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It's been three years since the
False Claims
In the first part of the
Materiality
The second part of the Court's holding has been a focus of litigation over the past three years. Here, the Court held that that misrepresentation about compliance can be pursued under the False Claims Act only if it is "material" to the Government's payment decision. Materiality in this context is a rigorous and demanding standard, descended from common law principles. In explaining the standard, the Court identified certain things that are insufficient to demonstrate materiality - that the government designates compliance as a condition of payment, for example, or that the government would have the option to decline to pay if it knew of the noncompliance. The Court concluded by addressing the importance of ongoing government payment despite government knowledge of noncompliance to this analysis. So the challenge under the False Claims Act for companies and individuals who are subject to complex regulatory and statutory schemes or complex contractual requirements is, how can you tell whether a specific representation in a claim for payment implies compliance with a particular legal requirement - and if so, whether compliance is material to the government's decision to pay? How do you tell?
In the three years Since Escobar...
In the three years since Escobar, lower courts have grappled with what relators are required to plead and prove. A number of key areas remain in dispute. For example, what does the government's continued payment of claims—despite its knowledge of noncompliance with the legal requirement—mean for materiality? For Falsity? It is clear that this is important. A number of Circuits, including the D.C. Circuit, the Third Circuit, the Fifth Circuit and the Ninth Circuit have affirmed dismissal of complaints, and grants of summary judgment or post-trial relief for defendants because the government continued paying defendants, even after becoming aware of the alleged statutory, regulatory or contractual violations at issue. But relators have also survived motions to dismiss and for summary judgment, even in some of these same Circuits, by emphasizing other Escobar factors, and by arguing that whether the government knew about the legal violations and continued to pay is both a more complex question and less relevant than defendants maintain. While it would be helpful for the
Looking ahead
Escobar is still only three years old. Because the standard it announced defines and constrains the reach of the False Claims Act, we expect to see the high-volume of litigation of these issues continue, and also rapid development of the law. Ultimately, these issues will likely need to be resolved by the
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