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

IN THE

Supreme Court of the Gnited 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 TAXPAYERS AGAINST FRAUD

EDUCATION FUND AS AMICUS CURIAE IN

SUPPORT OF RESPONDENTS

JACKLYN N. DEMAR JENNIFER M. VERKAMP

TAXPAYERS AGAINST FRAUD Counsel of Record

EDUCATION FUND CHANDRA NAPORA

1220 19% Street, N.W. MORGAN VERKAMP LLC

Suite 501 35 East 7% Street, Suite 600

Washington, D.C. 20036 Cincinnati, OH 45202

(513) 651-4400

jverkamp@morgeoverka np.com

March 3, 2016

TABLE OF CONTENTS

ee Cle FRR BN Bice rescesceninntascsiscsinsceniinns ill

INTEREST OF AMICUS CURIAE........................0004. 1

SUMMARY OF ARGUMENT ....................ccccccccscessesees 2

IT Sis eiicsinciinsdinnnisiisab nari alniariphapniubionadinsinbiniens 4

I. “Implied Certification” Reflects The Bedrock

Principle That Government Contractors Who

Seek Payment in Knowing Violation of

Material Terms of Their Bargain Violate the

SPIN ssicteiadestdsblaiiarabtiectkinia oeeticundbchddsancieandndiedetesacieends 4

A. The Plain Language of the Statute, Aligned

with its History and Purpose, Supports the

Basic Tenets of “Implied Certification” ...... 4

B. A Natural Reading of “False or

Fraudulent” Supports Application of the

“Implied Certification” Theory ................. 11

C. “Implied Certification” is Only a Label,

Preserving Long-Standing FCA

IE sic dacthviadankcenuledianliaddsacenaiosibnsamsens 17

Il. An “Express Condition” Requirement is Not

Supported By the Statute.................0..0......000. 24

FT

A. Materiality Provides the Necessary Nexus

Between the Conduct and the Resulting

B. Petitioner Inappropriately Urges an Extra-

Statutory Limitation to Curb Relator-

NE IIE dscntsnscnntanisctinbslnniscpiinaatietpmaniendidps 35

ENN caesesccebaie cioniicsictpssaascsnicnaioutrnnisianapinninencheninaae 39

ill

TABLE OF AUTHORITIES

CASES:

Ab-Tech Constr., Inc. v. United States, 31 Fed. Cl.

Sea RR At ll at ARSE Ray EM Aa Sk TE 18

Bates v. United States,

I 5

Chiarella v. United States,

I A, a 14

Cook Cnty. v. U.S. ex rel. Chandler,

8 8 AER ane ei RASA eet 11

Fuller v. De Paul University, 293 Ill. App. 261 (Ill.

Pia. SINE iccsascsicesasensciceehpmasiinsicanietnindininibeiasaenieactsaacmuoiiess 14

Graham Cnty. Soil & Water Conservation Dist. v.

SR CO CAR: BP CIID a nincasccpeadveconasevccaceveccess 7

Hays v. Meyers, 139 Ky. 440 (Ky. 1908) .................. 14

In re Cardiac Devices Litigation, 221 F.R.D. 318

aE Ic cuisnadsausclspeduahanbiusecaes 26

In re Consumer Health Services of America, Inc.,

171 B.R. 917 (Bkrtcy. D.D.C. 1994)..............ee. 35

Maher v. Hibernia Ins. Co.,

ae ene. Se 17

Mikes v. Straus, 274 F.3d 687

KERRIER ASTROS nora fe See eneteaeE 11, 24, 25

iv

Minnesota Ass’n of Nurse Anesthetists v. Allina

Health Sys. Corp., 276 F.3d 1032

NI Se oc donundnnmbionsnenennnias 28

Moskal v. United States, 498 U.S. 103 (1990)....10, 34

Murray & Sorenson v. United States, 207 F.2d

ae EAS ee Pie ay Sn po ae 18

Neder v. United States, 527 U.S. 1

EAI ST's S58 A ESE a ee 16, 23, 25, 35, 38

New York v. Amgen, 652 F.3d 103 (1st Cir. 2011) ...25

Omunicare, Inc. v. Laborers Dist. Council Constr. Ind.

Pens. Fund, 135 S.Ct. 1318 (2015) ................. 28, 29

Peterson v. Weinberger, 508 F.2d 45

a a i ce ancasdememieuaunsnsnd 6

Rex Trailer Co. v. United States,

I i eseteuntobiain 32

Rock Island, A. & L. R. Co. v. United States,

i a eh ealudacinnacievens 35

SEC v. Cochran, 214 F.3d 1261 (10th Cir. 2000).....14

Shalala v. Illinois Council on Long Term Care, Inc.,

Ta NIN RSI SS RE SS CR 2 35

Smith v. United States, 508 U.S. 223 (1993)............ 11

v

Stewart v. Wyoming Cattle Ranche Co.,

sb Rie BF a! are ee ts 14

U.S. ex rel. Badr v. Triple Canopy, Inc., 775 F.3d 628

CRTs Se, TIED onccitcsevssvensmabedcesieeee 22, 27, 32

U.S. ex rel. Cieszyski v. Lifewatch Servs., Inc., et al.,

No. 13-cv-4052, 2015 U.S. Dist. LEXIS 141721

jae Bs. | ee 21

U.S. ex rel. Conner v. Salina Reg'l Health Ctr., Inc.,

543 F.3d 1211 (10th Cir. 2008)........... 16, 20, 21, 26

U.S. ex rel. Durcholz v. FKW Inc., 189 F.3d 542

CFR Cae. BID vvcnvccicececsvesecnssstsdvivancinecteaee 34

U.S. ex rel. Hendow v. Univ. of Phoenix,

461 F.3d 1166 (9th Cir. 2006)...........00...... 14, 24, 26

U.S. ex rel. Howard v. KBR, Inc., et al.,

No. 4:11-cv-04022, 2015 U.S. Dist. LEXIS

140258 (C.D. Ill. October 15, 2015) ................ 21, 22

U.S. ex rel. Hutcheson v. Blackstone Med., Inc.,

647 F.3d 377 (1st Cir. 2011) ......... 19, 22, 24, 25, 31

U.S. ex rel. Ketroser v. Mayo Found., et al.,

vy 3A f 5: fe Xs |) eee 19

vi

U.S. ex rel. Kroening v. Forest Pharmaceuticals, Inc.,

et al., No. 12-cv-366, 2016 U.S. Dist. LEXIS

3509 (E.D. Wis. Jan. 6, 2016) .................000000 21, 22

U.S. ex rel. Longhi v. Lithium Power Techs. Inc.,

576 F.3d 466 (Gth Cir. 2008)..............cccecercceceeeceeees 16

US. ex rel. Loughren v. Unum Grp.,

Ee EEE GEE. BP BUD covccccscccscccsccccccccesocecese 16

U.S. ex rel. Marcus v. Hess,

I I I oo ss sc ccueeneconnnocosocier 6, 19, 29

U.S. ex rel. McLain v. KBR, Inc., No. 1:08-CV-499,

2014 U.S. Dist. LEXIS 92072

EE 29

U.S. ex rel. McNutt v. Haleyville Medical

Supplies, et al., 423 F.3d 1256

I A cecensensecsucoues 20, 31

U.S. ex rel. Oliver v. Parsons Co.,

BOD F.0e SOF CER Cie. LGDD) .......0000000c0cccce0e0e...:. 27

U.S. ex rel. Osheroff v. Humana, Inc.,

re ) A Tob Le > |.) 19

U.S. ex rel. Pogue v. Diabetes Treatment Ctrs. of Am.,

Inc., 565 F. Supp. 2d 153 (D.D.C. 2008)............... 30

vil

U.S. ex rel. Prather v. Brookdale Senior Living

Communities, Inc., No. 3:12-CV-00764, 2015 U.S.

