Amicus Curiae Brief — Universal Health Servs., Inc. v. U.S. & Mass. ex rel. Escobar, 136 S. Ct. 582 (2015) (No. 15-7)

No. 15-7

a

In the

Supreme Court of the Anited States

>>

UNIVERSAL HEALTH SERVICES, INC.,

Petitioner,

Vv.

UNITED STATES AND

COMMONWEALTH OF MASSACHUSETTS,

EX REL. JULIO ESCOBAR AND CARMEN CORREA,

Respondents.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

BRIEF OF LAW PROFESSORS AS AMICI CURIAE

IN SUPPORT OF RESPONDENTS AND AFFIRMANCE

David S. Stone Reuben A. Guttman

Counsel of Record Justin S. Brooks

Robert A. Magnanini Elizabeth H. Shofner

Rachel E. Simon GUTTMAN, BUSCHNER &

STONE & MAGNANINI LLP Brooks PLLC

100 Connell Drive, Suite 2200 2000 P. St. NW, Suite 300

Berkeley Heights, NJ 07922 Washington, DC 20036

(973) 218-1111 (202) 800-3001

DStone@stonemagnalaw.com jbrooks@gbblegal.com

Counsel for Amici Curiae Counsel for Amici Curiae

Law Professors Law Professors

(Please ace reverse for additional counsel)

Gibson Moore Appellate Services, LLC

206 Eeaet Cary Street@ Richmond, VA 23218

404.249.7770 weew.cibsonmeore.aet

David A. Bocian

Asher Alavi

KESSLER TOPAZ MELTZER

& CHeck, LLP

280 King of Prussia Road

Radnor, PA 19087

(610) 667-7706

dbocian@ktmc.com

Counsel for Amici Curiae

Law Professors

QUESTIONS PRESENTED

1. Whether the False Claims Act (“FCA”) prohib-

its a claimant from billing the government for goods

or services when the claimant knows (and fails to

disclose) that the goods or services fail to comply

with material statutory, regulatory, or contractual

requirements (a theory described by some circuits as

“implied false certification” liability).

2. Whether, under an “implied false certification”

theory, the material statutory, regulatory, or con-

tractual requirement must expressly state that it is

a condition of payment by the government.

li

TABLE OF CONTENTS

Page:

QUESTIONS PRESENTED ...................cscccccecessessseees i

ee I siiidrecctnsccninecintiasiincsibtivccnebonbininial ii

poo ee iv

INTERESTS OF THE AMICI CURIAE .................... l

INTRODUCTION AND

SUMMARY OF ARGUMENT..................ccsccesssssesesesseeees 3

ARGUMENT

I. COMMON LAW FRAUD INFORMS

PROPER INTERPRETATION OF THE

FED GENE GI cdisentciicninassnnctiticintcatccirens 7

A. The Plain Language of the FCA

Supports Reliance on Common Law

Principles, Particularly By Imposing

Liability for Material Omissions................ 7

B. The Legislative History of the FCA

Supports Reliance on Common Law

PUT hccccthcisienisinilasiesisinisiniidaiadagenitiiiiesinandiinantad 12

C. This Court Has Consistently Relied

on Common Law Principles in

Determining Liability under “Fraud”

RR ae ENTE CNRS ES 13

I]. ALTHOUGH THE FCA IS

GROUNDED IN COMMON LAW, FCA

LIABILITY AND # ACTIONABLE

COMMON LAW FRAUD ARE NOT

Te 16

ill

A. FCA Liability Is Imposed in the

Absence of Specific Intent to

STITT sccictiesdupadinnincepadcsbnichenncnambastashaiddebestnaiaas 16

B. Unlike Common Law Fraud,

Reliance Is Not An Element of an

SREP ACE nes 18

C. By Continuing to Amend the FCA to

Expand its Reach, Congress Has

Made Clear it Intends that the FCA

Cover Conduct Well Beyond

SN I Sr trticinenninsncsscdiiituninanineiaies 22

D. This Court and Other Courts Have

Consistently Recognized FCA

Liability In the Absence of Either an

Express or Implied Certification.............. 27

Ill. COURTS HAVE FOR DECADES

ACCURATELY DISTINGUISHED

BETWEEN ACTIONABLE AND

NON-ACTIONABLE CONDUCT

UNDER THE FCA BY APPLYING

APPROPRIATE LIMITING

PRINCIPLES EMBODIED IN THE

STE SUNIIEY cunctinsniencsnnepttiistinspesnncscensiniiiies 30

A. Materiality Is a Familiar Legal

Principle That Courts Routinely Apply

to Appropriately Limit Liability for

I aditiinncsLiitnaticiictindsienimisesciapniceipens 30

B. Congress and the Courts Have Made

Clear that Conduct Must Surpass Mere

Breach of Contract to Constitute an

I I iii cil te 34

IIT scatdiininitsab'satuindalinsinesSdesenitinistatanienicadbiaioniaieds 35

iv

TABLE OF AUTHORITIES

Page(s):

Cases:

Basic Inc. v. Levinson,

485 U.S. 224 (19GB) ......ccceccccscescrsccevevcescsssceserseeees 15

BMW of N. Am., Inc. v. Gore,

517 U.S. B59 (1996) ..........ccccsecceeeceeeeeeeeeceeeseneeeeeeees 9

Bonilla v. Volvo-Car-Corp.,

150 F.3d 62 (1st Cir. 1998) ...........cccceeeeeeeeeeeeeeeeeees 8

Durland v. United States,

161 U.S. 306 (1806) ...........ccccc.ccscccvsrcveecerreneeseee 31

Emery v. American Gen. Fin., Inc.,

71 F.3d 1343 (7th Cir. 1995) ...........:-ceceecerererenvenes 9

Field v Mans,

B16 U.S. GO (1GO6) .......ccccccecccsccesessoscoscccesssoressseees 15

Heider v. Leewards Creative Crafts,

245 Ill. App. 3d 258, 613 N.E.2d 805 (1993) ........ 9

Hirsch v. Feuer,

299 Ill. App. 3d 1076,

702 N.E.2d 265 (Ill. App. 1998) ...........ccceceeseeeeeeees 9

Hobbs v. McLean,

40) 2 (> a 11, 14

Horn & Assocs. v. United States,

123 Fed. Cl. 728 (Fed. Cl. 2015) ............2ccceceeeeees 18

Kungys v. United States,

Vs} | 6, 15

Minn. Ass'n of Nurse Anesthetists v.

Allina Health System Corp.,

276 F.3d 1032 (8th Cir. 2002) ..............cccceeeeeeeeees 35

Neder v. United States,

REESE em tone ee passim

Omunicare, Inc. v. Laborers Dist.

Council Constr. Indus. Pension Fund,

- >) Fe Bt |. | RES 6, 13, 16, 31

Rainwater v. United States,

IC a eilah eine 5

Sekhar v. United States,

ESE cree reese ear = 15

Smith v. Richards,

2 RRR Se era ceeeee ae Wetenn = as i)

Strom ex rel. United States v. Scios, Inc.,

676 F. Supp. 884 (N.D. Cal. 2009)................. 28-29

United States ex rel. A+ Homecare, Inc. v.

Medshares Mgmt. Grp., Inc.,

400 F.3d 428 (6th Cir. 2005)................ccccscessssees 20

United States ex rel. Feldman v. Van Gorp,

ee Fe le ee iihittiinttacistcisinrieencetiven 21

United States ex rel. Grubbs v. Kanneganti,

565 F.3d 180 (Sth Cir. 2009) ...............cccccccsesseeees 20

United States ex rel. Harrison v.

Westinghouse Savannah River Co.,

352 F.3d 908 (4th Cir. 2003)............... ee cnacae 20, 21

United States ex rel. Hendow v.

Univ. of Phoenix,

461 F.3d 1166 (Oth Cir. 2O0G) ........0.ccccccseccecceeees. ll

United States ex rel. Holder v.

Special Devices, Inc.,

296 F. Supp. 2d 1167 (C.D. Cal. 2003) ............... 34

vi

United States ex rel. Kroening v.

Forest Pharms., Inc.,

2016 U.S. Dist. LEXIS 3509

(E.D. Wis. Jan. 6, 2016) ...............ccceecersseeeerseeeeees 28

United States ex rel. Lee v.

