Supreme Court Sides With Government (and Whistleblowers) in Preserving Relevance of Subjective Intent in FCA Cases

By Brett W. Johnson and Claudia E. Stedman

In one of the most highly-anticipated decisions of this term, on Thursday, June 1, 2023, the United States Supreme Court ruled that a contractor’s liability in False Claims Act (FCA) cases hinges on subjective intent — i.e., whether that defendant believed, recklessly or otherwise, that claims it submitted to the government were false at the time it submitted those claims. 

In two¹ previous articles, we analyzed the significance of the Supreme Court’s decision in this pair of FCA cases. Prior to oral argument on April 18, 2023, many felt that both the arguments purported by the government and those urged by the defense bar had a realistic chance of success. With the Court’s decision today, however, government contractors should brace for impact. 

At oral argument, the government asked the Supreme Court to preserve the relevance of subjective intent. It argued that upholding the Seventh Circuit’s decisions in SuperValu and Safeway would undermine enforcement and incentivize bad actors to come up with crafty, post-hoc arguments for why a claim it submitted was not false. The scales seemed to tip in favor of the government at oral argument with Justices Gorsuch, Jackson, and Kagan focusing on the scienter element of the FCA and reasoning that knowledge is an issue of fact, best resolved at the summary judgment stage or at trial, which forecasted the Court’s decision today.

In writing unanimously for the Court, Justice Clarence Thomas vacated the decisions in SuperValu and Safeway. The Court ruled that the “FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed” at the time. Justice Thomas explained that FCA cases hinge on whether the defendant knew the claim was false. Thus, where a contractor “correctly interpret[s] the relevant” language of a statute² “but believe[s] its claims were false, then [the contractor] could have known their claims were false.” 

The government, or qui tam relator, does not need to prove actual knowledge, but instead can rely on deliberate ignorance or recklessness. As such, future cases will likely delve into extensive discovery disputes about who said what, when, and where to establish the scienter element. However, as discussed during the Court’s oral argument, it is unclear to what extent the attorney client privilege will impact such discovery, especially when the contractor relies on counsels’ opinions in making a determination to pursue a government program or opportunity.

Now that the Court has ruled, contractors should consider engaging with government programs and agencies to get a clearer sense of that agency’s interpretations of vague regulations or contract provisions. Specifically, to the extent advisory opinions from government agencies are available, contractors should consider utilizing the process.

Contractors may also want to consider hiring specific regulatory personnel or counsel who are charged with obtaining and documenting detailed regulatory advice from government entities in situations where there may be ambiguity in the contractor’s interpretation of guidelines. These personnel may be particularly useful in evaluating risk associated with untested government programs or in situations where contractors are relying on interpretations of ambiguous regulations.

It will also be important for contractors to review and assess their internal compliance programs – including written policies, trainings, auditing, and voluntary disclosure processes – to determine where they may be subject to vulnerabilities with respect to the Court’s ruling today. Contractors should also prepare for a potential overhaul or clarification of the FCA.