSU from qualifying under 20 U.S.C. § 1059c(b)(1). In fact, it revealed that NMSU had a Hispanic enrollment of nearly 30%, one of three relevant conditions for eligibility as a Hispanic-serving institution. See 20 U.S.C. § 1059c(b)(1)(B) (1994). Relators next cite a December 1, 1999, e-mail from an employee of NMSU to relator Donald Bustamante. The e-mail stated that because it was only in the past few years that a `first generation' question has appeared on the undergraduate admission application form[,] .... [t]he student file has no information regarding this status for students who were admitted to NMSU before this question was asked, nor for most graduate students. App. at 851. The e-mail further stated that the only method we have of determining low income status for students at NMSU is to review the student's financial aid record for household income and size, and compare that to national low income guidelines. Id. If no financial aid report was filed, then no determination was made. Id. No reasonable jury could infer actual knowledge, reckless disregard, or deliberate indifference from this e-mail. For starters, Ms. Meyer was the only defendant copied on the e-mail, and relators present no evidence that any other defendant was aware of its content. Nor is this content, on its own, particularly suggestive. By the time Ms. Meyer received the e-mail, [18] the first-generation status of Hispanic students was no longer a criterion in qualifying as a Hispanic-serving institution. 20 U.S.C. § 1101a(a)(5) (2000) (requiring 25% of undergraduate students to be Hispanic and at least 50% of Hispanic students to be low-income individuals). And the e-mail does not concede that NMSU never collected information about low-income status, but that NMSU had only one method, however partial, of doing so. Id. Relators' final piece of evidenceMr. Rogers's report memorializing Mr. Birx's comments in April 2000also fails to carry their burden of proof. According to Mr. Rogers's report, Mr. Birx acknowledged that he learned through recent conversations with Miriam Meyer of NMSU's failure to track statistics concerning low-income, first-generation Hispanic students. Id. at 813 (emphasis added). He further admitted that the evidence presented to him `raised significant doubts (in his mind) that NMSU correctly certified itself as a minority institution.' Id. These comments, without more, offer no insight into Mr. Birx's state of mindor his conduct prior to his recent conversation (of an undisclosed date) with Ms. Meyer. Furthermore, Mr. Birx's comments say nothing about the scienter of the other defendants (with the exception of Ms. Meyer), nearly all of whose false claims were submitted prior to 2000. And, with respect to Ms. Meyer, Mr. Rogers's report attributes to her, through multiple levels of hearsay, no more than what she knew through the December 1, 1999, e-mail. In summary, we believe that the evidence cited by relatorswhether analyzed individually or collectivelyfails to create a genuine issue of material fact as to scienter. But, even if this evidence somehow did raise a weak inference that a particular defendant, such as Ms. Meyer or Mr. Birx, knowingly misrepresented NMSU's eligibility, this would not be enough to reach a jury. Relators' evidence cannot be evaluated in a factual and legal vacuum. As we now explain, the government knowledge inference, coupled with the applicable statutory and regulatory scheme, preclude a reasonable jury from finding scienter.
The government knowledge inference helps distinguish, in FCA cases, between the submission of a false claim and the knowing submission of a false claimthat is, between the presence and absence of scienter. See United States ex rel. Becker v. Westinghouse Savannah River Co., 305 F.3d 284, 289 (4th Cir.2002) (collecting cases); Shaw v. AAA Eng'g & Drafting, Inc., 213 F.3d 519, 534 (10th Cir.2000); cf. United States v. Southland Mgmt. Corp., 326 F.3d 669, 682 n. 8 (5th Cir.2003) (en banc) (Jones, J., concurring) (noting that some courts have inaptly named this government knowledge theory a defense whereas it is not a statutory defense to FCA liability). This inference arises when the government knows and approves of the facts underlying an allegedly false claim prior to presentment. See Becker, 305 F.3d at 289 ([T]he government's knowledge of the facts underlying an allegedly false record or statement can negate the scienter for an FCA violation.); cf. United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group Inc., 400 F.3d 428, 455 n. 21 (6th Cir.2005) (holding that defendant's argument that liability is precluded by the Government's knowledge is unpersuasive, in part because defendant neglected to disclose all the pertinent information in filing the claim). A classic example is when the government, with knowledge of the facts underlying an allegedly false claim, authorizes the contractor to make that claim. See Wang v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir. 1992) (The government knew of all the deficiencies identified by Wang, and discussed them with FMC. The fact that the government knew of FMC's mistakes and limitations, and that