What Is “Knowing” Under the FCA? Supreme Court to Consider Impact of Ambiguous Regulations
Friday, March 17, 2023

A successful False Claims Act (“FCA”) claim must show that the defendant submitted a false claim or statement “knowingly.” The “knowing” element—the scienter prong—depends on whether the defendant actually knew that the claim or statement was incorrect, or recklessly disregarded the facts or legal requirements that rendered the claim “false.” But, of course, government regulations, contract terms, and grant requirements can be incredibly complex and difficult to understand. When the ground rules are unclear, how does a company “know” that its claims for payment may be false under the FCA?

What does the FCA say about “knowing”?

The FCA defines “knowing” as (1) having “actual knowledge of the information;” (2) acting “in deliberate ignorance of the truth or falsity of the information;” or (3) acting “in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b). A “specific intent to defraud” is not required for liability under the FCA. 

What if the law is not clear?

Companies doing business with the government have a duty to familiarize themselves with the laws, regulations, and contract terms applicable to that relationship. Where laws or regulations are unclear, an agency often will provide guidance in the form of rulemakings (regulations) or official policy announcements. 

Judicial interpretations of ambiguous laws can also provide insight into the proper meaning. A court’s interpretation of a statute or regulation may be sufficient to warn contractors how the government will construe a law. Less reliable insights might come from agency publications or policy pronouncements, industry practices, or expert analyses regarding the interpretation of an ambiguous term.

All of these sources can be helpful to a company trying to be compliant and assess its risks. But, if no “authoritative guidance” exists from the government itself, can a defendant truly be “reckless” about its compliance with an ambiguous term or provision? This is the question the Supreme Court will address during its 2023 term in United States ex rel. Schutte v. SuperValu, Inc.[1]

Does subjective intent or knowledge matter?

The SuperValu case presents the question of whether a defendant’s subjective belief matters for FCA liability when it comes to interpreting underlying legal requirements that are ambiguous. 

Imagine a scenario where there is an ambiguous law or provision, and the government has not provided any guidance about its interpretation.  If a company’s actions are consistent with a reasonable—but ultimately incorrect—understanding of that law, can FCA liability attach? Arguably, no. The FCA is not intended to punish innocent mistakes. But what if the company actually believed, at the time it submitted claims, that the government likely would view the requirement in a manner that would render those claims false? 

Some circuit courts have reasoned that subjective belief does matter: if a defendant thought the government would take the position that the claims at issue were false, the FCA’s scienter prong is met.  

In recent years, however, a number of circuit courts have applied to FCA cases the Supreme Court’s reasoning in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007): “[S]cienter cannot be shown as a matter of law if the defendant’s conduct was consistent with a reasonable interpretation of an ambiguous legal requirement….”[2] In other words, what the defendant subjectively thought or believed is irrelevant if its conduct was consistent with a reasonable interpretation of an ambiguous requirement. 

How could the Supreme Court’s ruling impact FCA cases?

The outcome in SuperValu will impact how FCA allegations are investigated, litigated, and resolved. If subjective, real-time interpretation is relevant, FCA defendants will want to demonstrate that their actions were based on good faith, reasonable interpretations of the requirements at issue. Documented evidence of attempts to “get it right” will be helpful in defending FCA allegations that the company disregarded its obligations. 

Of course, such evidence often does not exist. And, even if the Supreme Court determines that a defendant’s subjective belief matters, the burden of proving scienter remains with the plaintiff. FCA investigations and litigation will continue to seek evidence of what the defendant knew—or in the exercise of due diligence, should have known—at the time the asserted false claims were submitted.   

If instead the Court adopts the Safeco standard, defendants will have additional ammunition to argue that their actions were “objectively reasonable” in light of the asserted ambiguity, and to seek dismissal of FCA claims as a matter of law. Such a rule could resolve FCA cases earlier and streamline litigation and discovery.  

Oral arguments in the SuperValu case are scheduled for April 2023, with a decision expected this summer. In the meantime, contractors and others doing business with the government should continue to make efforts to comply with applicable laws, regulations, and contractual provisions. When faced with uncertainty, seeking advice or guidance from counsel or from other respected sources—and documenting both the questions asked, and steps taken to conform to the advice or information received—can set the stage for any after-the-fact assertions of “reckless disregard.”


FOOTNOTES

[1] No. 21-1326 (U.S. cert. granted Jan. 13, 2023). The Supreme Court has consolidated the SuperValu case with U.S. ex rel. Proctor v. Safeway, Inc., No. 22-111 (U.S. cert. granted Jan. 13, 2023). For purposes of this post, the cases are referenced together as SuperValu

[2] The primary question addressed by the Supreme Court in Safeco turned on whether the Defendant acted “willfully” when it violated the Fair Credit Reporting Act (“FCRA”), 15 U. S. C. §1681n(a). While not identical, the FCA’s “reckless disregard” scienter standard has been interpreted similarly to the FCRA’s “willful” standard.

 

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