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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No. 15-7
|_OFFICE CF THE CLE
IN THE
Supreme Court of the Anited States
UNIVERSAL HEALTH SERVICES, INC.,
Petitioner,
v.
UNITED STATES and COMMONWEALTH OF
MASSACHUSETTS ex rel. JULIO ESCOBAR and
CARMEN CORREA,
Respondents.
On Writ of Certiorari to
the U.S. Court of Appeals
for the First Circuit
BRIEF OF WASHINGTON LEGAL FOUNDATION
AS AMICUS CURIAE IN SUPPORT OF PETITIONER
Richard A. Samp
(Counsel of Record)
Mark S. Chenoweth
Washington Legal Foundation
2009 Mass. Ave., NW
Washington, DC 20036
(202) 588-0302
rsamp@wif org
Date: January 26, 2016
_° — WASHINGTON, D. C.
QUESTIONS PRESENTED
1. Whether the “implied certification” theory of
legal falsity under the False Claims Act, 31 U.S.C.
§ 3729 et seq., is viable.
2. If the “implied certification” theory is viable,
whether a government contractor's reimbursement
claim can be legally false under that theory if the
provider failed to comply with a statute, regulation, or
contractual provision that does not state that it is a
condition of payment; or whether liability for a legally
false reimbursement claim requires that the statute,
regulation, or contractual provision expressly state that
it is a condition of payment.
TABLE OF CONTENTS
Page
Teams Ge BATE EEEED vg ccc ecccvcicecucs Vv
INTERESTS OF AMICUS CURIAE ............ 1
STATEMENT OF THE CASE ................. 2
SUMMARY OF ARGUMENT .................. 5
Ea a 6 Sota a isd 2a Bw oid ace cee 10
I. The False Claims Act Imposes Liability
Based on Claims Affirmatively Made, Not
by Inferring Certifications Not Actually
Es wwe eo ae eee eens an eae eS iG 10
A. The False Claims Act Is Designed
to Combat Fraud, a Term with a
Well-Understood Common-Law
DE cates oo Cee tan S ig 10
B. The Court’s Focus on “False or
Fraudulent Claim[s]” Has Not
Changed Since the FCA’s
Bmectment in 1668 .............. 15
C.. When Amending the False Claims
Act, Congress Never Indicated an
Intent to Expand the Definition of
ME oon a eae toe renee ets 19
Page(s)
Il. At a Minimum, Any Relator Alleging
Implied Certification Must Demonstrate
Noncompliance with an Expressly Stated
Condition of Payment ................. 23
A. Claimants Cannot Logically Be
Deemed to Have Fraudulently
Withheld Information in the
Absence of an Expressly Stated
Condition of Payment .... a ease: ee
B. The First Circuit's Standard Lacks
Any Statutory Basis or Support
from this Court’s Case Law ......... 25
C. In Light of the False Claims Act’s
Criminal-Law Applications, the
Rule of Lenity Requires Rejection
of the First Circuit’s Standard .... 28
ES Sig a aS Ota ie is ob 30
Vv
TABLE OF AUTHORITIES
Page(s)
Cases:
Allison Engine Co. v. United States ex rel. Wilson,
rd od ag wave 1 i
Chiarella v. United States,
I nt oS hg ores gc le re ll 12
Clark v. Martinez,
aa Ln a Re 29
Cook County v. United States ex rel. Chandler,
os cb a a ao wk kee 8 A 13
Graham Cnty. Soil & Water Conservation
Dist. v. United States ex rel. Wilson,
te ee rer ule eke kx Gtk 1
Ingraham v. United States,
a IIE ln 2 RE a PANE ge 17
Leocal v. Ashcroft,
I ho oe ee sD tee 29
Mikes v. Straus,
re We Ge Ge Ge. BOD gg occ ie vec cvccde. 15
Montanile v. Bd. of Trustees,
?
2016 WL 228344 (Jan. 20, 2016) .......... 10, 13
Omnicare, Inc. v. Laborers Dist. Council,
Ee I oa ' o e wou pce deka 12
Rainwater v. United States,
I ta cela wide wks 14, 18
Rockwell Int'l Corp. v. United States,
I a eee Ke 1
United States ex rel. Hutcheson v. Blackstone
Medical, Inc., 647 F.3d 377 (1st Cir. 2011) ..... 25
United States ex rel. Lee v. SmithKline
Beecham, Inc., 245 F.3d 1048 (9th Cir. 2001) ... 15
Page(s)
Unitec’ States ex rel. Marcus v. Hess,
a de ws 18, 19
United States ex rel. State of Wisconsin v. Dean,
728 F.2d 1100 (7th Cir. 1964) ............... 20
United States v. Bornstein,
eee ied eee ad wee 18
United States v. Bowman,
it ee ae alan 17
United States v. Kapp,
Seat aia a wa 18
United States v. Netfert-White,
Ee 13, 18
United States v. Science Applications Intl Corp.,
££ bg ee ee 27
United States v. Thompson/Center Arms Co.,
i i i a eo win 29
Vermont Agency of Natural Resources v. United
States ex rel. Stevens, 529 U.S. 765 (2000) ..... 22
Yates v. United States,
Ps ED oo vc aeecbcccseceuvcons 28
Statutes and Regulations:
False Claims Act (FCA),
Bie Pe FS re passim
Re ID cv ccccsccncicans 11, 28
31 U.S.C. § 3729(a)(1)(A) ........ 5, 8, 20, 24
TR kn a aaa og oe hh oo les 9, 16, 28
OE ove pedues veeeddaneus 16
ere 16
Page(s)
Pub. L. No. 97-258, § 3729, 96 Stat. 877,978 .... 16
Se Oe hoe re cee sats we wtian 3
Miscellaneous:
Black’s Law Dictionary (4th ed., 1968) ......... 12
James B. Helmer, Jr., et al., War Stories: A History
of the Qui Tam Provisions of the False Claims Act,
the 1986 Amendments to the False Claims Act,
18 Ohio N. U. L. Rev. 35, 44-45 (1991) ........ 23
Restatement (Second) of Torts § 551(1) (1977) ... 12
Restatement (Second) of Torts § 551(2)(b) (1977) . 12
ee ED. 3s og o's + os Wb es es due e ens 7,21
H.R. Rep. No. 97-651 (1982) ................-- 17
INTERESTS OF AMICUS CURIAE
Washington Legal Foundation (WLF) is a public
interest law firm and policy center with supporters in
all 50 States. WLF devotes a substantial portion of its
resources to defending free enterprise, individual
rights, a limited and accountable government, and the
rule of law.' To that end, WLF has frequently
appeared in this and other federal courts in cases
concerning the appropriate scope and application of the
False Claims Act (FCA), 31 U.S.C. § 3729 et seg. See,
e.g., Graham Cnty. Soil & Water Conservation Dist. v.
