On March 28, 2023, twenty business advocacy groups filed amicus briefs urging the United States Supreme Court to back an “objectively reasonable” standard concerning the False Claims Act’s (“FCA”) scienter requirement. The groups represented defense, healthcare, manufacturing, and telecommunications companies. The briefs support retailers SuperValu Inc and Safeway Inc. in their ongoing FCA battles before the High Court.
In their complaints, whistleblowers Tracy Schutte, Michael Yarberry, and Thomas Proctor alleged that the retailers intentionally failed to offer prescription drug discounts available to retail customers when they offered the same drugs to government program beneficiaries. In a pair of split decisions, the Seventh Circuit Court of Appeal found that the retailers had not met the FCA’s scienter requirement, which requires defendants to act with “actual knowledge,” “reckless disregard,” or “deliberate ignorance” of a claim’s falsity. The Seventh Circuit found that the retailers made “objectively reasonable” interpretations of ambiguous regulations and thus were not liable under the FCA.
The whistleblowers, backed by the federal government, appealed the Seventh Circuit’s decisions arguing that the opinions ignored the role of subjective intent in determining the scienter requirement and, therefore, should be remanded. The whistleblowers further say that the objectively reasonable standard would allow defendants to escape FCA liability by formulating creative interpretations after the fact that could absolve them of the fraud they intended to commit.
Defendants have argued that government regulations, particularly those issued by the Department of Health and Human Services, are often confusing or ambiguous, making compliance difficult, if not outright impossible. Therefore, the company advocacy groups contend that if the court rejected the objectively reasonable standard, it would have disastrous effects on businesses, nonprofits, and municipalities that receive federal government funds. They argue that dismissing the objective standard leaves companies vulnerable to opportunistic relators wishing to exploit legal ambiguities.
Understandably, businesses and business advocacy groups wish to maintain the Seventh Circuit’s ruling to avoid FCA liability and allow for a more favorable government contracting process. In their briefs, advocacy groups argue that they have largely been unable to receive regulatory clarifications ahead of time and claim that the objective standard will encourage government agencies to clarify ambiguities and develop more concise regulations. Groups such as the National Defense Industrial Association and Coalition for Government Procurement argued that the subjective science standard might even discourage companies from contracting with the federal government, driving up costs and making it difficult for the government to achieve its goals.
If the Supreme Court affirms the Seventh Circuit’s decision, it will be increasingly difficult for whistleblowers to prove FCA violations and make it significantly easier for defendants to circumvent liability by developing crafty after-the-fact interpretations of regulations according to an employment lawyer with our friends at Hoyer Law Group, PLLC.
However, the law is always changing, and no matter how it evolves over time, a competent lawyer will always be available to fight for your rights. If you are considering being a whistleblower, contact a law firm near you for representation immediately on your case.