Amicus Curiae Brief — United States, et al., ex rel. Tracy Schutte, et al., Petitioners v. SuperValu Inc., et al.

No. 21-1326

In the Supreme Court of the United States

UNITED STATES EX REL. TRACY SCHUTTE, ET AL.,

PETITIONERS

v.

SUPERVALU INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

ELIZABETH B. PRELOGAR

Solicitor General

Counsel of Record

BRIAN M. BOYNTON

Principal Deputy Assistant

Attorney General

MALCOLM L. STEWART

Deputy Solicitor General

BENJAMIN W. SNYDER

Assistant to the Solicitor

General

MICHAEL S. RAAB

CHARLES W. SCARBOROUGH

JOSHUA DOS SANTOS

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

The False Claims Act (FCA), 31 U.S.C. 3729 et seq.,

imposes civil liability on persons who “knowingly” submit false claims for payment to the government or

“knowingly” make false statements in support of such

claims. 31 U.S.C. 3729(a)(1)(A) and (B). The FCA defines “knowingly” to mean that a person (i) has “actual

knowledge” of the falsity of information in the claim or

statement; (ii) “acts in deliberate ignorance of the truth

or falsity of ” such information; or (iii) “acts in reckless

disregard of the truth or falsity of ” such information.

31 U.S.C. 3729(b)(1)(A). The question presented is as

follows:

Whether a person who submitted a claim or statement that falsely asserted compliance with applicable

legal requirements, and who subjectively believed or

had strong reason to believe that the claim or statement

was false, can establish that he did not act “knowingly”

by showing that the claim or statement was consistent

with an incorrect but objectively reasonable interpretation of those legal requirements.

(I)

TABLE OF CONTENTS

Page

Interest of the United States....................................................... 1

Statement:

A. Legal background ............................................................. 1

B. Facts and procedural history ........................................... 3

Discussion ...................................................................................... 8

A. The Seventh Circuit erred in holding that

subjective bad faith is never sufficient to

establish scienter under the FCA.................................... 9

B. The question presented warrants review

in this case ........................................................................ 18

Conclusion ................................................................................... 24

TABLE OF AUTHORITIES

Cases:

Farmer v. Brennan, 511 U.S. 825 (1994) ...................... 11, 15

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974) ................ 11

Global-Tech Appliances, Inc. v. SEB S. A.,

563 U.S. 754 (2011).............................................................. 10

Godecke v. Kinetic Concepts, Inc.,

937 F.3d 1201 (9th Cir. 2019) ............................................. 11

Halo Electronics, Inc. v. Pulse Electronics, Inc.,

579 U.S. 93 (2016) ............................................. 10, 16, 17, 18

Heckler v. Community Health Services of Crawford

County, Inc., 467 U.S. 51 (1984) ........................................ 15

Intel Corp. Investment Policy Committee v. Sulyma,

140 S. Ct. 768 (2020) ........................................................... 10

Jerman v. Carlisle, McNellie, Rini, Kramer &

Ulrich, L. P. A., 559 U.S. 573 (2010) ............................. 9, 14

Olhausen v. Arriva Medical, LLC, No. 21-10366,

2022 WL 1203023 (11th Cir. Apr. 22, 2022),

petition for cert. pending, No. 22-374

(filed Oct. 18, 2022) ............................................................. 20

(III)

IV

Cases—Continued:

Page

Omnicare, Inc. v. Laborers District Council

Construction Industry Pension Fund,

575 U.S. 175 (2015).............................................................. 11

Safeco Insurance Co. v. Burr,

551 U.S. 47 (2007) ......................................6, 8, 13, 14, 15, 16

United States v. Aerodex, Inc., 469 F.2d 1003

(5th Cir. 1972)........................................................................ 9

United States v. Chen, 402 Fed. Appx. 185

(9th Cir. 2010)...................................................................... 20

United States v. Ricard, 922 F.3d 639

(5th Cir. 2019)...................................................................... 10

United States ex rel. Donegan v. Anesthesia

Associates of Kansas City, PC, 833 F.3d 874

(8th Cir. 2016)...................................................................... 21

United States ex rel. Morsell v. NortonLifeLock,

Inc., 560 F. Supp. 3d 32 (D.D.C. 2021) ............................. 21

United States ex rel. Phalp v. Lincare Holdings,

Inc., 857 F.3d 1148 (11th Cir. 2017) ........................ 8, 11, 19

United States ex rel. Polukoff v. St. Mark’s Hospital,

895 F.3d 730 (10th Cir. 2018), cert. dismissed,

138 S. Ct. 2690 (2019) ......................................................... 12

United States ex rel. Prather v. Brookdale Senior

Living Communities, Inc., 892 F.3d 822

(6th Cir. 2018), cert. denied,

139 S. Ct. 1323 (2019) ................................................... 10, 20

United States ex rel. Purcell v. MWI Corp.,

807 F.3d 281 (D.C. Cir. 2015), cert. denied,

137 S. Ct. 625 (2017) ........................................................... 21

United States ex rel. Sheldon v. Allergan Sales, LLC:

24 F.4th 340 (4th Cir. 2022), vacated on reh’g,

49 F.4th 873 (4th Cir. 2022) ...................................... 22

49 F.4th 873 (4th Cir. 2022) ............................................ 22

V

Case—Continued:

Page

Universal Health Services, Inc. v. United States

ex rel. Escobar, 579 U.S. 176 (2016) .................................. 12

Statutes and regulations:

Fair Credit Reporting Act, 15 U.S.C. 1681 et seq.:

15 U.S.C. 1681m(a) .......................................................... 13

15 U.S.C. 1681n(a) ................................................. 6, 13, 15

False Claims Act, 31 U.S.C. 3729 et seq. ............................... 1

31 U.S.C. 3729(1) (1982 & Supp. III 1985) ...................... 9

31 U.S.C. 3729(a)(1)(A) ..................................... 1, 8, 12, 15

31 U.S.C. 3729(a)(1)(B) ......................................... 1, 12, 15

31 U.S.C. 3729(b)(1)(A) ............................................... 2, 10

31 U.S.C. 3729(b)(1)(A)(ii) .............................................. 12

31 U.S.C. 3729(b)(1)(A)(iii) ............................................. 12

31 U.S.C. 3729(b)(2)(A)(ii) .............................................. 23

31 U.S.C. 3730(a) ............................................................... 2

31 U.S.C. 3730(b) ............................................................... 2

31 U.S.C. 3730(b)(2) .......................................................... 2

31 U.S.C. 3730(b)(3) .......................................................... 2

31 U.S.C. 3730(b)(4)(B) ..................................................... 2

31 U.S.C. 3730(d) ............................................................... 2

False Claims Amendments Act of 1986,

Pub. L. No. 99-562, 100 Stat. 3153:

§ 2(7), 100 Stat. 3153-3154 ................................................ 9

§ 2(7), 100 Stat. 3154 ....................................................... 10

Medicare Act, 42 U.S.C. 1395 et seq. ..................................... 3

Pt. D, 42 U.S.C. 1395w–101 et seq.................................... 3

42 USC 1395w-111(i) ................................................... 3

Medicaid Act, 42 U.S.C. 1396 et seq. ...................................... 2

42 U.S.C. 1396d(a)(12) ...................................................... 2

VI

Regulations—Continued:

Page

42 C.F.R.:

Pt. 423:

Section 423.30............................................................... 3

Section 423.32............................................................... 3

Section 423.100 ............................................................. 3

Section 423.315 ............................................................. 3

Section 423.329 ............................................................. 3

Section 423.343 ............................................................. 3

Pt. 447:

Section 447.512(b)(2) ................................................... 2

Miscellaneous:

Black’s Law Dictionary (5th ed. 1979) ................................ 10

Medicaid.gov, Centers for Medicare & Medicaid Services, Medicaid Covered Outpatient Prescription

Drug Reimbursement Information by State, Medicaid.gov (last updated Nov. 16, 2022),

https://www.medicaid.gov/medicaid/prescriptiondrugs/state-prescription-drug-resources/

medicaid-covered-outpatient-prescription-drugreimbursement-information-state/index.html. ................... 2

Restatement (Second) of Torts:

(1965) .......................................................................... 15, 17

(1977) .......................................................................... 12, 13

1 Joseph Story, Commentaries on Equity

Jurisprudence (6th ed. 1853)............................................. 13

In the Supreme Court of the United States

No. 21-1326

UNITED STATES EX REL. TRACY SCHUTTE, ET AL.,

PETITIONERS

v.

SUPERVALU INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

INTEREST OF THE UNITED STATES

This brief is submitted in response to the Court’s

order inviting the Solicitor General to express the views

of the United States. In the view of the United States,

the petition for a writ of certiorari should be granted.

STATEMENT

A. Legal Background

1. The False Claims Act (FCA or Act), 31 U.S.C.

3729 et seq., imposes liability on any person who “knowingly presents, or causes to be presented, a false or

fraudulent claim for payment” to a government spending program, or who “knowingly makes, uses, or causes

to be made or used” a “false * * * statement” material

to such a claim. 31 U.S.C. 3729(a)(1)(A) and (B). The

Act defines “knowingly” to “mean that a person, with

(1)

2

respect to information,” (i) “has actual knowledge of the

information”; (ii) “acts in deliberate ignorance of the

truth or falsity of the information”; or (iii) “acts in reckless disregard of the truth or falsity of the information.”

31 U.S.C. 3729(b)(1)(A).

Either the Attorney General or a private party (known

as a relator) may sue under the FCA. 31 U.S.C. 3730(a)

and (b). When a relator files a “qui tam” suit, the government may “elect to intervene.” 31 U.S.C. 3730(b)(2)

and (3). If the government declines to intervene, the

relator may proceed with the litigation and share in any

judgment. 31 U.S.C. 3730(b)(4)(B) and (d).

2. This case concerns claims for payment submitted

to government healthcare programs including Medicaid

and Medicare Part D.

a. The Medicaid Act, 42 U.S.C. 1396 et seq., establishes a cooperative federal-state program that provides medical assistance to certain low-income individuals. States may offer outpatient prescription-drug

coverage as part of a Medicaid plan. 42 U.S.C.

1396d(a)(12). Regulations promulgated by the Centers

for Medicare and Medicaid Services (CMS) limit reimbursement for many drugs to the lower of (1) a pharmacy’s “usual and customary charges to the general

public” or (2) the drug’s actual acquisition cost plus a

reasonable dispensing fee. 42 C.F.R. 447.512(b)(2).

Consistent with those federal regulations, state

Medicaid agencies typically calculate reimbursement

amounts to be paid to pharmacies as the lesser of various payment amounts, one of which is often the pharmacy’s “usual and customary charge” to the general

public. See Medicaid.gov, CMS, Medicaid Covered Outpatient Prescription Drug Reimbursement Information

by State, Quarter Ending September 2022 (last updated

3

Nov. 16, 2022), https://www.medicaid.gov/medicaid/

prescription-drugs/state-prescription-drug-resources/

medicaid-covered-outpatient-prescription-drug-reimbursement-information-state/index.html. State Medicaid agencies may further define “usual and customary charges”

through program guidance. See D. Ct. Doc. 172-1, at 12

(May 21, 2018).

b. The Medicare Act, 42 U.S.C. 1395 et seq., provides

federally funded health-insurance coverage to individuals who are age 65 or older or are disabled. Through

Medicare Part D, 42 U.S.C. 1395w–101 et seq., beneficiaries can obtain prescription-drug coverage through

private plan sponsors. See 42 C.F.R. 423.30, 423.32.

