Supreme Court Hears Arguments in Pivotal False Claims Act Case

Supreme Court

On April 18, the United States Supreme Court heard oral arguments in the consolidated cases of U.S. ex rel. Schutte v. SuperValu Inc. and U.S. ex rel. Proctor v. Safeway (SuperValu). Both cases dealt directly with the qui tam provisions of the False Claims Act. The Supreme Court’s ruling in SuperValu could fundamentally alter the government’s ability to pursue False Claims Act cases in the future.

Qui tam claims enable private citizens, or whistleblowers, to file lawsuits on behalf of the government if they know of an individual or company defrauding the government. Qui tam whistleblowers are eligible to receive between 15 and 30% of the government’s recovery. Whistleblowers acting through the qui tam provisions of the False Claims Act have recovered more than $70 billion since the law was strengthened in 1986. The law is regularly cited as one of the most important fraud-fighting statutes in existence. 

In these cases, whistleblowers brought their suit forward on behalf of the government against SuperValu and Safeway, alleging that their pharmacies knowingly overbilled Medicare, Medicaid, and the Federal Employee Health Benefits Program for prescription drugs. The federally funded programs require that companies do not collect more than is “usual and customary” for the price that they charge for a given drug. The whistleblowers produced extensive documentation that for years SuperValu and Safeway offered customers a “price-matching” discount that they did not account for in their billing to the government. In essence, the pharmacies were making a profit from the government on sales of prescription drugs. If the whistleblowers were to proceed with a successful case under the False Claims Act, the pharmacies would likely be liable for paying back all of the money that was defrauded from the government, in addition to extra fines. 

The United States 7th Circuit Court of Appeals, however, upheld a lower court’s judgment in favor of the pharmacies. The 7th Circuit wrote that “A defendant might suspect, believe, or intend to file a false claim, but it cannot know that its claim is false if the requirements for that claim are unknown.” The court reasoned that even though the pharmacies “subjectively” believed that they were defrauding the government (which the whistleblowers provided evidence of), there was enough ambiguity in the “objective” facts of the case for the defendants to not be able to discern whether or not they were violating the law. 

In oral arguments at the Supreme Court, the defendents’ lawyer urged the nine justices to agree with the 7th Circuit. He argued that “subjectivity” and the subjective beliefs of those inside the companies in this case was irrelevant. The lawyer defending the whistleblowers, as well as the government’s attorney who contributed at the hearing, both argued that if the Supreme Court sides with the pharmacies, then the entire purpose of the False Claims Act will be undermined. They were aided by an amicus brief from Senator Charles Grassley of Iowa, one of the greatest proponents of the False Claims Act, and a drafter of the law’s amendments in 1986. His connection to the qui tam provisions in the False Claims Act did not go unnoticed by the justices. At one point, Justice Sonia Sotomayor raised a line of questioning to the defendants’ attorney, asking him how he could square his interpretation of the statute with that of Senator Grassley’s. As a key maker of the law, Senator Grassley’s argument that the 7th Circuit’s opinion was dangerous to its foundation, seemed to hold merit with the justices. 

The National Whistleblower Center also filed an amicus brief arguing for the plaintiffs in the case. They pointed to the original intent of Congress when it first passed the False Claims Act in 1863: “Congress was unquestionably focused on the common law definition of fraud and ensuring that fraudsters who sold goods to the government with “subjective bad faith” would be held liable, regardless of any ambiguities that existed in a statute, regulation, contract, or agreement.” The Attorney Of Counsel for the NWC’s brief, Stephen M. Kohn of Kohn, Kohn & Colapinto, spoke to WNN about the SuperValu case. He said that “the justices appeared to have a good understanding of the role the False Claims Act plays in rooting out corruption, and the need to ensure that people who commit fraud are held accountable.” He expressed cautious optimism for the court’s eventual ruling in the case, and ultimately for the fate of the False Claims Act. 

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