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

Nos. 21-1326, 22-111

IN THE

Supreme Court of the United States

____________

UNITED STATES EX REL. TRACY SCHUTTE ET AL .,

Petitioners,

v.

SUPERVALU INC. ET AL.,

Respondents.

____________

UNITED STATES EX REL. THOMAS PROCTOR,

Petitioner,

v.

SAFEWAY, INC.,

Respondent.

____________

On Writs of Certiorari to the United States

Court of Appeals for the Seventh Circuit

____________

BRIEF OF WASHINGTON LEGAL FOUNDATION AS

AMICUS CURIAE SUPPORTING RESPONDENTS

____________

John M. Masslon II

Counsel of Record

Cory L. Andrews

WASHINGTON LEGAL FOUNDATION

2009 Massachusetts Ave. NW

Washington, DC 20036

(202) 588-0302

jmasslon@wlf.org

March 27, 2023

QUESTION PRESENTED

Whether the objective knowledge standard this

Court articulated in Safeco Insurance Co. v. Burr, 551

U.S. 47 (2007), governs the False Claims Act’s

scienter requirement where a claim’s purported

falsity turns on an ambiguous legal obligation.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED ......................................... i

TABLE OF AUTHORITIES ..................................... iv

INTEREST OF AMICUS CURIAE ............................1

INTRODUCTION .......................................................1

STATEMENT ..............................................................3

I.

SUPERVALU ............................................................3

II. SAFEWAY ................................................................5

SUMMARY OF ARGUMENT.....................................5

ARGUMENT ...............................................................7

I.

PETITIONERS’ FOCUS ON THE THREE TYPES

OF SCIENTER SUPPORTING FCA LIABILITY IS

A RED HERRING .....................................................7

II. THE

CONSTITUTIONAL-DOUBT

CANON

RESOLVES ANY QUESTION ABOUT SAFECO’S

APPLICABILITY TO FCA CLAIMS ............................8

A. FCA Penalties Trigger Heightened

Due-Process Protections ............................9

B. Petitioners’ Interpretation Of The

FCA Flouts These Heightened DueProcess Protections ..................................12

CONCLUSION ..........................................................21

iv

TABLE OF AUTHORITIES

Page(s)

Cases

Abraham Lincoln Mem’l

Hosp. v. Sebelius,

698 F.3d 536 (7th Cir. 2012)................................19

United States ex rel. Berkowitz v.

Automation Aids, Inc.,

896 F.3d 834 (7th Cir. 2018)................................15

Browning-Ferris Indus. of Vt., Inc. v.

Kelco Disposal, Inc.,

492 U.S. 257 (1989) ................................................9

Champlin Ref. Co. v. Corp. Comm’n,

286 U.S. 210 (1932) ..............................................13

City of Chicago v. Morales,

527 U.S. 41 (1999) ..........................................12, 14

Cline v. Frink Dairy Co.,

274 U.S. 445 (1927) ..............................................13

Connally v. Gen. Const. Co.,

269 U.S. 385 (1926) .................................. 12, 13, 14

United States ex rel.

Garbe v. Kmart Corp.,

824 F.3d 632 (7th Cir. 2016)............................4, 15

United States ex rel. Hagood v.

Sonoma Cnty. Water Agency,

929 F.2d 1416 (9th Cir. 1991)..............................16

United States ex rel. Harman v.

Trinity Indus. Inc.,

872 F.3d 645 (5th Cir. 2017)................................16

v

TABLE OF AUTHORITIES

(continued)

Page(s)

Hindo v. Univ. of Health

Scis./Chi. Med. Sch.,

65 F.3d 608 (7th Cir. 1995)..................................16

United States ex rel.

Hochman v. Nackman,

145 F.3d 1069 (9th Cir. 1998)..............................16

Int’l Harvester Co. of Am. v. Kentucky,

234 U.S. 216 (1914) ..............................................12

Lanzetta v. New Jersey,

306 U.S. 451 (1939) ..............................................12

Leocal v. Ashcroft,

543 U.S. 1 (2004)............................................10, 11

Nielsen v. Preap,

139 S. Ct. 954 (2019)..............................................8

United States ex rel. Phalp v.

Lincare Holdings, Inc.,

857 F.3d 1148 (11th Cir. 2017)................ 16, 17, 18

United States ex rel.