Smithkline Beecham, Inc.,

945 F.3d 1048 (9th Cir. 2001) ..........2.ccceceeeeeeeeeees 27

United States ex rel. Longhi v. United States,

575 F.3d 458 (5th Cir. 2009)................ceeeeeees 21, 33

United States ex rel. Marcus v. Hess,

SIF UB. GOT IDES) .ccccrecccceceesccecsssevccescees 14, 27, 29

United States ex rel. Mikes v. Strauss,

274 F.3d 687 (2d Cir. 2001)...........:cccceeceeeeeeees 27-28

United States ex rel. Owens v.

First Kuwaiti Gen. Trading & Contracting Co.,

612 F.3d 724 (4th Cir. 2010)...............ccssecereeeeenee 18

United States ex rel. Weinstein v. Bressler,

160 F.2d 403 (2d Cir. 1947).........cccccccccccvccsceesceees 31

United States ex rel. Wilkins v.

North Am. Constr. Corp.,

173 F. Supp. 2d 601 (W.D. Tex. 2001)..... 10-11, 31

United States ex rel. Wisconsin v. Dean,

729 F.2d 1100 (7th Cir. 1984)...............cccceeceeerees 23

United States v. Aerodex, Inc.,

469 F.2d 1003 (5th Cir. 1972)............cccceeeeeeeeeeees 17

United States v. Bornstein,

4293 TJS. BOS (1DTE) ..cccccccccscccecccscccccsescvcsccceees 14, 29

United States v. Bourseau,

531 F.3d 1159 (9th Cir. 2008) .............cc cee eeereeeeees 18

vi

United States v. Caronia,

ee ee ee Ce i i vencncccccccecsnnssdecsecdeccsees 29

United States v.

Cooperative Grain & Supply Co.,

476 F.3d 47 (Sth Cir 1973) ............cccccccccceseesss 16-17

United States v. Gaudin,

EES ae SS ee a 31

United States v. Hughes,

GOS F.2d BB4 (7G Cir. 1978) ......0cceccccccccccccccccesess 17

United States v. King-Vassel,

oa eg gy Le | ener 18

United States v. McNinch,

a a sseehumpeiingeeniil 30

United States v. Mead,

LD |) 17

United States v. Neifert-White Co..,

ds nie ciadai gasp nennensenaninate 4,13

United States v. Sanford-Brown, Ltd.,

768 F.3G GOS CTE Cir. BOTS) .....c0cccsccccccccsccsscccsese 28

United States v. Sci. Applications Int'l Corp..,

653 F. Supp. 2d 87 (D.D.C. 2009) ...................0 32

United States v. Sci. Applications Int'l Corp.,

ee Be Cs Gs TPO vncccncacecececccsesassecss 18

United States v. Triple Canopy, Inc.,

775 F.3d 628 (4th Cir. 2015) .................00sse0e 20, 21

Varljen v. Cleveland Gear Co..,

BD Fe Ge Ce GR. BGA) once cc cccccccvecsccscscescccess 35

viii

Statutes and Regulations:

Bt SIE Mitiietidcalentcieusiateteckesnetianeniitthanninnssede 6, 15

IU a ca caenemamaneinibinnaanniadi 15

ee isicsiecincscinteesinidideimendinpasectlieg nbscabalatertnii passim

ee Rs PIII Piccnesstscsncesensosecssscosees 7, 10, 17, 25

Be ss Ob eR tecerneccascseesnaesortsisrencesens 16, 19

ee ie Be IUD icineseieniccevnciccstiisssenessssionsssess 16

Be es Ae IE checonsanintcensidicernséanaxensensiendnviin 17, 24

a ee te EE Pottin sibircecsemsrccccennctsuianstansconhs 7,17

Be ay Oe NE Re nikccsiepssscdonecsndipsinesnincntedissenss 5

ess Se cacienicninancctacsbipabinitbandanniipinenidunhits 7

31 U.S.C. § STZOCONSMANA) ........000......200.0020000000. 11, 15

ae ere ee iicsecinvesainsaistoressvecstonsens 11, 22, 31

Be, te IE itis anna hatindsiniciiaguecebumpiiiicabibenina 26

Legislative Materials:

132 Cong. Rec. H6479 (1966) ............cseseccrcrcsrssseseeses 19

155 Cong. Rec. E1295-03................cccce00 24, 25, 26, 27

Cong. Globe, 37th Cong.,

a attire 7

Cong. Globe, 37th Cong.,

A I aidiiediniin tastssishamseenteinicennetnsipnactetpeens 12

Cong. Globe, 37th Cong.,

ss ceeseundecnsbonie 12, 13, 28

Cong. Globe, 37th Cong.,

Be NE SET III casnitivcsninnnsctinnsacesksstindsomicn 13, 23

ix

Fraud Enforcement and

Recovery Act of 2009 (“FERA”),

Pub. L. No. 111-21,

Rs Ee IED snididaceticmtcticeksndiccanctievta 22, 24

Be Be is I IUD estcisvctinnclicnscicccausscevivsidinen 5

H.R. Rep. No. 111-97,

Bie Ce, BOE I, CI es icccivcesccccscccososecies 25

S. Rep. No. 99-345 (1986),

reprinted in 1986 U.S.C.C.A.N. .................. passim

S. Rep. No. 111-10, 111th Cong.,

ist Sess. (2009), 2009 U.S.C.C.A.N. ........... passim

Other Materials:

1 J. STORY,

COMMENTARIES ON EQUITY JURISPRUDENCE

I i cial 9

Benjamin Franklin (writing as ‘B.F.’),

Letter to the Editor, On Smuggling, And Its

Various Species, London Chronicle (Nov 24, 1767),

reprinted in Jared Sparks,

2 The Works of Benjamin Franklin

REE TREE RR ERO ee 3

G. Klass & M. Holt,

Implied Certification Under the False Claims Act,

oe ee et | eee 14

Joan H. Krause, A Conceptual Model of

Health Care Fraud Enforcement,

EE Ode. CO Fle 0 Oe ND oscicasccesencncesvssvseseseeesssecs 26

John T. Boese,

CIVIL FALSE CLAIMS AND

QUI TAM ACTIONS

EY Os SII scccrsitiesicccsbodesceonecenncnsoiosees 16

Restatement (Second) of Torts

I i 8

Restatement (Second) of Torts

REE a ae Oe eS et PM ED OD 8

Restatement (Second) of Torts

Ein EI ade a ce SD CTE aS a Re Be 8

Restatement (Second) of Torts

ace RR A A ee TE ee 8

Restatement (Second) of Torts

ES SI as Da ae eae eel 8

Restatement (Third) of Torts:

Liability for Economic Harm

I cantik tiles atid ache eel iemesipipotppeevanenadsbaninds 8

Restatement (Third) of Torts:

Liability for Economic Harm

Se NTE i ciehinces tive salah budichnaehidnieemenudbespibesdiahosterten 8

INTERESTS OF THE AMICI CURIAE'

Amici curiae are law professors and senior

lecturers whose scholarly writings and interests

include tort law — in particular the common law of

fraud — breach of contract, and the False Claims Act.

Certain amici also have worked as practitioners and

have extensive trial experience, offering insight as to

practical application of legal constructs and the

feasibility of legal models in practice. Amici have an

interest in ensuring that the False Claims Act

operates fairly and efficiently and captures the type

of conduct Congress intended.

Amici believe there is no basis in the text or

legislative history of the False Claims Act to limit

liability under the Act to situations where a party

has expressly certified compliance with a regulatory

or contractual requirement. Amici believe that

common law fraud principles inform interpretation

of the False Claims Act and that an analytical model

applying these principles, coupled with the textual

limitations of the Act, effectuates Congress’ intent

and captures the conduct Congress intended to

cover. Amici’s brief discusses the basis for and

operation of such a model.

Amici are:

Nancy Gertner, Senior Lecturer of Law

Harvard Law School

' All parties have consented to the filing of this brief. As

required by Rule 37.6, amici state that no counsel for a party

authored this brief, in whole or in part, and no person other

than amici or their counsel made any monetary contribution to

fund the preparation or submission of this brief.