United States ex rel. Wilson, 559 U.S. 280 (2010);
Allison Engine Co. v. United States ex rel. Wilson, 559
U.S. 280 (2008); Rockwell Int’l Corp. v. United States,
549 U.S. 457 (2007).
WLF is concerned that in recent decades,
excessive FCA liability has spawned abusive litigation
against businesses, both large and small, to the
detriment of free enterprise, employees, shareholders,
and consumers. The proliferation of FCA litigation has
been exacerbated by the recognition—by several
federal appeals courts—of a new basis for liability, the
“implied certification” doctrine. That doctrine lacks
support in the FCA’s statutory language, and lower
courts have not pointed to any FCA amendments as
their basis for recognizing a doctrine that was
undiscovered for well more than a century following
the statute’s adoption in 1863. WLF is concerned that
' Pursuant to Supreme Court Rule 37.6, WLF states that
no counsel for a party authored this brief in whole or in part; and
that no person or entity, other than WLF and its counsel, made a
monetary contribution intended to fund the preparation and
submission of this brief. All parties have consented to the filing of
this brief; letters of consent have been lodged with the clerk.
2
unless this Court overturns the decision below,
businesses that do not fully comply with the terms of
every applicable statute, regulation, or government
contract provision will face massive liability that far
exceeds both their culpability and any sanctions
intended by Congress in adopting the FCA.
STATEMENT OF THE CASE
The facts of this case are set out in detail in the
brief of Petitioner. WLF wishes to highlight several
facts of particular relevance to the issues on which this
brief focuses.
Petitioner Universal Health Services, Inc.
(“UHS”) is an indirect parent corporation of Arbor
Counseling Services. Arbor operates a mental health
clinic in Lawrence, Massachusetts; it receives federal
and state reimbursement through the Massachusetts
Medicaid program, MassHealth, for services rendered
by the clinic.
Respondents Julio Escobar and Carmen Correa
filed a lawsuit in the name of the United States and
Massachusetts against UHS (under both the FCA and
the Massachusetts False Claims Act), alleging that
reimbursement claims submitted by UHS to Mass
Health were false or fraudulent. The district court
found that the suit raises no claims with respect to the
quality of medical care provided by the clinic, nor does
it assert that Arbor failed to perform any of the
services for which reimbursement was sought. Pet.
App. 27. Rather, Respondents assert that UHS was
not complying with various MassHealth regulations
regarding qualifications of personnel, staffing, and
3
supervision. They assert that, by submitting the
claims for payment, UHS impliedly certified that it was
in compliance with those regulations, and that this
implied certification was false.
Respondents do not assert that UHS, in seeking
reimbursement, ever expressly certified that it had
complied with the regulations. Nor do Respondents
challenge the district court’s conclusion that none of
the regulations they cited expressly stated that UHS
was not entitled to any payments unless it fully
complied with them.
In March 2014, the district court granted UHS’s
Rule 12(b)(6) motion to dismiss the complaint for
failure to state a claim upon which relief could be
granted. Pet. App. 25-53. It held that while “the
regulation need not expressly state that [compliance]
is a condition of payment in order to lay the foundation
for FCA liability,. before a regulation can give rise
to FCA liability, it must, in fact, be a condition of
payment.” Jd. at 38. The court concluded: (1) only one
of the cited regulations, 130 C.M.R. § 429.439(B), even
arguably made compliance a condition of payment; and
(2) that regulation did not apply to the Lawrence
facility. Id. at 43-44.
The First Circuit reversed. Pet. App. 1-24. The
appeals court explained that it takes “a broad view of
what may constitute a false or fraudulent statement to
avoid foreclosing FCA liability in situations that
Congress intended to fall within the Act’s scope.” Jd. at
13 (citations omitted). It held that when an applicable
government regulation provides that compliance with
the regulation is a condition of payment, any entity
4
submitting a claim for payment is impliedly certifying
that it has complied with the regulation. Jd. at 13-16.
Moreover, the appeals court held, “preconditions
of payment, which may be found in sources such as
statutes, regulations, and contracts, need not be
expressly designated.” Id. at 13 (emphasis added).
“Rather, the question whether a given requirement
constitutes a precondition of payment is a fact-
intensive and context-specific inquiry.” Ibid. The court
concluded that the complaint adequately stated a claim
upon which relief could be granted because: (1)
compliance with MassHealth regulations providing
that the responsibilities of the Lawrence facility's
clinical director included “overall supervision of staff
performance” was a precondition of payment; (2) UHS’s
submission of claims for payment therefore constituted
an implied certification that the clinical director was
fulfilling his supervisory responsibilities; and (3) the
complaint adequately alleged that the clinical director
was not fulfilling those responsibilities and thus that
UHS had fraudulently misrepresented its compliance
with a condition of payment. Jd. at 16-17.