Dist. LEXIS 150468

IG nc I 29

U.S. ex rel. Purcell v. MWI Corp.,

SF Fe Be Gs Gee BI cececeweccccececeesecestestises 31

U.S. ex rel. Sanders v. North American Bus Indus.,

646 F.3d 266 (4th Cir. BOOB) ..........0ccccccecceccceseeesee. 16

U.S. ex rel. Schell v. Battle Creek Health Sys.,

419 F.3d 535 (6th Cir. 20085).................ccccccceeeeeeees 35

U.S. ex rel. Steury v. Cardinal Health, Inc.,

625 F.3d 262 (Sth Cir. 2010)......................... 19, 21

U.S. ex rel. Steury v. Cardinal Health, Inc.,

vy YP * f Les |) ee 12, 21

U.S. ex rel. Watson v. King-Vassel,

oe Bf le | ena 28

U.S. ex rel. Wilkins v. United Health Grp., Inc.,

No. 10-2747, 2011 U.S. App. LEXIS 13322

is ee | __ ) | Reamer 26, 31, 35

U.S. ex rel. Willard v. Humana Health Plan

of Tex., Inc., 336 F.3d 375 (5th Cir. 2003)............ 19

United States v. Acme Process Equipment Co.,

REE RE NE Vie RS eee ea 33

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

PO Rs ae 32

vill

United States v. Beach,

ci kh ) SS FeO ers 17

United States v. Bornstein,

Tn i esaiiioniationl 6

United States v. Bourseau,

531 F.3d 1159 (9th Cir. 2008)............................... 16

United States v. Brown,

I i ceeeeninenbid ll

United States v. Cooperative Grain & Supply Co.,

Ee ae OG ee i indshistcitctndésrdcscsnecdsecsecees 15

United States v. DeWitt, 265 F.2d 393

I ee Re EPS PEC a 18, 19

United States v. General Dynamics Corp.,

Be EB eiichccrctietneacthccivensinccesionsinnses 33

United States v. Grainger,

I a cimliansisll 17

United States v. Griswold,

Ie re i 15

United States v. Hibbs,

I I sda mseisininaslins I 17

United States v. Kurlemann,

rope pb: | (4: eres 12

United States v. Menasche,

ES RO Oe ee Rr 5

ix

United States v. Natl Whol.,

Fw FO e, le | ene 6, 32

United States v. Neifert-White Co.,

TR A ae at SED ER ERED REL RENE 8

United States. v. Rogan, 517 F.3d 449

as 6, 20, 22, 31, 33

United States v. Sanford-Brown, Ltd.,

ee ee ee Oe Ce Bi ceircrstiacecnnsnsesctisstsnoncis 20

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

626 F.3d 1257 (D.C. Cir. 2010)....... 6, 24, 25, 31, 32

United States v. Wells, 519 U.S. 482

AR i LL Se Pe ee PN Re 15

STATUTES:

31 U.S.C.

RSET aa Oe SABES Rg OA Me 5

RRS DIS SLES Ss SE ELS NEE eS 5

FERRETS I oa eee eee a NNT ON 5

RAE TENS RD aioe Sem elem ea 5

i Se 15,16

Wn 30

REGULATIONS AND GUIDANCE:

59 Fed. Reg. 65372 (December 19, 1994) ................. 31

68 Fed. Reg. 23731 (May 5, 2003).................ccccc:cceees 30

x

LEGISLATIVE MATERIALS:

132 Cong. Rec. H6482

NE: HIE TR MID once cidacncnsascsnunecsinieieseenasne 6, 36

145 Cong. Rec. E1546

ie RRL ly See ees 36

155 Cong. Rec. E1295

(daily ed. June 3, 2009) ................ccceseeceeeeee 7,9,10, 32

Cong. Globe, 37th Cong.,

a PR EP Eee ao ORS PRO ar 6, 32

S. Rep. Com. No. 75, 37th Cong.,

ate Rt SE i OO ee ie cee 6

S. Rep. No. 345, 99th Cong.,

BE I CI ccs pectictentcvesiens 7, 8, 9, 15, 33, 35, 36, 38

OTHER MATERIALS:

Claire M. Sylvia, The False Claims Act: Fraud

Against the Government (2d ed. 2010)

RU ARI ER PC ESB abt ees a Wea Se Opa 12

Government Accountability Office Report to

Congressional Requesters, Health Care Fraud:

Information on Most Common Schemes and the

Likely Effect of Smart Cards (January 2016)........... 38

Xl

Restatement (Second) of Torts (1977)

| ROR E Daa cm 12,13, 23

a ee 16,25

i ccniusinmtnsciasivatenciaibeineiil 13

Re 13,14

The False Claims Act Correction Act (S. 2041):

Strengthening the Government's Most Effective Tool

Against Fraud for the 21** Century: Hearing Before

the S. Com. On the Judiciary 110th Cong. 167-85

RRA Et SF. 9 ooh ye perp eee ee a tA On aT 36

U.S. Dep't of Justice, Fraud Statistics Overview:

October 1, 1987 — September 30, 2015 ....................- 37

U.S. Dep’t of Justice, Press Release, Justice

Department Recovers over $3.5 Billion From False

Claims Act Cases in Fiscal Year 2015 ................0006 37

INTEREST OF AMICUS CURIAE!

Taxpayers Against Fraud Education Fund

(“TAFEF”) respectfully submits this brief as amicus

curiae.

TAFEF is a nonprofit, tax-exempt organization

dedicated to preserving effective anti-fraud

legislation at the federal and state levels. TAFEF

has worked to publicize the qui tam provisions of the

False Claims Act (“FCA”), has provided testimony

before Congress regarding each of the proposed

amendments to the FCA since 1986, and has

participated in litigation both as a qui tam relator

and as amicus curiae regarding the proper

interpretation of the FCA. TAFEF presents an

annual educational conference for FCA attorneys,

typically attended by more than 300 private and

government attorneys from across the country.

TAFEF’s members regularly bring FCA actions on

behalf of private citizens and the United States to

protect public resources through public-private

partnership.

! No party's counsel authored this brief in whole or in part, and

no persons or entities other than amicus, its members, or its

counsel, made a monetary contribution intended to fund the

preparation or submission of this brief. All parties have

consented to the filing of this brief.

SUMMARY OF ARGUMENT

“Implied certification” is a label, representing one

method by which courts have analyzed liability

under the FCA. In reaction to protracted use of the

phrase “false certification,” courts have used “implied

certification” to impose liability for false or

fraudulent claims based on underlying conduct

rather than express false statements. However, a

judicial construct is unnecessary to accomplish this.

A natural reading of the text of the statute, in

consonance with its purpose and history, firmly

supports liability for underlying fraudulent conduct

which results in claims upon the public fisc.

To wit, implied certification simply reflects the

basic principle that a contractor violates the FCA

when it submits a claim while knowingly concealing

facts material to payment. Such concealment has

long been considered fraud, both at common law and

by this Court. This is squarely in step with the

intent of the FCA’s drafters. Each time it has

amended the Act since 1986, Congress’ intent has

resounded in unequivocal terms. It was amended to

modernize the law, to comprehensively protect the

fisc, and to hold contractors responsible for all false

or fraudulent conduct involving public funds.

Consistent with these principles, courts have long

held contractors liable under the FCA for knowing

violations of conditions which are material to

payment.

3

And yet petitioner asserts that it cannot be held

to answer under the FCA either because it did not

make an express statement that its services were

provided in compliance with mental health

regulations at issue, or because, in petitioner's view,

the regulations at issue did not contain the right

talismanic words to qualify as “conditions of

payment.” Petitioner’s arguments require this Court

to rewrite the statute, and it promotes an approach

that creates a counterintuitive gap between conduct

that violates an express condition precedent and

conduct that the defendant knows to be material to

payment. There is no “express words” requirement

in the FCA. Rather, liability is bounded by

materiality and knowledge, the mechanisms chosen

by Congress to prevent the parade of horribles

petitioner fears.

The underlying decision demonstrates that these

delimiting principles are well-handled by the courts.

The regulations at issue did not require the court to

create a material condition out of whole cloth.

Rather, the regulations make plain that claims are

not reimbursable without compliance. Resp. Br. 8-9.

Far from being the sort of outlier which supports the

argument that the FCA is a renegade law requiring

the intervention of a judicial posse to protect a

contractor tied to the tracks of a litigation train, this

case squares precisely with the language of the

statute and the intent of Congress, and rests firmly

within a century’s jurisprudence supporting use of

the FCA to recover for false claims and fraud against

the public fisc.

The decision below should be affirmed.

4

ARGUMENT

I. “Implied Certification” Reflects The

Bedrock Principle That Government

Contractors Who Seek Payment in

Knowing Violation of Material Terms of

Their Bargain Violate the FCA.