CMS makes ongoing payments to a plan sponsor, and at

the end of the year reconciles those payments with the

sponsor’s actual costs to determine whether CMS owes

the sponsor additional money or the sponsor must return excess payments. See 42 C.F.R. 423.315, 423.329,

423.343.

Part D beneficiaries typically obtain prescription

drugs from retail or mail-order pharmacies, which then

seek reimbursement from the plan sponsors (or from intermediary organizations known as pharmacy benefit

managers). Plan sponsors and pharmacies negotiate the

prices to be paid for each prescription. See 42 U.S.C.

1395w-111(i); 42 C.F.R. 423.100. In practice, plan sponsors often contract to pay the lesser of a negotiated

price or the amount that the pharmacy reports as its

“usual and customary” price for non-insurance sales to

the general public, with that term sometimes further

defined in the contract. See Pet. App. 8a.

B. Facts And Procedural History

1. This qui tam suit arises out of claims submitted to

government healthcare programs. Petitioners allege

4

that respondents—which operate more than 800 retail

pharmacies—submitted claims that knowingly overstated respondents’ “usual and customary” prices, leading to reimbursement greater than what respondents

were lawfully entitled to receive. Pet. App. 6a-8a.

a. Petitioners’ allegations pertain to a price-match

program that respondents adopted to compete with

steep discounts offered by other pharmacies such as

Walmart, which offered many prescriptions for just $4.

Pet. App. 6a-7a. Under the program, respondents

would match a competitor’s lower price at the customer’s request, and would then automatically apply

that price to future refills. Id. at 7a. In 2012, a majority

of the non-insurance sales for 44 of respondents’ 50 topselling drugs were made at discounted price-matched

prices. Id. at 8a & n.3; id. at 35a (Hamilton, J., dissenting). For 30 of those drugs, more than 80% of noninsurance sales were at the lower price-matched prices.

Id. at 35a. The discounts were substantial, with customers sometimes paying eight to 15 times less than respondents’ retail prices. Ibid.

Despite the widespread use of the price-match program, respondents disregarded that program when reporting their “usual and customary” prices to state

Medicaid agencies, Medicare Part D sponsors, and

other third-party payors. Respondents instead reported only their higher retail prices, even for drugs for

which a majority of sales occurred at substantially discounted prices. Pet. App. 35a (Hamilton, J., dissenting).

b. Following discovery, petitioners moved for partial summary judgment, relying on evidence that respondents had attempted to conceal the price-match

program even though they knew it should be taken into

5

account in identifying their “usual and customary”

prices.

In one 2007 email, for example, an executive discussing “price matching” acknowledged that, “[o]nce we deviate to a process that is more ‘rule’ or routine, we begin

to affect the integrity of our U&C price—a slippery

slope, as true U&C price is a claim submission requirement for all Medicaid and * * * [pharmacy benefit manager] agreements.” Pet. App. 67a. He explained, however, that respondents had chosen to “take[] a ‘stealthy’

approach” by characterizing price matching as “something that we do as an ‘exception’ for customer service

reasons.” Ibid.; see D. Ct. Doc. 191-1, at 39 (June 11,

2018) (discussing “damage control” that would be necessary if pharmacy benefit managers learned respondents were widely advertising a price-match program).

Petitioners also pointed to respondents’ interactions

with Medco Health Solutions, a pharmacy benefit manager for Medicare Part D plans. Pet. App. 81a. Respondents’ contract with Medco defined “usual and customary” to include “all applicable discounts,” and

Medco stated in a 2006 email to respondents that this

contractual requirement encompassed a “competitor’s

matched price.” Id. at 66a (capitalization omitted). One

of respondents’ executives forwarded the email and

stated: “Note the comment about price matching. Theoretically, they could audit.” D. Ct. Doc. 169, at 9-10

(May 21, 2018).

The evidence also revealed respondents’ consternation when, in 2008, a different pharmacy benefit manager asked about the price-match program. D. Ct. Doc.

327, at 7 (Dec. 10, 2019). One of respondents’ managers

stated that she was “concerned about any response

where we acknowledge doing it.” Ibid. An executive

6

replied that “[w]e should not respond unless we know

what they are going to do with this information,” and

directed the manager to “[m]ake sure [one of respondents’ attorneys] can defend our price match policy as

not being our U and C if they are pressing for a response.” Ibid.; D. Ct. Doc. 191-1, at 38-39.

Respondents cross-moved for summary judgment,

arguing, inter alia, that they had “reasonably believed

that individualized price-match concessions did not affect the usual and customary price.” D. Ct. Doc. 172-1,

at 52. Respondents also submitted evidence that they

had sought guidance from certain States’ Medicaid programs (though not the programs at issue) and from certain pharmacy benefit managers other than Medco. Id.

at 53-56.

2. The district court found that respondents’ “lower

matched prices * * * are the usual and customary

prices for their drugs.” 2019 WL 3558483, at *8. It accordingly determined that respondents should have reported those prices with their claims for payment from

Medicare Part D and Medicaid. Ibid.

In a subsequent ruling, however, the district court

granted summary judgment to respondents on the

ground that they had not acted “knowingly.” Pet. App.