Anthony Sebok, Professor of Law

Benjamin N. Cardozo School of Law

David Hricik, Professor of Law

Mercer University School of Law

Kathleen Clark, Professor of Law

Washington University School of Law

Gregory Klass, Professor of Law

Georgetown Law Sthool

Spencer Waller, Professor of Law

Loyola University

Anita Bernstein, Professor of Law

Brooklyn Law School

Lawrence M. Solan,

Don Forchelli Professor of Law

Director of Graduate Education Brooklyn Law School

Matthew McCoyd, Adjunct Professor of Law and

Associate Director Center for Advocacy and

Dispute Resolution

Emory University School of Law

J.C. Lore III, Clinical Professor and

Director of Trial Advocacy

Rutgers University School of Law

Stephan Landsman

Robert A. Clifford, Professor of Tort Law and

Social Policy, Emeritus

DePaul University College of Law

Adam Scales, Professor of Law

Rutgers Law School

Frank J. Vandall, Professor of Law

Emory University School of Law

INTRODUCTION AND

SUMMARY OF ARGUMENT

The narrow question before the Court is whether

the theory of “implied false certification” recently

created by the lower courts is an appropriate

analytical framework to determine liability under

the False Claims Act (“FCA” or “Act”). Amici agree

with the First Circuit’s position that a claimant who

fails to disclose material noncompliance with

Government requirements is liable under the Act,

because it is consistent with the Act’s text,

legislative history, and this Court’s earlier holdings.

As amici amply demonstrate below, however,

“implied false certification” is simply a label courts

have applied to describe particular types of

fraudulent conduct, and the contested theory is

merely one of many valid constructs appropriately

used to conceptualize and capture the wide array of

fraudulent conduct Congress sought to outlaw in

enacting the FCA.

The Government is uniquely situated as a

contractual party. As Benjamin Franklin once

observed, “[t]here is no kind of dishonesty into which

otherwise good people more easily and frequently fall

than that of defrauding the government.” From its

outset, the False Claims Act was animated by

recognition of this key point. Indeed, limiting FCA

liability with an extra-textual, procedurally-based

construct would fly in the face of this Court’s

seminal holding that the Act must be “construed

* Benjamin Franklin (writing as ‘B.F.’), Letter to the Editor,

On Smuggling, And Its Various Species, London Chronicle (Nov

24, 1767), reprinted in Jared Sparks, 2 The Works of Benjamin

Franklin 361 (Hilliard Gray 1836).

broadly” to effectuate Congress’ intent to eradicate

“all fraudulent attempts to cause the Government to

pay out sums of money.” United States v. Neifert-

White Co., 390 U.S. 228, 233 (1968).

Significantly, this Court and lower courts have

not hesitated to impose FCA liability in the absence

of any certification, whether express or implied. See

Part II.D infra. In other words, the presence of a

certification is neither necessary nor sufficient to

impose FCA liability. Thus, the issue before the

Court is best framed as asking whether the type of

conduct currently analyzed under the rubric of

implied false certification forms a basis for liability

under the Act. Consistent with the Act’s statutory

text, Congress’ historical commentary, and this

Court’s prior interpretations, principles of common

law fraud best inform that determination.

As a threshold matter, and as discussed infra

Part I, nearly all interpretive guidance suggests that

the Act is based on principles of common law fraud.

Its plain language, legislative history, and judicial

analysis reflect the FCA’s common law roots. As

such, courts should turn, and correctly have turned,

to appropriate principles of common law fraud in

determining whether conduct is covered by the Act.’

Congress has made abundantly clear, however,

that it did not intend to incorporate all requirements

of common law fraud liability into the FCA. Thus,

* In some cases, it is not necessary or appropriate for courts

to engage in a threshold inquiry to determine whether conduct

is fraudulent or within the ambit of the False Claims Act. For

example, in passing the Affordable Care Act, Congress made it

clear that violations of the Anti-Kickback Statute also violate

the False Claims Act. See Part II.D infra.

while properly utilizing certain common law

principles to interpret the FCA, courts have also

recognized that common law fraud and FCA liability

are not coterminous. For example, courts have

recognized that the FCA does not require specific

intent to defraud or reliance because Congress

specifically included statutory language inconsistent

with those doctrines to allow for more expansive

liability.‘ Moreover, since its enactment in 1863,

Congress has routinely amended the Act to expand

its reach to include ever-evolving means of

perpetrating fraud on the Government. This Court

has routinely and explicitly recognized Congress’

intent that the Act be construed as broadly as

fraudulent attempts to claim Government money

may creatively extend. See, e.g., Rainwater v. United

States, 356 U.S. 590, 592 (1958) (“It seems quite

clear that the objective of Congress was broadly to

protect the funds and property of the Government

from fraudulent claims, regardless of the particular

form, or function, of the government instrumentality

upon which such claims were made.”) In Part II

infra, amici explain that the conduct comprising

actionable fraud at common law is a mere subset of

the conduct giving rise to liability under the FCA.

* While it is arguable that the FCA has never required spe-

cific intent to defraud, Congress removed all doubt in the 1986

Amendments. See H.R. Rep. No. 99-660 (1986); 31 U.S.C. §

3729(bK 1X A) (defining “knowing” submission of false claims to

encompass submission of false claims made with “actual

knowledge,” “deliberate ignorance,” or “reckless disregard”).

This was done to address “the problem of ‘ostrich-like’ refusal

to learn of information which an individual, in the exercise of

prudent judgment, had reason to know.” S. Rep. No. 99-345, at

15 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5280.

Finally, contrary to arguments urged by

Petitioner, the First Circuit’s holding represents

nothing new, novel, or extraordinary to FCA

jurisprudence. There is likewise no empirical

support for Petitioner’s argument that adopting the

First Circuit’s position will somehow encovrage

meritless litigation. In contrast, there is abundant

proof that courts can apply appropriate limiting

principles embodied in the common law to accurately

distinguish between actionable and non-actionable

conduct under the Act. See infra Part III.

For centuries, our courts have applied the

principle of “materiality” to appropriately limit

liability for contractual and tortious fraud. As this

Court has explained, “[t]he federal courts have long

displayed a quite uniform understanding of the

‘materiality’ concept.” Kungys v. United States, 485

U.S. 759, 770 (1988) (relying on common law to

define “materiality” for purposes of 8 U.S.C. § 1451

and collecting cases). Just last term, this Court

expanded liability under the 1933 Securities and

Exchange Act using the familiar legal guidepost of

the common law materiality standard. Omnicare,

Inc. v. Laborers Dist. Council Constr. Indus. Pension

Fund, 135 S. Ct. 1318, 1330 (2015). Coupled with

textual limitations such as the Act’s expansive

approach to mental states and abandonment of

traditional reliance principles, courts can effectively

capture only that fraudulent conduct Congress

intended the FCA to reach by applying appropriate,

extra-textual limiting principles. In sum, amici’s

analytical approach reasonably balances concerns of

the Act’s over-expansion with its stated purpose to

broadly reach all fraudulent and deceitful acts that

cause the Government to pay out money.

ARGUMENT

I. COMMON LAW FRAUD INFORMS PROPER

INTERPRETATION OF THE FALSE

CLAIMS ACT.

As its statutory text, Congressional commentary,

and judicial interpretation make plain, the FCA is

based on principles of common law fraud. On this

ground alone, and as expounded further in this Part,

the common law is an appropriate analytical

touchstone for determining whether conduct is

fraudulent under the FCA.

A. The Plain Language of the FCA Supports

Reliance on Common Law Principles,

Particularly By Imposing Liability for

Material Omissions.

The FCA was enacted in 1863 and signed by

President Lincoln “to prevent and punish frauds

upon the Government of the United States.” Cong.

Globe, 37th Cong., 3d Sess. 348 (1863) (statement of

Sen. Wilson). Interpreting the Act must begin with

the text of the statute itself. Neder v. United States,

527 U.S. 1, 21 (1999). By its plain terms, the FCA

currently holds liable “any person who .. . (A)

knowingly presents, or causes to be presented, a

false or fraudulent claim for payment or approval|[.]”

31 U.S.C. § 3729(a)(1). Although the Act defines the

terms “knowingly” and “claim”, §§ 3729(b)(1) &

(b\(2), respectively, it does not define “false or

fraudulent” because such a definition would be

unnecessary—‘“fraud’ hal[s} a well-settled meaning

at common law.” Neder, 527 U.S. at 21.

Specifically, “a necessary second step” of

statutory interpretation requires application of the

“well-established rule” that where Congress uses

terms that “have accumulated settled meaning

under... the common law,” a court must infer that

Congress meant to incorporate the established

meaning. /d. (internal quotation marks omitted).

By imposing liability for “fraudulent” claims,

Lincoln’s Congress incorporated the “well-settled”

meaning of common law fraud at the time.

