For False Claims Act Cases, SCOTUS Says Courts Should Look at What Defendants Subjectively Knew at Time of Offense

June 2, 2023 | Insights

By Jennifer FreelLaura M. Kidd Cordova, & Bethany Pickett Shah

The U.S. Supreme Court recently announced its ruling in United States Ex Rel Schutte v. SuperValu Inc., a case that will impact how corporations will defend themselves in False Claims Act (“FCA”) litigation. In a win for the government, the Court held that the knowledge element of the FCA concerns what a defendant knew at the time it submitted a claim, not what someone could have objectively known after-the-fact.

The FCA permits private parties to bring lawsuits in the name of the United States against those who they believe have defrauded the federal government. It imposes liability on anyone who “knowingly” submits a “false” claim to the government. For businesses facing draconian FCA liability, it is common to challenge that “knowledge” element of an FCA claim. Specifically, defendants often argue that—due to the sheer complexity of federal statutes and regulations—their interpretation of the law that is being advanced in litigation is objectively reasonable and, thus, their actions do not meet the knowledge requirement in the statute. Defendants have argued that their “objectively reasonable” conduct defeats the knowledge requirement, regardless of their subjective intent. The government, for its part, has long contended that a defendant’s subjective knowledge should be controlling.

Before the Supreme Court’s latest decision, the circuits were split on how to interpret the knowledge requirement. In SuperValu, the Seventh Circuit had held that subjective intent was irrelevant if the defendant’s conduct was objectively reasonable—even if the defendant’s interpretation of the law was wrong—and there was no “authoritative guidance” from a circuit court or agency that would have put the defendant on notice that his interpretation was incorrect. Essentially, the Seventh Circuit ruling allowed defendants to avoid FCA liability as long as they could articulate an objectively reasonable interpretation of the law—regardless of whether they actually believed that interpretation at the time of the alleged misconduct. The Eighth and D.C. circuits had previously adopted similar positions. By contrast, the Sixth, Ninth, Tenth, and Eleventh Circuits had held that a court must inquire whether a defendant subjectively knew or should have known that its conduct violated a law or regulation.

In a unanimous decision written by Justice Thomas, the Court vacated the Seventh Circuit’s decision below, rejecting the “objectively reasonable” standard. The Court held that the False Claims Act’s scienter element refers to a defendant’s knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed. The Court explained that that focus of the “knowledge” analysis should be on what a defendant thought when submitting a claim—not what a defendant could have thought after submitting it.

More litigation will likely occur in the lower courts to flesh out the details of the Supreme Court’s ruling, as defendants test issues the Court chose not to address in its opinion. In particular, defendants will continue to push back on what precisely constitutes subjective knowledge—who had to know, what did they need to know, whether they were aware of several plausible interpretations of the law, and so forth. While the Court did settle one circuit split, FCA practitioners and litigants will still see a great deal of litigation on the “knowledge” element.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For questions related to the False Claims Act, please contact Jennifer FreelLaura M. Kidd CordovaBethany Pickett Shah, or a member of the Investigations & White Collar Defense practice.

Jennifer FreelMeet Jennifer

Jennifer S. Freel is a former Assistant U.S. Attorney in the Western District of Texas. She advises businesses and individuals under investigation by the government and conducts internal investigations for companies seeking an independent party. She also represents clients in civil disputes at the pre-trial, trial, and appellate levels in state and federal court. She is an elected Fellow of the Texas Bar Foundation, a member of the Texas Supreme Court Historical Society’s Board of Trustees, a past chair of the Criminal Law Section of the Federal Bar Association, and a past president of the Austin Chapter of the Federal Bar Association.​​​​ She has been ranked among the top Texas attorneys for Litigation: White-Collar Crime & Government Investigations by Chambers USA: America’s Leading Lawyers for Business since 2021, and was named among The Best Lawyers in America for Criminal Defense: White Collar (Austin) in 2022.

Laura M. Kidd CordovaMeet Laura

Laura M. Kidd Cordova is a former assistant chief in the Fraud Section of the U.S. Department of Justice’s Criminal Division. She handles sensitive internal investigations, navigates high-stakes government investigations, and defends clients in complex criminal and civil litigation. She has broad experience representing clients across the healthcare industry in criminal and civil False Claims Act matters involving allegations of healthcare fraud, Anti-Kickback Statute violations, and procurement fraud. Laura has been recognized among The Best Lawyers in America for Commercial Litigation (2023) and the Lawdragon 500 Leading Litigators in America (2022).

Bethany PickettMeet Bethany

Bethany Pickett has tried four federal jury trials to verdict and presented oral argument before the U.S. Court of Appeals for the Fifth Circuit. Prior to joining the firm, Bethany served as a Special Assistant United States Attorney in the Eastern District of Texas, representing the United States in criminal prosecutions and complex civil litigation. Before becoming a federal prosecutor, Bethany worked at the White House as Deputy Associate Counsel to the President and at the Department of Justice as a Counsel in the Civil Rights Division and in the Office of Legal Policy. In 2019, she received the Attorney General’s Award for Distinguished Service for her work at the U.S. Department of Justice.