59a-87a. Relying on this Court’s decision in Safeco Insurance Co. v. Burr, 551 U.S. 47 (2007), which had interpreted the term “willfully” in the Fair Credit Reporting Act, 15 U.S.C. 1681n(a), the district court construed the FCA to require a showing that respondents’

submissions were inconsistent with any “objectively

reasonable” interpretation of “usual and customary”

price. Pet. App. 75a. Because petitioners could not

meet that standard, the court held that respondents

were entitled to summary judgment “regardless of

7

[respondents’] subjective beliefs” about whether their

submissions were accurate. Id. at 83a.

3. The court of appeals affirmed. Pet. App. 1a-58a.

a. The court of appeals agreed with the district court

that Safeco controls the interpretation of the FCA term

“knowingly.” Pet. App. 11a-20a. The court held that an

FCA “defendant who acted under an incorrect interpretation” of governing legal requirements will avoid liability “if (1) the interpretation was objectively reasonable

and (2) no authoritative guidance cautioned defendants

against it.” Id. at 12a.

The court of appeals explained that, under its approach, “a defendant’s subjective intent does not matter.” Pet. App. 27a. The court stated that “it is not

enough that a defendant suspect or believe that its claim

was false” because the standard is “objective” and turns

on whether the defendant “know[s]” that its claims are

false. Id. at 26a-27a. The court found it “irrelevant”

whether the defendant actually “held [an objectively

reasonable interpretation] at the time that it submitted

its false claim” or instead was “concocting ‘post-hoc arguments.’ ” Id. at 26a.

Applying its two-step inquiry, the court of appeals

affirmed the grant of summary judgment. Pet. App.

22a-31a. It first held that respondents’ conduct was

consistent with an objectively reasonable understanding of “usual and customary” price because no statute

or regulation squarely foreclosed respondents’ approach. Id. at 22a-26a. It then determined that no authoritative guidance warned respondents away from

that understanding. Id. at 27a-31a. The court held that,

for these purposes, only “circuit court precedent or

guidance from the relevant agency” can qualify as “authoritative guidance,” so that any consideration of the

8

contractual guidance provided by pharmacy benefit

managers like Medco was “automatically exclude[d].”

Id. at 28a.

b. Judge Hamilton dissented. Pet. App. 31a-58a. In

his view, the FCA’s text, history, and common-law background all indicate that “subjective bad faith” can establish the necessary scienter. Id. at 42a. Judge Hamilton accordingly would have followed the Eleventh Circuit’s approach in United States ex rel. Phalp v. Lincare

Holdings, Inc., 857 F.3d 1148 (2017), which “squarely

rejected the majority’s position here.” Pet. App. 47a.

DISCUSSION

The FCA imposes liability on those who “knowingly”

submit to the government false claims for payment. 31

U.S.C. 3729(a)(1)(A). Under the statutory definition

and common-law background principles, that standard

is met where a person (1) subjectively believes that a

claim is false; (2) recognizes a substantial risk that the

claim is false but deliberately avoids taking readily

available steps to obtain clarification; or (3) knows or

should know that the claim is probably false but acts

with reckless disregard of that danger. The court below

viewed Safeco Insurance Co. v. Burr, 551 U.S. 47 (2007),

as controlling the interpretation of the FCA’s scienter

provision, however, and as dictating that the defendant’s subjective beliefs are “irrelevant” if the defendant’s lawyers can later show that its conduct was consistent with an “erroneous” but “objectively reasonable” interpretation of the law. Pet. App. 25a-26a.

In dissent, Judge Hamilton correctly recognized that

the court of appeals’ decision is contrary to the FCA’s

text, history, and common-law antecedents. Pet. App.

40a-43a. Judge Hamilton further recognized that this

case implicates an important conflict about the meaning

9

of the FCA’s scienter requirement. Id. at 46a-47a. Because this case provides an appropriate vehicle for resolving that conflict, the Court should grant review and

should reverse.

A. The Seventh Circuit Erred In Holding That Subjective

Bad Faith Is Never Sufficient To Establish Scienter

Under The FCA

1. This Court has “taken [care] to construe” words

like “ ‘knowing,’ ‘intentional,’ or ‘willful’ * * * in their

particular statutory context.” Jerman v. Carlisle,

McNellie, Rini, Kramer & Ulrich, L. P. A., 559 U.S.

573, 585 (2010). As used in the FCA, the words “knowing” and “knowingly” encompass circumstances in

which persons subjectively believe they are submitting

false claims to the government; are aware of a substantial risk that their claims are false but deliberately avoid

taking readily available steps to obtain clarification; or

act in reckless disregard of known or obvious facts indicating a high likelihood of falsity. When a defendant has

submitted false claims with one of those culpable states

of mind, it cannot escape liability merely by showing

that its claims were consistent with an objectively reasonable (but wrong) understanding of the law.

a. Until 1986, the FCA imposed liability for “knowingly” presenting “a false or fraudulent claim for payment or approval,” but did not define the term “knowingly.” 31 U.S.C. 3729(1) (1982 & Supp. III 1985). Some

courts interpreted that provision to require proof of a

specific “purpose on the part of [the defendant] to cheat

the Government.” United States v. Aerodex, Inc., 469

F.2d 1003, 1007 (5th Cir. 1972) (citation omitted; brackets in original). As part of wide-ranging FCA amendments, Congress rejected that interpretation. See

False Claims Amendments Act of 1986 (1986

10

Amendments), Pub. L. No. 99-562, § 2(7), 100 Stat. 31533154. The 1986 Amendments stated that “no proof of

specific intent to defraud is required,” and added a new

three-pronged definition of “knowingly.” § 2(7), 100

Stat. 3154. Under that definition, a person acts “knowingly” if she (i) has “actual knowledge” of the falsity of

information in a claim or statement the person submits

to the government; (ii) “acts in deliberate ignorance of

the truth or falsity of ” such information; or (iii) “acts in

reckless disregard of the truth or falsity of ” such information. 31 U.S.C. 3729(b)(1)(A).