Petitioner challenges an approach to analyzing

liability under the FCA that has been characterized

over time as “implied certification.” This approach, at

bottom, merely reflects the long-established

proposition that the FCA is violated when a

contractor requests payment from the United States

while knowingly concealing facts material to

payment. This proposition underpins the

archetypical cases decided under the statute, is

faithful to the statutory text, and is consistent with

the scope and purpose of the FCA.

A. The Plain Language of the Statute,

Aligned with its History and Purpose,

Supports the Basic Tenets of “Implied

Certification”.

That FCA liability may atiach without an express

false statement on the claim form is unremarkable.

Words like “certification” and “condition of payment”

were adopted by courts as aids to explaining liability,

but such constructs are no longer helpful when the

focus shifts to examining the elements of the

construct rather than the statute itself.

1. The Text. As relevant here, the FCA imposes

liability on any person who “knowingly presents, or

5

causes to be presented, a false or fraudulent claim

for payment or approval.” 31 U.S.C. 3729(a)(1)(A).

The FCA contains six additional provisions for

liability, yet not one of these provisions contains the

word “certification” nor does any require an express

false statement on the face of the claim for payment.

31 U.S.C. 3729(a)(1)(A)-(G). Only two provisions

include as an element a “false record or statement.”

31 U.S.C. 3729(a)(1)(B) (liability for one who

“knowingly makes, uses, or causes to be made or

used, a false record or statement material to a false

or fraudulent claim”); 3729(a)(1)(G) (addressing “an

obligation to pay or transmit money or property to

the Government...”).

Subsection 3729(a)(1)(A)’s palpable lack of a

false statement requirement, in contrast to the other

statutory provisions, is critical here. “[W]here

Congress includes particular language in one section

of a statute but omits it in another section of the

same Act, it is generally presumed that Congress

acts intentionally and purposely in the disparate

inclusion or exclusion.” Bates v. United States, 522

U.S. 23, 29-30 (1997) (internal quotations omitted).

Engrafting a false statement or certification

requirement into subsection (a)(1)(A) would

effectively conflate it with subsection (a)(1)(B),

counter to the “cardinal principle” of construction

that courts must strive to give effect to all parts of a

statute. United States v. Menasche, 348 U.S.528,

538-39 (1955).

Far from being limited to a falsehood apparent on

the face of a claim, or to any other express false

statement (such as a false certification), subsection

6

(a)(1)(A) imposes liability for all “false or fraudulent”

claims for payment submitted or caused to be

submitted to the United States, irrespective of

express false statements or certifications. More than

a century’s FCA jurisprudence, including seminal

cases from this Court, show that the false or

fraudulent conduct of defendants is not limited to

falsehoods on the face of the claim for payment. F.z.,

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

(subcontractor violation of standard for procuring

radio tubes incorporated in prime contract); U.S. ex

rel. Marcus v. Hess, 317 U.S. 537 (1943)

(subcontractor collusive bidding to obtain contract).?

As the Seventh Circuit described in United States v.

Rogan, the standard could hardly require the claim

form to affirmatively state “patient acquired by

kickback.” 517 F.3d 449, 453 (2008).

2. History and Purpose. This proposition flows

naturally from the FCA’s purpose. Congress enacted

the FCA in 1863 to attack war profiteering. Cong.

Globe, 37th Cong., 3d Sess. 952 (1863). Contractors

were not just overcharging and mis-billing, but

engaging in and concealing fraud. Jd. at 955

(sawdust masqueraded as gunpowder); 132 Cong.

Rec. H6482 (daily ed. Sept. 9, 1986) (same mules

being sold repeatedly); S. Rep. Com. No. 75, 37th

Cong., 3d Sess. 4 (1863) (decrying scheme of

2 United States v. Natl Whol., 236 F.2d 944 (9th Cir. 1956)

(regulators disguised as model specified in contract); Peterson v.

Weinberger, 508 F.2d 45 (5th Cir. 1975) (disqualified healthcare

provider submitted claims under different provider number);

United States v. Sci. Applications Intl Corp. (SAIC), 626 F.3d

1257 (D.C. Cir. 2010) (services provided in violation of conflict-

of-interest provisions of contract).

7

providing rotting, old ships painted and sold as new

as inconsistent “with that alacrity and faithfulness

in the discharge of duty which the government has a

right to expect from those to whom important trusts

are confided”).

After amendments in 1943 caused the statute to

lie dormant (largely due to the amendments’

curtailing of relators’ roles), Congress found that

“fraud against the Government had grown to

unprecedented levels.” 155 Cong. Rec. E1295-96

(daily ed. June 3, 2009) (statement of Rep. Berman);

S. Rep. No. 345, 99th Cong., 2d Sess. 1-2 (1986). In

response, it amended the FCA in 1986 “to strengthen

the Government’s hand in fighting false claims, and

to encourage more private enforcement suits.”

Graham Cnty. Soil & Water Conservation District v.

Wilson, 559 U.S. 280, 298 (2010)(internal citations

omitted).

Petitioner and its supporters call for a narrowing

of the FCA to respond to a supposed disconnect

between modern law and a “Civil War-era” statute.

E.g., Chamber of Commerce Amicus Br. 15. These

protests ignore the raison detre of the 1986

Amendments: the “growing pervasiveness of fraud

[which] necessitates modernization of the

Government's primary litigative tool for combatting

fraud [, the FCA.]” S. Rep. No. 345 at 2. In

overhauling the statute to make it “a more useful

tool against fraud in modern times” — indeed, fraud

that was becoming even more “sophisticated and

widespread” — Congress significantly bolstered the

provisions to incentivize relators while maintaining

8

the statute’s proscription against “false or

fraudulent” claims. Id. at 2.

In so doing, Congress specifically delineated the

reach of the FCA, alerting government contractors

that the FCA “is intended to reach all fraudulent

attempts to cause the Government to pay out sums of

money or to deliver property or services.” S. Rep. No.

345 at 9. Indeed, the Senate Committee “strongly

endorse[d]” this Court’s “interpretation of the act”

when it concluded that the FCA “was intended to

reach all types of fraud, without qualification, that

might result in financial loss to the Government.” S.

Rep. No. 345 at 19, quoting United States v. Neifert-

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

The legislative history illustrates the breadth of

liability with specific examples. “[A] false claim may

take many forms, the most common being a claim for

goods or services not provided, or provided in

violation of contract terms, specification, statute, or

regulation.” S. Rep. No. 345 at 9 (emphasis added).

In addition:

...claims may be false even though the

services are provided as claimed if, for

example, the claimant is ineligible to

participate in the program...

...each and every claim submitted under

a contract, loan guarantee, or other

agreement which was originally obtained

by means of false statements or other

corrupt or fraudulent conduct, or in

9

violation of any statute or applicable

regulation, constitutes a false claim.

[also] false and actionable under the act...

are all Medicare claims submitted by or

on behalf of a physician who is ineligible

to participate in the program.

Id. at 9-10 (emphasis added).

Congress’ intent was firmly reiterated in the 2009

amendments. Representative Berman, a co-sponsor

for both the 1986 and 2009 amendments, stated on

the House floor that the amendments were designed

to strengthen the provisions of the FCA, by

“updat[ing] this law to ensure that it reaches the

modern fraud schemes that are draining our public

fisc with impunity.” 155 Cong. Rec. at E1295. In

response to its view that a ruling by this Court

regarding subsection (a)(1)(B) had limited the reach

of the FCA in a manner inconsistent with what

Congress had intended, Congress “clarify[ied] the

true intent of the False Claims Act and to send a

clear message that all government funds should be

protected from fraud.” Jd. at E1295-1296.

Recognizing that Congress “cannot possibly

predict the breadth of fraudulent schemes that can

be used to target the public fisc,” Representative

Berman made clear that the FCA proscribes

fraudulent conduct which is not apparent on the face

of the claim, including:

Seeking payment pursuant to a program

for which the claimant was not eligible.

10

Demanding payment for goods or services

that do not conform to contractual or

regulatory requirements.

Requesting Government services to which

one is not entitled.

Submitting a claim by a person who has

violated a statute or regulation, the

violation of which is capable of

influencing the payment decision.

Submitting a claim for payment even

though the defendant was violating the

Government funded program's conditions

of participation or payment.

Id. at 1296-1297 (emphasis added; additional

examples omitted).

Congress’ intent has been loud and clear each

time it has chosen to “modernize” the FCA: The FCA

was never intended to allow corner-cutting

contractors to hide under its skirts with robotic and

narrow language. Rather, Congress intended to

entrench the FCA as “the protector of all

Government funds or property.” Jd. at E1296.