Purcell v. MWI Corp.,

807 F.3d 281 (D.C. Cir. 2015) ..........................7, 10

Rehab. Ass’n of Va. v. Kozlowski,

42 F.3d 1444 (4th Cir. 1994)................................19

Safeco Ins. Co. of Am. v. Burr,

551 U.S. 47 (2007) ........................................2, 7, 11

Satellite Broad. Co. v. FCC,

824 F.2d 1 (D.C. Cir. 1987) ..................................10

Screws v. United States,

325 U.S. 91 (1945) ................................................13

vi

TABLE OF AUTHORITIES

(continued)

Page(s)

Skilling v. United States,

561 U.S. 358 (2010) ..............................................14

St. Louis, I. M. & S. R. Co. v. Williams,

251 U.S. 63 (1919) ..................................................9

State Farm Fire & Cas. Co. v.

United States ex rel. Rigsby,

580 U.S. 26 (2016) ..................................................1

United States v. Bornstein,

423 U.S. 303 (1976) ................................................9

United States v. Brookdale Senior

Living Communities, Inc.,

892 F.3d 822 (6th Cir. 2018)................................18

United States v. Harriss,

347 U.S. 612 (1954) ..............................................14

United States v. L. Cohen Grocery Co.,

255 U.S. 81 (1921) ................................................13

United States v. Reese,

92 U.S. 214 (1875) ................................................12

United States v. Sci. Apps. Int’l Corp.,

626 F.3d 1257 (D.C. Cir. 2010) ............................15

United States v. Thompson/

Ctr. Arms Co.,

504 U.S. 505 (1992) ..............................................10

Universal Health Servs., Inc. v.

United States ex rel. Escobar,

579 U.S. 176 (2016) ..........................................1, 15

vii

TABLE OF AUTHORITIES

(continued)

Page(s)

Vill. of Hoffman Estates v. Flipside,

Hoffman Estates, Inc.,

455 U.S. 489 (1982) ..............................................10

Vt. Agency of Nat. Res. v. United

States ex rel. Stevens,

529 U.S. 765 (2000) ................................................9

Statutes

18 U.S.C. § 287 ....................................................10, 11

31 U.S.C.

§ 3729(a)(1)(A) ........................................ 2, 8, 11, 17

§ 3729(b)(1)(A)(i) ................................................2, 7

§ 3729(b)(1)(A)(ii) ...............................................2, 7

§ 3729(b)(1)(A)(iii) ..............................................2, 7

False Claims Amendments Act of 1986,

Pub. L. No. 99-562, 100 Stat. 3153 .................9, 17

Okla. Stat. § 7255 (1921) ..........................................13

Other Authorities

Douglas W. Baruch et al., In False

Claims Act Cases, Government Must

Provide Full Discovery Regarding

Materiality, WLF LEGAL OPINION

LETTER (Dec. 6, 2018) ............................................1

H.R. Rep. No. 99-660 (1986) .....................................18

S. Rep. No. 99-345, as reprinted

in 1986 U.S.C.C.A.N. 5266 ........................ 9, 17, 18

viii

TABLE OF AUTHORITIES

(continued)

Page(s)

Stephen A. Wood, Res Judicata in Qui

Tam Litigation: Why Government

Should Be Bound by Judgments in

Non-Intervened Cases, WLF

WORKING PAPER (Apr. 22, 2021) ............................1

1

INTEREST OF AMICUS CURIAE*

Washington Legal Foundation is a nonprofit,

public-interest law firm and policy center with

supporters nationwide. WLF promotes free

enterprise, individual rights, limited government,

and the rule of law. It often appears as amicus curiae

in important False Claims Act cases. See, e.g., State

Farm Fire & Cas. Co. v. United States ex rel. Rigsby,

580 U.S. 26 (2016); Universal Health Servs., Inc. v.

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

WLF’s Legal Studies Division also regularly

publishes papers on FCA issues. See, e.g., Stephen A.

Wood, Res Judicata in Qui Tam Litigation: Why

Government Should Be Bound by Judgments in NonIntervened Cases, WLF WORKING PAPER (Apr. 22,

2021); Douglas W. Baruch et al., In False Claims Act

Cases, Government Must Provide Full Discovery

Regarding Materiality, WLF LEGAL OPINION LETTER

(Dec. 6, 2018).

WLF believes that these cases are an attempt

at expanding the FCA beyond its purpose.

INTRODUCTION

Congress enacted the FCA during the Civil

War to deter war profiteers from intentionally bilking

the government out of much-needed funds. Today, the

FCA limits similar abuse in the ever-growing

healthcare industry. But unlike in the past, today a

* No person or entity, other than Washington Legal

Foundation and its counsel, paid for the brief’s preparation or

submission.

2

cottage industry of lawyers pursues actions against

companies for objectively reasonable conduct.

A key element of any fraud claim is scienter.