Each of those terms addresses the “culpability” of

the person’s state of mind “at the time of the challenged

conduct.” Halo Electronics, Inc. v. Pulse Electronics,

Inc., 579 U.S. 93, 105 (2016). “Actual knowledge” means

a “state of mind that one considers that he knows.”

Black’s Law Dictionary 784 (5th ed. 1979) (defining

“knowledge”). That generally means that the defendant

was subjectively “aware of ” a violation. Intel Corp. Investment Policy Committee v. Sulyma, 140 S. Ct. 768,

776 (2020). “[D]eliberate ignorance” means that a defendant is “subjective[ly] aware[]” of a substantial risk

that his statement may be false, and avoids taking steps

to confirm the statement’s truth or falsity. United

States v. Ricard, 922 F.3d 639, 656 (5th Cir. 2019); see

Global-Tech Appliances, Inc. v. SEB S. A., 563 U.S. 754,

769 (2011) (same definition for “willful blindness”);

Black’s Law Dictionary 672 (5th ed. 1979) (“Voluntary

ignorance exists when a party might, by taking reasonable efforts, have acquired the necessary knowledge.”)

(emphasis omitted). And “reckless disregard” means an

“aggravated form of gross negligence,” United States

ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822, 837 (6th Cir. 2018) (citation

11

omitted), cert. denied, 139 S. Ct. 1323 (2019), in which a

defendant disregards a “high risk” of falsity “that is either known or so obvious that it should be known,”

Farmer v. Brennan, 511 U.S. 825, 836 (1994); see Gertz

v. Robert Welch, Inc., 418 U.S. 323, 332 (1974) (recklessdisregard standard satisfied where a defendant “act[s]

with a ‘high degree of awareness of . . . probable falsity’ ”) (citation omitted).

By covering all three states of mind, Congress cast a

net broad enough to reach those who act in bad faith or

without an appropriate degree of care, even where

claims for payment implicate ambiguous legal conditions. If a defendant believes (correctly) that it is violating a legal requirement that makes its claims false

and ineligible for payment, the defendant acts with “actual knowledge” if it submits the false claims—even if

its lawyers subsequently identify an objectively reasonable (but incorrect) exculpatory interpretation. See

United States ex rel. Phalp v. Lincare Holdings, Inc.,

857 F.3d 1148, 1154-1156 (11th Cir. 2017) (considering

evidence of defendant’s belief in illegality); cf. Omnicare, Inc. v. Laborers District Council Construction

Industry Pension Fund, 575 U.S. 175, 184 (2015) (A

CEO’s statement that “ ‘I believe our marketing practices are lawful’[] would falsely describe her own state

of mind if she thought her company was breaking the

law.”).

If a defendant is aware of a substantial risk that its

submissions are false, but chooses not to make readily

available inquiries that could clarify their truthfulness,

that defendant acts with “deliberate ignorance.”

Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1212

(9th Cir. 2019). And if a defendant disregards warnings

about likely falsity from knowledgeable sources such as

12

attorneys, internal compliance officers, or government

contractors, that defendant acts with “reckless disregard” of the truthfulness of its claims. See United

States ex rel. Polukoff v. St. Mark’s Hospital, 895 F.3d

730, 744 (10th Cir. 2018), cert. dismissed, 138 S. Ct. 2690

(2019).

A defendant who submits false claims for payment in

such circumstances cannot escape liability by identifying wrong-but-reasonable justifications after the fact.

Within the FCA’s operative prohibitions, the adverb

“knowingly” modifies such verbs as “presents,”

“makes,” and “uses.” 31 U.S.C. 3729(a)(1)(A) and (B).

The Act thus focuses on the defendant’s state of mind

when she submits false claims or makes false statements. The second and third prongs of the FCA’s definition of “knowingly,” which refer to persons who “act[]

in deliberate ignorance” or “act[] in reckless disregard,” 31 U.S.C. 3729(b)(1)(A)(ii) and (iii) (emphases

added)), reinforce that conclusion. An attorney’s subsequent identification of a possible exculpatory argument

has no logical bearing on the defendant’s state of mind

when she committed the acts that are alleged to have

violated the FCA.

b. Interpreting the FCA’s scienter element to focus

on a defendant’s culpability at the time of the alleged

violation is consistent with the common-law background

this Court has considered in construing the Act. See,

e.g., Universal Health Services, Inc. v. United States ex

rel. Escobar, 579 U.S. 176, 187 (2016).

As Judge Hamilton observed below, “the most authoritative summary of the common law’s treatment of

fraudulent scienter,” found in Section 526 of the Restatement (Second) of Torts, “makes subjective bad

faith central.” Pet. App. 41a-42a. That summary

13

explains that, for purposes of the common-law tort of

fraudulent misrepresentation, a speaker acts with a culpable state of mind if he “(a) knows or believes that the

matter is not as he represents it to be, (b) does not have

the confidence in the accuracy of his representation

that he states or implies, or (c) knows that he does not

have the basis for his representation that he states or

implies.” Restatement (Second) of Torts § 526 (1977);

accord, e.g., 1 Joseph Story, Commentaries on Equity

Jurisprudence § 193 (6th ed. 1853). Each of those

common-law standards focuses on the defendant’s actual, subjective state of mind at the time of the conduct

in question.

2. The court of appeals viewed this Court’s decision

in Safeco, supra, as dictating that a defendant’s subjective state of mind is “irrelevant” under the FCA. Pet.

