Seventh Circuit Rejects Implied Certification Theory of FCA Liability
Deepening a circuit split, the Seventh Circuit has joined the Fifth Circuit in rejecting the implied false certification theory of liability under the FCA. United States v. Sanford-Brown, Ltd., No. 14-2506 (7th Cir., June 8, 2015). The Fourth, Ninth, Tenth and District of Columbia Circuits have allowed implied false certification claims.
The implied false certification theory holds that when an entity enters into an agreement with the government and certifies that it is in compliance with and will abide by all applicable conditions, it thereafter presents false or fraudulent claims to the government for payment or approval if it violates any of the agreement’s conditions, on the basis that adherence to those regulations and restrictions is a “condition of payment” under 31 U.S.C. § 3729(a)(1)(A).
The complaint against for-profit college Sanford-Brown was that in 2005 and 2007, it sought federal subsidies by entering into Program Participation Agreements with the U.S. Department of Education, each of which included a certification that it was in compliance with and intended to comply with the thousands of pages of regulations and other requirements that constituted the PPA conditions. There was no evidence that Sanford-Brown entered into those PPAs in bad faith, only that it later fell out of compliance with certain of the applicable regulations and restrictions, and thus allegedly defrauded the government each time it received a federal subsidy payment while knowing that it had violated one or more PPA conditions.
The Seventh Circuit affirmed the district court’s grant of Sanford-Brown’s motion for summary judgment on this claim, concluding that it would be unreasonable “to hold that an institution’s continued compliance with the thousands of pages of federal statutes and regulations incorporated by reference into the PPA are conditions of payment for purposes of liability under the FCA.” The Court in a previous decision had described as “absurd” a relator’s argument that compliance with regulations were conditions of payment in the Medicare and Medicaid context. United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 712 (7th Cir. 2014).
The Court noted that the appropriate consequence of a violation of PPA conditions that occurs after good-faith entry into such PPA is administrative action, not FCA liability. To hold otherwise, the court said, “would have the potential to impose strict liability on [an entity] under the FCA.”