That is why the FCA requires plaintiffs to prove that

defendants “knowingly present[ed], or cause[d] to be

presented, a false or fraudulent claim for payment or

approval.” 31 U.S.C. § 3729(a)(1)(A). To act

knowingly, defendants must (1) have “actual

knowledge” that the information is false, (2) show

“deliberate ignorance of the truth or falsity of the

information,” or (3) show “reckless disregard of the

truth or falsity of the information.” Id.

§ 3729(b)(1)(A)(i-iii). Without this showing of scienter,

government contractors may still be liable for their

breach of contract. But a lack of scienter eliminates

the threat of criminal penalties, treble damages,

attorneys’ fees, and costs under the FCA. The scienter

requirement therefore serves as a critical due-process

protection.

These cases present a straightforward legal

question about the scienter requirement: Does the

test this Court outlined in Safeco Ins. Co. of Am. v.

Burr, 551 U.S. 47 (2007) for willfulness under the Fair

Credit Reporting Act apply to FCA actions? The

courts of appeals to have considered this question are

unanimous—yes.

Petitioners and their amici, however, ask this

Court to upend this well-settled rule. True, sometimes

the courts of appeals are wrong when they

unanimously interpret a statute or this Court’s

precedent. But that is a rare occasion and did not

happen here. The appellate courts correctly

interpreted the FCA to require courts to use the

3

Safeco test when deciding whether relators met the

FCA’s willfulness requirement.

Even a jurist who dissented in the court of

appeals only attacks Safeco when arguing that it does

not apply in FCA actions. See Oral Argument at

1:22:10-1:22:25, United States ex rel. Sheldon v.

Allergen Sales, LLC, 49 F.4th 873 (4th Cir. 2022) (en

banc) (per curiam) (No. 20-2330) (Judge Wynn

suggesting that this Court’s Safeco decision was

“judicial activism”). This Court should not abandon

Safeco’s test for willfulness just because it makes it

harder for the plaintiffs’ bar to extort settlements

from companies for objectively reasonable conduct.

Government contractors’ due-process rights, of

course, trump the ability of some lawyers to craft a

niche business by suing under the FCA. Those dueprocess concerns require affirming the Seventh

Circuit’s decisions.

STATEMENT

I. SUPERVALU

Between 2006 and 2016, SuperValu controlled

over 800 pharmacies. During that time, SuperValu

tried to compete with pharmacies like Wal-Mart,

which began offering prescription drugs at deep

discounts. But rather than match Wal-Mart’s prices

for all customers, SuperValu instead matched the

price only when customers asked for a price match of

a nearby pharmacy. The pharmacist then applied the

discount and matched the other pharmacy’s price

after confirming that pharmacy’s price. The sales

were coded as cash sales rather than third-party

payor sales.

4

SuperValu did not use the price matches when

seeking reimbursements from Medicare and

Medicaid. Rather, it used the retail prices. This price

submission is known as the usual and customary

(U&C) price.

Twelve years ago, two relators sued SuperValu

arguing that excluding the price matches when

calculating the U&C price violated the FCA. They

claim that the price-match program tried to retain

customers while maintaining revenue by charging

Medicare, Medicaid, and other insurers the drugs’ full

prices.

While the suit was pending, the Seventh

Circuit held that pharmacies had to include

membership club discounts when calculating the

U&C prices for drugs. See United States ex rel. Garbe

v. Kmart Corp., 824 F.3d 632, 643-45 (7th Cir. 2016).

SuperValu immediately followed that decision and

included the price matches in its U&C prices.

Still, the District Court granted SuperValu’s

motion for summary judgment. It held that Safeco’s

test also applied in the FCA context. Because

SuperValu’s construction of the statute and

regulations was objectively reasonable, the relators

could not show the scienter needed to prevail in an

FCA action.

In a divided opinion, the Seventh Circuit

affirmed. It agreed with the District Court—and

every other circuit to consider the issue—and held

that Safeco’s test applies in the FCA context.

Although the United States had declined to take over

5

the case, the Solicitor General urged this Court to

hear this case and the Court agreed to do so.

II. SAFEWAY

Between 2006 and 2015, Safeway also tried to

compete with low-cost pharmacies. Safeway

pharmacists could—but did not have to—match

competitors’ prices when customers asked for price

matches of nearby pharmacies. In 2008, Safeway

started another program that helped customers

receive cheaper prescriptions. After filling out a form

and paying cash, customers received generic drugs for

$4 per 30-day supply. Safeway did not use sales under

either program when calculating drugs’ U&C prices.

