Universal Health Services v. United States ex rel. Escobar: Supreme Court Endorses “Implied Certification” Theory of Liability Under Federal False Claims Act
Supreme Court Endorses “Implied Certification” Theory of Liability Under Federal False Claims Act
On Thursday, June 16 the United States Supreme Court decided Universal Health Services v. United States ex rel. Escobar. In this unanimous opinion written by Justice Thomas, the Court both endorsed the “implied certification” theory of liability under the False Claims Act (“FCA”) and attempted to provide guidance as to the type of regulatory or statutory violations that can trigger such liability. The Court’s newly announced reasonableness test for materiality will make it much more difficult for defendants to defeat implied certification FCA cases on preliminary motions. Although the opinion of the Court attempts to limit the reach of the FCA, the landscape for FCA defendants has taken a decided turn for the worse.
Under the “implied certification” theory, a payment request from a government contractor impliedly certifies that the contractor has complied with all legal prerequisites that are material conditions for payment. If the contractor has not complied with these material requirements, the request for payment can be deemed a false claim and result in draconian penalties, such as treble damages and other fines. Although Congress defined materiality in the FCA (“the term `material’ means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property”2), courts have wrestled with implementing the concept and have often arrived at different answers. In Universal Health Services, the Supreme Court endeavored to clarify materiality in the FCA context.
And the holding in Universal Health Services cuts across virtually all industries that do business with the federal government, including financial institutions.
The decision also raises the ante for financial institutions, an industry that has seen a significant uptick in FCA litigation, largely in the area of lending fraud. Any transaction that involves applications to government-backed loan programs is in play. In particular, representations involving the Department of Housing and Urban Development (HUD) may trigger implied certification liability. Because the Court’s opinion encompasses all material violations, the scope of liability for noncompliance with HUD and FHA regulations is potentially extremely broad. Implied certification liability could also extend to alleged schemes to defraud the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and would target mortgage originators. The increased scope of implied certification liability under Universal Health Services will likely incentivize whistleblowers (and the plaintiff’s bar) to initiate qui tam actions as they will likely perceive that there is now a greater chance of government intervention.
Copy of the full opinion below…
Universal Health Services v. United States ex rel. Escobar