FMC was open with the government about them, suggests that while FMC might have been groping for solutions, it was not cheating the government in the effort.). In such a situation, an inference arises that the contractor has not knowingly presented a fraudulent or false claim. See Becker, 305 F.3d at 289; United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir.1991) (As the brief of the United States points out, the knowledge possessed by officials of the United States may .... show that the defendant did not submit its claim in deliberate ignorance or reckless disregard of the truth); 1 John T. Boese, Civil False Claims and Qui Tam Actions § 2.06[E] (3d ed. 2005 & 2007-1 Supp.) (Government knowledge ... is relevant to the element of intent.). [19] It is only an inference. It does not automatically preclude a finding of scienter. United States ex rel. Kreindler & Kreindler v. United Tech. Corp., 985 F.2d 1148, 1156 (2d Cir.1993) ([T]he defendant's knowledge of the falsity of its claim... is not automatically exonerated by any overlapping knowledge by government officials.); see Southland Mgmt. Corp., 326 F.3d at 682 n. 9 (Jones, J., concurring) (Courts have qualified the importance of government knowledge by stating that it may not always provide a conclusive defense to the claimant); United States v. Newport News Shipbuilding, Inc., 276 F.Supp.2d 539, 564 (E.D.Va.2003) (A contractor's disclosure ... to the government is relevant, not because government knowledge of a misrepresentation shields a contractor from liability, but because evidence of disclosure may `point[ ] persuasively away from any conclusion that [the contractor] made a knowing misrepresentation.') (quoting X Corp. v. Doe, 816 F.Supp. 1086, 1094 (E.D.Va.1993)). The proper focus of the scienter inquiry under § 3729(a) must always rest on the defendant's knowledge of whether the claim is false, a knowledge which may certainly exist even when a government agency misinterprets its own regulations and chooseswith full comprehension of the facts to pay a false claim. See Southland Mgmt. Corp., 326 F.3d at 672 & nn. 8, 9 (Jones, J., concurring) (noting that the government knowledge inference is simply a means by which the defendant can rebut the government's assertion of the `knowing' presentation of a false claim and identifying a non-exhaustive set of scenarios where the inference would not be effective); Hagood, 929 F.2d at 1421. Although we have never applied the government knowledge inference, we have acknowledged its viability. In Shaw, we noted that the statutory government knowledge defense was removed from the FCA in 1986. [20] 213 F.3d at 534. We quickly emphasized, however, that there may still be occasions when the government's knowledge of or cooperation with a contractor's actions is so extensive that the contractor could not as a matter of law possess the requisite state of mind to be liable under the FCA. Id. We then concluded that the facts of Shaw did not present such an occasion, in part because the defendant was not forthcoming with the government about the contractual failures and billing inflations that formed the basis for the false claims. Id. at 534-35. By contrast, the government knowledge inference is well-suited to the facts of this case, where both governmental knowledge and governmental cooperation are present. Here, the DoE had access to NMSU's enrollment data. Consistent with its statutory obligation, the DoE reviewed this data and repeatedly designated NMSU as a minority institution. Based upon these designations, the DoD invited NMSU to apply for set-aside contracts, confirming that NMSU satisfied the statutory criteria for its set-aside program so long as it appeared on DoE's minority institution lists. With no reason to distrust the very agency responsible for administering the set-aside program, defendants then relied upon the DoD's assurances and invitations in certifying NMSU as a minority institution. It is true, as relators point out, that defendants never expressly informed the DoD that NMSU did not meet, or did not have the data to determine whether it met, the criteria referenced in 10 U.S.C. § 2323(a)(1)(C). However, the undisputed evidence in the record indicates that NMSU was completely forthcoming with the DoEthe very agency on whose analysis the DoD uncritically relied. For instance, NMSU submitted data to the DoE on an annual basis. This data contained information about NMSU's student enrollment, including information concerning total institutional enrollment, total minority enrollment, and need-based financial assistance. Tellingly, there is nothing in the record to suggest that this data, or any other data submitted on behalf of NMSU, was materially inaccurate. Nor is there any evidence to suggest that NMSU deliberately withheld enrollment data in connection with its HEA applications or other submissions, such as its higher education general information surveys. 