In 2011, a relator sued Safeway under the FCA

arguing that Safeway violated the FCA when it

requested reimbursement from Medicare and

Medicaid because it did not properly calculate the

drugs’ U&C prices. The District Court granted

Safeway summary judgment for the same reason that

it granted SuperValu summary judgment; the relator

failed to prove scienter under the Safeco test.

Applying its SuperValu decision—decided during the

pendency of the appeal—the Seventh Circuit

affirmed. This Court then agreed to hear the case

together with SuperValu.

SUMMARY OF ARGUMENT

I. Petitioners’ and Senator Grassley’s

argument that the Seventh Circuit should have

examined all three levels of scienter is a red herring

meant to distract from the fact that they are asking

this Court to implicitly overturn Safeco. Failure to

6

satisfy the Safeco test dooms a plaintiff’s claim that a

defendant acted with any level of scienter required for

FCA liability. The Court should thus reject

Petitioners’ argument that the Seventh Circuit went

astray by focusing on the lowest level of scienter here.

II.A. FCA violations carry the potential of

treble damages. Unlike ordinary or even double

damages, treble damages are punitive and trigger

heightened due-process protections for parties

accused of FCA violations. Similarly, FCA violations

carry potential criminal penalties. As with treble

damages, the threat of criminal penalties also

triggers heightened due-process protections.

B. Petitioners’ proposed rule ignores these dueprocess protections. At the heart of due process of law

is the right to know what conduct is prohibited. The

impenetrable Medicare and Medicaid regulations

make it so that even the most conscientious company

will eventually breach those rules. But Respondents

did not have fair notice that they could face treble

damages and criminal penalties until a binding

interpretation issued. The Safeco test ensures that

parties are punished only when they had proper

notice of prohibited conduct. It provides this critical

due-process protection while still ensuring that

companies do not bury their heads in the sand.

7

ARGUMENT

I.

PETITIONERS’ FOCUS ON THE THREE TYPES

OF SCIENTER SUPPORTING FCA LIABILITY IS

A RED HERRING.

Petitioners and Senator Grassley insist that

the Seventh Circuit erred by focusing on whether

Respondents exhibited “reckless disregard of the

truth or falsity of the” submitted claims. 31 U.S.C.

§ 3729(b)(1)(A)(iii). According to Petitioners and

Senator Grassley, the Seventh Circuit also had to

examine whether Respondents had “actual

knowledge” of the falsity of the submitted claims or

showed “deliberate ignorance” to the truth or falsity

of the submitted claims. Id. § 3729(b)(1)(A)(i-ii). But

because Petitioners could not satisfy the Safeco test,

it was impossible for them to prove any of the three

levels of scienter required for FCA liability.

Under Safeco, when deciding whether a

defendant acted knowingly, courts consider whether

the defendant had “an objectively reasonable”

interpretation of a provision susceptible to competing

interpretations and whether there was “interpretive

guidance that might have warned the defendant away

from the view it took.” United States ex rel. Purcell v.

MWI Corp., 807 F.3d 281, 288 (D.C. Cir. 2015)

(cleaned up); see Safeco, 551 U.S. at 70.

It is impossible to have “actual knowledge” of

the falsity of a claim if these requirements are

satisfied. If the defendant had “actual knowledge”

that a claim was false, it could not have had an

objectively reasonable interpretation of a provision

open to differing interpretations. Similarly, a

8

defendant could not have acted with “deliberate

ignorance” absent some guidance warning away from

the defendant’s objectively reasonable interpretation.

To be liable under the FCA a defendant must

have “knowingly present[ed], or cause[d] to be

presented, a false or fraudulent claim for payment or

approval.” 31 U.S.C. § 3729(a)(1)(A). Yet Petitioners

and Senator Grassley spill much ink on the difference

between actual knowledge and reckless behavior.

Their doing so is a distraction because they should

understand that the Seventh Circuit properly held

that failure to satisfy the Safeco test was fatal to

Petitioners’ claims because they could not prove

knowledge.

II.

THE

CONSTITUTIONAL-DOUBT

CANON

RESOLVES ANY QUESTION ABOUT SAFECO’S

APPLICABILITY TO FCA CLAIMS.

“[T]he canon of constitutional avoidance”

“provides that when a serious doubt is raised about

the constitutionality of an act of Congress, this Court

will first ascertain whether a construction of the

statute is fairly possible by which the question may

be avoided.” Nielsen v. Preap, 139 S. Ct. 954, 971

(2019) (cleaned up). Here, even if two reasonable

interpretations exist for the FCA’s scienter

requirement, this Court should adopt the

interpretation incorporating Safeco’s test. The other

possible interpretation—advanced by Petitioners—

would raise serious doubt about the FCA’s

constitutionality.

