Understanding False Claims: What Counts As Knowledge?

The False Claims Act (FCA) is a federal law that imposes liability on individuals or entities that defraud governmental programs. To be held liable under the FCA, a defendant must have knowingly presented a false or fraudulent claim. The FCA defines knowingly as having actual knowledge of a claim's falsity, acting in deliberate ignorance of its truth or falsity, or acting with reckless disregard. The interpretation of knowingly has been addressed by the U.S. Supreme Court, which ruled that a defendant's subjective knowledge and beliefs about the meaning of legal requirements are what matters in determining whether they knowingly submitted false claims. This ruling has significant implications for FCA cases and presents interpretive issues for lower courts.

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'Knowingly' submitting a false claim

The False Claims Act (FCA) is a federal law that imposes liability on individuals or entities that knowingly present or cause to present a false or fraudulent claim for payment to the government. The term "knowingly" under the FCA has a specific definition that includes three parts:

• Actual Knowledge: This refers to having direct awareness or knowledge that a claim is false or fraudulent. For example, submitting two invoices to the government for the same work indicates actual knowledge of double-billing.
• Deliberate Ignorance: This involves intentionally avoiding learning or confirming whether a claim is true or false. For instance, a manager who refuses to look at a testing report and certifies to the government that a product has passed all tests acts with deliberate ignorance.
• Reckless Disregard: This occurs when an individual or entity submits a claim with serious doubts about its truth or falsity, or without making reasonable inquiries to verify the information. An example would be a manufacturer falsely certifying that its product meets government safety regulations without verifying the accuracy of its claims.

Determining whether a defendant "knowingly" submitted a false claim can be complex, especially in industries with ambiguous regulations or complex statutes. The U.S. Supreme Court has clarified that a defendant's subjective knowledge and beliefs about the meaning of legal requirements are what matters, rather than an objective standard. This means that the defendant's understanding and intent are considered, regardless of what an objectively reasonable person may have believed.

To succeed in an FCA claim, the government or a whistleblower plaintiff must prove both the falsity of the claim and the defendant's knowledge of its falsity. This knowledge element can be satisfied by establishing actual knowledge, deliberate ignorance, or reckless disregard for the truth. The recent Supreme Court decision in United States ex rel. Schutte v. SuperValu, Inc. emphasized that the knowledge test focuses on what the defendant knew at the time of presenting the claim, rather than post-hoc interpretations.

To minimize potential FCA exposure, companies doing business with the government should carefully evaluate their statements and representations to ensure accuracy. Creating a contemporaneous record documenting the company's understanding of the accuracy of its representations can be crucial in defending against FCA claims.

Actual knowledge of falsity

The False Claims Act (FCA) has a three-part definition of "knowing" and "knowingly":

• Having "actual knowledge" of a claim's falsity;
• Acting in "deliberate ignorance" of its truth or falsity; or
• Acting with "reckless disregard."

This definition of "knowing" and "knowingly" is distinct from its usage in everyday conversation. The FCA's definition focuses on what the defendant knew and believed when submitting the claim, rather than an objective standard of what a reasonable person may have believed.

To be held liable under the FCA, a defendant must have knowingly presented (or caused to be presented) a false or fraudulent claim. This means that liability requires both falsity and knowledge. Actual knowledge of falsity can be established in several ways. For example, a person has actual knowledge of double-billing the government if they submit two invoices to the government for the same work or if they are informed by two coworkers that each sent out an invoice for a particular job.

A manager who refuses to look at a testing report and instead certifies to the government that a product has passed all required tests has acted with deliberate ignorance of the truth or falsity of the information. Similarly, a manufacturer who falsely certifies that its product meets all government safety regulations has acted with deliberate ignorance, regardless of whether they know their products will be used by government contractors.

Acting with reckless disregard occurs when a person has serious doubts about the truth or falsity of the information or fails to make simple inquiries to verify its truth or falsity. For instance, a person acts with reckless disregard by failing to make limited inquiries to ensure the accuracy of their claims, communications, and records.

Deliberate ignorance

The False Claims Act (FCA) has a three-part definition of "knowing" and "knowingly":

• Having "actual knowledge" of a claim's falsity
• Acting in "deliberate ignorance" of its truth or falsity
• Acting with "reckless disregard"

This definition of "knowing" is far different from that of everyday conversation. A person acts in "deliberate ignorance of the truth or falsity of the information" by intentionally avoiding learning whether a particular piece of information is true or false. For example, a manager who refuses to look at a testing report and instead simply certifies to the government that a product has passed all required tests has acted in deliberate ignorance of the truth or falsity of the information.