Moreover, while “[{t]his Court has never required

that every permissible application of a statute be

expressly referred to in its legislative history,”

Moskal v. United States, 498 U.S. 103, 111 (1990),

Congress has specifically and repeatedly recognized

that claims premised on violations of underlying

11

statutes and regulations are within the scope of the

FCA.

This explicit purpose evidence cannot be read out

of the statute. The Court looks to the statutory

language and “every thing from which aid can be

derived” in order to ascertain the scope and meaning

of the statute. Smith v. United States, 508 U.S. 223,

239 (1993). A statute is not given the “narrowest

meaning;” rather, “words are given their fair

meaning in accord with the manifest intent of the

lawmakers.” United States v. Brown, 333 U.S. 18, 26

(1948).

Thus, though petitioner claims that “implied

certification” is beyond the statute, the basic premise

underlying the theory—that a claim may be rendered

false or fraudulent by underlying conduct—comports

with the statute’s plain text, its purpose, and history.

B. A Natural Reading of “False or

Fraudulent” Supports Application of

the “Implied Certification” Theory.

The common understanding of the phrase “false

or fraudulent” encompasses a broad band of conduct.

As this Court has repeatedly observed, “Congress

wrote expansively” to reach all types of fraud. Cook

Cnty. v. U.S. ex rel. Chandler, 538 U.S. 119, 129

(2003).

“False’ can mean ‘not true,’ ‘deceitful,’ or ‘tending

to mislead.” Mikes v. Strauss, 274 F.3d 687, 696 (2d

Cir. 2001). Fraud, however, “has long been

understood to include a broader range of deceptive

12

conduct.” United States v. Kurlemann, 708 F.3d 722,

728 (6th Cir. 2013) (interpreting 18 U.S.C. 1014).

While courts have merged the concept of “false” and

“fraudulent” over time,’ these twin precepts of the

statute, which have existed since its passage in 1863,

have distinct meanings key to understanding its

breadth.

The traditional, commonsense understanding of

fraud, like the theory of implied certification,

encompasses omissions of material facts. While

petitioner concedes that material omissions are

within the common law conception, it insists that

actionable omissions must be preceded by an express

duty to disclose statutory, regulatory, or contract

violations when seeking payment. Pet. Br. 30-31.

This myopic view narrows not only the concept of

fraud, but also Congress’ meaning of the phrase

“false or fraudulent.”

1. The Common Law. Fraudulent misrepresentation

includes “[a] representation stating the truth so far

as it goes but which the maker knows or believes to

be materially misleading because of his failure to

state additional or qualifying matter...” Restatement

(Second) of Torts § 529 (1977) (Restatement). The

nature of this tort is that the person “knows or

believes that the undisclosed facts might affect the

* See Claire M. Sylvia, The False Claims Act: Fraud Against the

Government § 4:26 (2d ed. 2010) ("Courts do not always

distinguish between ‘false’ claims and ‘fraudulent’ claims, and

often simply refer to ‘falsity’ or, as the statute's title does, ‘false

claims.”); U.S. ex rel. Steury v. Cardinal Health, Inc., 735 F.3d

202, 209 (5** Cir. 2013) (Steury ID) (Higginson, J., concurrence).

13

recipient’s conduct in the transaction at hand.” Id. at

Comment (b).4

Petitioner points instead to a different section of

the Restatement in which liability for nondisclosure

is limited to matters regarding which a person “is

under a duty to the other to exercise reasonable care

to disclose....” Restatement § 551(1); Pet. Br. 31.

Petitioner argues that such a duty arises only to

those parties which are in “a fiduciary or other

similar relation of trust” with the Government. /d.

Even were this so, government contractors are

indeed in that “similar relation of trust” with the

Government. See Resp. Br. 30. But that is far from

the only way in which the duty to disclose arises. A

more thorough citation to the Restatement reveals

that a duty to exercise reasonable care of disclosure

under the common law also includes scenarios where

disclosure prevents misleading representations; to

correct previous representations; or to disclose basic

facts about which one would reasonably expect

disclosure. Restatement § 551(2)(b)-(e).

While this section of the Restatement is meant to

reflect “the traditional ethics of bargaining between

adversaries,” it acknowledges that this “privilege to

take advantage of ignorance” is a very limited

principle. Jd. at Comment (k), (1). As the

Restatement and the case law recognize, many

factors give rise to a reasonable expectation of

disclosure, including an obligation of good faith and

4 A typical example would include the nondisclosure of a latent

defect in the sale of land or chattel. Jd. at Comment C.

14

fair dealing;5 where the recipient is not in an equal

position to obtain information or where “one party’s

superior knowledge of essential facts renders a

transaction without disclosure inherently unfair;”® or

where parties have entered into a contractual

agreement.’

Each of these applies to the government

contractor, who is not only a party to a transaction

with the Government, but in a position of superior

knowledge regarding its compliance or lack thereof

with legal or contractual requirements. Using this

section of the Restatement to instead preserve a

“privilege” for government contractors to “take

advantage of ignorance” would run counter to the

remedial nature of the statute. Both this Court and

Congress have recognized that the FCA “is intended

to protect the Treasury against the hungry and

5 Id. at Comment (I).

® Chiarella v. United States, 445 U.S. 222, 248 (1980)

(Blackmun, J., dissenting) (citations omitted); Fuller vy. De Paul

University, 293 Ill. App. 261, 267 (Ill. App. Ct. 1938)(silence

regarding applicant's apostasy was deceptive and material);

Hays v. Meyers, 139 Ky. 440, 444 (Ky. 1908)(collecting cases

and noting that the “nature of the subject matter of the

contract” or the peculiar circumstances of the case may “impose

a legal or equitable duty to disclose material facts”).

? Stewart v. Wyoming Cattle Ranche Co., 128 U.S. 383, 388

(U.S. 1888)(“[t]he gist...is fraudulently producing a concealment

or suppression of material facts not equally within the

knowledge or reach of the [other contracting party]”); SEC v.

Cochran, 214 F.3d 1261, 1265 (10th Cir. 2000)(common law

duty to disclose arose “anytime the facts and circumstances

surrounding a relationship would allow a reasonably prudent

person to repose confidence in another person”).

15

unscrupulous host that encompasses it on every side,

and should be construed accordingly.” United States

v. Griswold, 24 F 361, 366 (D. Or. 1885); S. Rep. No.

345 at 11.

This view of false or fraudulent works hand in

glove with the FCA’s knowledge standard, which

specifically requires no intent to deceive. 31 U.S.C.

3729(b)(4).® Rather, it was fashioned to impose a

duty on contractors to make an inquiry of “the true

and accurate basis” of their claims to the

Government. S. Rep. No. 345 at 20. Contractors

receiving public funds must be “reasonably certain

they are entitled to the money they seek.” Jd.

(emphasis added). Indeed, “(t]he applicant for public

funds has a duty to read the regulations or be

otherwise informed of the basic requirements of

eligibility.” United States v. Cooperative Grain, 476

F.2d 47, 55 (8th Cir. 1973).

While petitioner argues that such case law seeks

to apply “special duties of disclosure,” Pet. Br. 31,

this ignores that the duty to disclose facts material to

the eligibility of the claim for payment flows from the

statute itself. Moreover, it mistakes the basic

common law precepts of Restatement Sections 529

and 551, which provide that a party to a transaction

is not at liberty to seek payment in full while hiding

material violations of the terms of their agreement.

8 While the common law can be used to assess the natural

reading of the statute, this maxim does not engraft all the

elements of a common law crime onto the statute. United States

v. Wells, 519 U.S. 482, 491 (U.S. 1997). Here, the drafters

specifically removed intent to deceive.

16

2. Application of a Materiality Standard to Fraud

Statutes. This reading of false or fraudulent is also

in consonance with this Court’s application of a

materiality standard to fraud statutes: Fraud

statutes incorporate materiality because the “well-

settled meaning of ‘fraud’ required a

misrepresentation or concealment of material fact.”

Neder v. United States, 527 U.S. 1, 22 (1999).

Following Neder, the majority of courts of appeal

have read a materiality element into subsection

(a)(1)(A). E.g., U.S. ex rel. Loughren v. Unum Group,

613 F.3d 300 (ist Cir. 2010); U.S. ex rel. Longhi v.

Lithium Power Techs., Inc., 575 F.3d 458 (5th Cir.

