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Supreme Court Clarifies that Subjective (Not Objective) Knowledge of Falsity of Claim Dictates False Claims Act Liability

Yesterday, the Supreme Court issued a unanimous decision holding that the scienter element of the False Claims Act (“FCA”) is met if a defendant subjectively knew his or her claims were false and submitted them anyway. See United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway. The Court’s ruling was narrow and avoided the more challenging—and common—issues raised during oral argument (which we previously discussed here).


The FCA is a qui tam statute that imposes liability upon any person who, inter alia, knowingly submits a false claim to the government. See 31 U.S.C. § 3729. The FCA defines “knowingly” to mean (1) actual knowledge, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard of the truth or falsity of the information. Id.

In the underlying Seventh Circuit cases, relators alleged that retail pharmacies had knowingly submitted false reports of their Usual and Customary (“U&C”) drug prices to the government for reimbursement under Medicare Part D and Medicaid, because the reports allegedly did not account for discounted drug prices offered through certain prescription drug price-matching and membership clubs. Ultimately, the Seventh Circuit determined that (i) legal standards were ambiguous as to whether prices afforded through such discount programs affected U&C prices, and (ii) because the pharmacies’ conduct was objectively reasonable in light of that ambiguity, there was no need to examine evidence of their actual knowledge at the time of claim submission.

The Opinion

The Court emphasized the narrowness of its holding; it “granted certiorari … to resolve [the] legal question: If respondents’ claims were false and they actually thought that their claims were false … then would they have ‘knowingly’ submitted a false claim within the FCA’s meaning?” The Court found the answer “straightforward: The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed. And, even though the [regulatory] phrase [at issue] may be ambiguous on its face, such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false.” Thus, the Court reversed the circuit court, finding that a FCA defendant “could have the scienter required by the FCA if they correctly understood [the regulation] and thought that their claims were inaccurate. … Thus, if [Defendants] correctly interpreted the relevant phrase and believed their claims were false, then they could have known their claims were false.” The Court also characterized the meaning of “reckless disregard” to include, but not be limited to, those “who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway.”

Consequences of the Decision

As a result of this decision, companies in regulated industries, and those that do business—directly or indirectly—with the government should consider documenting subjective beliefs held contemporaneously with the related actions, particularly those beliefs tending to show that the company’s actions were taken in good faith, whether in reliance on the opinion of an expert or otherwise. Such documentation could prevent or abbreviate investigational scrutiny and mitigate FCA disputes down the road.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XIII, Number 153

About this Author


Mr. Paddock's practice primarily involves healthcare fraud and abuse matters, particularly those relating to civil False Claims Act, physician self-referral (Stark Law), and anti-kickback issues. He often advises clients on compliance and transactional matters, the conduct of internal investigations related to potential fraud and abuse issues, and responding to and defending against government anti-fraud and abuse enforcement efforts and regulatory inquiries, including qui tam and government allegations of False Claims Act violations. He is an active member of...

David T. Fischer, Sheppard Mullin, Government Contracts lawyer, Investigations attorney
Special Counsel

David T. Fischer is a special counsel in the Government Contracts, Investigations & International Trade Practice Group in the firm's Washington, D.C. office.

Mr. Fischer's practice focuses on representing individuals and companies in civil and regulatory government enforcement actions, including false claims act and antitrust matters. Mr. Fischer has represented both plaintiffs and defendants in these matters, including qui tam whistleblowers in False Claims Act matters, and has conducted internal investigations for national and...

Kate Rumsey Attorney Sheppard Mullin Dallas
Special Counsel

Kate Rumsey is special counsel in the Governmental Practice Group in the firm's Dallas office. Kate is a former federal prosecutor and experienced trial lawyer.

Areas of Practice

Kate served as a federal law clerk to Judge Barbara M.G. Lynn in the Northern District of Texas and was a senior associate in the litigation and white collar groups of a global law firm. She then served as an Assistant U.S. Attorney in the Northern District of Texas, Dallas Division, and Western District of Virginia,...

John Tilton Corporate Attorney

John M. Tilton is an associate in the Corporate Practice group in the firm's Century City office.


  • J.D., University of California, Los Angeles, 2018

  • B.A., Hillsdale College, 2014


  • California


Sheela Ranganathan is an associate in the Corporate Practice Group in Sheppard Mullin's Washington, D.C. office and a member of the firm’s Healthcare Team.

Sheela Ranganathan advises healthcare clients on regulatory and antitrust matters. She is also a member of the firm’s Women in Healthcare Leadership Collaborative, whose goal is to promote the advancement of women in the healthcare industry.

Sheela received her J.D. with honors from the University of Texas School of Law, where she served as President of the Asian...