It is beyond question that both material

representations and material omissions give rise to

actionable common law fraud. See Restatement

(Second) of Torts § 525 (fraudulent

misrepresentation), § 527 (ambiguous representation),

§ 529 (representation misleading because incomplete),

§ 550 (fraudulent concealment), § 551 (nondisclosure)

(1979). Indeed, the common law imposes identical

liability for material omissions and

misrepresentations. Jd. §§ 550, 551 (person who

fraudulently conceals or fails to disclose “is subject to

the same liability” as person who makes fraudulent

misrepresentation). Current legal trends follow suit,

creating liability for omissions that constitute a

“half-truth” or conceal a fact essential to the

transaction. See Restatement (Third) of Torts:

Liability for Economic Harm § 9 (actionable

“misrepresentation” may arise from conduct rather

than words and may be implied rather than explicit),

§ 13 (actionable omission exists where there is a

duty to speak, a prior ambiguous statement

requiring clarification, or, “because of the

relationship between the [parties], the customs of

the trade, or other circumstances, [the other party]

would reasonably expect disclosure of what the actor

knows.”) (2015); see also Bonilla v. Volvo-Car-Corp.,

150 F.3d 62, 69-70 (1st Cir. 1998) (“[T]he locus

classicus of fraud is a seller’s affirmative false

statement or a half truth, i.e., a statement that is

literally true but is made misleading by a significant

omission”); Emery v. American Gen. Fin., Inc., 71

F.3d 1343, 1348 (7th Cir. 1995) (Posner, C.J.).°

It is equally clear that material omissions gave

rise to actionable fraud at the time of the FCA’s

enactment. See Neder, 527 U.S. at 21 (“[T])he well-

settled meaning of ‘fraud’ [in 1863] required a

misrepresentation or concealment of material fact.”);

1 J. SToRY, COMMENTARIES ON EQUITY

JURISPRUDENCE § 195, at 298 (6th ed. 1853) (“[T]he

misrepresentation must be of something material,

constituting an inducement or motive to the act or

omission of the other party.”). From 1839 through

modern day, this Court has consistently recognized

that material omissions create liability for fraud

under the common law. See BMW of N. Am., Inc. v.

Gore, 517 U.S. 559, 579 (1996) (“Actionable fraud

requires a material misrepresentation or omission.”);

Smith v. Richards, 38 U.S. 26, 36 (1839) (“Where the

party intentionally, or by design, misrepresents a

material fact, or produces a false impression, in

order to mislead another . . . in every such case there

is a positive fraud, in the truest sense of the terms.”)

(emphasis added).

It necessarily follows that Lincoln’s Congress

intended the FCA to reach conduct that was

* Likewise, omissions of facts when “accompanied by decep-

tive conduct or suppression of material of facts” were recog-

nized as fraudulent concealment at common law. Hirsch v.

Feuer, 299 Ill. App. 3d 1076, 1086, 702 N.E.2d 265, 273 (Ill.

App. 1998) (quoting Heider v. Leewards Creative Crafts, 245 II).

App. 3d 258, 269, 613 N.E.2d 805, 814 (1993)).

10

rendered “fraudulent” by omission, as well as by

affirmative misrepresentation. The plain language

of the Act supports such a construction because the

Act expressly imposes liability for indirect action

that would comprise actionable fraud by omission at

common law. Each of the Act’s seven liability

subsections imposes liability for indirect action (i.e.,

in the absence of an affirmative misstatement): (A)

causing a false claim to be presented; (B) causing a

false record or statement to be made or used that is

material to a false or fraudulent claim; (C)

conspiring to violate the Act; (D) causing less than

full money or property owed to be delivered; (E)

making or delivering a receipt with incomplete

knowledge of its truthfulness; (F) receiving public

property unlawfully transferred; and (G) concealing

or avoiding a financial obligation to the government.

31 U.S.C. § 3729(a)(1). Indeed, subsections E and G,

appear to not only support implied false certification,

but to perhaps expressly impose liability for implied

false certification. Subsection E imposes liability if a

person certifies receipt of goods “without completely

knowing” whether the information to which he

certified was true, while Subsection G imposes

liability when a person knowingly “conceals or

avoids” an obligation to pay the government. Under

each provision, a person can be liable under the FCA

without making an affirmative misrepresentation,

let alone an affirmative representation on the face of

the instrument in which a claim is presented.

Moreover, this Court has not hesitated to impute

the common law “materiality” standard to fraud

statutes. Neder, 527 U.S. at 21 (noting that “the

common law could not have conceived of ‘fraud’

without proof of materiality.”); see also United States

11

ex rel. Wilkins v. North Am. Constr. Corp., 173 F.

Supp. 2d 601, 618-20, 622-30 (W.D. Tex. 2001)

(applying Neder to conclude that the FCA imports a

materiality requirement and focusing on the

meaning of “false” and “fraudulent claims” at

common law in its analysis). In 2009, the common

law materiality standard became a_ textual

requirement when Congress deliberately codified the

standard in the Act. See 31 U.S.C. § 3729(b)(4)

(defining “material”); S. Rep. 111-10, 111th Cong.,

lst Sess. (2009), at 11, 2009 U.S.C.C.A.N. at 439.

In sum, the presence of either an express or

implied certification does not reasonably inform

whether particular conduct gives rise to FCA

liability because it does not resolve the seminal

question of whether that conduct is fraudulent.

Rather, in deference to the common law principles

underlying its terms, FCA liability is appropriately

imposed for a “false or fraudulent claim” upon

determining that the defendant requested payment

from the Government to which he or she was not

entitled. See, e.g., United States ex rel. Hendow v.

Univ. of Phoenix, 461 F.3d 1166, 1172 (9th Cir. 2006)

(“So long as the statement in question is knowingly

false when made, it matters not whether it is a

certification, assertion, statement, or _ secret

handshake; False Claims liability can attach.”); see

also Hobbs v. McLean, 117 U.S. 567, 575 (1886)

(relying on common law definition of “claim” as

“right to demand money from the United States”); 31

U.S.C. § 3729(b)2A)i) (codifying common law

definition of “claim” to impose FCA liability). In

contrast to a “certification” requirement—untethered

from the FCA’s purpose, text and history, or indeed

any basis in law, fact or logic—common law

12

principles provide the appropriate starting point for

determining whether particular conduct violated the

FCA.

B. The Legislative History of the FCA

Supports Reliance on Common Law

Principles.

Congress actively debated the incorporation of

common law fraud principles into the FCA. Cong.

Globe, 37th Cong., 3d Sess. 954-55 (discussing

common law fraud principles and lack of scienter in

the proposed statute). Indeed, Senator Cowan

expressed concern that “[t]here is no scienter here in

this criminal act” and that a man could be convicted

“without having known that he committed any

offense whatsoever”, including by “aid in procuring

the payment of a claim which is false, fraudulent

from the beginning, and yet he may not be aware of

it.” Jd. at 954. Senator Cowan likewise spoke

against the need for a False Claims Act on the

grounds that fraud was already cognizable at

common law and under existing state statutes. /d.

at 954 (‘These frauds all fall within a great class. |

suppose they are classified in almost every State in

the Union. I believe now in addition to the remedies

provided by the common law, there is a statute in

almost every State in the union which makes the

procurement of money or any valuable thing by

means of false misrepresentation of an existing fact,

a criminal offense”).

In response to Senator Cowan, Senator Howard -

who moved the original False Claims Act bill for

Senate discussion - conceded that there was

“nothing said about ‘guilty knowledge” but focused

on the importance of the bill and massive fraud

13

being wrought on the Government. Jd. at 955-56.

Senator Wilson emphasized that, despite the

Government’s best efforts, existing laws were simply

insufficient to combat the massive frauds. Jd. at

956.

Ultimately, the Legislature dismissed Senator

Cowan’s concerns, drafting an expansive statutory

scheme that incorporated common law concepts of

fraud and misrepresentation but rejected certain

limiting principles of common law fraud — such as

scienter. Instead, the Act encompassed all

fraudulent misconduct on the Government that was

not otherwise actionable at common law. /d. at 956

(“[T]here is now no law adequate to meet these cases

of fraud upon the Government.”). Indeed, this Court

has recognized that the contemporaneous

Congressional debates “suggest that the Act was

intended to reach all types of fraud, without

qualification, that might result in financial loss to

the Government.” Neifert-White Co., 390 U.S. at 232

(emphasis added).