2009), cert denied, 130 S. Ct. 2092 (2010); U.S. ex

rel. Sanders v. North American Bus Indus., 546 F.3d

288 (4th Cir. 2008); United States v. Bourseau, 531

F.3d 1159 (9th Cir. 2008).

As Neder identified, a matter is material if a

“reasonable man” would find its existence or

nonexistence important to his decision-making or

“the maker of the representation knows or has

reason to know that its recipient regards or is likely

to regard the matter as important in determining his

choice of action, although a reasonable man would

not so regard it.” 527 U.S. at 22, quoting

Restatement § 538. The common-law definition of

materiality as what is likely to affect the decision of

the recipient is now integrated into subsection

(a)(1)(B) of the FCA. 31 U.S.C. 3729(b)(4) (“material”

means having a natural tendency to influence, or be

capable of influencing, the payment or receipt of

money or property).

17

The use of the phrase “false or fraudulent” to

include concealments of facts which would have

affected the Government’s decision to pay is fully in

line with the broad understanding of fraud at the

time of the FCA’s drafting. E.g., Maher v. Hibernia

Ins. Co., 67 N.Y. 283, 292 (N.Y. 1876) (fraud includes

“any trick or artifice by one, to induce another to fall

into, or remain in an error, to his harm”); United

States v. Beach, 71 F. 160 (D. Colo. 1895)(“[fJraud

may be only an artifice to deprive another of his

right, without gain to the person practicing it”);

Resp. Br. 29.

C. “Implied Certification” is Only a

Label, Preserving Long-Standing FCA

Principles.

1. Evolution of Certification. False certification first

appeared in United States v. Hibbs, which construed

an older version of the statute proscribing using a

false “certificate” to obtain approval of a claim. 568

F.2d 347, 349 (3d Cir. 1977).2 False certification

generally refers to scenarios where the defendant

has falsely certified compliance with an underlying

term or condition, thereby rendering the resulting

claim false. See Sylvia, supra n. 5 at § 4:33. An

affirmative false certification renders a claim false,

because in such cases the affirmative statement of

compliance is untrue.

Over the years, however, “false certification” has

acquired a life of its own apart from the statute.

When a claim is based on underlying conduct, rather

9 Cf. United States v. Grainger, 346 U.S. 235 (1953).

18

than a facial falsity, “false certification” has been the

fast track to discerning a nexus between the conduct

and the resulting claim that renders it “false or

fraudulent.” Instead of remaining just one means by

which a claim can be false, certification became one

of the primary lenses through which “false or

fraudulent” claims were evaluated.

Courts quickly found that restricting FCA

liability to cases of facially false descriptions of goods

or services or affirmative false certifications of

compliance created giant loopholes for false or

fraudulent conduct. The need to carve room out of

prolific and rigid use of the construct of “false

certification” led to a new label: implied certification.

In lieu of an affirmative false certification, the

theory evolved to include claims that were presented

as if entitled to payment, but without any express

statemert of compliance. Rather, the claims

“represented an implied certification...of

{defendant’s] continuing adherence to the

requirements for participation in the ... program.”

Ab-Tech Constr., Inc. v. United States, 31 Fed. Cl.

429, 434 (Fed. Cl. 1994).

The theory that seeking payment reflects an

implied representation that one is entitled to it was

not new, as such conduct had long been recognized as

encompassed by the FCA. E.g., United States v.

DeWitt, 265 F.2d 393, 397 (5th Cir. 1959) (implied

representation of entitlement to funds from

Veteran’s Administration despite knowing violation

of statutory mandate restricting loan to home

occupied by veteran); Murray & Sorenson v. United

19

States, 207 F.2d 119, 124 (1st Cir. 1953) (implied

representation that bids were at a figure defendant

would have submitted in competition); Hess, 317

F.2d at 544 (same). The label is simply another

expression of the basic principle that “[i]f the

government defines its bargain in a manner that

requires adherence to a statute or regulation,

compliance with that statute or regulation is implied

by virtue of a request for payment.” U.S. ex rel.

Willard v. Humana Health Plan, 336 F.3d 375, 382

(5th Cir. 2003).

The majority of circuits have adopted this method

of establishing liability under the FCA. See Resp. Br.

26, n. 12, collecting cases from Second, Third,

Fourth, Sixth, Ninth, Tenth, and D.C. Circuits; cf.

U.S. ex rel. Hutcheson v. Blackstone Med., Inc., 647

F.3d 377, 385-88, 392-94 (1st Cir. 2011) (specifically

declining to use the term “implied certification,” but

recognizing that a claim may be false or fraudulent

even if the claim form contains no explicit false

statement), cert. denied, 132 S. Ct. 815 (2011).

The Fifth, Eighth and Eleventh Circuits have

reserved judement on “implied certification,” but

each has recognized that the FCA imposes liability

where there is no express false statement, but the

claim is otherwise materially false or fraudulent.

U.S. ex rel. Steury v. Cardinal Health, Inc., 625 F.3d

262, 268 (5th Cir. 2010)(Steury D; DeWitt, 265 F.2d.

393; U.S. ex rel. Ketroser v. Mayo Found., et al., 729

F.3d 825 (8th Cir. 2013) (assessing whether claims

for Medicare payment were materially false by

evaluating whether regulations represented a

condition of payment); U.S. ex rel. Osheroff v.

20

Humana, Inc., 776 F.3d 805, 808 n.1 (11th Cir. 2015)

(reserving judgment); U.S. ex rel. McNutt v.

Haleyville Medical Supplies, et al., 423 F.3d 1256,

1259 (11th Cir. 2005) (FCA liability when claims

submitted knowing of ineligibility for payments

demanded due to violations of conditions of

payment).

The Seventh Circuit recently “declined to join” the

other circuits in adopting implied certification.

United States v. Sanford-Brown, Ltd., 788 F.3d 696,

711, n.7 (7th Cur. 2015), petition for cert. pending, No.

15-729 (U.S. filed Dec. 2, 2015) (citations omitted).

Sanford-Brown was n°‘ a healthcare case, instead

involving Title IV funding provided a for-profit

college pursuant to a Program Participation

Agreement (PPA) signed with the Department of

Education. The court found that the PPA was a

condition of participation entered into in good faith,

and rejected the proposition that, absent bad faith

entry of the initial agreement, later violations of

Title [V restrictions could create FCA liability. Jd. at

712.

It is unclear that Sanford-Brown is a categorical

rejection of the tenets of implied certification. If it is,

it is the only court of appeals to so hold. This

interpretation would be contrary to the Seventh

Circuit’s prior decision in Rogan, in which the court

upheld false claims resulting from violations of the

Stark and Anti-Kickback laws. 517 F.3d at 453.

Moreover, the Seventh Circuit premised its holding

on joining the Fifth Circuit in Steury I, which

21

actually “did not reject the implied certification

theory of FCA liability.” Steury I, 735 F.3d at 205.1°

Since Sanford-Brown, a number of district courts

in the Seventh Circuit have concluded that it is

limited to its facts, which involved “regulatory

violations that had no demonstrable nexus to a

payment decision.” U.S. ex rel. Howard v. KBR, Inc.,

et al., No. 4:11-cv-04022, 2015 U.S. Dist. LEXIS

140258 *80 (C.D. Ill. October 15, 2015); U.S. ex rel.

Cieszyski v. Lifewatch Servs., Inc., No. 13-cv-4052,

2015 U.S. Dist. LEXIS 141721 *30(N.D. Ill. Oct. 19,

2015); U.S. ex rel. Kroening v. Forest

Pharmaceuticals, Inc., et al, No. 12-cv-366, 2016 U.S.

Dist. LEXIS 3509 *13-4 (E.D. Wis. Jan. 6, 2016).

2. The Rejection of “Implied Certification” Principles

Would Narrow the Plain Text of the FCA. Each of

the post-Sanford-Brown decisions cited above

involves facts which fit squarely within the meaning

of “false or fraudulent” but which would have fallen

into a loophole created by a rejection of implied

certification. Howard involved payment sought by

KBR for unallowable costs of more than $600 million

of excessive inventory, which it hid from the

Government and omitted from underlying reports.