9

A.

FCA Penalties Trigger Heightened

Due-Process Protections.

1. Before 1986, an FCA violation subjected

companies to only double—not treble—damages.

United States v. Bornstein, 423 U.S. 303, 305 (1976).

The Court therefore said that FCA damages were

“compensat[ory].” Id. at 315. But “evidence of fraud in

Government programs and procurement [wa]s on a

steady rise.” S. Rep. No. 99-345, 2, as reprinted in

1986 U.S.C.C.A.N. 5266, 5267. So Congress amended

the FCA to provide for treble damages. False Claims

Amendments Act of 1986, Pub. L. No. 99-562, § 2, 100

Stat. 3153, 3153.

This changed the nature of FCA damages.

After the 1986 amendments, the Court held “the

current version of the FCA imposes damages that are

essentially punitive in nature.” Vt. Agency of Nat. Res.

v. United States ex rel. Stevens, 529 U.S. 765, 784

(2000). This transformation of FCA damages from

compensatory to punitive removes any doubt about

whether the critical due-process protections that

constrain the government’s power to punish apply to

the FCA.

The “Due Process Clause places outer limits on

the size of a civil damages award made pursuant to a

statutory scheme.” Browning-Ferris Indus. of Vt., Inc.

v. Kelco Disposal, Inc., 492 U.S. 257, 276 (1989) (citing

St. Louis, I. M. & S. R. Co. v. Williams, 251 U.S. 63,

66-67 (1919)). Purely compensatory damages cannot

violate substantive due-process protections if

supported by sufficient evidence. Yet FCA damages

can violate the Due Process Clause because they are

punitive. Besides procedural due-process protections,

10

then, courts consider substantive due-process

principles when analyzing the FCA’s scienter

requirement. See Purcell, 807 F.3d at 287 (citing

Satellite Broad. Co. v. FCC, 824 F.2d 1, 3 (D.C. Cir.

1987)).

2.i. Along with punitive treble damages, FCA

violations may carry criminal penalties. 18 U.S.C.

§ 287. This also shapes the due-process protections

afforded defendants in FCA actions. “[T]he relative

importance of fair notice and fair enforcement”

mandated by the Due Process Clause “depends in part

on the nature of the enactment.” Vill. of Hoffman

Estates v. Flipside, Hoffman Estates, Inc., 455 U.S.

489, 498 (1982).

Although this is a civil action, for statutes like

the FCA with both criminal and civil penalties, courts

“must interpret the statute consistently, whether

[courts] encounter its application in a criminal or

noncriminal context.” Leocal v. Ashcroft, 543 U.S. 1,

12 n.8 (2004). “[T]he rule of lenity” therefore applies

so civil and criminal provisions are interpreted

consistently. Id. (citing United States v. Thompson/

Ctr. Arms Co., 504 U.S. 505, 517-18 (1992)

(plurality)).

ii. The Seventh Circuit said that the FCA’s

criminal penalties had no bearing on interpreting the

scienter required for civil FCA liability. Schutte Pet.

App. 14a n.6. This overlooked the key difference

between the Fair Credit Reporting Act’s criminal

provision and the FCA’s criminal provision.

In the Seventh Circuit’s view, Safeco’s

discussion of criminal liability under the FCRA bars

11

consideration of the FCA’s criminal provision. But in

Safeco, the Court focused on the term of art in the

FCRA’s criminal provision. See Safeco, 551 U.S. at 60.

This Court cited three statutes that, like the FCRA,

paired the words “knowingly and willfully.” As this

term of art has a distinct meaning in the criminal

context, the Court found that the language of the

FCRA’s criminal provision differed significantly from

the FCRA’s civil provision. Id.

The FCA’s criminal provision does not contain

this term of art. Rather, it uses only the term

knowingly. 18 U.S.C. § 287. There is no sign of the

word willfully. See id. This key distinction is what the

Seventh Circuit overlooked.

The FCA’s criminal and civil provisions have

the same scienter requirement. Compare 31 U.S.C.

§ 3729(a)(1)(A) with 18 U.S.C. § 287. So under Leocal,

the Court should give the language the same

meaning. 543 U.S. at 12 n.8. This is particularly true

because there is no term of art in the FCA’s criminal

provision as in the FCRA’s criminal provision.

The Seventh Circuit thus should have

considered the FCA’s criminal provision when

deciding the scienter required for a civil FCA

violation. Although it eventually reached the right

result—joining every court of appeals to consider the

issue—this Court can also use the FCA’s criminal

provisions to support Respondents’ construction of the

FCA’s scienter requirement.

12

B.