App. 26a. The court held that an FCA defendant cannot

be found to have acted “knowingly” if its conduct was

consistent with an objectively reasonable interpretation

that had not previously been rejected by an appellate

court or agency guidance. Ibid. That approach is erroneous.

a. Safeco involved several insurers’ failures to notify consumers that the insurers had taken “adverse action[s]” based on the consumers’ credit reports. 551

U.S. at 52 (quoting 15 U.S.C. 1681m(a)). A provision of

the Fair Credit Reporting Act (FCRA) imposed penalties for “willfully” failing to provide such notifications.

15 U.S.C. 1681n(a). This Court granted review to decide

whether that provision “reache[d] reckless disregard

of ” FCRA’s requirements and, if so, whether the insurers’ particular violations had been “reckless.” Safeco,

551 U.S. at 52, 56.

14

Based on “clue[s] in the text” and statutory context,

the Court held that FCRA violations committed “willfully” included both knowing and reckless violations.

Safeco, 551 U.S. at 59. The Court further held that

Safeco had not acted recklessly because its interpretation of the notice provisions was “not objectively unreasonable.” Id. at 69. The Court stated that Safeco had

not had “the benefit of guidance from the courts of appeals or the Federal Trade Commission (FTC) that

might have warned it away from the view it took,” and

observed that an “ ‘informal staff opinion’ ” suggesting

that Safeco’s practice was incorrect had explicitly

stated it was not “ ‘binding.’ ” Id. at 70 & n.19 (citation

omitted). Under those circumstances, the Court concluded that Safeco had not run an “unjustifiably high

risk of violating the statute.” Id. at 70 (internal quotation marks omitted).

In a closing footnote, the Court addressed an argument that, “for purposes of [Section] 1681n(a),” “evidence of subjective bad faith must be taken into account.” Safeco, 551 U.S. at 70 n.20. The Court stated

that “[w]here, as here, the statutory text and relevant

court and agency guidance allow for more than one reasonable interpretation, it would defy history and current thinking to treat a defendant who merely adopts

one such interpretation as a knowing or reckless violator.” Ibid. The Court concluded that “Congress could

not have intended such a result for those who followed

an interpretation that could reasonably have found support in the courts, whatever their subjective intent may

have been.” Id. at 71 n.20.

b. As discussed, p. 9, supra, terms like “knowing”

and “willful” must be “construe[d] * * * in their particular statutory context.” Jerman, 559 U.S. at 585.

15

Indeed, the Safeco Court emphasized that a recklessness standard is “not self-defining” and depends on the

context in which it applies. 551 U.S. at 68 (quoting

Farmer, 511 U.S. at 836). For three reasons, this

Court’s interpretation of FCRA’s scienter requirement

cannot properly be transplanted to the present statutory context.

First, the two statutes’ scienter provisions contain

significantly different language. FCRA imposes penalties on anyone who “willfully fails to comply” with the

statute’s requirements, without defining the term “willfully.” 15 U.S.C. 1681n(a). The FCA, in contrast, imposes liability on persons who “knowingly” submit false

claims or statements, and its three-pronged definition

of that term focuses on the defendant’s state of mind at

the time of those submissions. 31 U.S.C. 3729(a)(1)(A)

and (B); see p. 12, supra.

Second, Safeco involved a consumer-protection statute, and this Court relied on the section of the Restatement (Second) of Torts that “define[d] reckless disregard of a person’s physical safety.” Safeco, 551 U.S. at

69. The Court concluded that, in that context, “the essence of recklessness at common law” was a “high risk

of harm, objectively assessed.” Ibid. (emphasis added).

But as discussed, pp. 12-13, supra, common-law decisions addressing fraudulent misrepresentation—the

foundation for the FCA—have long recognized the independent sufficiency of subjective intent in the context

of that distinct tort. See Pet. App. 41a-42a & n.1 (Hamilton, J., dissenting).

Third, the FCA applies specifically to claims for government money or property. “[T]hose who seek public

funds” have a heightened duty to “act with scrupulous

regard for the requirements of law.” Heckler v.

16

Community Health Services of Crawford County, Inc.,

467 U.S. 51, 63 (1984). As this case illustrates, moreover, companies that seek funds from the government

(particularly on a recurring basis) often have avenues

for resolving ambiguity about payment rules—for example, by seeking guidance from their contractual partners in state Medicaid agencies or from contractual intermediaries like pharmacy benefit managers—that

might not be available with respect to more generally

applicable requirements. See Br. in Opp. 8-9 (arguing

that respondents asked for clarification from certain

state Medicaid agencies and pharmacy benefit managers). When such avenues for clarification are readily

available, a contractor’s failure to invoke those mechanisms may be evidence of deliberate ignorance or recklessness under the FCA. Holding contractors liable in

those circumstances is consistent with “history and current thinking” about the obligations of those who do

business with the government, Safeco, 551 U.S. at 71

n.20, in a way that imposing liability for the creditreport-related violations in Safeco was not.

c. This Court’s decision in Halo Electronics, supra,

confirms that Safeco cannot be mechanically applied to

other, materially different statutes.

In Halo Electronics, the defendant in a patentinfringement suit had “all-but instructed its design

team to copy” existing patented technology, “opting to

worry about the potential legal consequences later.”

579 U.S. at 102 (brackets omitted). This Court ultimately considered whether the defendant could be held

liable for enhanced damages for “willful” patent violations. Id. at 103; see id. at 97. Following Safeco, the

Federal Circuit had adopted a “two-part” objective test

much like the Seventh Circuit’s approach here, and had

17

held that enhanced damages were unavailable because

the defendant could identify, after the fact, an objectively reasonable argument that the patent-in-suit was

invalid. Id. at 100; see id. at 100-102.