2015 U.S. Dist. LEXIS 140258. Cieszyski involved

Medicare payment sought for the monitoring of

cardiac devices by uncertified technicians in India,

which the provider hid by substituting the names of

certified technicians in the underlying records. 2015

10 Rather, Steury I recognized that other facts may support FCA

liability for knowing violations of conditions of payment. 625

F.3d at 270.

22

U.S. Dist. LEXIS 141721 *10-11. Kroening involved

a nationwide scheme to pay lavish kickbacks to

doctors to induce them to prescribe drugs,

notwithstanding that compliance with the Anti-

Kickback Statute is “a fundamental prerequisite to

reimbursement.” 2016 U.S. Dist. LEXIS 3509 *15,

22.

Avoiding the need to rely on constructs, each of

these district courts returned to the language of the

FCA. Quoting Rogan, 459 F. Supp. 2d at 717-18, the

Howard court found that even without an express

certification of compliance, KBR’s knowing

submission of claims to the Government for payment

when it violated “a statute or regulation that

contains, on its face, a direct nexus to the

[GJovernment’s payment decision is...actionable

under the FCA.” Howard at *84.

In dealing with the practical application of the

statute to a variety of fact patterns, these courts

follow recent courts of appeal that have observed

that “rigid use of such labels” sometimes gets in the

way of what was intended by the statute. U.S. ex rel.

Badr v. Triple Canopy, Inc., 775 F.3d 628, 635, n.3

(4th Cir. 2015) (“Our focus, regardless of the label

used, remains on whether the Government has

alleged a false or fraudulent claim”). In Hutcheson,

the First Circuit explained:

Courts have created these categories in

an effort to clarify how different

behaviors can give rise to a false or

fraudulent claim. Judicially-created

categories sometimes can help carry out a

23

statute’s requirements, but they can also

create artificial barriers that obscure and

distort those requirements. The text of

the FCA does not refer to “factually false”

or “legally false” claims, nor does it refer

to “express certification” or “implied

certification.” Indeed, it does not refer to

“certification” at all. In light of this, and

our view that these categories may do

more to obscure than clarify the issues

before us, we do not employ them here.

647 F.3d at 385-86; cf. SAIC, 626 F.3d at 1268.

The First, Fourth, and D.C. Circuits properly

recognize that extra-statutory limitations cannot be

used to foreclose liability for false or fraudulent

conduct captured within the text and purpose of the

FCA. The rejection of “implied certification” as an

artificial label is warranted; but the rejection of its

basic premise—that underlying conduct can render a

claim false or fraudulent—would rewrite the statute

Congress enacted.

Implied certification is nothing more than the

recognition that seeking payment pursuant to a

contract or statutory or regulatory program makes a

representation that one is entitled to that payment.

As Neder’! and Restatement § 529 recognize,

concealment of a fact material to the claimant’s

entitlement to payment is fraudulent. Whether

called implied certification or anything else, the

knowing submission of claims in violation of material

't §27 U.S. at 22.

24

conditions of the claimant’s eligibility for payment is

patently within the statute.

if. An “Express Condition” Requirement is

Not Supported By the Statute.

A. Materiality Provides the Necessary

Nexus Between the Conduct and the

Resulting Claim.

1. Evaluating the Nexus to Payment. Concerned

with how to cabin liability in cases where the

underlying program terms are tangential or

irrelevant to payment, the Second Circuit has

suggested that the availability of “implied

certification” is limited to those cases where the

underlying contract, statute, or regulation expressly

states that compliance is a prerequisite to payment.

Mikes, 274 F.3d at 700.

Several courts of appeal have rejected the Mikes

limitation suggested by petitioner, finding that this

type of talismanic, magic-word requirement would

foreclose liability in situations that Congress

intended to fall within the Act’s scope and would

“create artificial barriers” that obscure the FCA’s

requirements. Hutcheson, 647 F.3d at 385-88; SAIC,

626 F.3d at 1270; see also U.S. ex rel. Hendow v.

University of Phoenix, 461 F. 3d 1166, 1176 (9th Cir.

2006). As the D.C. Circuit observed, “nothing in the

statute’s language specifically requires such a rule.”

SAIC, 626 F.3d at 1268 -1270.

The materiality analysis provides the correct

dividing line between those requirements that are so

25

integral to the program that a violation is capable of

influencing the payment decision, id., and those

where “noncompliance would not have influenced the

government’s decision to pay the claim” or were

“tangential.” Mikes, 274 F.3d at 697.

The use of a materiality standard is true to the

natural reading of the statute, its history, and the

policy it implements. The use of the word fraudulent

incorporates a materiality requirement, based on the

well-setthd meaning of fraud as a “concealment of

material fact.” Neder, 527 U.S. at 22. Consistent with

the Restatement § 538, material concealment would

include those facts that a reasonable payer (here, the

Government) would “attach importance to its

existence or nonexistence in determining his choice

of action in the transaction in question.” Jd.

Petitioner's bid to limit liability to express

wording in a statute or regulation would render the

Neder materiality analysis superfluous, and instead

replace it with a heightened standard. The court’s

assessment of whether conduct was material to

payment is a “fact-intensive and context-specific

inquiry,” New York v. Amgen, 652 F.3d 103, 110-11

(ist Cir. 2011). “Express contractual language may

‘constitute dispositive evidence of materiality,’ but

materiality may be established in other ways, ‘such

as through testimony demonstrating that both

parties to the contract understood that payment was

conditional on compliance with the requirement at

issue.” Hutcheson, 647 F.3d at 394, quoting SAIC,

626 F.3d at 1269.

26

A rigid rubric swallows this rule. For example, in

the healthcare context, some courts have used the

phrases “condition of payment” and “condition of

participation” to distinguish between mere technical

requirements and those capable of influencing the

Government’s decision to pay. E.g., U.S. ex rel.

Wilkins v. United Health Grp., Inc., 659 F.3d 295,

306 (3d Cir. 2011). Yet it is clear that government

healthcare regulators have long used the term

“condition of participation” without regard to how it

has been distinguished in FCA case law. As the

Ninth and Tenth Circuits have recognized, “some

regulations or statutes may be so integral to the

Government’s payment decision as to make any

divide between conditions of participation and

conditions of payment a ‘distinction without a

difference.” U.S. ex rel. Conner v. Salina Reg

Health Ctr., 543 F.3d 1211, 1222 (10th Cir. 2008),

quoting Hendow, 461 F.3d at 1177.

Moreover, in petitioner’s construct, courts could

not look to agency manual provisions, for example, to

determine whether such provisions make it plain

that the requirement at issue was integral to

payment. Such a result would be absurd, as “manual

provisions are the official explanation of the

Medicare statute and regulations by the Secretary,”

which providers are required to follow. In re Cardiac

Devices Litigation, 221 F.R.D. 318, 343 (D. Conn.

2004). The materiality analysis correctly permits a

court to look to all appropriate sources to determine

whether the representation was material.

2. Materialit d Knowl the

Delimiting Principles. Petitioner and its supporters

27

argue that looking beyond “express words” fails to

provide defendants fair notice because without a

stricter standard, contractors will not be able to

objectively ascertain which conditions are material to

payment. Pet. Br. 44; Am. Hosp. Ass’n Amicus Br.

14. Rather, they argue, good faith contractors with

honest intentions may be liable for the smallest of

technical violations. /d.

These “sky will fall” arguments are “ungrounded

in reality.” U.S. ex rel. Oliver v. Parsons Co., 195

F.3d 457, 460 (9th Cir. 1999). First, it is well-

established that a “contractor relying on a good faith

interpretation of a regulation is not subject to

liability,” because scienter will be foreclosed. Jd. at

464. Under the knowledge standard, a contractor wil!

not be liable for a contemporaneously held facially

reasonable interpretation of an ambiguous term. /d.

Second, by its definition, materiality ensures that

“not every part of a contract can be assumed, as a

matter of law, to provide a condition of payment.”

Triple Canopy, 775 F.3d at 637, n.5. Because

materiality requires facts that establish that the

conduct was capable of affecting the payment

decision, it precludes liability for the “mere

technical” violations that p>titioner fears will bring

corporations to their financial knees.

The mechanism provided by the FCA’s drafters

has already led courts to create the delimiting

principles called for by petitioner. There is no

liability under the FCA for negligence, nor for

28

innocent mistakes.!2 There is no liability for violation

of a provision which is objectively ambiguous, nor for

which there is no extrinsic evidence of materiality.'*

In short, there is no liability where there is no

reasoned basis to conclude that a defendant had

knowledge or recklessly disregarded that its conduct

was capable of influencing the decision of a

reasonable payor.