Petitioners’ Interpretation Of The

FCA Flouts These Heightened DueProcess Protections.

The FCA therefore requires heightened dueprocess protections for two reasons. Both the punitive

nature of the FCA’s treble damages and the criminal

penalties for FCA violations require enhanced dueprocess protections. Yet Petitioners ask this Court to

sidestep Respondents’ due-process rights and hold

them liable despite Petitioners’ failure to satisfy the

Safeco test.

The key constitutional problem with

Petitioners’ proposed standard is that it deprives

Respondents of the right to fair notice of the conduct

that could lead to criminal penalties and punitive civil

sanctions. Fair notice of what conduct is prohibited is

at the core of the Due Process Clause. City of Chicago

v. Morales, 527 U.S. 41, 58 (1999) (citing Lanzetta v.

New Jersey, 306 U.S. 451, 453 (1939)).

1. The Court has long recognized the

importance of fair notice under the Due Process

Clause. It has explained that “[e]very man should be

able to know with certainty when he is committing a

crime.” United States v. Reese, 92 U.S. 214, 220

(1875). Almost 100 years ago, the Court described the

fair notice requirement as “the first essential of due

process of law.” Connally v. Gen. Const. Co., 269 U.S.

385, 391 (1926) (citing Int’l Harvester Co. of Am. v.

Kentucky, 234 U.S. 216, 221 (1914)).

General Construction Company highlights why

disregarding Safeco violates Respondents’ dueprocess rights. There, an Oklahoma statute required

13

that firms performing under contract with the State

pay their workers “the current rate of per diem wages

in the locality where the work is performed.” Okla.

Stat. § 7255 (1921). Finding that the statute violated

the Due Process Clause, the Court explained that the

term “current rate of wages” was “indeterminate[]”

and obscure. Gen. Const. Co., 269 U.S. at 394. And

because the statute was “so uncertain that” it could

“reasonably admit of different constructions,” it

violated the Due Process Clause. Id. at 393.

The FCA regulates economic agreements

between private companies and the federal

government. To serve as a government contractor,

businesses must agree not to submit false claims.

General Construction Company is not the only case in

which the Court considered whether economic

regulations provided inadequate notice of illegal

conduct. See generally, e.g., Champlin Ref. Co. v.

Corp. Comm’n, 286 U.S. 210 (1932) (Oklahoma

Curtailment Act); Cline v. Frink Dairy Co., 274 U.S.

445 (1927) (Colorado antitrust law); United States v.

L. Cohen Grocery Co., 255 U.S. 81 (1921) (Lever Act).

These early 20th-Century cases show that the Court

has long guaranteed the right to fair notice.

The Court kept recognizing the importance of

fair notice during World War II. It explained that

“[t]he constitutional requirement that a criminal

statute be definite serves a high function. It gives a

person acting with reference to the statute fair

warning that his conduct is within its prohibition.”

Screws v. United States, 325 U.S. 91, 103-04 (1945).

The next decade, the Court reiterated that “a criminal

statute” which fails to give “fair notice that his

contemplated conduct is forbidden by the statute”

14

violates the Due Process Clause. United States v.

Harriss, 347 U.S. 612, 617 (1954).

The trend continued at the end of the 20th

Century. The Court said that “the fair notice

requirement” ensures individuals are not placed “at

peril of life, liberty or property” because they must

“speculate as to the meaning of penal statutes.”

Morales, 527 U.S. at 58 (quotation omitted).

A recent case reveals what fair notice requires

when heightened due-process protections apply. In

Skilling v. United States, the Court held that the

defendant received fair notice that bribery and

kickbacks violated the honest-services statute. 561

U.S. 358, 412 (2010). The Court explained that this

was “as clear as a pikestaff.” Id. (quotation omitted).

But other conduct was not so clear. And because the

defendant did not receive fair notice that his conduct

violated the statute, the Court vacated the conviction.

Id. at 413-14.

Yet under Petitioners’ proposed standard, FCA

penalties could be imposed against a defendant whose

conduct adhered to an objectively reasonable

interpretation of statutes, regulations, or contracts

that could “reasonably admit of different

constructions.” Gen. Const. Co., 269 U.S. at 393. If this

Court were to adopt Petitioners’ proposed standard, it

would raise serious questions about the FCA’s

constitutionality.

Although it was “clear as a pikestaff” that

submitting

factually

inaccurate

prices

for

prescription drugs violated the FCA, that is not what

happened here. Instead, it was unclear what

15

constituted a drug’s U&C price. No binding guidance

counseled

against

Respondents’

objectively

reasonable interpretations of the term. They

therefore lacked fair notice that they must include the

price match and membership club discounts in U&C

calculations until Garbe gave a broad interpretation

to the term. See 824 F.3d at 643-45.

