U.S. ex rel. Schutte v. SuperValu Inc.

LII note: The U.S. Supreme Court has now decided U.S. ex rel. Schutte v. SuperValu Inc. .


Is a defendant’s subjective believe about the lawfulness of its conduct relevant to whether it “knowingly” violated the False Claims Act?

Oral argument: 
April 18, 2023

This case asks the Court to determine whether the False Claims Act (FCA), 31 U.S.C. § 3729, which punishes individuals who “knowingly present[], or cause[] to be presented, a false or fraudulent claim for payment or approval,” applies if, regardless of their subjective belief about the lawfulness of their conduct, defendants’ conduct is consistent with an objectively reasonable reading of an ambiguous statute. The United States argues that, under common law and the FCA’s text, when individuals make arguments that they believe are false, they can be liable even if they did not definitively know they were lying. The United States further argues that individuals receiving government funds have a duty to ask for clarification and determine the proper law, and thus are liable for advancing false claims against the government. In opposition, SuperValu argues that an individual’s subjective belief is irrelevant under the FCA because interpretations of ambiguous statutes cannot be objectively verified; thus, an individual is not liable if the statute is ambiguous, and the individual’s interpretation is objectively reasonable. SuperValu also states that, because the FCA is a punitive statute, the burden is on the government to clarify the statute and give individuals notice. This case touches on issues of efficient government fraud prosecution, separation of powers, and Medicare and Medicaid reimbursement.

Questions as Framed for the Court by the Parties 

Whether and when a defendant’s contemporaneous subjective understanding or beliefs about the lawfulness of its conduct are relevant to whether it “knowingly” violated the False Claims Act.


This case arises from the consolidation of two cases, United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway, Inc, which are factually similar and present an identical question of law. Both cases stem from the same question regarding the False Claims Act (FCA) as it relates to reimbursements under Medicare and Medicaid. Medicare and Medicaid are healthcare programs that the Department of Health and Human Services oversees. United States ex rel. Schutte v. SuperValu Inc. at 459. Medicare Part D is a section of Medicare that provides insurance coverage to certain beneficiaries. Id. The Centers for Medicare and Medicaid Services distributes contracts to sponsors for facilitation of the benefits program. Id. Plan sponsors generally enter partnerships with pharmacies directly or employ middlemen known as Plan Benefit Managers (PBMs). Id. However, federal regulations place a cap on the pharmacy reimbursement which, according to these regulations, is the lower of either the actual cost plus a dispensing fee or the “usual and customary charges to the general public.” Id. at 460. The consolidated cases concern the “usual and customary charges,” or “U&C” price. Id. Prior to United States ex rel. Garbe v. Kmart Corp., a case involving U&C pricing in 2016, the courts had provided no authoritative guidance regarding U&C pricing. Id. at 463.

The SuperValu Inc. case concerns the nationwide grocery store and pharmacy chain, SuperValu. SuperValu, between 2006 and 2016, ran about 800 in-store pharmacies, but struggled to stay competitive with Wal-Mart’s low drug pricing. SuperValu at 463. Therefore, in 2006, SuperValu implemented a price matching discount plan as a customer service exception that would not be reported under U&C. Id. at 461. The price match program enabled SuperValu to match the price that certain other local pharmacies offered, but only at the customer’s request. Id. Any customer was able to request this price match, regardless of insurance status. Id. When totaling the cost of the price match in the system, pharmacists would process the transactions as cash sales and manually input the price, therefore circumventing the automatic pricing system in place. Id. When reporting their U&C price, SuperValu would not submit this pricing, and instead submitted their typical retail cash pricing for uninsured customers. Id. Over the course of ten years, drugs sold through this policy accounted for over a quarter of SuperValu’s cash drug sales. Id. at 462.

The Relators, private entities who file suit under the FCA, sued in 2011 in the United States District Court for the Central District of Illinois, alleging that SuperValu incorrectly reported their U&C pricing. Id. The district court granted summary judgment to SuperValu on every FCA claim, ruling that, at the time of the price match program, there was no guidance to dissuade SuperValu from using the program. Id. The Relators appealed to the United States Court of Appeals for the Seventh Circuit, which affirmed the ruling of the district court for the same reasons. Id. at 472.