Petitioner wholly ignores these bounding

principles, instead arguing that materiality relies on

after-the-fact speculation. E.g., Pet. Br. 23.

Materiality, however, is an objective standard, not

unique to the FCA. See, e.g., Omnicare, Inc. v.

Laborers Dist. Council Constr. Ind. Pens. Fund, 135

S.Ct. 1318, 1327 (2015) (“Whether a statement is

misleading depends on the perspective of a

reasonable investor: The inquiry (like the one into

materiality) is objective”). No decision cited by

petitioner advocates a materiality analysis that

would invite a court to create a material condition

out of whole cloth.

Courts regularly and routinely grapple with such

issues, and the case law demonstrates that they are

well-capable of it. Though petitioner and its

supporters argue vehemently that materiality and

scienter are not decided on a motion to dismiss, the

facts show otherwise. TAFEF conducted a survey of

2 U.S. ex rel. Watson v. King-Vassel, 728 F.3d 707, 712 (7th

Cir. 2013).

‘3 Minnesota Ass'n of Nurse Anesthetists v. Allina Health Sys.

Corp., 276 F.3d 1032, 1053 (8th Cir. 2002).

29

FCA cases decided from April 2013 to present, where

materiality or knowledge was at issue. Of 104

district court cases reviewed, the Government

intervened in approximately 15%. Of the declined

cases, courts dismissed over half.'4

More importantly, these policy arguments do not

change that Congress chose the current bounding

principles of the existing statute, and that Congress

chose the litigation process — through both

intervened and declined cases — to ensure that FCA

reached all manner of fraud against the public fisc.

As this Court recognized in Hess, while considering

challenges to the role of a relator:

The government presses upon us strong

arguments of policy against the statutory

plan, but the entire force of these

considerations is directed solely at what

the government thinks Congress should

have done rather than at what it did. ...

But the trouble with these arguments is

that they are addressed to the wrong

forum. Conditions may have changed, but

the statute has not.

317 U.S. at 546-547; see also Omnicare, 135 S.Ct. at

1331(policy arguments are for Congress).

4 E.g., U.S. ex rel. Prather v. Brookdale Senior Living

Communities, Inc., No. 3:12-CV-00764, 2015 U.S. Dist. LEXIS

150468 (M.D. Tenn. Nov. 5, 2015) (no materiality where

documentation occurred late but prior to final billing); U.S. ex

rel. McLain v. KBR, Inc., No. 1:08-CV-499, 2014 U.S. Dist.

LEXIS 92072 (E.D. Va. July 7, 2014). See also collected cases

at Resp. Br. 51 n.29.

30

3. Counterintuitive Gap Created by Extra-Statutory

Limitations. If a court’s evaluation of “false or

fraudulent” is limited to talismanic words in a

contract, statute, or regulation, it would create a

significant gap in the types of cases Congress

intended to be covered. For example, if a regulator

specifically warned contractors that it viewed

compliance with a statutory provision integral to

payment, but the statute in question did not

expressly designate the requirement a “condition of

payment,” a contractor's specific disregard of that

warning would be outside the FCA under the

construct advanced by petitioner.

Indeed, this was the exact scenario for FCA cases

premised on violations of the Anti-Kickback Statute

(“AKS”). Since 1972, a felony statute has prohibited

the payment of kickbacks to physicians, but it did

not expressly designate violations of its provisions as

false claims until 2010. 42 U.S.C. 1320a-7b(g). Prior

to 2010, the agency charged with implementing the

statute consistently targeted kickbacks as a

significant source of fraud on the programs and

warned all “manufacturers, providers, and suppliers

of health care products...and services” that their

AKS violations brought with them not just criminal

liability, but potential exclusion from participation in

the system, and FCA liability. 68 Fed. Reg. 23731,

93734 & 23737 (May 5, 2003). In addition, the

provider agreement was amended in 2001 to include

a specific attestation that payment was conditioned

on compliance with the AKS. U.S. ex rel. Pogue v.

DTCA, 565 F. Supp.2d 153, 159 (D.D.C. 2008).

31

Although every court of appeals to address the

question has concluded that compliance with the

AKS is a material condition of payment, !5

petitioner’s express-words rubric would have

precluded liability prior to 2010.'® Under petitioner's

proposed construct where materiality is

demonstrated only by specific words in a contract,

statute or regulation, the court would have been

precluded from examining the kickback prohibitions

throughout the manuals, agency guidance, and even

the Special Fraud Alerts issued on the topic. See,

e.g., Special Fraud Alert, Joint Venture

Arrangements, reprinted in 59 Fed. Reg. 65372

(December 19, 1994). Courts would be in the

perverse position of ignoring that defendants had

been warned that their conduct was considered

fraudulent. U.S. ex rel. Purcell v. MWI Corp., 807

F.3d 281, 288 (D.C. Cir. 2015) (contractors cannot

ignore guidance which would have warned them

away from the conduct).

As described by SAIC, this rigid rubric promoted

by petitioner creates a “counterintuitive gap”

between conduct that violates an express condition

precedent and conduct that the defendant knows to

be material to payment. 626 F.3d at 1269. A

contractor would be free to submit claims for

15 E.g., Wilkins, 659 F.3d at 313; Rogan, 517 F.3d at 452;

McNutt, 423 F.3d at 1259.

16 This would have precluded a case like Hutcheson, which

involved a nationwide scheme of offering cash, sham medica!

directorships, and other lavish incentives to induce doctors to

perform spine surgeries on Medicare beneficiaries using

defendant's products. Hutcheson, 647 F.3d at 380.

32

payments while concealing its knowledge of facts

material to the payment decision. /d.

Petitioner tries to account for this gap by arguing

that the statute’s legislative history makes room for

liability when there has been a delivery of worthless

goods. Pet. Br. 38. Under this theory, a claim is

considered false because it is as if the contractor

provided no goods or services at all. /d. This

proposition again fails to account for the language

and purpose of the statute, and reads out of the

statute liability for fraudulent claims.

FCA jurisprudence is replete with examples of

liability for substandard goods, where the goods or

services delivered were worth less rather than zero.'’

The amount of harm goes to damages (which is not

an element of FCA liability), not to whether there is

a fraud. Rex Trailer Co. v. United States, 350 U.S.

148, 12-53 (1955).

4. Petitioner’s Construct Impermissibly Shifts the

Burden to the Government. Petitioner argues that

the Government’s “calibrated [administrative]

mechanisms” should be a vehicle for addressing the

gap between express-word violations and violations

17 E.g., Cong. Globe, 37'* Cong., 3d Sess. 955 (liability for

substandard goods provided in Civil War); 155 Cong. Rec.

E1296 (FCA liability for “goods or services that are defective or

of lesser quality than those for which the Government

contracted”); United States v. Aerodex, 469 F.2d 1003, 1007 (5th

Cir. 1972); Nat Whol., 236 F.2d at 950 (provision of falsely

branded regulators); Triple Canopy, 775 F.3d at 636-637

(provision of armed security guards who failed to satisfy

marksmanship requirements).

33

material to payment. Pet. Br. 42. This runs directly

counter to the statute’s purpose, which is to

supplement the out-manned resources of the

Government by incentivizing relators to step forward

and help “protect the Treasury against

the...unscrupulous host.” S. Rep. No. 345 at 11. By

arguing that the Government’s mechanisms should

catch the fraud, it “shift[s] the burden” to catch the

fraud on the Government, “which is directly at odds

with the stated goal of the FCA.” U.S. ex rel. Schell v.

Battle Creek Health Sys., 419 F.3d 535, 541 (6th Cir.

2005).

As the Seventh Circuit rightly described in

Rogan, “[t]he question is not remotely whether

[defendant] was sure to be caught—though it would

have been, had it disclosed the truth on all 1,812

reimbursement requests—but whether the omission

could have influenced the agency's decision...[The]

laws against fraud protect the gullible and

careless....” 517 F.3d at 452. This inquiry highlights

the fallacy in petitioner’s argument that

administrative mechanisms suffice to address a

contractor’s conduct. Such a result is not only

dependent on the agency having the resources to do

so, but on the agency knowing about it,

notwithstanding that the schemes at issue involve

concealment of material fact.'8

'8 Moreover, the fact that the Government has multiple

mechanisms available to it to redress defendants’ conduct does

not preempt the FCA. E.g., United States v. General Dynamics

Corp., 19 F.3d 770, 774 (2d Cir. 1994); United States v. Acme

Process Equipment Co., 385 U.S. 138 (1966).