This Court reversed, explaining that “culpability is

generally measured against the knowledge of the actor

at the time of the challenged conduct.” Halo Electronics, 579 U.S. at 105 (citing, inter alia, Restatement (Second) of Torts § 8A (1965)). The Court explained that the

Federal Circuit had strayed from that principle by allowing “someone who plunders a patent * * * without

any reason to suppose his conduct is arguably defensible” to “nevertheless escape any comeuppance * * *

solely on the strength of his attorney’s ingenuity.” Ibid.

The Court clarified that “[n]othing in Safeco suggests

that we should look to facts that the defendant neither

knew nor had reason to know at the time he acted.” Id.

at 106. The Court also rejected an expansive reading of

Safeco’s footnote 20, explaining that while “a showing of

bad faith” is not relevant under FCRA, courts in patentinfringement suits had long recognized that subjective

bad faith could warrant “enhancing patent damages.”

Id. at 106 n.*; cf. pp. 12-13, supra (discussing precedent

treating subjective bad faith as central in the fraud context).

d. The court below concluded that, when FCA defendants can ultimately articulate an objectively plausible exculpatory argument, so that the government’s

proof does not satisfy “the Safeco scienter standard,”

then it is not “possible for [the] defendants to actually

know that they submitted a false claim.” Pet. App. 21a.

This Court rejected similar reasoning in Halo Electronics, holding that the Federal Circuit was wrong to “require[] a finding of objective recklessness in every case”

18

because “intentional or knowing” conduct can exist

“without regard to whether [the] infringement was objectively reckless.” 579 U.S. at 104-105. The Court

found that subjective bad faith could be a sufficient

predicate for enhanced damages even though “such

damages are generally reserved for egregious cases of

culpable behavior.” Id. at 104.

The same is true under the FCA. Where defendants

subjectively intend to submit false claims for payment,

their conduct is highly culpable even if a later-identified

ambiguity in the governing requirements could plausibly be resolved in their favor. The same is true of defendants who submit claims that they strongly (and correctly) suspect are false, rather than avail themselves of

readily available avenues for obtaining clarification.

See pp. 11-12, supra.

Respondents would treat such defendants as no different from contractors who sincerely “adopt[] a reasonable interpretation of an uncertain legal obligation

later determined to be erroneous.” Br. in Opp. 30. But

contrary to respondents’ view (ibid.), it is consistent

with “basic principles of fairness and due process” to

distinguish between such parties based on their subjective state of mind—imposing liability on defendants

who were reckless or deliberately ignorant, or who affirmatively intended to submit false claims, but not on

contractors who reasonably believed their claims were

accurate. That distinction has a venerable history in the

common law of fraudulent misrepresentation, see pp.

12-13, supra, and the panel majority erred in treating it

as “irrelevant” under the FCA, Pet. App. 26a.

B. The Question Presented Warrants Review In This Case

The question presented has generated disagreement

in the courts of appeals and is important to efforts to

19

fight fraud involving the public fisc. This case provides

an appropriate vehicle to clarify the governing standard.

1. a. As Judge Hamilton recognized (Pet. App. 47a),

the Eleventh Circuit previously rejected the approach

to scienter that is reflected in the decision below. In

Phalp, supra, the Eleventh Circuit overturned a “district court’s conclusion that a finding of scienter can be

precluded by a defendant’s identification of a reasonable interpretation of an ambiguous regulation that

would have permitted its conduct.” 857 F.3d at 1155.

The Eleventh Circuit explained that “scienter is not determined by the ambiguity of a regulation, and can exist

even if a defendant’s interpretation is reasonable.”

Ibid. The court therefore found it necessary to consider

the relator’s evidence that the defendants’ “employees

believed or had reason to believe they were violating

Medicare regulations.” Id. at 1156. The court affirmed

the district court’s judgment only after concluding that

the “evidence proffered * * * as to Defendants’ state of

mind * * * was insufficient to survive summary judgment.” Id. at 1151.

The court below observed that the Eleventh Circuit

in Phalp did not “cite Safeco.” Pet. App. 16a. But the

salient point is that the legal rule adopted in Phalp conflicts with the rule adopted in this case. The Eleventh Circuit found it necessary to examine evidence of the defendants’ subjective state of mind even where their conduct

was consistent with a reasonable interpretation of the

governing regulation, Phalp, 857 F.3d at 1155-1156, while

the Seventh Circuit declared such evidence “irrelevant,”

Pet. App. 26a.*

* In a later unpublished, per curiam decision, an Eleventh Circuit

panel relied on Safeco in holding that a defendant lacked the

20

The decision below is likewise inconsistent with

other circuits’ understandings of the FCA’s scienter requirement. In Prather, supra, the Sixth Circuit held

that the defendants’ subjective awareness “that their

conduct was, at least, perilously close to noncompliance,” combined with their failure “to inquire into

whether they were actually in compliance,” was sufficient to show “ ‘reckless disregard’ as to the truth of

their certification.” 892 F.3d at 838. The court reached

that conclusion despite the dissent’s observation that no

authoritative interpretation foreclosed the defendants’

understanding at the time they acted. Id. at 851-852

(McKeague, J., dissenting). Under the Seventh Circuit’s approach, however, that absence of authoritative

guidance would have been dispositive.

Similarly, in United States v. Chen, 402 Fed. Appx.

185 (9th Cir. 2010), the defendant claimed that “he

lacked knowledge because he based his claims on a reasonable interpretation” of the governing requirements.