C. This Court Has Consistently Relied on

Common Law Principles in Determining

Liability under “Fraud” Based Statutes.

Regardless of the ultimate disposition of

individual cases, this Court has correctly and

consistently turned to common law fraud principles

to determine liability under the FCA, as well as

other federal fraud statutes. Rather than rely on the

newly-invented certification doctrine, this Court

should follow its own mandate to use the common

law’s familiar legal principles as guideposts in

determining FCA liability. Omnicare, 135 S. Ct. at

1330.

14

Significantly, this Court has expressly found FCA

liability arising from actionable material omiissions

(discussed supra Part I.A), the same common law

principle supporting the implied false certification

doctrine. For example, in United States ex rel.

Marcus v. Hess, public works contractors engaged in

a bid-rigging scheme to defraud the Government.

317 U.S. 537, 539 (1943). Even where contractors

did not “certifly] that their bids were ‘genuine and

not sham or collusive,” this Court readily found FCA

liability based on the Government’s fraudulent

inducement to pay inflated contract prices. Jd. at

543; accord G. Klass & M. Holt, Implied Certification

Under the False Claims Act, 41 PUB. CONT. L. J. 1, 18

(2011) (noting that FCA liability via “[flraud in the

inducement can take any number of forms”).

Likewise, in United States v. Bornstein, a

Government subcontractor mislabeled radio parts as

complying with Government specifications and the

general contractor submitted a claim for payment

without disclosing the noncompliance. 423 U.S. 303,

309 (1976). This Court held that the subcontractor

was liable under the FCA for “causing” the

contractor to submit a “false claim,” although there

was no affirmative false statement in the

contractor’s claim for payment. /d. at 311.

The Supreme Court has also relied on common

law fraud to interpret statutory terminology

incorporated into the FCA. In Hobbs v. McLean, 117

U.S. 567 (1886), the Court construed what

constitutes a “false claim.” The Court analyzed and

ultimately adopted the common law definition of the

word “claim” as a “right to demand money” for

purposes of liability. Jd. at 575. Notably, Congress

codified this common law definition of “claim” in

15

amendments to the FCA. See 31 U.S.C. §

3729(b)2)(A)(i).

The Court has consistently applied common law

principles to determine what type of conduct is

covered by other federal statutes rooted in fraud.

Just last term—and relying on common law fraud

precepts—this Court expanded liability under the

Securities Act of 1933 by outlawing not only

expressly false opinions, but omissions of material

fact that would make an otherwise truthful opinion

misleading. Omnicare, 135 S. Ct. at 1330; Basic Inc.

vu. Levinson, 485 U.S. 224, 232 (1988) (collecting

cases in which it has addressed common-law

requirements of securities fraud action); see also

Sekhar v. U.:ited States, 133 S. Ct. 2720, 2724 (2013)

(relying on common law to define “extortion” under

Hobbs Act); Neder, 527 U.S. at 1 (relying on common

law fraud to determine liability under federai mail

fraud statute); Field v Mans, 516 U.S. 59, 69-76

(1995) (relying on common law fraud to determine

liability under federal bankruptcy fraud statute);

Kungys v. United States, 485 U.S. 759, 770 (1988)

(relying on common law to define “materiality” for

purposes of liability under 8 U.S.C. § 1451 and

collecting cases).

In sum, this Court’s prior holdings mandate

judicial consideration of applicable common law

principles in determining whether conduct is

fraudulent under the FCA.

16

Il. ALTHOUGH THE FCA IS GROUNDED IN

COMMON LAW, FCA LIABILITY AND

ACTIONABLE COMMON LAW FRAUD ARE

NOT COTERMINOUS.

Although squarely grounded in the common law,

it is clear from the statutory text and legislative

record that Congress intended the FCA to impose

liability for deceitful acts that went beyond

cognizable common law fraud. This is most apparent

through Congress’ express rejection of traditional

scienter and reliance principles. Yet Congress has

also routinely amended the Act to expand its reach

to additional and novel means of perpetrating fraud

on the Government. In short, conduct comprising

actionable fraud at common law is a mere subset of

the conduct giving rise to liability under the FCA.

A. FCA Liability Is Imposed in the Absence

of Specific Intent to Defraud.

As an initial matter, it is well settled that, unlike

common law fraud, the FCA does not require specific

intent to defraud for liability to attach. Since its

enactment, the FCA has employed a “knowing”

standard of intent, imposing liability on a defendant

who made false claims or statements “knowing” that

the information in the claim or statement was false.

See 31 U.S.C. §§ 3729(a)(1)(A), (B); see also John T.

Boese, CIVIL FALSE CLAIMS AND QUI TAM

ACTIONS, § 2.06[A] (4th ed. 2010).

Before it was amended in 1986, the FCA did not

define “knowingly,” and Courts were split on

whether the “knowing” standard required proof of

specific intent to defraud. Compare United States v.

Cooperative Grain & Supply Co., 476 F.2d 47, 59-60

17

(8th Cir 1973) (“knowing” standard satisfied where

defendant acted with extreme carelessness) and

United States v. Hughes, 585 F.2d 284, 287-88 (7th

Cir. 1978) (holding that the FCA does not require

proof of specific intent to defraud), with United

States v. Mead, 426 F.2d 118, 122-23 (9th Cir. 1970)

(proof of intent to defraud is required), and United

States v. Aerodex, Inc., 469 F.2d 1003, 1007 (5th Cir.

1972) (“guilty knowledge of a purpose on the part of

[the defendant] to cheat the Government” is required

for FCA liability).

In response to this Circuit split, as part of the

1986 Amendments to the FCA, Congress specifically

defined the “knowing” intent requirement, to make

clear that that the FCA does not require proof of

specific intent, that is, intent to defraud the

government. 31 U.S.C. § 3729(b) (1986) (“no proof of

specific intent to defraud is required”). Instead,

Congress defined “knowing” and “knowingly” to

mean: actual knowledge, deliberate ignorance or

reckless disregard of the truth or falsity of the

information contained in the false claim or

statement. 31 U.S.C. §§ 3729(a)(1), (b) (1986).

This was done because Congress viewed the

standard of actual knowledge of fraud, and

even...specific intent” to defraud as “inappropriate”

for a civil remedy designed to make the Government

whole for its losses from fraud. See S. Rep. No. 99-

345, at 17. In addition, by defining the “knowing”

standard to include deliberate ignorance and

reckless disregard of the truth or falsity, Congress

sought to address “the problem of the ‘ostrich-like’

refusal to learn of information which an individual,

in the exercise of prudent judgment, had reason to

18

know.” Jd. at 15. Congress adopted this standard to

make clear that “individuals and _ contractors

receiving public funds have some duty to make a

limited inquiry so as to be reasonably certain they

are entitled to the money they seek.” /d. at 20.

Since enactment of the 1986 Amendments, it is

well established that, unlike common law fraud,

specific intent to defraud is not required for FCA

liability. See, e.g., Horn & Assocs. v. United States,

123 Fed. Cl. 728, 763 (Fed. Cl. 2015)) (“Congress

rejected requiring a specific intent to defraud under

the False Claims Act.”); United States v. King-

Vassel, 728 F.3d 707, 712 (7th Cir. 2013) (noting that

“the statute does not require a ‘specific intent to

defraud”) (internal quotation omitted); United States

v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1274

(D.C. Cir. 2010) (explaining that 1986 Amendments

made clear that specific intent to defraud was not

required); United States ex rel. Owens v. First

Kuwaiti Gen. Trading & Contracting Co., 612 F.3d

724, 728 (4th Cir. 2010) (stating that the FCA “does

not demand specific intent to defraud and can be

satisfied by proving only reckless disregard of the

truth or falsity of the information”) (internal

quotation omitted); United States v. Bourseau, 531

F.3d 1159, 1167 (9th Cir. 2008) (stating that “no

proof of specific intent to defraud is required” under

the FCA) (internal quotations omitted).

B. Unlike Common Law Fraud, Reliance Is

Not An Element of an FCA Claim.

Similarly, while reliance is a required element

under common law fraud, FCA liability does not

require proof the Government relied on the

19

defendant’s false statement in paying the false

claim.