The First Circuit established the following
standard for evaluating implied certification claims:
“We ask simply whether the defendant, in submitting
a claim for reimbursement, knowingly misrepresented
compliance with a material precondition of payment.”
Id. at 13. It held that the complaint satisfied that
standard, finding that compliance with the supervision
regulation was, indeed, a “material” precondition of
payment and that UHS had impliedly certified that it
complied with the regulation despite allegedly knowing
that it had not complied, or at least had acted in
5
reckless disregard of the falsity of its certification. Jd.
at 18.
The appeals court also determined that
Respondents adequately alleged that UHS, by
submitting claims for payment, impliedly (and falsely)
certified compliance with regulations supposedly
requiring the Lawrence clinic to employ a board-
certified psychiatrist at all times. Jd. at 20-22.
SUMMARY OF ARGUMENT
The False Claims Act is a Civil War-era statute
enacted to punish and prevent frauds against the
United States. It imposes civil liability on “any person”
who, inter alia, “knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or
approval.” 31 U.S.C. § 3729(a)(1)(A). Respondents’
allegation of fraud is not based on anything UHS
actually said in connection with its claims for
payments, but rather on what they urge the Court to
imply that UHS said. Such efforts to manufacture
falsity by attributing to a party statements not actually
made by the party are wholly inconsistent with
common legal understandings of the words “false” and
“fraudulent.”
Respondents allege that the Lawrence mental
health clinic did not comply with all applicable
MassHealth regulations and that MassHealth would
not have paid UHS’s claims for services rendered had
UHS informed it of the noncompliance. Even if those
allegations were accurate, the common law has never
classified as “fraudulent” a failure to disclose the
noncompliance when seeking contract payments, in the
6
absence of a special duty of disclosure toward the other
party. In the absence of any showing by Respondents
that UHS owed a special duty of disclosure to
MassHealth (e.g., a showing that UHS has made
ambiguous statements that might affirmatively
mislead MassHealth unless the disclosure is made),
Respondents have not adequately alleged a “false or
fraudulent claim” within the meaning of the FCA.
The 150-year history of enforcement of the FCA
confirms that implied-certification liability is
inconsistent with the statute’s “false or fraudulent
claim” requirement. In every one of the FCA cases that
has come before the Court, the defendant was alleged
to have expressly made a false statement in connection
with its claim for payment.
Commentators have long agreed that the FCA
also applies to a limited number of cases in which the
claim for payment omits information whose absence
will affirmatively mislead the Government in light of
statements previously made by the claimant. For
example, if the Government contracts to pay a
company $100,000 following delivery of widgets and
the company later submits an invoice for $100,000
without telling the Government that it has decided not
to deliver the widgets, it has submitted a fraudulent
claim—even if the invoice does not expressly state that
the widgets have been delivered. But when the
claimant actually provides the contracted goods or
services, there is no evidence, at any time during the
first 130 years that the FCA was in effect, that the
Government ever considered a claim “false or
fraudulent” based solely on the claimant’s omission of
other information that the government might deem
relevant to the contract.
It was not until the 1990s that some lower
federal courts began to recognize FCA claims based on
an implied-certification theory of liability. Yet courts
that recognized such claims never explained why a
statute whose relevant language had not changed in
130 years should for the first time be interpreted in a
manner that drastically expanded the definition of a
“false or fraudulent claim.”
Congress significantly amended the FCA in
1986. But those amendments focused primarily on the
rights of private persons (relators) to file qui tam
lawsuits in the name of the Government against
alleged false claimants. Nothing in the 1986
amendments purported to expand the definition of
“false or fraudulent claims.”
Proponents of implied-certification liability often
point to several sentences in a Senate committee report
that accompanied the 1986 amendments, in which
committee members stated inter alia that “a false
claim may take many forms,” including a claim for
“goods or services . . . provided in violation of contract
terms, specifications, statute, or regulation.” S. Rep.
No. 99-345, at 9 (1986). Those sentences are invariably
taken out of context; read in context, they say no more
than that claims can be “false or fraudulent” when they
expressly state inaccurate claims regarding compliance
with applicable contract terms, specifications, statutes,
or regulations. In any event, a 1986 congressional
report is a particularly unreliable indicator of the
meaning of the FCA’s “false or fraudulent claim”
provision because the FCA’s 1986 amendments did not
8
address that provision. At best, the committee report
represents a rough guess by several members of a
Senate committee regarding the intent of the 1863
Congress in adopting the FCA.
If the implied-certification theory is to be
recognized at all, it should be limited to FCA cases in
which the statutory, regulatory, or contractual
provision allegedly violated states expressly that
claims will not be paid unless the claimant has
complied with the provision. Only in such cases can
the claimant be deemed to have received fair notice
that he might be charged with fraud if he seeks
payment without disclosing his noncompliance.
Indeed, claimants cannot logically be deemed to
have fraudulently withheld information in the absence
of an expressly stated condition of payment. The FCA
limits liability to claimants who “knowingly” present a
false or fraudulent claim for payment. 31 U.S.C.
§ 3729(a)(1)(A). If the Government has failed to state
expressly that compliance with a statute, regulation, or
contractual provision is a condition of payment, a
claimant cannot have “knowingly” presented a false or
fraudulent claim because he cannot have known that
his failure to disclose noncompliance would be
considered by the Government to constitute an implied
certification of compliance.
The First Circuit has rejected efforts to limit
FCA implied-certification liability to cases involving
expressly stated conditions of payment, reasoning that
such a limitation has no grounding in the statutory
language. That reasoning gets the argument
backward: it is the implied-certification theory itself
9
that lacks a statutory basis. Thus, if this atextual
theory is nonetheless adopted, it should be adopted in
a form that avoids unfairness by limiting its
application to instances in which claimants are
provided fair notice that they could face FCA
liability—including hefty fines and treble damages— if
they fail to disclose their non-compliance with the
provision at issue.
