Client Alerts & Publications

Supreme Court Rules On Contractors False Claims Liability

On June 16, 2016, the United States Supreme Court in a unanimous opinion held that, under certain circumstances, a contractor can be liable for False Claims Act (“FCA”) violations under the implied certification theory. Universal Health Services, Inc. v. United States and Massachusetts ex rel. Escobar and Correa, No. 15-7, 579 U.S. ___ (2016). The FCA prohibits, among other things, a person from knowingly submitting or causing to be submitted a false claim to the Government or knowingly making a false record or statement to get a false claim paid by the Government. Under the implied certification theory, a contractor’s claim is considered to contain an implied certification that the contractor complied with the requirements of the contract as well as all applicable laws and regulations. If that implied certification is false, the contractor can be held to have violated the FCA.

The federal courts of appeals had been split over the question of whether the implied certification theory is valid. The Supreme Court resolved that split by holding that the implied certification theory can be a basis for liability when: (1) the contractor submits a claim for payment that does not merely request payment but also makes specific representations about the goods or services provided; and (2) the contractor’s failure to disclose its noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.

The Supreme Court rejected the argument that the contractor’s misrepresentation regarding compliance had to relate to a condition of payment. The court stated, “Defendants can be liable for violating requirements even if they were not expressly designated as conditions of payment. Conversely, even when a requirement is expressly designated a condition of payment, not every violation of such a requirement gives rise to liability.”

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