Id. at 188. Without addressing whether the interpretation was objectively reasonable, the Ninth Circuit affirmed the judgment against him based on evidence that

his interpretation was not held “in good faith”—i.e.,

that he did not subjectively believe it. Ibid. Under the

Seventh Circuit’s approach, however, it would have

made no difference whether the defendant actually believed the proffered interpretation.

scienter necessary to violate the FCA. Olhausen v. Arriva Medical,

LLC, No. 21-10366, 2022 WL 1203023, at *1-*2 (Apr. 22, 2022), petition for cert. pending, No. 22-374 (filed Oct. 18, 2022). That unpublished decision does not disturb Phalp’s status as binding circuit

precedent, but it reinforces the need for guidance on the question

presented.

21

b. Other courts of appeals have applied Safeco to

FCA cases, but have not clearly determined whether

Safeco categorically precludes consideration of a defendant’s subjective state of mind.

The decision below took the most extreme position,

holding that an FCA defendant can escape liability by

identifying an objectively reasonable (but wrong) exculpatory interpretation of the governing requirements after the fact, even if the defendant was unaware of that

interpretation at the time it acted. See Pet. App. 26a27a.

Two other circuits have agreed that objective reasonableness can preclude FCA liability in some circumstances, but have not clearly decided whether those circumstances include post hoc interpretations. The D.C.

Circuit cited Safeco for the proposition that “subjective

intent—including bad faith—is irrelevant” when an

FCA defendant invokes a reasonable interpretation,

but did not clearly resolve whether the defendant must

have relied on the interpretation when it submitted its

claims. United States ex rel. Purcell v. MWI Corp., 807

F.3d 281, 290 (2015), cert. denied, 137 S. Ct. 625 (2017);

see United States ex rel. Morsell v. NortonLifeLock,

Inc., 560 F. Supp. 3d 32, 45 (D.D.C. 2021) (“Purcell does

not explicitly state whether a reasonable interpretation

must have been held contemporaneously. Its language,

however, indicates that contemporaneity is necessary.”). The Eighth Circuit’s decisions reflect the same

ambiguity. While that court has disavowed a “sweeping

rule that” ignores “the defendant’s state of mind,” it has

seemingly applied a Safeco-based approach to FCA

cases. United States ex rel. Donegan v. Anesthesia Associates of Kansas City, PC, 833 F.3d 874, 879 (8th Cir.

2016).

22

c. Finally, the en banc Fourth Circuit recently deadlocked in a case raising the question presented, leaving

the governing law there uncertain. In United States ex

rel. Sheldon v. Allergan Sales, LLC, 24 F.4th 340 (2022),

the panel majority endorsed the approach adopted by

the Seventh Circuit here. See id. at 348 (discussing decision below). The full court subsequently granted rehearing en banc and vacated the panel opinion, but the

court ultimately affirmed the district court’s judgment

by an equally divided vote. See United States ex rel.

Sheldon v. Allergan Sales, LLC, 49 F.4th 873 (4th Cir.

2022) (per curiam). That court’s inability to agree upon a

governing standard highlights the need for this Court’s

review.

2. The importance of the question presented also

supports further review.

In the 1986 Amendments, Congress abrogated prior

FCA decisions requiring proof of a specific intent to defraud. See pp. 9-10, supra. The decision below, however, goes even further than those pre-1986 rulings.

Under the Seventh Circuit’s reasoning, even proof that

a defendant “intend[ed] to file a false claim” is not always sufficient to establish the FCA’s scienter requirement. Pet. App. 21a.

That holding could significantly disrupt government

programs involving everything from medical insurance

to military equipment. Limited resources and administrative complexity make it impossible to preemptively

address every potential ambiguity that motivated attorneys might later identify. The government therefore relies on its contracting partners to approach the inevitable ambiguities in good faith, following what they understand to be the best interpretation and seeking clarification when necessary. The decision below, however,

23

allows claimants for government funds to submit claims

they believe to be false without incurring FCA liability,

so long as their attorneys can later identify a legal rationale that a court concludes is plausible.

By holding that only courts of appeals and government agencies can warn contractors away from wrongbut-reasonable interpretations, Pet. App. 27a-28a, the

decision below creates special problems for programs

like Medicare Part D that operate through private intermediaries like plan sponsors or pharmacy benefit

managers. The FCA covers claims submitted to such

intermediaries, see 31 U.S.C. 3729(b)(2)(A)(ii), but under the Seventh Circuit’s view, claimants can flout the

intermediaries’ guidance regarding conditions of payment. See Pet. App. 28a.

3. This case provides an appropriate vehicle in which

to clarify the FCA’s scienter requirement. The majority and dissenting opinions below both discussed whether Safeco applies to the Act, and both opinions recognized that the majority’s resolution of that question was

dispositive here. See Pet. App. 26a-27a, 31a; id. at 58a

(Hamilton, J., dissenting). If this Court holds that the

majority erred in extending Safeco to the FCA, it could

remand to the court of appeals to apply the proper scienter standard in the first instance. Alternatively, the

Court could hold that petitioners’ evidence, see pp. 4-6,

supra, would allow a reasonable jury to conclude that

respondents “knowingly” misreported their “usual and

customary” prices by excluding the widely utilized and

substantially lower prices offered through their pricematch program. Using either approach, the Court could

provide much-needed guidance on this important issue.

24

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

ELIZABETH B. PRELOGAR

Solicitor General

BRIAN M. BOYNTON

Principal Deputy Assistant

Attorney General

MALCOLM L. STEWART

Deputy Solicitor General

BENJAMIN W. SNYDER

Assistant to the Solicitor

General

MICHAEL S. RAAB

CHARLES W. SCARBOROUGH

JOSHUA DOS SANTOS

Attorneys

DECEMBER 2022