Adopting a standard that fails to provide fair
warning is particularly unwarranted given that
violations of the civil FCA will almost always also
violate the FCA’s companion criminal statute, 18
U.S.C. § 287. When Congress first adopted the FCA in
1863, it provided for both civil and criminal liability.
It later separated the civil and criminal provisions into
two statutes, but the conduct prohibited by the two
statutes has remained largely identical. It is highly
likely that Congress intended the scope of “false” and
“fraudulent” claim liability to be identical under both
statutes.
The Rule of Lenity requires any ambiguity
concerning the scope of a criminal statute, including
§ 287, to be resolved in favor of lenity to the accused.
To avoid a situation in which two virtually identical
statutes with common origin—the FCA and § 287—are
assigned conflicting interpretations, the Rule of Lenity
should be applied to the FCA as well. Thus, to the
extent that the Court concludes that the language of
the FCA is ambiguous with respect to the second
Question Presented, the Rule of Lenity requires the
Court to adopt a construction that limits implied-
certification liability to instances in which the
provision at issue states expressly that compliance is a
10
condition of payment.
UHS is entitled to judgment if either of the two
questions presented is decided in its favor. It is
undisputed that MassHealth never asked UHS to
expressly certify its compliance with applicable
regulations, and that UHS never provided any such
express certification. Thus, if the Court resolves
Question One by rejecting the implied certification
theory, there can be no basis for concluding that UHS
presented a “false or fraudulent claim.” Nor can UHS
be held liable if the Court resolves Question Two by
limiting implied-certification liability to instances in
which the statute, regulation, or contractual provision
at issue states expressly that compliance is a condition
of payment. None of the regulations at issue in this
case expressly conditions payment on compliance with
the regulation.
ARGUMENT
I. The False Claims Act Imposes Liability
Based on Claims Affirmatively Made, Not
by Inferring Certifications Not Actually
Made
The implied-certification theory of liability is a
recently developed, judge-made theory of liability that
derives from a perceived need to further the FCA’s
statutory purposes by providing the Government with
stronger tools to combat alleged contractor fraud. But
as the Court reminded yet again last week, “Vague
notions of a statute’s basic purpose are inadequate to
overcome the words of its text regarding the specific
issue under consideration.” Montanile v. Bd. of
11
Trustees, _U.S.__, 2016 WL 228344 (Jan. 20, 2016)
(emphasis in original) (citations omitted). The text of
the FCA imposes liability for actual “false or
fraudulent claim[s].” It does not impose liability for
hypothetical implied claims that, the contractor did not
make and that there is no evidence that he intended to
convey. The desire of some lower courts to further
their conceptions of the purposes of the FCA by
creating new theories of lability should not be
permitted to trump the statute’s text.
A. The False Claims Act Is Designed to
Combat Fraud, a Term with a Well-
Understood Common-Law Meaning
In determining whether Respondents’ implied
certification theory states a claim against UHS under
the False Claims Act, “[w]e start, as always, with the
language of the statute.” Allison Engine, 553 U.S. at
668. Section 3729(a) imposes civil liability on “any
person” who “knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or
approval.” Respondents contend, and the First Circuit
held, that the reimbursement claims that UHS
submitted to MassHealth were “false or fraudulent,”
even though: (1) there is no allegation that UHS did
not perform the work for which it sought payment; (2)
there is no allegation that UHS’s claim stated
expressly that it had complied with any of the
regulations at issue here; and (3) there is no allegation
that Massachusetts officials ever conveyed to UHS that
it was not entitled to any payments unless it complied
with all of the regulations at issue. The First Circuit’s
holding cannot be squared with commonly accepted
definitions of the terms “false” and “fraudulent.”
12
UHS’s brief explains at length the widely-
accepted common law meaning of the word
“fraudulent.” WLF will not repeat that explanation
here, except to note that an essential element of any
fraud is an intent to deceive. See, e.g., Black’s Law
Dictionary (4th ed. 1968) (defining fraud as “a false
representation of a matter of fact, whether by words or
by conduct, by false or misleading allegations, or by
concealment of that which should have been disclosed,
which deceives and is intended to deceive another’).
Respondents and the First Circuit have provided no
argument suggesting that Congress intended to assign
the words “false” and “fraudulent” meanings other than
their common-law meanings.
Importantly, while the common law
acknowledges that the failure to disclose can under
proper circumstances constitute fraud, there is no
general duty to disclose information to another unless
one owes some special duty to the other. Restatement
(Second) of Torts § 551(1) (1977); Chiarella v. United
States, 445 U.S. 222, 235 (1980) (“When an allegation
of fraud is based upon non-disclosure, there can be no
fraud absent a duty to speak.”). The duty to speak can
arise in several ways in connection with a business
transaction, including when one party to the
transaction has made a partial or ambiguous
statement of the facts, and he possesses information
whose disclosure is necessary to prevent the previous
disclosure from misleading the other party.
Restatement (Second) of Torts § 551(2)(b) (1977). See
also, Omnicare, Inc. v. Laborers Dist. Council, 135 S.
Ct. 1318, 1327-1330 (2015) (an issuer of securities has
a duty under federal securities law to disclose factual
information in a registration statement if omission of
13
the fact would render misleading a statement of
opinion included in the registration statement).
The First Circuit made no effort to apply
common-law understandings of fraud in determining
whether Respondents stated a cause of action under
the FCA. It did not assert that UHS said anything
untrue to MassHealth. Nor did it examine whether the
relationship between the parties was such that the
common law would impose a duty on UHS to
affirmatively disclose its (alleged) noncompliance with
MassHealth regulations. Instead, it justified its
adoption of implied-certification liability based
primarily on its conclusion that a “broad view of what
constitutes a false or fraudulent statement” was
required to effectuate Congress’s intent that the FCA
be employed to combat all types of fraud. That stacked
approach to statutory analysis, which discounts the
words of the statute, is precisely the sort of analysis
Montanile condemned.