Under the FCA, liability attaches on the

presentment of a false or fraudulent claim for

payment or approval, rather than the actual

payment of the claim. 31 U.S.C. § 3729(a)(1)(A). In

fact, not only is there no reference to reliance in the

text of the statute, its legislative history and

remedial purpose support that actual reliance is not

required for liability under the FCA. In passing the

1986 Amendments to strengthen the FCA, Congress

reiterated the importance of penalties as a deterrent

effect (see 132 Cong. Rec. H6479 (1986) (statements

of Reps. Glickman and Brooks)) and stated it was

“reaffirm[ing] the apparent belief of the [A]ct's initial

drafters that defrauding the Government is serious

enough to warrant an automatic forfeiture rather

than leaving fine determinations with district courts,

possibly resulting in discretionary nominal

payments.” S. Rep. No. 99-345 at 17. Importantly,

Congress stressed that the FCA allows the United

States to recover a forfeiture for each false claim

submitted “solely upon proof that false claims were

made, without any proof of damages.” See id. at 48.

The inclusion of statutory penalties in addition to

damages provisions in the FCA, evidences Congress’

intent not to limit the reach of the statute to

situations in which the Government could prove that

it actually relied on and suffered damages as a result

of a defendant’s false claims.

Likewise, circuit courts recognize that a

defendant can still be held liable for violating the

FCA regardless of whether the Government actually

paid the defendant’s false claim or relied upon the

20

false information in the defendant’s claim when it

decided to pay. See United States ex rel. Grubbs v.

Kanneganti, 565 F.3d 180, 189 (5th Cir. 2009)

(stating that “a complaint need not allege that the

Government relied on or was damaged by the false

claim” and that “a person that presented fraudulent

claims that were never paid remains liable for the

Act’s civil penalty”); United States ex rel. A+

Homecare, Inc. v. Medshares Mgmt. Grp., Inc., 400

F.3d 428, 445-46 (6th Cir. 2005) (adopting “natural

tendency” test, which focuses on potential, rather

than actual effect); United States ex rel. Harrison v.

Westinghouse Savannah River Co., 352 F.3d 908, 917

(4th Cir. 2003) (“Courts give effect to the FCA by

holding a party liable if the false statement it makes

in an attempt to obtain government funding has a

natural tendency to influence or is capable of

influencing the government's funding decision, not

whether it actually influenced the government not to

pay a particular claim.”).

In Grubbs, the Court of Appeals for the Fifth

Circuit explained that, in contrast to common-law

fraud, reliance is not a required element under the

FCA because the FCA was designed to “protect } the

Treasury from monetary injury.” 565 F.3d at 189.

While common law fraud requires a plaintiff to show

that that he or she actually relied and suffered

injury from a defendant’s false representation, the

FCA “is remedial and exposes even unsuccessful

false claims to liability.” Jd.

Thus, not only is reliance not an element of

liability under the FCA, but it also is not necessary

to prove actual reliance to prove materiality. See

United States v. Triple Canopy, Inc., 775 F.3d 628,

21

639 (4th Cir. 2015) (holding that materiality in FCA

context does not require proof of “actual effect”);

United States ex rel. Feldman v. Van Gorp, 697 F.3d

78, 96 (2d Cir. 2012); United States ex rel. Longhi v.

United States, 575 F.3d 458, 469 (5th Cir. 2009)

(finding that the FCA only requires proof that a false

statement “could have influenced” the Government’s

decision to pay the claim to satisfy materiality

standard, and does not require proof that the false

statement actually influenced the Government’s

decision to pay). Whereas materiality focuses on

whether a defendant’s false statement or omission

“has a natural tendency to influence” the

government’s decision to pay the claim, reliance

focuses on whether the government was aware of

and actually relied on the false statement or

omission at issue when paying the defendant’s claim.

See Triple Canopy, 775 F.3d at 639; Harrison, 352

F.3d at 916-17. In other words, the standard for

materiality is objective, while reliance is subjective.

Van Gorp., 697 at 96.

In Triple Canopy, the Court of Appeals for the

Fourth Circuit, in the analyzing the issue of

materiality, explained there is no “actual reliance”

requirement in the FCA — a government employee or

official need not have actually seen the falsity of a

claim or relied upon it. See 775 F.3d at 639,

(“Materiality focuses on the potential effect of the

false statement when it is made, not on the actual

effect of the false statement when it is discovered.”)

(internal quotation marks omitted); see also Van

Gorp, 697 F.3d at 96 (holding materiality “does not

require evidence that a program officer relied upon

the specific falsehoods proven”).

22

Finally, the fact that proof of actual reliance is

not necessary to prove materiality is further

demonstrated by Congress’ definition of “material” in

the Fraud Enforcement and Recovery Act of 2009

(“FERA”) amendments. See S. Rep. 111-10, 111th

Cong., 1st Sess. (2009), at 2009 U.S.C.C.A.N. at 439.

As part of these amendments, Congress defined

“material” as: having “a natural tendency to

influence, or be capable of influencing, the payment

or receipt of money or property.” 31 U.S.C.

3729(b\(4). In codifying this standard of materiality,

Congress rejected the minority approach to

materiality adopted by several courts, which had

required proof that the false or fraudulent claim

actually changed the government’s payment

decision. See S. Rep. 111-10, 111th Cong., 1st Sess.

(2009), at 2009 U.S.C.C.A.N. at 439.

Thus, in importing common law fraud principles

to assist in a threshold determination of whether

conduct is fraudulent, the Court should not import

specific liability requirements Congress expressly

rejected and supplemented by statute.

C. By Continuing to Amend the FCA to

Expand its Reach, Congress Has Made

Clear it Intends that the FCA Cover

Conduct Well Beyond Common Law

Fraud.

In addition to rejecting traditional scienter and

reliance principles necessary for liability under

common law fraud, the breadth of the FCA’s

intended scope is also clear from Congress’

continuous broadening of the Act’s reach through

legislative amendments. Indeed, nearly all

interpretive guidance suggests Congress intended

23

the FCA to reach as broadly as deceitful acts against

the Government may creatively extend.

First, it is not the “fraud act,” but the “false

claims” act; and the original Act focused on

submission of fraudulent claims to the government.

Congress enacted the original statute to allow the

FCA to reach fraudulent conduct not actionable at

common law. Cong. Globe, 37th Cong., 3rd Sess. 956

(1863) (“The Government is doing what it can to stop

these frauds...{but the] War Department says

there is now no law adequate to meet these cases of

fraud upon the Government.”).

Second, Congress has expressly and repeatedly

stated its intent that the FCA be broadly applied.

Even in its first permutation, the FCA was

unequivocally intended to reach beyond the limits of

actionable common law fraud. With its 1986

Amendments, however, Congress removed all doubt

of its intent to distinguish FCA liability from

common law fraud. Indeed, when the judiciary

attempted to limit the FCA’s reach in the mid-

Twentieth Century, see, e.g., United States ex rel.

Wisconsin v. Dean, 729 F.2d 1100 (7th Cir. 1984)

(holding that FCA cases involving information

already known to the Government were precluded),

the 1986 Amendments expressly clarified Congress’

intent for the FCA’s especially broad application:

[The FCA] is intended to reach all fraudulent

attempts to cause the Government to pay oult]

sums of money or to deliver property or

services. Accordingly, a false claim may take

many forms, the most common being a claim

for goods or services not provided, or provided

24

in violation of contract terms, specification,

statute, or regulation.

S. Rep. 99-345 at 9 (emphasis added).

The 1986 Congress sought to ease certain hurdles

of proof required by common law fraud, specifically,

intent to defraud and actual reliance, to both

strengthen the Government’s ability to recover losses

resulting from fraud and to deter future fraud

against the Government. See S. Rep. No. 99-345, at

1-2; S. Rep. No. 111-10, 111th Cong., 1st Sess.

(2009), at 12, 2009 U.S.C.C.A.N. at 439 (adopting

“natural tendency” materiality definition). The 1986

Congress expanded on common law principles by

clarifying lower burden of proof on the mental state

required to impose FCA liability; it defined

“knowingly” under the Act as including those who

act with actual knowledge of the truth, act in

deliberate ignorance of the truth, or act with reckless

disregard for the truth. 31 U.S.C. § 3729(b). The

amendments were in reaction to cases where liability

was avoided simply because a contractor “buried his

head in the sand and failed to make simple inquiries

which would alert him that false claims are being

submitted.” S. Rep. No. 99-345 at 21.

Congress again made its intent plain in the

Fraud Enforcement and Recovery Act of 2009

(“FERA”), Pub. L. No. 111-21, 123 Stat. 1617 (2009).

