If you do business with the federal government, when does violating a statute, regulation, or contract provision become fraud? This question was answered by the U.S. Supreme Court on June 16 in Universal Health Services v. United States ex rel. Escobar, which examines the scope of the False Claims Act (FCA). The FCA provides for treble damages and civil fines for anyone submitting false claims for payment to the federal government. Violations of the FCA must involve a “false or fraudulent claim” or “a false record or statement material to a false or fraudulent claim.” Traditionally, the falsity element of an FCA claim required a “factual falsehood” (e.g., submitting a claim for payment for 10 computers when only 5 were delivered) or an express false certification (e.g., certifying to a lack of organizational conflicts of interest when such conflicts exist). Circuit Courts had split on this question, but the Supreme Court ruled today that a party can be held liable under the implied false certification theory when the party “fails to disclose noncompliance with material statutory, regulatory, or contractual requirements that make those representations misleading with respect to goods and services.” This decision has significant implications for anyone doing business with the federal government and could substantially increase contractors’ exposure to the FCA’s punishing statutory regime.
- Shane B. Kelly, Associate, Wiley Rein LLP
- Mark B. Sweet, Partner, Wiley Rein LLP