The Court on several occasions has stated that
the FCA “was intended to reach all types of fraud,
without qualification, that might result in financial
loss to the Government.” United States v. Neifert-
White Co., 390 U.S. 228, 961 (1968); Cook County v.
United States ex rel. Chandler, 538 U.S. 119, 129
(2003). But the First Circuit has misread those
statements when it concludes that this Court is
endorsing an expanded definition of fraud in FCA
cases. Neifert-White and Cook County expanded FCA
coverage to new subject matters (the former held that
the FCA covers false statements made in connection
with government loan applications, the latter held that
the FCA covers false statements made by local
14
governments). The Court’s statement that the FCA
reaches “all types of fraud, without exception” indicates
that the FCA’s anti-fraud provisions apply in a
virtually limitless variety of factual situations, not that
Congress intended to alter common-law definitions of
fraud.
WLF does not suggest that the FCA only
imposes liability for affirmatively untrue statements.
There are a number of scenarios under which a
contractor's omissions could be actionable under the
FCA. Indeed, Congress apparently had such scenarios
directly in mind when it adopted the FCA in 1863.
Congress adopted the FCA “after disclosure of
widespread fraud against the Government” during the
Civil War. Rainwater v. United States, 356 U.S. 590,
592 (1958). A frequently cited example: businesses
would enter into a contract to provide goods at a
specified price, then submit a claim for payment
without ever delivering the goods. If the invoice
submitted by the business expressly (and falsely)
stated that the goods were actually delivered, then the
fraud would be obvious.
But what happens when (as often was the case)
the invoice did not explicitly state the quantity of goods
shipped but rather stated “for services rendered” (or
the equivalent) and then listed an amount due that
was identical to the purchase price under the initial
contract? Under those circumstances, the contractor
could still be held liable under the FCA because his
prior actions and statements would lead a reasonable
person to believe that the goods had been
delivered—and thus the contractor has breached his
duty to disclose that arose because his past actions,
15
along with his submission of the invoice, would likely
cause the Government to conclude that he had
delivered the goods.” In sum, the most plausible
interpretation of the FCA’s “false or fraudulent claim”
language is one that adopts existing common-law
understandings of fraud, not an implied-certification
approach that bears no relationship to the statutory
language.
B. The Court’s Focus on “False or
Fraudulent Claim[s}]” Has Not
Changed Since the FCA’s Enactment
in 1863
The FCA’s statutory language has changed very
little during its 150-year history. Accordingly, if the
implied certification theory of liability were a plausible
interpretation of the statute, one would expect it to
have gained traction at various points in the statute’s
history. Remarkably, however, WLF’s search of older
FCA cases has turned up not a single instance in which
this Court adopted anything even remotely akin to
implied-certification liability. Nor, apparently, did
government attorneys ever press the Court to adopt
? Some courts have adopted similar reasoning to conclude
that a contractor who supplies totally worthless goods (e.g., boxes
filled with Civil War rifles that are incapable of firing) are also
subject to FCA liability even if their invoices include no affirmative
falsehoods. See, e.g., Mikes v. Straus, 274 F.3d 687, 702-04 (2d Cir.
2001). Those courts have concluded that a “worthless services
claim” should be treated the same as a claim against a contractor
who has not performed at all, because “performance of the service
is so deficient that for all practical purposes it is the equivalent of
no performance at all.” Jd. at 703; United States ex rel. Lee v.
SmithKline Beecham, Inc., 245 F.3d 1048 (9th Cir. 2001).
16
that theory of liability. That uniform history provides
strong support for rejecting novel implied-certification
liability.
The False Claims Act as initially enacted in 1863
(and re-enacted in 1874) contained both civil and
criminal aspects. The criminal portion provided for up
to five years’ imprisonment for, inter alia, presenting
a claim upon the Government “knowing such claim to
be false, fictitious, or fraudulent.” Rev. Stat. § 5438
(1874). The civil portion directly referenced the
criminal portion; it provided that anyone who violated
§ 5438 was subject to civil liability consisting of a
$2,000 fine and double the amount of damages suffered
by the Government. Rev. Stat. § 3490 (1874).
The criminal portion was later broken off and
divided into two separate criminal statutes. The
operative language of the current “false, fictitious or
fraudulent” claims criminal statute is identical to the
1863 version. It provides for up to five years’
imprisonment for presenting a claim upon the
Government, “knowing such claim to be false, fictitious,
or fraudulent.” 18 U.S.C. § 287.
The civil portion continued to define prohibited
conduct by explicit reference to the 1874 criminal
statute until 1982. Congress re-codified the FCA in
1982 and, at the same time, eliminated the word
“fictitious” from the 1863 proscription of “false,
fictitious, or fraudulent” claims. Pub. L. No. 97-258,
§ 3729, 96 Stat. 877, 978. The House report explained,
however, that the minor textual change was not
intended to be substantive but rather was designed
only to “eliminate unnecessary words.” H.R. Rep. No.
17
97-651, at 143 (1982). The FCA has been amended
several more times since 1982, but the wording of the
principal operative language—the imposition of
liability for knowingly presenting a “false or fraudulent
claim”—has not changed.
In sum, the statutory language establishing the
standard for imposing liability under the FCA (both
civilly and criminally) has been essentially unchanged
throughout the FCA’s history. The standard which the
First Circuit interpreted as authorizing implied-
certification liability is the same standard that the
Court has addressed throughout its 150-year
experience in addressing claims arising under the FCA.