FERA was enacted specifically to “strengthen the

provisions of .. . the federal False Claims Act” and to

ensure “that all government funds [] be protected

from fraud.” 155 Cong. Rec. E1295-03 (emphasis

added). Through FERA, Congress reemphasized the

broad reach of the FCA to the judiciary, who had

“limited the reach of the False Claims Act,”

25

“derailfed) meritorious actions,” and _ thus

“jeopardiz(ed) billions in Federal funds.” H.R. Rep.

111-97, 111th Cong., 1st Sess., at 5 (2009); S. Rep.

111-10 at 10, 2009 U.S.C.C.A.N. at 437-38. Congress

described the Courts’ limited application of the FCA

as “confusion”:

The False Claims Act amendments included

in S. 386, [FERA], re.aove some of the

confusion that is currently undermining the

Act’s ability to fully reach those who target

the American tax dollar. S. 386 clarifies a

number of key provisions and reaffirms that

the False Claims Act is intended to protect all

Government funds, without qualification or

limitation, from the predation of those who

would avail themselves of taxpayer money

without the right to do so. This legislation is

the first step in correcting the erosion of the

effectiveness of the False Claims Act that has

resulted from court decisions contrary to the

intent of Congress. This mounting confusion

occurs at a time when the country can least

afford weakened antifraud legislation.

Particularly now, at a time of dramatically-

increased reliance on private contractors to

perform what have traditionally been viewed

as governmental functions, clarity of purpose

and effect must be the hallmarks of the False

Claims Act.

155 Cong. Rec. E1297 (emphasis added).

The specific amendments made to the FCA

through FERA_ evince Congress’ renewed

commitment to the FCA’s wide reach. For example,

FERA removed language from Section 3729(a)(1)

26

that could be narrowly read to limit liability to

persons who present false claims directly “to an

officer or employee of the Government, or to a

member of the Armed Forces.” See 155 Cong. Rec.

E1295-03; see also S. Rep. No. 111-10 at 11. This

amendment clarifies Congress’ intention to ensure

the FCA reaches all false claims, when it defined

actionable “claims” to include “any request or

demand... for money or property which is made to a

contractor, grantee, or other recipient if the United

States Government provides any portion of the

money or property which is requested or demanded,

or if the Government will reimburse such contractor,

grantee, or other recipient for any portion of the

money or property which is requested or demanded.”

31 U.S.C. § 3729(c); see also 155 Cong. Rec. E1295-

03; S. Rep. 111-10 at 11, 2009 U.S.C.C.A.N. at 439.

The sole intent of FERA was to “broaden the

coverage of the FCA by revising the Act so that it

reflected the original intent of the law. S. Rep. 111-

10 at 16, 2009 U.S.C.C.A.N. 430.

With fraudulent schemes constantly evolving, it

is increasingly important that the judiciary realize

Congress’ intention that the FCA have a broad

reach. In the healthcare arena specifically, “10

percent of the federal health care budget” is “lost to

fraud” yearly. Joan H. Krause, A Conceptual Model

of Health Care Fraud Enforcement, 12 J.L. & POL’Y

55, 55 (2003). While the monetary loss as a result of

false or fraudulent claims against the Government is

exorbitant, the non-monetary losses may be even

greater. The non-monetary losses include “loss in

confidence in Government programs, Government

benefits not going to intended recipients, and harm

to public health and safety.” 155 Cong. Rec. E1295-

27

03. In sum, the FCA’s legislative history shows a

statutory scheme that has continually expanded to

encompass more fraudulent conduct beyond that

originally contemplated in 1863. In order to

properly remedy the Government’s losses at the

hands of ever-evolving fraudsters, this Court must

adhere to the Congressional intent that the FCA

reach as broadly as fraudulent conduct may extend.

D. This Court and Other Courts Have

Consistently Recognized FCA Liability In

the Absence of Either an Express or

Implied Certification.

Mindful of this Court’s tradition of judicial

restraint, amici reiterate that certification is but one

among many recognized bases for imposing liability

under the FCA. Indeed, this Court has recognized

that a claim becomes “false” even if it is literally true

if the claimant previously made misrepresentations

or omissions or committed misconduct to induce the

Government to enter into the contract in the first

place. Hess, 317 U.S. at 537 (finding contractors

liable under the FCA for claims submitted under

contracts which defendants obtained through

collusive bidding).

Lower courts also have recognized many bases for

FCA liability that do not depend on certification.

The clearest example of this is the “worthless

services” theory. See, e.g., United States ex rel. Lee v.

Smithkline Beecham, Inc., 245 F.3d 1048, 1053 (9th

Cir. 2001) (“{IJn an appropriate case, knowingly

billing for worthless services or recklessly doing so

with deliberate ignorance may be actionable under §

3729 lof the FCA), regardless of any false

certification conduct.”); United States ex rel. Mikes v.

28

Strauss, 274 F.3d 687, 703 (2d Cir. 2001) (agreeing

with the Ninth Circuit “that a worthless services

claim is a distinct claim under the Act” that is not

predicated on certification). Even the first iteration

of the FCA imposed liability for worthless services

regardless of the means or method by which those

services were presented for payment. See Cong.

Globe, 37th Cong., 3d Sess. 955 (1863) (Congress

enacted the False Claims Act “to assist in ferreting

out unscrupulous defense contractors who committed

fraud against the Union Army by delivering bullets

loaded with sawdust.”).

Courts have also recognized that violations of the

Anti-Kickback Statute can form a basis for False

Claims Act liability even if the implied certification

doctrine is not viable. See, e.g., United States ex rel.

Kroening v. Forest Pharms., Inc., 2016 U.S. Dist.

LEXIS 3509, at *10-11, *14-19 (E.D. Wis. Jan. 6,

2016) (acknowledging the Seventh Circuit’s dicta in

Sanford-Brown, in which it “explicitly declined to

adopt the implied certification doctrine in an FCA

case” but finding that violations of the Anti-Kickback

Statute still form the basis of a false claim pursuant

to Congress’ enactment of the Patient Protection and

Affordable Care Act, in which it expressly stated

that that violations of the Anti-Kickback Statute

violate the False Claims Act) (citing United States v.

Sanford-Brown, Ltd., 788 F.3d 696, 711-12 (7th Cir.

2015)).

Likewise, some courts have correctly found that a

pharmaceutical manufacturer’s off-label promotion

can form the basis of a false or fraudulent claim

without reference to the implied certification

doctrine. See, e.g., Strom ex rel. United States v.

29

Scios, Inc., 676 F. Supp. 884, 891-92 (N.D. Cal. 2009)

(recognizing that Medicare only permits

reimbursement for “reasonable and necessary”

treatments, that prescription of a drug in a context

where it is not reasonable or necessary is statutorily

ineligible for reimbursement, and thus that knowing

promotion of off-label use that is not reasonable or

necessary constitutes an FCA violation).°

Finally, amici remind the Court that it has

previously and expressly imposed FCA liability in

the absence of any affirmative misrepresentations,

let alone false certifications. See, e.g., Hess, 317 U.S.

at 539; Bornstein, 423 U.S.at 309.

® Indeed, the United States Government has consistently

taken the position that off-label promotion is a predicate for

FCA liability independent from the concept of certification. As

a general matter, amici disagree with the position in the ami-

cus brief of the Pharmaceutical Research and Manufacturers of

America. There are compelling reasons why a prohibition on

all off-label promotion by pharmaceutical companies is both

valid and constitutionally appropriate, notwithstanding the

fact that off-label use by physicians is permitted. The best

analysis on this issue can be found in Judge Livingston’s dis-

sent in the case of United States v. Caronia, 703 F.3d 149, 169-

182 (2d Cir. 2012). Amici, however, respectfully submit that

this Court’s consideration of off-label promotion is best left to a

fully developed factual record where such conduct is at issue,

particularly because the circumstances and elements that ren-

der off-label promotion fraudulent and subject to liability under

the FCA are not best construed under an implied false certifica-

tion theory.

30

Ill. COURTS HAVE FOR DECADES

ACCURATELY DISTINGUISHED

BETWEEN ACTIONABLE AND _ NON-

ACTIONABLE CONDUCT UNDER THE

FCA BY APPLYING APPROPRIATE

LIMITING PRINCIPLES EMBODIED IN

THE COMMON LAW.