The Safeway, Inc. case concerns another nationwide grocery store and pharmacy chain, Safeway. The facts in Safeway are almost identical to those in SuperValu. The only notable factual difference between the two is that Safeway implemented multiple U&C pricing programs that had an analogous effect to SuperValu’s price-matching program. Safeway at 654. As with SuperValu, the district court granted summary judgment for Safeway. Id. The Relators appealed to the Seventh Circuit, which affirmed the district court’s decision. Id.

The Relators appealed to the United States Supreme Court. Id. Certiorari was granted and the cases were consolidated on January 13, 2023.



The United States argues that under the False Claims Act (FCA), 31 U.S.C. § 3729—which forbids “knowingly present[ing]. . . a false or fraudulent claim”—individuals are liable under two circumstances: (1) when they objectively know the claim they are presenting is false, and (2) when they believe the claim is likely false but do not care enough to check or purposefully remain ignorant. Brief for Petitioners, the United States ex rel. Shutte at 22–23, 30. The United States asserts that the FCA is based on the common law definition of “fraudulent.” Id. at 23. The United States contends that common law fraud hinges on the scienter, or subjective intent, of the defendant—if individuals make false statements and do not believe the statement is true, they are guilty. Id. at 23. The United States posits that this definition of fraud includes circumstances where defendants know claims are probably false, but deliberately “shut [their] eyes to the facts” and refuse to investigate or ask for clarification. Id. at 26. Similarly, the United States claims, knowledge traditionally does not “require absolute certainty”; defendants act knowingly when they know there is a high probability a fact exists and continue regardless. Id. at 32. Thus, the United States concludes, SuperValu can be guilty of fraud even if “usual and customary” was not explicitly defined; since SuperValu correctly believed its definition of “usual and customary” was wrong, it violated the FCA when it presented claims based on the false definition. Id. at 57.

The United States argues that this interpretation of the FCA is supported by the statute’s text. Id. at 31. The United States emphasizes that the FCA provides three definitions of “knowing”: (1) actual knowledge, (2) deliberate ignorance, and (3) reckless disregard. Id. The United States maintains that, by definition, deliberate ignorance and reckless disregard apply to defendants who are not certain their claims are false. Id. at 33–34. Thus, the United States concludes, liability under the FCA does not require concrete knowledge. Id. The United States also notes that Congress passed the FCA to broaden the definition of fraud and force businesses dealing with the government to verify that their claims were true. Id. at 34. The United States posits that it would not make sense to interpret the statute narrowly, and thus encourage companies to not investigate claims. Id. at 37–38. The United States maintains that its interpretation does not violate SafeCo Insurance Company of America v. Burr, which held that defendants could not “willfully” and recklessly violate the Fair Credit Reporting Act (FCRA) unless their legal analysis was objectively unreasonable. Id. at 39–40. The United States points out that the meaning of words like “knowing,” “reckless,” and “willful” are context-dependent, and that the text of the FCRA, unlike the FCA, provides no definitions. Id. at 41–42. By contrast, the United States maintains, the FCA explicitly provides a definition for “knowledge,” and Safeco’s analysis of a different statute is inapplicable. Id. at 42.

SuperValu counters that a company’s subjective belief is irrelevant when determining its compliance with legal standards. Respondent’s Brief, SuperValu, Inc. et al., and Safeway Inc. at 29. Instead, SuperValu alleges, a company is not liable if its interpretation is both objectively reasonable and not definitively foreclosed by a circuit court decision or agency guideline. Id. at 49. SuperValu contends that, under common law, intent is only relevant when an inaccurate statement is based on verifiable facts. Id. at 37. However, SuperValu argues, there can be multiple valid interpretations of ambiguous legal statutes. Id. at 28. SuperValu claims it is impossible to determine the “true” interpretation until a binding authority offers clarification, and thus impossible to “know” if one’s objectively reasonable interpretation is false. Id. at 24. Therefore, SuperValu maintains, common law did not view “legal falsity”—reasonable but wrong legal arguments—as fraud. Id. at 34. SuperValu emphasizes that, at the time it made its claims, the definition of “usual and customary” was unclear, and there was no definitive guidance from any circuit court or agency. Id. at 54–55. Moreover, SuperValu maintains, its “usual and customary” definition was a reasonable interpretation given its knowledge at the time and was supported by common sense and trustworthy sources. Id. at 55. As a result, SuperValu concludes, it could not have “known” it was making a false claim and cannot be liable under the FCA. Id. at 24.