If implied-certification liability were a plausible
outcome of cases decided under the “false or fraudulent
claim” standard, one would expect the Court to have at
least considered such outcomes in its prior decisions.
The absence of such case law speaks volumes about the
plausibility of relying on the “false or fraudulent claim”
standard as the basis for the implied-certification
doctrine.
Indeed, in every FCA decision reviewed by WLF
over ‘he past century (both civil and criminal), the
Court addressed an allegation that the defendant made
an express claim alleged to be false or fraudulent. See,
e.g., Ingraham v. United States, 155 U.S. 434 (1894)
(defendant presented claim for reimbursement based
on false and fraudulent assertions that he had paid
money for his mother’s health care and funeral);
United States v. Bowman, 260 U.S. 94 (1922)
(defendant presented claim for reimbursement based
on falsified invoice showing purchase of 1,000 tons of
oil, when in fact only 600 tons had been delivered;
18
United States v. Kapp, 302 U.S. 214 (1937) (defendant
sought benefit payments under the Agricultural
Adjustment Act by making a false “representation”
regarding the source of the pigs he sold to the
Government); United States ex rel. Marcus v. Hess, 317
U.S. 537 (1943) (defendants obtained excess profits
from Government by rigging bids for construction
contracts, then expressly (and falsely) certifying to the
Government that their bids were “genuine and not
sham or collusive”); Rainwater v. United States, 356
U.S. 590 (1958) (obtaining crop loans by falsifying loan
applications); United States v. Neifert-White Co., 390
U.S. 228 (1968) (same); United States v. Bornstein, 423
U.S. 303 (1976) (defendant subcontractor falsely
labeled electron tubes for purpose of deceiving
government into believing that they were of superior
quality).
Admittedly, one likely reason for the absence of
implied certification claims in the first 130 years of
FCA litigation is that the filing of qui tam lawsuits was
significantly restricted, and the Government chose not
to pursue such claims. But the failure of the federal
government to pursue such claims is highly significant,
given that the Government would have had a major
financial interest in pursuing such claims if it thought
they were viable. A reasonable conclusion to be drawn
from the absence of such claims is that the federal
government determined—at least until very
recently—that implied-certification claims are
inconsistent with the FCA’s requirement that liability
be based on the knowing presentment of false or
fraudulent claims.
19
C. When Amending the False Claims
Act, Congress Never Indicated an
Intent to Expand the Definition of
Fraud
Implied-certification liability first began to gain
a foothold in the lower federal courts in the years
following the 1986 amendments to the FCA. Those
amendments eased federal court access for qui tam
suits and led to a considerable uptick in filings. Some
courts have cited the 1986 amendments as a rationale
for expanding the FCA’s definition of “false or
fraudulent claims” beyond its common-law roots. Such
reliance is unwarranted. Nothing in the 1986
amendments purported to expand the definition of
“false or fraudulent claims.”
Before 1943, the FCA’s qui tam provisions
permitted virtually any private citizen to serve as an
FCA relator—albeit, not many individuals knew
enough about the statute to take advantage of the
opportunities. The qui tam provisions fell into disfavor
among senior government officials following the Court’s
1943 Hess decision. In that case, the Court upheld a
relator’s right to receive 50% of any civil judgment
obtained against antitrust conspirators who had been
indicted for antitrust violations. The relator did not
provide the Government with any information that
assisted the antitrust investigation; indeed, everything
he knew about the case he learned by reading a copy of
the indictment. Senior Justice Department officials,
incensed by having to share their civil recovery with
the relator, persuaded Congress to amend the statute
to make it much more difficult for relators to pursue
qui tam suits.
20
A 1984 Seventh Circuit decision persuaded some
that the pendulum had swung too far in the other
direction. In United States ex rel. State of Wisconsin v.
Dean, 729 F.2d 1100 (7th Cir. 1984), the appeals court
refused to permit Wisconsin to maintain a qui tam suit
on the ground that the federal government already
knew about the alleged Medicaid fraud—even though
an investigation conducted by Wisconsin itself was the
source of the federal government’s information.
Largely in response to Dean, Congress amended the
FCA to loosen the standards governing who is entitled
to file qui tam actions under the FCA.
Also as part of its 1986 amendments, Congress
adopted several other measures designed to encourage
the filing of qui tam actions. Those changes included:
(1) reducing a _ relator’ burden of proof to
preponderance of the evidence; (2) relaxing the scienter
requirement somewhat (some courts had been
requiring evidence of a specific intent to defraud); and
(3) increasing damages and penalties recoverable
under the FCA. James B. Helmer, Jr., et al., War
Stories: A History of the Qui Tam Provisions of the
False Claims Act, the 1986 Amendments to the False
Claims Act, 18 Ohio N. U. L. Rev. 35, 44-45 (1991). As
noted above, the amendments did not change the basic
requirement for establishing liability; the FCA
continued to require relators to demonstrate knowing
presentment of a “false or fraudulent claim.” 31 U.S.C.
§ 3729(a)(1).
Appeals courts that have endorsed implied-
certification liability often point to the Senate Report
that accompanied the 1986 amendments as evidence
that the existence of a “false or fraudulent claim” can
21
be proven by demonstrating that a contractor
presented a claim for payment while not in compliance
with an applicable statute, regulation, or contract
term. S. Rep. No. 99-345, at 9 (1986). Reliance on the
Senate Report for this purpose is not well founded; its
meaning is far from clear. More importantly, a 1986
congressional report is a particularly unreliable
indicator of the meaning of the FCA’s “false or
fraudulent claim” provision because the FCA’s 1986
amendments did not address that provision. At best,
the committee report represents a rough guess by
several members of a Senate committee regarding the
intent of the 1863 Congress in adopting the FCA. And,
of course, a congressional report is entitled to no
weight to the extent that it contradicts clear statutory
language.
