June 2, 2023
Decided June 1, 2023
United States ex rel. Schutte v. SuperValu Inc., No. 21-1326; United States ex rel. Proctor v. Safeway, Inc., No. 22-111
On June 1, the Supreme Court held that an objectively reasonable interpretation of an ambiguous statutory or regulatory requirement does not preclude a finding that the defendant acted “knowingly” under the False Claims Act.
Background: Medicare and Medicaid rules often require pharmacies to disclose and charge the government for their “usual and customary” price for prescription drugs.
Two private relators sued, alleging that Safeway and SuperValu violated the FCA by reporting and charging their retail prices, rather than the prices they charged under certain discount programs, as their “usual and customary” prices to Medicare and Medicaid.
The district court agreed with the relators that the pharmacies’ “usual and customary” prices should have accounted for the discount prices, and that the pharmacies’ claims to the government accordingly were false—but granted summary judgment for the pharmacies on the ground that the pharmacies could not have acted with knowledge, as required by the FCA.
The Seventh Circuit affirmed, ruling as a matter of law that the pharmacies could not have acted “knowingly,” because interpreting the phrase “usual and customary” to refer to retail prices, rather than discount prices, was objectively reasonable—regardless of what the pharmacies themselves actually believed at the time of the claims they made to the government.
Issue: Whether an objectively reasonable interpretation of an ambiguous statutory or regulatory requirement precludes a finding of knowledge under the FCA as a matter of law—regardless of the defendant’s subjective belief at the time of the defendant’s claims for payment.
No. The FCA’s knowledge requirement turns on a defendant’s knowledge and subjective beliefs at the time of the alleged conduct—not on an objectively reasonable interpretation the defendant may have had after the fact.
“The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.”
Justice Thomas, writing for the Court
What It Means:
The Court’s opinion is available here.
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Appellate and Constitutional Law Practice
|Thomas H. Dupree Jr.
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|Lucas C. Townsend
|Bradley J. Hamburger
|Brad G. Hubbard
Related Practice: False Claims Act / Qui Tam Defense
|Jonathan M. Phillips
|Winston Y. Chan
|James L. Zelenay Jr.
|John D.W. Partridge