34

Expecting an agency to predict the breadth of all

fraudulent schemes and then re-regulate every

program across the nation to add express “condition-

of-payment” language to every pertinent provision

would not only shift a significant financial and

administrative burden to the Government but also

would require it to pre-define every potential

fraudulent attempt to impact the fisc. This is simply

not what was contemplated by the statute, nor is it

required by this Court. Moskal, 498 U.S. at 108.

Rather, the FCA contemplates that the contractor

will abide by the terms of its bargain and seek only

those payments for which it is eligible. Indeed, if a

contractor has violated a technical, administratively-

correctable term of its contract, it is reasonable to

expect the contractor to inform the Government.!? As

the Third Circuit observed:

participants making claims to the

Government under the federal health

care programs have to ensure that they

are not violating the federal health care

laws which they agreed to follow when

they entered into contracts with

CMS...We do not think this is an

unreasonable requirement to impose on

federal health care contractors, for as

Justice Holmes once wrote: “Men must

turn square corners when they deal with

the Government.”

19 Evidence of an agency’s knowledge is routinely utilized by a

defendant to rebut that its conduct was knowing. U.S. ex rel.

Durcholz v. FKW Inc., 189 F.3d 542, 545 (7th Cir. 1999).

35

Wilkins, 659 F.3d at 314 quoting Rock Island, A. &

L. R. Co. v. United States, 254 U.S. 141, 143 (1920).?°

Materiality correctly balances the natural reading

of “false or fraudulent” with the statutory purpose.

Far from allowing the unbounded parade of horribles

described by petitioner and its supporters, a

materiality analysis properly effectuates this Court’s

edict that anti-fraud statutes proscribe concealment

of material facts. Neder at 22.

B. Petitioner Inappropriately Urges an

Extra-Statutory Limitation to Curb

Relator-Driven Cases.

Ignoring the proscriptions of the 1986 drafters,

petitioner and its supporters put relators’ heads on

the “chopping block” as the basis for circumscribing

hiability.2! They strive to convince this Court that

implied certification cases are the byproduct not of

corporate fraud but of greedy relators and their

20 And certainly, a healthcare contractor is no different than

any other. The provider agreement “together with the overall

scheme under the [healthcare] statute and regulations” create

the terms of its contractual obligations. Jn re Consumer Health

Services of America, Inc., 171 B.R. 917, 920 (Bkrtcy. D.D.C.

1994); see also Shalala v. Illinois Council on Long Term Care,

Inc., 529 U.S. 1, 9 (2000). Thus, the proposition that healthcare

contractors will submit claims for services covered and payable

under the relevant program terms and conditions is not a

modern complexity; it is a basic understanding of the

healthcare system.

21S. Rep. No. 345 at 28, quoting whistleblower testimony as

justification for amendment.

36

attorneys. This mischaracterization flies in the face

of Congress’ intent and disregards the long-proven

importance of relators and their counsel to the

Government’s fight against fraud.

The FCA clearly expresses the value Congress

places on relator-driven cases, and it has repeatedly

reinforced the necessity of the public/private

partnership of the FCA. E.g., 132 Cong. Rec. S15036

(daily ed. Oct. 3, 1986) (statement of Sen.

Grassley)(“Primary in the original ‘Lincoln Law’ as

well as this legislation is the concept of private

citizen assistance in guarding taxpayer dollars.”);

145 Cong. Rec. E1546 (daily ed. July 14, 1999)

(statement of Rep. Berman) (with the 1986

amendments, “Congress wanted to encourage those

with knowledge of fraud to come forward...{and] we

wanted relators and their counsel to contribute

additional resources to the government’s battle

against fraud”).

As Congress recognized, relators and their

counsel do not enter into FCA litigation lightly. E.g.,

S. Rep. No. 345 at 28 (acknowledging the “risks and

sacrifices of the private relator”). In fact, the decision

to file a qui tam case very often involves great

personal risks to career, income, savings, family,

friendship, and in some cases, even personal safety.?2

22 The False Claims Act Correction Act (S. 2041):

Strengthening the Government's Most Effective Tool Against

Fraud for the 21" Century: Hearing Before the S. Com. on the

Judiciary, 110th Cong. 167-85 (2008) (statement of Tina M.

Gonter, Relator), available at

https://www.judiciary.senate.gov/download/testimony-of-tina-

m-gonter-pdf.

37

The personal risks taken by whistleblowers to

bring more cases are beneficial to the United States.

Since the qui tam provisions of the FCA were

strengthened in 1986, the number of relator-initiated

suits rose from 30 in 1987 to 638 in 2015.25 That

growth in qui tam suits has led to increased

recoveries for the public fisc. From 2009-2015, the

Government recovered $19.4 billion via qui tam

suits, just over 73% of the total $26.4 billion

recovered. Notably, in the fraud statistics published

by the Department of Justice, declined cases have

resulted in the recovery of over two billion dollars for

the United States.?*

This dwarfs in comparison to the mammoth

growth in amounts of fraud across all government

programs. In 1986, only $54 million was recovered

under the FCA; in 2015, that figure increased to $3.5

billion.25 Healthcare fraud represented more than

half of that recovery.26 In January 2016, the

Government Accountability Office reported that a

review of healthcare fraud cases from 2010 reflected

23 U.S. Dep't of Justice, Fraud Statistics Overview: October 1,

1987 — September 30, 2015 (Nov. 23, 2015), available at

http://www .justice.gov/opa/file/796866/download.

24 Id.

25 155 Cong. Rec. E1295, 1297-98 (statement of Rep. Berman);

U.S. Dep't of Justice, Press Release, Justice Department

Recovers over $3.5 Billion From False Claims Act Cases in

Fiscal Year 2015 (Dec. 3, 2015), available at

http://www .justice.gov/opa/pr/justice-department-recovers-

over-35-billion-false-claims-act-cases-fiscal-year-2015.

26 Id.

38

about “68 percent of the cases included more than

one scheme with 61 percent including two to four

schemes and 7 percent including five or more

schemes.”2’ The “sophisticated and widespread”

fraud that Congress sought to redress in 1986, S.

Rep. No. 345 at 4, only continues to grow and become

more widespread.

Arguments that declined cases are stretching the

statute and that “implied certification” may

engender meritless suits about remote technical

violations are unfounded and belied by the facts of

this case. Here, the underlying administrative report

noted more than a dozen “technical” violations,

including petitioner’s lack of requisite fire drills,

failure to close patient doors to protect privacy, and

failure to properly house records. 2JA1-20. Yet, this

litigation focused not on these violations, but on

regulations at the essence of the substandard

medical services provided to a Medicaid beneficiary —

the unsupervised provision of medical care provided

by unqualified individuals.

Far from supporting extra-statutory limitations

on the application of the False Claims Act, the rising

level of fraud reinforces that liability should be

construed consistent with “the ultimate touchstone,”

the FCA’s purpose.” The FCA was designed to

27 Report to Congressional Requesters, Health Care

Fraud: Information on the Most Common Schemes and the

Likely Effect of Smart Cards (Jan. 2016), available at

http://www.gao.gov/assets/680/674771.pdf.

28 Neder, 519 U.S. at 511 (Stevens, J., dissenting) (citation

omitted).

39

protect the public fisc. Petitioner is not a 14 year old

teenager mowing the grass in a manner that

flagrantly violates the requests of his mother.

Petitioner is a government healthcare contractor,

who should be held to the material terms of its

agreemert with the United States, consistent with

the statute, its history, and the seminal decisions of

this Court.

CONCLUSION

The judgment of the court of appeals should be

affirmed.

Respectfully submitted,

JACKLYN N. DEMAR JENNIFER M. VERKAMP

TAXPAYERS AGAINST FRAUD Counsel of Record

EDUCATION FUND CHANDRA NAPORA

1220 19 Street, N.W. MORGAN VERKAMP LLC

Suite 501 35 East 7% Street, Ste. 60(

Washington, D.C. 20036 Cincinnati, OH 45202

(202) 296-4826 (513) 651-4400

jdemar@taf.org jverkamp@morganverkam

Counsel for TAFEF Counsel for Amicus Curiae

March 3, 2016