In light of the Supreme Court’s recent decision in Universal Health Services v. Escobar, the Seventh Circuit revisited its prior ruling in United States ex rel. Nelson v. Sanford-Brown, Ltd, a case alleging that a college receiving federal subsidies violated the False Claims Act (“FCA”) by maintaining discriminatory recruiting and retention practices. The Seventh Circuit addressed a narrow issue on review: whether the Relator’s implied certification claim – that the court previously ruled could not survive summary judgment – could be resurrected in light of Universal Health. The court held that the claims could not survive summary judgment and thereby reinforced its long-standing skepticism of FCA liability under an implied certification theory.

Background

Sanford-Brown College (the “College”) received federal subsidies under the Higher Education Act by way of entering into a Program Participation Agreement (“PPA”) with the U.S. Government. The PPA included familiar boilerplate language used across federal agencies that required the College to affirm that as a condition for the subsidies, it would comply with all statutory, regulatory and contractual requirements relating to Title IV.

The Relator alleged that the College’s recruiting and retention practices violated the affirmation it would abide by the requirements under Title IV.  Linking these alleged violations to the broad affirmation to abide by the law, the Relator pursued an implied certification theory under the FCA.

In its original decision, the Seventh Circuit affirmed the trial court’s grant of summary judgment in favor of the College. Relying on the distinction between conditions of payment and conditions of participation, the court forcefully rejected the Relator’s argument, characterizing implied certification claims as an imprecise mechanism for “enforcing violations of conditions of participation.” The court reasoned that these claims “lack a discerning limiting principal” and would hold the College implicitly liable for any violation of “thousands of pages of federal statutes and regulations incorporated by reference into the PPA.”

After the Supreme Court’s ruling in Universal Health – discussed in more detail here – the court reviewed its decision in Nelson on remand.

The Seventh Circuit Rejects the Relator’s Implied Certification Claims

The Seventh Circuit revisited the narrow portion of its previous decision and applied the two-part test set forth in Universal Health to evaluate the Relator’s implied certification claims.

1. Does the claim at issue request payment and make specific representations regarding the goods or services being provided?

2. Was the defendant’s failure to disclose its noncompliance material to the specific statutory, regulatory or contractual requirement allegedly violated?

In Nelson, the Seventh Circuit held that neither requirement was met.

First, the Seventh Circuit held that the Relator put forth no evidence that the College had made any specific representations to the Government regarding its claims for payment, “much less false or misleading representations.” The Relator’s mere speculation that such representations occurred was insufficient.

Second, relying upon the ”’rigorous’ and ‘demanding'” materiality standard under the FCA, the Seventh Circuit held the alleged violations were immaterial to the subsidies the College received. Under the FCA’s materiality requirement, evidence must demonstrate that the government was likely to, or actually did, reject claims for payment based on similar violations. It is insufficient to demonstrate only  that “the government would have the option to decline” payment had it known of the violations.

Moreover, the court reiterated its previous position that the government’s actual knowledge of violations, but continued payment for the good or service, continues to be uniquely strong evidence undercutting the materiality requirement. Here, the government had already examined the College’s alleged violations, continued making subsidy payments under the PPA and determined not to impose administrative penalties or terminate the agreement.

Having failed to meet either requirement of the two-part test under Universal Health, the Seventh Circuit reaffirmed the district court’s grant of summary judgment  in the College’s favor.

Practical Takeaway

How the Seventh Circuit readdressed FCA implied certification claims is important for health care providers and government contractors. It rebuts expectations that Universal Health would invite a deluge of implied certification claims that could dramatically remake the FCA landscape.

 

Taken broadly, the court’s decision makes it clear that it remains largely skeptical of implied certification claims. Despite being just three and a half pages long, the decision is a ‘greatest hits’ of Seventh Circuits previous opinions that reiterate its strong apprehension of implied certification FCA claims.

More narrowly, the Seventh Circuit’s application of the Universal Health decision sets a high bar to clear for Relators and the government pursuing FCA cases under an implied certification claims.

In short, the more things change, the more things stay the same – at least in the Seventh Circuit.

If you have any questions, please contact:

Drew B. Howk at ahowk@hallrender.com or (317) 429-3607;

Ritu K. Cooper at rcooper@hallrender.com or (202) 370-9584;

J. Patrick Garcia at pgarcia@hallrender.com or (443) 951-7043;

David B. Honig at dhonig@hallrender.com or (317) 977-1477; or

Your regular Hall Render attorney.