(1) United States ex rel. Stone v. Omnicare, 2011 WL 2669659 (N.D. Ill. July 7, 2011).
The relator attempted to allege fraud by stating that the error rate was so high in probe sample audits that the defendant “knew or should have known that false or fraudulent claims were being made.” Court disagreed. A high error rate does not mean the claims must be false and that the defendant knew or should have known of the falsity.
Defense—Falsity.
It is important to recognize the difference between arguing a defense based on the inability to establish “intent” because conduct was not reckless given the uncertainty of the state of the law, and the similar but distinct argument that regulatory ambiguity leads to the conclusion that a given claim is not “false.”
This distinction, sometimes blurred by courts, is important because falsity is a defense available in arguing a motion to dismiss, whereas courts generally hold that intent is not properly resolved on a motion to dismiss. United States ex rel. Roop v. Hypoguard USA, Inc.,559 F.3d 818, 825 (8th Cir. 2009) (affirming dismissal of FCA claim for failure to sufficiently plead falsity); United States ex rel. Cox v. Iowa Health Sys., 29 F. Supp. 2d 1022, 1026 (S.D. Iowa 1998) (dismissing relator’s action because it gave no “indications of the claims’ falsity”).
Regulatory Ambiguity.
Several courts have held that claims cannot be deemed “false” under the FCA when a reasonable interpretation is applied to an ambiguous contract, statute, or regulation.
United States ex rel. Arnold v. CMC Engineering, 2014 U.S. App. LEXIS 10150 (3d Cir. June 2, 2014).
The relator argued that engineering firm submitted false claims for services of inspectors who worked on highway projects because the inspectors did not have the qualifications that entitled them to the pay rates claimed. Court held that the contracts setting forth the qualifications necessary to trigger each pay rate were ambiguous, and as a result, there was no evidence from which a reasonable jury could find that the defendant “knowingly” made a factually false claim or false certification.
United States ex rel. Rostholder v. Omnicare, Inc., 745 F. 3d 694 (4th Cir. 2014).
Court noted that the “correction of regulatory problems is a worthy goal, but is ‘not actionable under the FCA in the absence of actual fraudulent conduct.” (emphasis in original). Court held that allegations of regulatory violations fail to support FCA liability because compliance with the regulation at issue was not required for payment.
United States ex rel. Williams v. Renal Care Group, Inc., 696 F.3d 518 (2012).
Court noted that the FCA is “not a vehicle to police technical compliance with complex federal regulations.” Court also held that violating “conditions of participation” in a federal program does not render claims “false” under the FCA.
United States ex rel. Streck v. Allergan, Inc. et al., 894 F. Supp. 2d 584, 595-96 (E.D. Pa. 2012).
Court noted that reasonable reliance on regulatory guidance – particularly guidance that the government itself has admitted is “opaque” – does not amount to knowledge or reckless disregard as to falsity.
United States ex rel. Jamison v. McKesson Corp., 784 F. Supp. 2d 664, 676-77 (N.D. Miss. 2011).
“[T]he Government’s contention here rests not on an objective falsehood, as required by the FCA, but rather on its subjective interpretation of Defendants’ regulatory duties. . . . If the regulations were thoroughly unclear, as a matter of law, the FCA’s knowledge and falsity requirements have not been met . . . . Indeed, imprecise statements or differences in interpretation growing out of a disputed legal question are similarly not false under the FCA.”
United States ex rel. Hixson v. Health Mgmt. Sys., Inc., 657 F. Supp. 2d 1039, 1056-57 (S.D. Iowa 2009), aff’d No. 09-3439, 2010 WL 2977396 (8th Cir. July 30, 2010).
Court found defendants did not make any false claims to the government because they “acted according to a plausible interpretation of the law that no court had ever contradicted,” acknowledging that the Medicaid laws and regulations at issue “created an ambiguity in who should pay.”
United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 378 (4th Cir. 2008).
An FCA relator cannot base a claim on “nothing more than his own interpretation of an imprecise contractual provision” and to “hold otherwise would render meaningless the fundamental distinction between actions for fraud and breach of contract.”
United States ex rel. Morton v. A Plus Benefits, Inc., 139 F. App’x 980, 984 (10th Cir. 2005).
“Expression of a legal opinion, in this case depending, as it does, on the resolution of two sets of inherently ambiguous determinations by defendants, cannot form the basis for an FCA claim.”
Accordingly, the court affirmed a 12(b)(6) dismissal for failure to “allege the required ‘false or fraudulent’ claim.” Id.
United States v. Southland Mgmt. Corp., 326 F.3d 669, 684 (5th Cir. 2003) (en banc) (Jones, J. concurring).
“Where there are legitimate grounds for disagreement over the scope of a contractual or regulatory provision, and the claimant’s actions are in good faith, the claimant cannot be said to have knowingly presented a false claim.”
United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir. 1999).
Court held that “errors based simply on faulty calculations or flawed reasoning are not false under the FCA. . . [a]nd imprecise statements or differences in interpretation growing out of a disputed legal question are similarly not false under the FCA.”
Hagood v. Sonoma Cnty. Water Agency, 81 F.3d 1465, 1477 (9th Cir. 1996).
“How precise and how current the cost allocation needed to be in light of the [Water Supply Act’s] imprecise and discretionary language was a disputed question within the [Government]” and “shows only a disputed legal issue[] that is not enough to support a reasonable inference that the allocation was false within the meaning of the [FCA].”
