The US Court of Appeals for the Seventh Circuit, in a split decision, held that SuperValu didn’t knowingly misreport the usual and customary prices it charged, which caused Medicare and Medicaid to overpay. A defendant in an FCA suit lacks scienter if its conduct falls within an objectively reasonable interpretation of the law, the court said.
According to Grassley, the Seventh Circuit’s defendant-friendly scienter ruling ignored the FCA’s text and structure.
The court “held that a defendant who correctly knows an act is unlawful is immunized from FCA liability if its lawyer, years later, can cook up an interpretation of the law under which the act was arguably permissible—even if that interpretation is wrong and the defendant did not have that interpretation at the time,” Grassley’s Thursday amicus brief said.
This approach would excuse evidence of deliberate fraud unless the government can show that the defendant’s interpretation was inconsistent with authoritative guidance, the brief said.
The FCA provides that a defendant is liable if it acts with actual knowledge of false information, or acts in deliberate ignorance of the truth or falsity of information, or acts in reckless disregard of the truth or falsity of information, the brief said.
The Seventh Circuit ignored this formulation and effectively re-wrote the FCA to achieve its result, Grassley said.
It also held that a defendant’s subjective state of mind is irrelevant to scienter, which clashes with years of precedent, Grassley said.
Grassley was the principal sponsor in the Senate of FCA amendments in 1986 and has remained active in Congress defending the original intent of the FCA, the brief said.
Constantine Cannon LLP represented Grassley.
The case is United States ex rel. Schutte v. SuperValu Inc., U.S., No. 21-1326, brief 5/19/22.