20 U.S.C. § 1135d-5(3) (1994) (mandating that the SOE shall verify minority institution status from data on enrollments in the higher education general information surveys (HEGIS) furnished by the institution); id. § 1067k(3) (2000) (same). Thus, it is undisputed that the DoE had accurate data from which to verify whether NMSU met the definition of a minority institution under 20 U.S.C. § 1135d-5(3) and, later, under 20 U.S.C. § 1067k. To the extent that this data was of limited relevance, or was simply incomplete, the DoE certainly had the discretion not to place NMSU on its minority-institution lists. And the DoD had access to the DoE's lists, if not data, prior to mailing its solicitations. Collectively, then, both agencies were aware of the same universe of facts of which defendants were aware when defendants certified NMSU's minority institution eligibility. We recognize that in most cases in which summary judgment has been granted on the basis of the government knowledge inference there has been more direct communication between the government and the contractors in the context of an existing contractual relationshipe.g., where the governmental agency, possessing full knowledge of the relevant circumstances arising from such a relationship, authorizes the contractor to make a particular representation that ultimately proves to be false. [21] Here, on the other hand, the interactions precede the relevant contracts and, consequently, are not contract-specific. However, we conclude that neither the directness of the government-contractor communications nor their nexus to an existing contractual relationship constitute an essential predicate for the government knowledge inference. Instead, the focus properly rests upon the depth of the government's knowledge of the facts underlying the allegedly false claim and the degree to which the government invites that claim. This conclusion is not undercut by any of the cases to which relators turn. Neither United States v. Mackby, 261 F.3d 821 (9th Cir.2001), nor United States v. Krizek, 111 F.3d 934 (D.C.Cir.1997), present situations where the government had knowledge of the facts underlying the false statements or invited the claims containing such statements. [22] Furthermore, Heckler, although repeatedly stressed by relators, is distinguishable. In Heckler, the Supreme Court rejected a health care provider's attempt to avoid administrative recoupment of overpayments made under the Medicare program by asserting equitable estoppel against the government. 467 U.S. at 66, 104 S.Ct. 2218. The provider had obtained double reimbursement for certain costs, in violation of the applicable statutory and regulatory scheme, only after receiving oral verification of the propriety of seeking such reimbursement from the fiscal intermediary that acted as the government's contractual agent. Id. at 56-57, 104 S.Ct. 2218. In discussing the reasonableness of the provider's reliance, a prerequisite for an estoppel claim, the Supreme Court declared that those who deal with the Government are expected to know the law and may not rely on the conduct of Government agents contrary to law. Id. at 63, 104 S.Ct. 2218. Applying this principle, the Supreme Court then explained that the provider did not act reasonably in relying upon the informal and oral advice of the fiscal intermediary. Id. at 64-65, 104 S.Ct. 2218. Instead, the provider should have obtained an interpretation of the applicable regulations from the overseeing agency, the Department of Health and Human Services, since the provider indisputably knew that this was a doubtful question not clearly covered by existing policy statements and that the intermediary lacked the power to resolve policy questions. Id. Heckler is both legally and factually distinct from the instant case. As for the legal perspective, although Heckler stressed in broad language that contractors may not rely upon the ultimately incorrect advice of government agents, it did so in the context of a contractor's assertion of an equitable estoppel claim against the government. [23] Yet, whether the government is estopped from bringing a claim because one of its agents assured the defendant that some action was legal presents a very different question than whether reliance on government assurances can be relevant to deciding if a defendant knowingly presented a false claim. Cf. Moser v. United States, 341 U.S. 41, 47, 71 S.Ct. 553, 95 L.Ed. 729 (1951) (where petitioner's conduct would have barred him statutorily from obtaining American citizenship but he relied in significant part upon contrary written assurances issued by the government, the Court observed, [T]here is no need to evaluate these circumstances on the basis of any estoppel of the Government. ... Petitioner did not knowingly and intelligently waive his rights to citizenship.). Under the FCA, the relator (or the government) must prove scienter as an element; it cannot be presumed. See 31 U.S.C. § 3729(b). To be sure, it is not difficult to understand that the the interest of the citizenry as a whole in obedience to the rule of law, Heckler, 467 U.S. at 60, 104 S.Ct. 2218, would be significantly undermined if parties could routinely circumvent administrative recoupment efforts by asserting reliance on the bad advice of government agents. In the context of recoupment, typically the party would not have suffered