While Congress has made plain its intent that

the FCA be broadly construed to reach all fraudulent

claims for Government funds, by no means do amici

urge a limitless application of the Act. Instead,

amici suggest that the Court apply the appropriate

and long-established limiting principles of the

common law to weed out cases in which the alleged

misconduct does not rise to the level of FCA liability.

As a threshold issue, this Court has already

looked to common law to apply limiting principles to

the False Claims Act. For example, this Court has

applied the common law definition of claim to limit

FCA liability. United States v. McNinch, 356 US.

595, 598-99 (1958) (holding that an FHA credit loan

application is not a “claim” because it is not a

demand for money or property based on the

Government’s liability). Other common law concepts

also provide appropriate limiting principles.

A. Materiality Is a Familiar Legal Principle

That Courts Routinely Apply to

Appropriately Limit Liability for

Potential Fraud.

Application of the common law materiality

standard properly limits liability under the FCA.

Prior to the 2009 FERA amendments, this Court had

imputed a materiality standard to similar fraud

31

statutes. Neder, 527 U.S. at 21 (noting that “the

common law could not have conceived of ‘fraud’

without proof of materiality.”); see also Wilkins, 173

F. Supp. 2d at 618-20, 622-30 (holding the FCA

imputes a materiality standard by reference to

common law and applying the analytical framework

set forth in Neder). After 2009, however, materiality

became a textual requirement when Congress

deliberately codified the materiality standard. See

31 U.S.C. § 3729(b)(4) (defining “material”); S. Rep.

111-10, 111th Cong., 1st Sess. (2009), at 11, 2009

U.S.C.C.A.N. at 439.

Whether extra-textual or expressly required, it is

beyond question that (1) the common law materiality

standard is appropriate and_ effective § at

distinguishing liable and non-liable conduct, and (2)

courts have had literally centuries of experience in

applying it to sundry alleged fraudulent conduct. As

this Court expressed just last term, those centuries

of experience justify using the common law

materiality standard to limit liability under fraud-

based federal statutes. Omnicare, 135 S. Ct. at

1330. Contrary to arguments urged by Petitioner,

there is simply no basis in fact or law to suggest the

judiciary cannot apply these familiar legal principles

to determine FCA liability. See also United States ex

rel. Weinstein v. Bressler, 160 F.2d 403, 405 (2d Cir.

1947) (To prevail on an FCA claim, “the United

States must prove fraud of some sort. Fraud implies

a misrepresentation of material fact, either express

or implied.”); United States v. Gaudin, 515 U.S. 506

(1995) (relying on common law to interpret issues

relating to “materiality”); Durland v. United States,

161 U.S. 306 (1896).

32

It is also worth noting that materiality is a

context-specific inquiry, such that conditions that

may not be material in the private context could be

highly material to the government. The SAIC case,

discussed at length by Petitioner, Respondent and

amici, provides a good example. As the district

court’s decision makes clear, “lajt trial, the

government presented sufficient evidence to support

the jury’s finding that SAIC’s OCI representation

were critical to the government’s decision to pay.”

United States v. Sci. Applications Int'l Corp., 653 F.

Supp. 2d 87, 103 (D.D.C. 2009). Trial evidence

established SAIC was placed in a conflicting role

where its judgment may be biased in relation to its

work for the Nuclear Regulatory Commission

(“NRC”). That is because its contract with NRC

charged it with the responsibility to “assess the

health and safety impacts of the potential large scale

reuse and recycle of contaminated nuclear material,”

including by “outlining the possible approaches to

rulemaking for the release of these materials,” and

yet it was doing business with and sought to do

future business with entities governed by NRC

regulations. Jd. at 92, 100-102. In essence, SAIC

functioned as the proverbial “fox guarding the

henhouse,” and the jury credited NRC testimony

that it found SAIC’s violation of disclosure

requirements material and would not have paid for

the service had it realized SAIC had a financial

relationship with the entities the regulations it was

assisting NRC draft would govern. Although

conflicts of interest provisions may not be significant

in private arrangements, they matter greatly to the

Government, which acts as lawmaker and enters

33

into contracts amidst a larger backdrop of policy

objectives.

Likewise, one can imagine 4 company’s knowing

failure to comply with requirements in Government

contracts that create set-asides for small, minority-

owned or female-owned businesses. In the private

sector, violation of such a requirement may be

immaterial so long as the products for which a party

contracted were delivered. But when a company

fraudulently misrepresents that it fits the

parameters of a set-aside and fraudulently wins a

contract, it has contravened the Government’s policy

goals even if goods or services are delivered. The

case of Longhi v. Lithium Power Techs recognizes

this concept. In this case, Lithium Power

Technologies made false statements regarding the

company’s facilities and industry connections in

applications to receive grants from the Small

Business Innovation Research (“SBIR”) program.

Longhi, 575 F.3d at 458. The Fifth Circuit ruled

that the full amount of grants should be recovered as

FCA damages because the company’s

misrepresentations prevented the Government’s

policy goals from being achieved, notwithstanding

the fact that the company performed viable and

useful research under the contract. Jd. at 473.

On the other hand, requiring the Government to

identify every provision it considers material (i.e., is

a “condition of payment”) in all of its contracts is a

nearly impossible burden, rendered wholly

unnecessary by the proper application of the

common law materiality standard.

34

B. Congress and the Courts Have Made

Clear that Conduct Must Surpass Mere

Breach of Contract to Constitute an FCA

Violation.

Two principal distinctions demonstrate that mere

breach of contract does not automatically implicate a

violation of the FCA. First, FCA liability can attach

even in the absence of contractual privity between

the Government and the defendant. Second,

showing an FCA violation requires proving the

defendant had sufficient “knowledge” of the breach

prior to presenting a claim for payment. Among

others, these distinctions are paramount in defining

the contours of conduct giving rise to FCA liability.

Moreover, it is noteworthy that the Government

is uniquely situated as a contractual party. Courts

consistently recognize that the Government is

unique to the extent that the integrity of its public

programs far exceed its purely economic interests.

While ordinary business contracts are governed by

purely economic concerns, the United States has

important institutional reasons for requiring

particular contractual terms. See, e.g., United States

ex rel. Holder v. Special Devices, Inc., 296 F. Supp.

2d 1167, 1177 (C.D. Cal. 2003) (discussing

materiality of compliance with environmental and

labor regulations in government contract); accord

Christopher M. McCrudden, Buying Social Justice:

Equality, Government Procurement, and Legal

Change 3, 20 (2007) (discussing how governments

use purchasing power to achieve socioeconomic goals

like affirmative action and fair wages); Klass, supra

at 13 (describing “special needs” of government as

contractual party).

35

For example, FCA liability is properly imposed

even where the Government does not suffer

pecuniary loss, but receives something other than (1)

what it contracted for, or (2) what the claimant

certified it provided. See Varljen v. Cleveland Gear

Co., 250 F.3d 426, 429-30 (6th Cir. 2001) (“[T)he

failure to comply with government. contract

specifications can result in an FCA ‘injury’ to the

government, even if the supplied product is as good

as the specified product.”); Minn. Ass'n of Nurse

Anesthetists v. Allina Health System Corp., 276 F.3d

1032 (8th Cir. 2002) (holding that provision of

substandard services did not bar or limit FCA

liability because defendants knowingly billed the

United States for services that did not comply with

those contracted for).

By imposing liability whenever a_ claimant

knowingly seeks payment for materially

noncompliant goods or services, this Court best

effectuates Congress’ intent to eradicate fraud on the

Government through the False Claims Act.

CONCLUSION

The court of appeals’ judgment should be

affirmed.

36

Respectfully submitted,

/s/ David S. Stone _

David S. Stone

Counsel of Record

Robert A. Magnanini

Rachel E. Simon

STONE & MAGNANINI LLP

100 Connell Drive, Suite 2200

Berkeley Heights, NJ 07922

(973) 218-1111

DStone@stonemagnalaw.com

Reuben A. Guttman

Justin S. Brooks

Elizabeth H. Shofner

GUTTMAN, BUSCHNER & BROOKS PLLC

2000 P. St. NW, Suite 300

Washington, DC 20036

(202) 800-3001

jbrooks@gbblegal.com

David A. Bocian

Asher Alavi

KESSLER TOPAZ MELTZER & CHECK, LLP

280 King of Prussia Road

Radnor, PA 19087

(610) 667-7706

dbocian@ktmc.com