Although the United States might want to return to the days when the government could use the False Claims Act to obtain major penalties for minor regulatory infractions, the courts of appeals must apply the more pragmatic standard of liability in the Supreme Court’s recent Escobar decision.
—Corbin K. Barthold, WLF Litigation Counsel

(Washington, DC)—Washington Legal Foundation today urged the Eleventh Circuit to affirm a trial court’s dismissal of a $350 million False Claims Act verdict against a network of nursing homes.

The plaintiff—called a “relator” in False Claims Act cases—worked for a few weeks at two nursing homes in Florida. Soon after leaving, she sued the nursing homes, as well as the homes’ administrative manager, under the False Claims Act. She alleged, among other things, that the nursing homes submitted Medicaid claims for care provided without regulation-mandated care plans. Although the relator had worked at only two nursing homes, the lawsuit transformed into an audit of 53 nursing homes overseen by the management company. A jury sided with the relator, and, after the application of the False Claims Act’s treble-damages and penalty provisions, the damages amounted to nearly $350 million.

To trigger liability under the False Claims Act, a misstatement must be material to the government’s decision to pay a claim. The Supreme Court recently elaborated on the materiality standard in Universal Health Services, Inc. v. United States ex rel. Escobar. Before Escobar, some courts treated as “material” anything the government says is material. Escobar clarifies that a misstatement can trigger liability only if it in fact makes the government less likely to pay a claim. Applying Escobar, the trial court vacated the jury’s verdict. The trial court concluded that the relator submitted no competent evidence of materiality.

In its brief, WLF argues that the trial court correctly applied Escobar and the materiality standard. In particular, WLF responds to an amicus brief filed by the United States arguing for a broader standard of materiality. The United States, WLF contends, is attempting to re-establish the standard of materiality that existed before Escobar. The United States still treats a misstatement as material merely because the government says it is material. But “what matters,” Escobar says, “is not the label the Government attaches” to something, but whether the statement is in fact “material to the Government’s payment decision.” WLF urges the Eleventh Circuit to closely read Escobar, and to reject the United States’ attempt to roll it back.

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