SuperValu argues that both the Court’s precedent in Safeco and the FCA’s text establish that “knowledge” of the law is based on objective reasonableness. Id. at 26. SuperValu notes that, in Safeco, the Court stated that subjective intent was irrelevant when analyzing “willful” violations of unclear legal standards, and that a violation was not “willful” if it was based on reasonable legal analysis. Id. at 29–30. SuperValu states that Safeco defined willfulness broadly, and that its definition included knowledge, deliberate ignorance, and recklessness—all the definitions of knowledge in the FCA. Id. at 31. Thus, SuperValu asserts, Safeco establishes the baseline for all three FCA standards, and forecloses any requirement that defendants prove subjective intent. Id. at 40. SuperValu argues that this interpretation is also supported by the statutory text of the FCA. Id. at 26. SuperValu highlights that all three of the FCA’s definitions of “knowledge” forbid providing false “information.” Id. Yet, SuperValu maintains, legal interpretations are not information, because, unlike information, they can never be objectively verified as true. Id. at 27. Thus, SuperValu posits, legal opinions are not false “information” unless they are unreasonable or are formed by relying on false data. Id. at 27–28. Finally, SuperValu concludes, a restrictive reading of “knowledge” is even more important for the FCA than the FCRA, because the FCA is a punitive statute which imposes heavy compulsory fines; thus, SuperValu notes, the Court has established that the FCA must be interpreted narrowly. Id. at 31.


The United States cautions that allowing defendants like Safeco to argue claims they do not believe in allows companies to avoid their obligations to the government. Brief for Petitioners at 44. The United States maintains that, when individuals are trusted with public funds, they also accept a heightened responsibility to know and follow the governing law. Id. Therefore, the United States argues, recipients of public funding have a responsibility to ask for clarification when a law is unclear to avoid disbursement of undeserved funds. Id. at 45. The United States emphasizes that, in Heckler v. Community Health Services of Crawford County, Inc., the Court stated it was not the government’s responsibility to issue guidance for all potentially ambiguous statutes; instead, private companies who received Medicaid funds were responsible for requesting more information. Id. Moreover, the United States contends, it is unreasonable to say that a legal rule is always ambiguous until a circuit court or agency weighs in. Id. at 51. The United States argues that agency announcements and court rulings are not the only ways individuals learn about legal standards. Id. at 52. The United States asserts that, even before the circuit court’s ruling on the issue, SuperValu learned the definition of “usual and customary” from multiple sources, including from the private actors that administer Medicaid and Medicare. Id. at 51–52. Therefore, the United concludes, SuperValu had been warned its analysis violated the legal standard and should not be allowed to claim ignorance. Id. at 51.

SuperValu counters that the burden of clarifying punitive laws rests with the government. Id. at 51. SuperValu asserts that Heckler is inapplicable to the FCA, because Heckler only involved reimbursement and did not impose fines or punishments. Id at 47. By contrast, SuperValu notes, the FCA’s punishments are mandatory, and defendants who violate the FCA must pay back three times what they mischarged. Id. at 56. SuperValu emphasizes that, under the rule of lenity, individuals cannot be punished for breaking the law unless they are on notice that their behavior is illegal. Id. at 45–46. Thus, Safeco emphasizes, courts should err on the defendant’s side when interpreting punitive statutes. Id. at 46. SuperValu argues it is the government’s job to provide legal clarification, not the job of private individuals to acquire such clarification. Id. at 47. SuperValu concedes that non-governmental sources of information may be useful for determining if a particular interpretation of the law is reasonable. Id. at 51. SuperValu contends, however, that non-governmental sources are often biased and profit-motivated, and that non-binding government opinions often provide confusing and conflicting interpretations of the law. Id. at 49, 56. Thus, SuperValu concludes, these sources cannot establish the “correct” version of an ambiguous statute. Id. Since notice must be clear and unambiguous, SuperValu posits, proper notice is only established through circuit court decisions or authoritative agency guidelines and because neither existed at the time SuperValu’s statements were made, its statements did not violate the FCA. Id. at 49, 55.