The oft-cited passage from the Senate Report
reads as follows:
The False Claims Act is intended to reach all
fraudulent attempts to cause the government to
pay out sums of money or to deliver property or
services. Accordingly, a false claim may take
many forms, the most common being a claim for
goods or services not provided, or provided in
violation of contract terms, specification, statute,
or regulation.
Ibid.
The first sentence strongly supports WLF’s view
of the FCA; it reinforces our view that the FCA only
reaches fraudulent conduct, not mere breaches of
contract. Supporters of implied-certification liability
22
interpret the second sentence as suggesting that any
claim for payment based on the provision of goods or
services in violation of any contract term, specification,
statute or regulation constitutes a “false claim.” That
meaning is far from clear. An equally plausible
interpretation is that some claims for payment can be
false or fraudulent if the claimant has not complied
with all applicable contract terms, specifications,
statutes, and regulations. For example, all would
agree with the unremarkable proposition that a claim
for payment is a false or fraudulent claim if the claim
expressly (and falsely) certifies compliance with a
contract term, statute, or regulation.
There is one other strong reason not to place any
weight on the Senate Report: this Court has previously
declined to credit the same report under analogous
circumstances. In Vermont Agency of Natural
Resources v. United States ex rel. Stevens, 529 U.S. 765
(2000), the relator sought to rely on the 1986 Senate
Report in support of its claim that States should be
subject to FCA suits. The Court concluded that the
Report was of no value in discerning whether a State
was a “person” within the meaning of the FCA, in part
because the 1986 amendments had not addressed the
meaning of that term. Vermont Agency, 529 U.S. at
782-83 & n.12. Similarly, because the 1986 FCA
amendments did not revise the “false and fraudulent
claim” requirement, any discussion of that term by the
Senate report amounts to nothing more than
speculation regarding the intent of prior Congresses.
In sum, recent amendments to the FCA are
irrelevant to the issues raised by this case. The
implied-certification theory of liability was inconsistent
23
with the FCA in 1863, was inconsistent with the FCA
in 1963, and is inconsistent with the FCA today.
Il. At a Minimum, Any Relator Alleging
Implied Certification Must Demonstrate
Noncompliance with an Expressly Stated
Condition of Payment
If the implied-certification theory is to be
recognized at all, it should be limited to FCA cases in
which the statutory, regulatory, or contractual
provision allegedly violated states expressly that
claims will not be paid unless the claimant has
complied with the provision. Only in such cases can
the claimant be deemed to have received fair notice
that he might be charged with fraud if he seeks
payment without disclosing his noncompliance.
A. Claimants Cannot Logically Be
Deemed to Have Fraudulently
Withheld Information in the Absence
of an Expressly Stated Condition of
Payment
In the modern legislative state, a company
seeking payments from the federal government will
likely be subject to hundreds if not thousands of
statutory, revulatory, and contractual requirements.
No company can reasonably hope to stay in compliance
with all of those requirements at all times. More
importantly, government regulators almost surely
deem compliance with some of their requirements to be
considerably more important than compliance with
others. Under those circumstances, it makes sense to
place the onus on regulators to identify those
24
regulations on which they place highest priority, by
designating which regulations must be complied with
if the company hopes to be paid.
Indeed, claimants cannot logically be deemed to
have fraudulently withheld information in the absence
of an expressly stated condition of payment. The FCA
limits liability to claimants who “knowingly” present a
false or fraudulent claim for payment. 31 U.S.C.
§ 3729(a)(1)(A). If the Government has failed to state
expressly that compliance with a statute, regulation, or
contractual provision is a condition of payment, a
claimant cannot have “knowingly” presented a false or
fraudulent claim because he cannot have known that
his failure to disclose noncompliance would be
considered by the Government to constitute an implied
certification of compliance.
Moreover, the First Circuit does not permit a
regulator simply to announce that a claim for payment
is fraudulent unless the contractor complies with all
regulations. Rather, it requires the regulator to
demonstrate that the requirement at issue is a
“material” precondition of payment. Pet. App. 13.
Under those circumstances, a requirement that
regulators expressly identify in advance which of their
regulations are preconditions for payment will likely be
of substantial benefit to regulators because courts may
well conclude that they should defer to a government’s
establishment of a priority list among its regulations.
25
B. The First Circuit’s Standard Lacks
Any Statutory Basis or Support from
this Court’s Case Law
The First Circuit has rejected efforts to limit
FCA implied-certification liability to cases involving
expressly stated conditions of payment, reasoning that
such a limitation has no grounding in the statutory
language. United States ex rel. Hutcheson v.
Blackstone Medical, Inc., 647 F.3d 377, 388 (1st Cir.
2011) (“the rule advanced by [the defendant] that only
express statements in statutes and regulations can
establish preconditions of payment is not set forth in
the text of the FCA.”). That reasoning gets the
argument backward: it is the implied-certification
theory itself that lacks a statutory basis. Thus, if this
atextual theory is nonetheless adopted, it should be
adopted in a form that avoids unfairness by limiting its
application to instances in which claimants are
provided fair notice that they could face FCA
liability—including hefty fines and treble damages— if
they fail to disclose their non-compliance with the
provision at issue.
The First Circuit described its standard of
review as follows: “We ask simply whether the
defendant, in submitting a claim for reimbursement,
knowingly misrepresented compliance with a material
precondition of payment.” Pet. App. 13. Thus, the only
two hurdles faced by a First Circuit relator seeking to
survive a motion to dismiss are adequately alleging
that the defendant violated a regulation, and
demonstrating that the regulation was “a material
26
precondition to payment.”* Those requirements
provide scant protection for companies seeking to avoid
costly litigation.
