United States v. Sanford-Brown, Limited

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 14-2506

UNITED STATES OF AMERICA,

Plaintiff,

v.

SANFORD-BROWN, LIMITED, et al.,

Defendants-Appellees.

APPEAL OF: BRENT M. NELSON

____________________

Appeal from the United States District Court for the

Eastern District of Wisconsin.

No. 12-cv-00775 — J. P. Stadtmueller, Judge.

____________________

ARGUED JANUARY 8, 2015 — DECIDED OCTOBER 24, 2016

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Before BAUER, MANION, and ROVNER, Circuit Judges.

MANION, Circuit Judge. This matter is before us on remand

from the United States Supreme Court for reconsideration in

light of its recent decision in Universal Health Services, Inc. v.

United States, 136 S. Ct. 1989 (2016). See U.S. ex rel. Nelson v.

Sanford-Brown, Ltd., 136 S. Ct. 2506 (2016). The only part of our

previous opinion, United States v. Sanford-Brown, Ltd., 788 F.3d

2 No. 14-2506

696 (7th Cir. 2015), that is affected by the holding in Universal

Health is part IV(B)(2), which addressed the plaintiff-relator’s

false presentment claim under 31 U.S.C. § 3729(a)(1)(A) of the

False Claims Act. We readdress that claim here in light of Uni-

versal Health and substitute the following discussion for part

IV(B)(2) of our earlier opinion. The remainder of our previous

opinion is reinstated, and we once again affirm the district

court in all respects.

I.

The plaintiff-relator’s false presentment claim is based on

a theory of “implied false certification.” In Universal Health,

the Court held that the implied false certification theory can

be a basis for liability where two conditions are met: “first, the

claim does not merely request payment, but also makes spe-

cific representations about the goods or services provided;

and second, the defendant’s failure to disclose noncompliance

with material statutory, regulatory, or contractual require-

ments makes those representations misleading half-truths.”

Universal Health Servs., Inc., 136 S. Ct. at 2001 (footnote omit-

ted).

Neither condition is met here. Nelson (the plaintiff-rela-

tor) offered no evidence that defendant Sanford-Brown Col-

lege (SBC) made any representations at all in connection with

its claims for payment, much less false or misleading repre-

sentations. Nelson’s bare speculation that SBC made mislead-

ing representations is insufficient to survive summary judg-

ment. See Bass v. Joliet Pub. Sch. Dist. No. 86, 746 F.3d 835, 841

(7th Cir. 2014) (“Speculation is no substitute for evidence at

the summary judgment stage.”).

No. 14-2506 3

SBC is also entitled to summary judgment because Nelson

failed to establish the independent element of materiality. As

the Universal Health Court explained, “a misrepresentation

about compliance with a statutory, regulatory, or contractual

requirement must be material to the Government’s payment

decision in order to be actionable under the False Claims Act.”

Universal Health Servs., Inc., 136 S. Ct. at 2002 (emphasis

added). The Act’s materiality requirement is “rigorous” and

“demanding.” Id. at 2002–03 & n.6 at 2004. To establish mate-

riality, it is not enough to show that “the Government would

have the option to decline to pay if it knew of the defendant’s

noncompliance.” Id. at 2003. Instead, “materiality looks to the

effect on the likely or actual behavior of the recipient of the al-

leged misrepresentation.” Id. at 2002 (emphasis added) (inter-

nal marks omitted).

Here, Nelson has offered no evidence that the govern-

ment’s decision to pay SBC would likely or actually have been

different had it known of SBC’s alleged noncompliance with

Title IV regulations. On the contrary, as we previously noted,

the subsidizing agency and other federal agencies in this case

“have already examined SBC multiple times over and con-

cluded that neither administrative penalties nor termination

was warranted.” Sanford-Brown, Ltd., 788 F.3d at 712; see also

Universal Health Servs., Inc., 136 S. Ct. at 2003 (“[I]f the Gov-

ernment pays a particular claim in full despite its actual

knowledge that certain requirements were violated, that is

very strong evidence that those requirements are not mate-

rial.”). At bottom, even assuming Nelson’s allegations are

true, the most he has shown is that SBC’s supposed noncom-

pliance and misrepresentations would have entitled the gov-

ernment to decline payment. Under Universal Health, that is

not enough. See Universal Health Servs., Inc., 136 S. Ct. at 2004

4 No. 14-2506

(explicitly rejecting the view that “any statutory, regulatory,

or contractual violation is material so long as the defendant

knows that the Government would be entitled to refuse pay-

ment were it aware of the violation”).

II.

Having reconsidered our previous opinion in light of Uni-

versal Health Services, Inc. v. United States, 136 S. Ct. 1989 (2016),

we once again affirm the district court in all respects. With the

exception of part IV(B)(2), the vacated opinion of June 8, 2015,

is reinstated.

AFFIRMED.