Senator Charles E. Grassley (“Senator Grassley”), in support of the United States, claims that finding in favor of SuperValu and upholding the Seventh Circuit’s ruling would threaten the balance and separation of powers. Brief of Amicus Curiae Senator Charles E. Grassley, in Support of Petitioners at 17. According to Senator Grassley, Congress did not intend for the courts to impose a roadblock for the recovery of funds from defendants who might be fully culpable. Id. Supporting this point, Senator Grassley points to heightened due process protections for those prosecuted under the FCA. Id. Senator Grassley also relies on the fact that it is the responsibility of Congress to make laws and it is not the judiciary’s place to impede the administration of these laws. Id. at 20. Beyond threatening the balance of power between the legislature and judiciary, the State of Connecticut et al. (“Connecticut”), also in support of the United States, alleges that states will become overwhelmed if the Court upholds the ruling of the Seventh Circuit. Brief of Amici Curiae Connecticut et al., in Support of Petitioners at 16. According to Connecticut, states would need to go through each insurance claim individually without a strict benchmark for finding bad faith. Id. at 13. Connecticut proceeds to point out that, since a private provider is in the best position to screen each claim, while a state agency clearly cannot, good faith is an integral element of the system and should not be weakened by a finding for SuperValu. Id.

SuperValu claims that the judiciary would not be overstepping its bounds by clarifying the FCA’s knowledge requirement. Brief for Respondents, SuperValu Inc. et al., and Safeway Inc. at 1. Rather, according to SuperValu, Congress declining to create a statutory standard for reimbursement is what led to this ambiguity in the first place. Id. SuperValu claims that, because of these ambiguities, private actors do not know their legal obligations and responsibilities. Id. at 3. Therefore, SuperValu argues that it is for the courts to determine whether a violation of the law has taken place. Id. Additionally, SuperValu claims that states have had the opportunity to clarify what is meant by “usual and customary charges” as they relate to Medicaid and have done so on numerous occasions. Id. at 7. Hence, SuperValu posits that state agencies can avoid being overwhelmed by clearly articulating specific violations and definitions. Id. at 8.


Taxpayers Against Fraud (“Taxpayers”), in support of the United States, claim that upholding the Seventh Circuit’s ruling would put a heavy and impractical burden on the government to anticipate different avenues of fraud. Brief of Amicus Curiae Taxpayers Against Fraud, in Support of Petitioners at 11. Additionally, Taxpayers assert that government agencies are unable to keep pace with private actors when it comes to anticipating and developing types of fraud. Id. Thus, according to Taxpayers, requiring legislation to include detailed guidance of what not to do could never effectively prevent innovative bad faith fraud. Id. at 15. Further, The National Whistleblower Center (NWC), also in support of the United States, emphasizes that whistleblowers are the driving force behind the success of the FCA. Brief of Amicus Curiae The National Whistleblower Center, in Support of Petitioners at 13. NWC concludes that whistleblowers will be discouraged from taking the risk of exposing bad faith fraud within their company if their company is able to dodge liability with post hoc arguments, which, they claim, the Seventh Circuit ruling would enable. Id. at 16.

SuperValu contends that the concerns of increased bad faith fraud the United States’ amici raise are unfounded and exaggerated. Brief for Respondents at 52. According to SuperValu, the Seventh Circuit’s holding is sufficiently narrow to avoid opening a floodgate of bad faith fraud. Id. Additionally, SuperValu argues that a finding in favor of the United States would encourage the punishment of good faith business efforts to interpret the law in an objectively reasonable way. Id. at 53. Further, SuperValu claims that hypothetical companies likely devote time to discussing alternatives and arriving at a conclusion that they think is safely within the confines of the law. Id. SuperValu concludes that it is impossible for a court to try to infer bad faith from an act that seems objectively reasonable according to the law, when there is no way of knowing what actually motivated the act. Id.



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