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

COMMON LAW AND STATUTORY ANALYSIS OF THE FCA

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.

BURDEN ON PRIVATE COMPANIES RECEIVING GOVERNMENT FUNDS

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.