For 150 years, this Court has repeatedly

returned to the idea of fair notice. Each time, the

Court has explained why this fair-notice requirement

is critical to due process of law. As explained above,

the FCA’s civil provisions are punitive. An FCA

violation also carries potential criminal liability. So

the Court’s heightened fair-notice requirements

should also govern in FCA cases. Otherwise, the

FCA’s constitutionality would be in doubt. Because

Respondents’ construction of the FCA—employing the

Safeco

standard—avoids

these

constitutional

concerns, this Court should reject Petitioners’

proposed standard.

2. Fair notice is at the core of these heightened

due-process protections. Unsurprisingly, therefore,

both this Court and the courts of appeals have

acknowledged that the scienter requirement is

critical in FCA litigation.

“[C]oncerns about fair notice and open-ended

liability in FCA cases” are “effectively addressed

through strict enforcement of the” FCA’s “scienter

requirement[].” Escobar, 579 U.S. at 192 (citing

United States v. Sci. Apps. Int’l Corp., 626 F.3d 1257,

1270 (D.C. Cir. 2010)); see United States ex rel.

Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 842

(7th Cir. 2018). Allowing for lax application of the

16

scienter requirement raises serious due-process

concerns. And that is what Petitioners and their amici

ask this Court to do by rejecting the Safeco test in

FCA cases.

The Government, for example, argues that

relators can satisfy the FCA’s scienter requirement by

showing that a company was aware of a substantial

risk that it might be wrong and failed to further

investigate the issue. This is a wolf dressed in sheep’s

clothing. The effect of the Government’s disguised

standard is that negligent conduct satisfies the FCA’s

scienter requirement because objectively reasonable

conduct under an ambiguous legal obligation is at

most negligence. So although they disclaim the

position, Petitioners and the Government are asking

this Court to adopt a test that has the effect of

punishing negligent conduct.

Due-process concerns are why “[t]he scienter

requirement is critical to the operation of the [FCA].”

United States ex rel. Hochman v. Nackman, 145 F.3d

1069, 1073 (9th Cir. 1998). As the Seventh Circuit

explained, “[i]nnocent mistakes or negligence are not

actionable under” the FCA. Hindo v. Univ. of Health

Scis./Chi. Med. Sch., 65 F.3d 608, 613 (7th Cir. 1995)

(citing United States ex rel. Hagood v. Sonoma Cnty.

Water Agency, 929 F.2d 1416, 1420 (9th Cir. 1991)).

Courts are unanimous that negligent

submission of claims does not trigger FCA liability.

See, e.g., United States ex rel. Harman v. Trinity

Indus. Inc., 872 F.3d 645, 657 (5th Cir. 2017) (FCA’s

scienter “requirement is not met by mere negligence”

(quotation omitted)); United States ex rel. Phalp v.

Lincare Holdings, Inc., 857 F.3d 1148, 1155 (11th Cir.

17

2017) (citation omitted). These decisions flow

naturally from the FCA’s plain language requiring

that a defendant “knowingly” submit a false claim. 31

U.S.C. § 3729(a)(1)(A). This language reflects

Congress’s acknowledgment that serious due-process

concerns would arise if the FCA imposed treble

damages and criminal penalties for the mere

negligent submission of false claims. Petitioners’ and

the Government’s proposed standard, however, would

have the effect of punishing negligent conduct.

The legislative history of the FCA’s current

scienter requirement reflects this well-settled dueprocess principle. First, Congress amended the FCA’s

scienter requirement in the same enactment that

provided for treble damages. See False Claims

Amendments Act of 1986, Pub. L. No. 99-562, § 2, 100

Stat. at 3153-54. When it increased FCA damages to

a punitive level, Congress knew that not defining the

level of scienter would cause due-process problems.

During hearings on the FCA amendments, the

Department of Justice understood the proposed

scienter standard to mean “that mere negligence

could not be punished by an overzealous agency.” S.

Rep. No. 99-345 at 21, 1986 U.S.C.C.A.N. at 5286. The

Senate Judiciary Committee agreed with this

statement. See id.

Both DOJ and the Senate focused on

government-initiated actions. They did not consider

the possibility of overzealous qui tam counsel and

litigants seeking windfalls for a company’s

negligence. This is because the vast qui tam bar did

not exist in 1986. Today, however, it is hard not to

18

encounter advertisements promising big rewards for

those willing to serve as clients for qui tam counsel.