a detrimental change in its position in alleged reliance on the government's assurances; [i]ts detriment is the inability to retain money that it should never have received in the first place. Id. at 61, 62, 104 S.Ct. 2218. However, where a statute, like the FCA, seeks to sanction and deter wrongful conduct through the imposition of up to treble damages, [24] there is little or no reason to think that allowing evidence that is highly relevant to the question of whether the conduct is in fact wrongful (i.e., knowing)that is, evidence of the government's knowledge and cooperationwould have a comparable adverse impact on the citizenry's perception of the rule of law. [25] Indeed, the allowance of such evidence might bolster the citizenry's perception of the system's fairness. Cf. Heckler, 467 U.S. at 60 n. 12, 104 S.Ct. 2218 (recognizing that some of its precedents seem to rest on the premise that when the Government acts in misleading ways, it may not enforce the law if to do so would harm a private party as a result of governmental deception). [26] Heckler also is factually distinguishable. While it may not be reasonable to rely upon the oral advice of a governmental intermediary without power to resolve the very legal question at issue, defendants in the instant appeal did no such thing. They were not satisfied with the policy judgment of a mere conduit. Heckler, 467 U.S. at 65, 104 S.Ct. 2218; cf. Moser, 341 U.S. at 46, 71 S.Ct. 553 (rejecting application of estoppel principles and noting that [p]etitioner had sought information and guidance from the highest authority to which he could turn). Nor did they accept oral advice. Heckler, 467 U.S. at 65, 104 S.Ct. 2218. Rather, defendants reasonably relied upon the written assurances of the governmental agency responsible for administering the program under which NMSU sought and obtained the now-contested contracts. In summary, this case presents a proper application of the government knowledge inference. From NMSU's enrollment data, the DoE consistently placed NMSU on its annual list of minority institutions under the HEA; and, from these lists, the DoD consistently sent NMSU solicitations for minority-institution contracts, assuring NMSU that, if it was on DoE's list, it was eligible. Not surprisingly, the defendants based their certifications upon these written assurances. Thus, the government knowledge inference generates a strong illation that defendants did not knowingly submit false claims within the meaning of § 3729(a) of the FCA.
Finally, we note that the texts of the applicable statutory and regulatory schemes help highlight the absence of scienter and confirm the reasonableness of defendants' reliance upon the DoD's confirmation of NMSU's eligibility. While relators repeatedly assert that defendants were required to know the applicable legal framework, defendants' good faith belief in NMSU's eligibility is both evidenced and justified by this very framework. As discussed above, the statutory scheme governing eligibility for the DoD set-aside program between 1994 and 2000 arguably made the SOE responsible for verifying minority institution eligibility, based upon enrollment data provided by schools to the DoE. See 10 U.S.C. § 2323(a)(1)(C) (1994); 20 U.S.C. § 1135d-5(3) (1994) (recodified at 20 U.S.C. § 1067k(3) (2000)). More importantly, although the DoD's regulatory scheme was unambiguous in its definition of a minority institution, see 48 C.F.R. § 252.226-7000(a), it was equally unambiguous in identifying what may satisfy this definition: proof of SOE certification. See 48 C.F.R. § 252.226-7000(c)(2) (declaring that prior to award, offeror need only, if requested, produce evidence of SOE certification). Because defendants' reliance upon NMSU's appearance on the DoE's lists was welcomed by the regulatory scheme, no reasonable jury could conclude on the basis of the evidence in this summary judgment record that defendants' failure to double-check the DoD's assurances of eligibility exceeded mere negligence. Defendants simply certified a position blessed by the DoD and its own regulations although one apparently not supported by the statutory criteria. From the evidence provided, the worst that can be inferred is that defendants unwittingly took advantage of a legal paradox. See United States ex rel. Siewick v. Jamieson Sci. & Eng'g, Inc., 214 F.3d 1372, 1378 (D.C.Cir.2000) (finding that defendants did not knowingly violate the FCA when they received payment for claims under an allegedly unenforceable contract because the law was uncertain as to whether the contract was actually unenforceable); Hagood v. Sonoma County Water Agency, 81 F.3d 1465, 1478-79 (9th Cir.1996) (holding that signing a contract with an arguably false cost-allocation figure, based upon a disputed legal issue as to the requisite precision of this figure, does not amount to deliberate ignorance or reckless disregard); see also Southland Mgmt. Corp., 326 F.3d at 682 (Jones, J, concurring) ([W]here disputed legal issues arise from vague provisions or regulations, a contractor's decision to take advantage of a position can not result in his filing a `knowingly' false claim.).