In a very recent decision on the False Claims Act (FCA), U.S. ex rel. Rose v. Stephens Institute (Aug. 2018), the 9th Circuit Court of Appeals weighed in on critical aspects of the FCA; namely, the application of the implied false certification and the materiality standard. In so doing, the 9th Circuit interpreted the U.S. Supreme Court’s opinion on U.S. v. Escobar, 136 S. Ct. 1989 (2016), as many circuits are doing.
To reach its decision of narrowing the application of implied certification while seeming to broaden the materiality standard, the 9th Circuit opined on the history and meaning of Escobar and how it fits into the 9th Circuit precedence. Recall, the FCA imposes liability for receiving payment(s) from the Government based on false representations. The certifications can be explicit or implied. Escobar was to decide what constituted an implied certification, specifically, what was material enough to warrant liability, but the decision was a mixed bag. The various federal circuits are now interpreting Escobar-applying their own analytical precedence.
Escobar. The 9th Circuit found that the Supreme Court enunciated two main points in Escobar as to implied certification. That is, a showing of implied certification required the satisfaction of two conditions (1) the claim does not merely request payment, but makes specific representations about the goods or services provided, and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths. As to whether a not a provision is material, the Escobar court found that materiality is determined by the effect on the likely or actual recipient of the alleged misrepresentation. In short, was the was the false certification relevant to the Government’s decision to confer a benefit.
Applying Escobar standards to the case at hand-Rose. The 9th Circuit found that, applying Escobar with its judgments, that compliance with the applicable law or regulation is relevant, but not determinative of materiality. Materiality itself is found only when the Government would have rejected the claim due to the non-compliance with the statute or regulation. (This holding by the 9th Circuit is in contrast to other Circuits, such as the 7th). In sum, there must be specific representations made and those specific representations, if untrue, would have caused the Government to reject the goods or service.
As more courts weigh in and apply Escobar, the results are mixed and not harmonious with each other. Clearly, the Circuits are enunciating their own interpretations of Escobar and it will be interesting to watch the contrasting decisions develop. Click here for the 9th Circuit’s Decision: Stephens Institute