Courts often look to this legislative history

when discussing the FCA’s scienter requirement. See,

e.g., United States v. Brookdale Senior Living

Communities, Inc., 892 F.3d 822, 837 (6th Cir. 2018);

Lincare Holdings, Inc., 857 F.3d at 1155. This Court

can do the same when deciding whether the Safeco

test applies in FCA actions.

The legislative history also shows why the

Safeco test furthers Congress’s other goals in defining

“knowingly.” The House Judiciary Committee

explained that “those who play ‘ostrich’” would be

held liable under the new definition. H.R. Rep. No. 99660, 21 (1986). The Senate echoed these sentiments.

S. Rep. No. 99-345 at 21, 1986 U.S.C.C.A.N. at 5286

(“an individual [who] has ‘buried his head in the sand’

and failed to make simple inquiries which would alert

him that false claims are being submitted” would be

liable under the knowingly definition).

The Safeco test ensures that companies cannot

bury their heads in the sand to avoid FCA liability. It

does so by asking whether the relevant governmental

agency or courts of appeals issued binding guidance

warning away from the objectively reasonable

interpretation. Here, for example, if CMS or another

body with appropriate statutory authority had

promulgated binding regulations showing that the

U&C price for prescription drugs must include pricematching programs, Respondents could not plead

ignorance. Rather, under Safeco, they could be held

liable for FCA violations because they acted

knowingly. The same holds true if Respondents had

19

failed to conform their conduct after the Seventh

Circuit clarified the effect of price matching on U&C

prices.

But that is not what happened here. No

binding guidance led Respondents away from their

objectively reasonable interpretations of the

contractual terms. Safeco provides Respondents with

due process by not penalizing them for mere

negligence. Safeco does so while accomplishing

Congress’s goal of ensuring that companies do not

bury their heads in the sand when submitting claims

for reimbursement.

Petitioners and their amici do not explain why

using the Safeco test fails to accomplish both goals.

They stress the importance of deterring companies

from burying their heads in the sand. But the Safeco

test accomplishes this goal. Petitioners and their

amici also avoid meaningful discussion of Congress’s

first stated goal—ensuring due process by not

imposing FCA liability for negligent acts. Applying

Safeco is the best way to satisfy this objective. In

contrast, Petitioners’ proposed standard raises

serious constitutional concerns that can be avoided by

applying the Safeco test in FCA actions.

3. “[T]he complex and technical Medicare and

Medicaid programs * * * are among the most

completely impenetrable texts within human

experience.” Abraham Lincoln Mem’l Hosp. v.

Sebelius, 698 F.3d 536, 540-41 (7th Cir. 2012)

(quotation omitted). Reading and understanding the

regulations is “tortur[e].” Rehab. Ass'n of Va. v.

Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994). This

maze of statutes and regulations is important because

20

it shows that Petitioners’ proposed standard would

wreak havoc on the medical industry.

Even the largest, most well-resourced

companies in the world will take objectively

reasonable positions when submitting Medicare or

Medicaid claims under ambiguous laws that are later

determined to be incorrect. Most errors are just

negligence. Despite rigorous checks, companies will

read a complex regulation in a manner that courts

will eventually reject. But if the regulation is

amenable

to

multiple

interpretations,

the

interpretation is objectively reasonable, and no

binding guidance cautions against that objectively

reasonable interpretation, the company has not

committed fraud. Rather, it has committed negligent

acts for which it should reimburse the government.

The company should not have to pay treble

damages and potentially face criminal liability for

mere negligence. That, however, is the effect of

Petitioners’ argument. Petitioners ask this Court to

reject the Safeco standard, which is critical to

meaningful due-process protections. They seek a

standard that would severely punish companies for

mere negligence. That standard would set a trap for

the wary and unwary alike.

*

*

*

The FCA’s plain language supports applying

Safeco’s test. But even if the FCA is ambiguous, this

Court should use the constitutional-doubt canon and

apply Safeco here. The criminal penalties and treble

damages accompanying FCA liability mean that FCA

defendants are entitled to heightened due-process

21

protections. The Court has long recognized these

protections include fair notice of what conduct is

prohibited. The legislative history shows that

Congress acknowledged this right to heightened dueprocess protections when amending the FCA in 1986.

Applying Safeco in FCA cases therefore accomplishes

the FCA’s goals while providing constitutionally

mandated due-process protections.

CONCLUSION

This Court should affirm.

Respectfully submitted,

John M. Masslon II

Counsel of Record

Cory L. Andrews

WASHINGTON LEGAL FOUNDATION

2009 Massachusetts Ave. NW

Washington, DC 20036

(202) 588-0302

jmasslon@wlf.org

March 27, 2023