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July 15, 2019

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Supreme Court on False Claims Act: Implied Certification OK, But Materiality Is No Gimme

Last week, in Universal Health Services Inc. v. U.S. ex rel. Escobar, the Supreme Court unanimously affirmed the viability of the “implied false certification” theory of False Claims Act liability, at least in certain circumstances. Writing for a unanimous Court, Justice Thomas explained that a defendant can face FCA liability under an implied certification theory where two conditions are satisfied:

  • The claim asserts a request for payment and makes specific representations about the goods or services provided, and

  • The failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.

This portion of the ruling was not unexpected given the overwhelming acceptance of implied certification among the Circuit courts. But, more importantly, out of concern that the statute be applied too broadly, the Court also explained at length that the “materiality” standard in the statute is a “demanding” one, and set a high bar for the Government and relators to demonstrate materiality of the alleged non-compliance. Indeed, the Court rejected the argument that the materiality of an undisclosed violation of law, regulation, or contract depends entirely on whether the provision in question was designated by the Government as a “condition of payment.”  Instead, the Court explained that the ultimate test is not whether the condition of payment is expressly designated as such, but “whether the defendant knowingly violated a requirement that the defendant knows was material to the Government’s payment decision.”  Op. at 2 (emphasis added).

Although it remains to be seen how courts will address materiality going forward, the Escobar decision has the potential to narrow application of the False Claims Act, particularly in situations where the government previously has made payment without regard to compliance with the provisions at issue.  Our full analysis, including initial thoughts regarding the implications of the Court’s decision, is available here.

© 2019 Covington & Burling LLP

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About this Author

Susan B. Cassidy, Government Contracts Attorney, Covington Burling, Law Firm
Partner

Susan Cassidy advises clients on the complex rules and regulations imposed on government contractors, with a special emphasis on the defense and intelligence sectors. She combines a sophisticated knowledge of the FAR and DFARS with the practical insight gained from senior in-house positions at both dedicated defense and commercial item contractors.

Ms. Cassidy conducts internal investigations for clients on wide array of government contracts and national security compliance issues. She regularly advises on FAR mandatory disclosure obligations and represents...

202-662-5348
Jason Workmaster, Litigation attorney, Covington
Of Counsel

Jason Workmaster focuses his practice on government contracts-related litigation, including civil False Claims Act (FCA) cases, contract disputes, and bid protests. He has represented a host of clients in these types of cases in U.S. District Court, the U.S. Court of Federal Claims (COFC), and the Government Accountability Office (GAO).

A nationally recognized leader on FCA issues, Mr. Workmaster has appeared on NBC’s The TODAY Show and Canadian TV’s National News to discuss the highly publicized FCA case against the cyclist Lance Armstrong. Mr. Workmaster is also recognized as an expert on the General Services Administration (GSA) Schedules program. He regularly lectures on the schedules and appears on Federal News Radio to discuss issues related to the Schedules.

202 662 5412
Alexander Hastings, Litigation and e-discovery lawyer, Covington
Associate

Alex Hastings advises clients across a broad range of government contracting issues, including advising clients in transactional matters involving government contractors and assisting defense contractors and pharmaceutical companies in securing and performing government contracts.

Mr. Hastings also advises clients concerning best practices in e-discovery. He assists in investigations and litigations that involve complex e-discovery issues and has represented clients in matters involving the U.S. Department of Justice, Securities and Exchange Commission and the...

202-662-5026