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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2015

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0594%3A33. Public record. Not legal advice.