As the First Circuit concedes, “the question
whether a given requirement constitutes a precondition
to payment is a fact-intensive and context-specific
inquiry, involving a close reading of the foundational
documents, or statutes and regulations.” Ibid. The
appeals court provided no guidance for determining
which facts and what contexts are relevant in
determining which of the thousands of applicable
statutes and regulations should be deemed “material.”
Faced with an amorphous standard, district courts
considering motions to dismiss would be extremely
hard-pressed to determine that a relator had not
adequately pleaded that compliance with a specific
regulation was a material condition of payment.
Courts could easily avoid this morass by requiring
governments to complete a simple task: expressly
designate which of the thousands of applicable statutes
and regulations they deem most important—and state
that claims will not be paid unless the claimant has
complied with those provisions.
The “knowingly” requirement is similarly
ineffective in weeding out insubstantial claims. Ifa qui
tam relator can adequately allege noncompliance with
a regulation, he will always be able to allege that the
defendant had knowledge of the noncompliance.
° Asexplained above, “misrepresentation” is not a separate
requirement, because the implied-certification theory presumes
that a contractor certifies compliance with all material regulations
when it presents a claim for payment.
27
Federal appeals courts have justified their
application of implied-certification liability, even in the
absence of an express-designation requirement, by
arguing that any other rule would create “a counter-
intuitive gap in the FCA.” United States v. Science
Applications Int Corp. [SAIC], 626 F.2d 1257 (D.C.
Cir. 2010). The court below justified its decision to
“take a broad view of what may constitute a false or
fraudulent statement” in order to “avoid foreclosing
FCA liability in situations that Congress intended to
fall within the Act’s scope.” Pet. App. 13. But that
form of argumentation assumes the answer to the
question that courts should be asking: what is the
proper scope of the FCA? If a claim presented to the
Government does not constitute a “false or fraudulent
claim,” then judges should not invent new theories of
liability simply because they have a gut feeling that
Congress must have intended claims of that sort “to fall
within the Act’s scope.”
Moreover, while a finding that certain categories
of cases do not fall within the scope of the FCA may be
bad for plaintiffs’ lawyers’ business, it hardly leaves
the Government without remedies. In addition to the
numerous administrative remedies available to the
Government when a contractor violates statutes,
regulations, or contractual terms, it may also file a
breach of contract action. WLF notes, for example,
that in SAIC, the Government sued for breach of
contract as well as for violations of the FCA. While
government attorneys will always be tempted to add an
FCA count to their lawsuits because of the FCA’s
attractive provisions authorizing civil penalties and
treble damages, a ruling from this Court that the FCA
should be interpreted in accordance with its statutory
28
provisions would still leave the Government with
numerous powerful tools to ensure adequate
performance from companies that receive federal
funds.
C. In Light of the False Claims Act’s
Criminal-Law Applications, the Rule
of Lenity Requires Rejection of the
First Circuit’s Standard
As noted above, the civil and criminal FCA
statutes (which at one time were both part of a single
statute) contain virtually identical language. Compare
31 U.S.C. § 3729(a); 18 U.S.C. § 287. Both statutes
prohibit submission of “false” or “fraudulent” claims
and have done so since 1863. Accordingly, it has highly
likely that the 1863 Congress intended the scope of
“false” and “fraudulent” claim liability to be identical
under both statutes.
The Rule of Lenity requires any ambiguity
concerning the scope of a criminal statute, including
§ 287, to be resolved in favor of lenity to the accused.
Yates v. United States, 135 S. Ct. 1074, 1088 (2015)
(“ambiguity concerning the ambit of criminal statutes
should be resolved in favor of lenity”). Given the even
split—among those federal appeals courts that accept
the validity of the implied-certification
doctrine—regarding whether to impose an “express
designation” requirement, the only reasonable
conclusion is that the FCA is ambiguous on that issue.
Accordingly, a court would likely interpret § 287 as
barring criminal prosecution of someone who presents
a claim to the Government while not in compliance
with an applicable regulation, unless the regulation
29
states expressly that compliance with the regulation is
a condition of payment.
Unless the Court applies the Rule of Lenity in
this case, it risks creating conflicting interpretations
for closely related statutes that employ identical
language. The Court has routinely applied the Rule of
Lenity in civil cases in order to avoid just such a
conflict. See, e.g., Clark v. Martinez, 543 U.S. 371, 380
(2005) (“[I]f a statute has criminal applications, ‘the
rule of lenity applies’ to the Court’s interpretation of
the statute even in immigration cases ‘[b]ecause we
must interpret the statute consistently, whether we
encounter its application in a criminal or noncriminal
context.””) (quoting Leocal v. Ashcroft, 543 U.S. 1, 11-12
n.8 (2004)); United States v. Thompson/Center Arms
Co., 504 U.S. 505, 517-18 & n.10 (1992)(plurality
opinion) (applying Rule of Lenity to interpret a tax
statute in a civil setting “because the statute has
criminal applications”); id. at 519 (Scalia, J.,
concurring in judgment) (also invoking the Rule of
Lenity).
For all the reasons explained above, the FCA is
best interpreted as: (1) not incorporating the implied-
certification theory; and (2) alternatively, limiting
recognition of the implied-certification theory to cases
in which the statutory, regulatory, or contractual
provision allegedly violated states expressly that
claims will not be paid unless the claimant has
complied with the provision. But to the extent that the
Court concludes that the FCA is ambiguous with
respect to those two issues, the Rule of Lenity should
be applied to arrive at that same result.
30
CONCLUSION
Amicus curiae Washington Legal Foundation
reque: ts that the Court reverse the decision of the
court of appeals.
Respectfully submitted,
Richard A. Samp
(Counsel of Record)
Mark S. Chenoweth
Washington Legal
Foundation
2009 Mass. Ave., NW
Washington, DC 20036
(202) 588-0302
rsamp@wlf.org
Dated: January 26, 2016
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.