In the context of the FCA, a defendant must have “knowingly" presented (or caused to present) a false or fraudulent claim to be held liable. This means that liability requires both falsity and knowledge, or "scienter". The FCA's text and the common law of fraud refer to a defendant's knowledge and subjective beliefs, focusing on "what respondents thought and believed".

To succeed on an FCA claim, the government or qui tam whistleblower plaintiff must show that the claim was false and that the defendant knew it was false. This knowledge element can be satisfied by establishing "actual knowledge" of falsity, "deliberate ignorance", or "reckless disregard" of the truth.

To minimize potential FCA exposure, companies should carefully evaluate the content of their statements and representations to the government based on all available information. Creating a contemporaneous record documenting the company's understanding of the accuracy of its representations will be crucial in defeating the government's or qui tam plaintiffs' efforts to establish the FCA's knowledge prong.

Additionally, a corporation is assumed to know the things that are known by its employees within the scope of their employment. If an employee of a corporation knowingly does something within the scope of employment that violates the FCA, the corporation is also liable for that violation.

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Reckless disregard

The False Claims Act (FCA) defines "knowing" or "knowingly" as having "actual knowledge" of a claim's falsity, acting in "deliberate ignorance" of its truth or falsity, or acting with "reckless disregard".

Acting with "reckless disregard" means having serious doubts about the truth or falsity of information, or failing to make simple inquiries to verify its truth or falsity. For example, a manager who refuses to look at a testing report and instead certifies to the government that a product has passed all required tests has acted in reckless disregard of the truth or falsity of the information.

The FCA imposes liability on those who "knowingly" engage in conduct that violates the Act. By defining knowledge to include reckless disregard of the truth or falsity of information, Congress imposed a duty on individuals and entities doing business with the government to make at least limited inquiries to ensure the accuracy of their claims, communications, and records.

To succeed on an FCA claim, the government or qui tam whistleblower plaintiff must show that the claim was false and that the defendant knew it was false. The knowledge element can be satisfied by establishing "actual knowledge" of falsity, "deliberate ignorance", or "reckless disregard" of the truth.

In United States ex rel. Schutte v. SuperValu, Inc., the Supreme Court ruled that the knowledge test will be assessed based on "what the defendant knew when presenting the claim," not "post hoc interpretations that might have rendered their claims accurate." This ruling resolved confusion among various federal courts regarding the evaluation of the knowledge test when reviewing potential FCA violations.

To minimize potential FCA exposure in the wake of SuperValu, companies should carefully evaluate the content of their statements and representations to the government based on all available information. Creating a contemporaneous record documenting the company's understanding and belief in the accuracy of its representations will be crucial in defeating the government's or qui tam plaintiffs' efforts to establish the FCA's knowledge prong.

Subjective beliefs

The False Claims Act (FCA) has a three-part definition of "knowing" and "knowingly":

• Having "actual knowledge" of a claim's falsity
• Acting in "deliberate ignorance" of its truth or falsity
• Acting with "reckless disregard"

This definition is far different from the term's usage in everyday conversation. It is also distinct from the "'objective knowledge standard' articulated by the Court in Safeco Insurance Co. v. Burr regarding violations of the FCRA.

The U.S. Supreme Court ruled on June 1, 2023, that a defendant's subjective beliefs about the meaning of legal requirements—not what an objectively reasonable person may have believed—are what matters when determining whether they "knowingly" submitted false claims in violation of the FCA. This ruling resolves an important legal issue with significant implications for future FCA cases and presents interpretive issues for lower courts.

The Court's decision in United States ex rel. Schutte v. SuperValu, Inc. and United States ex rel. Proctor v. Safeway, Inc. emphasised that what "'matters for an FCA case is whether the defendant knew the claim was false.'" This means that the knowledge test will be assessed based on 'what the defendant knew when presenting the claim,' not 'post hoc interpretations that might have rendered their claims accurate.'

To minimise potential FCA exposure in the wake of SuperValu, companies should carefully evaluate the content of their statements and representations to the government based on all available information. They should also create a contemporaneous record documenting their understanding of and belief in the accuracy of their representations. This is crucial in defeating the government's or qui tam plaintiffs' efforts to establish the FCA's knowledge prong in a fact-intensive inquiry at summary judgment or later at trial.

Furthermore, a corporation is assumed to know the things that are known by its employees within the scope of their employment. If an employee of a corporation knowingly does something within the scope of employment that violates the FCA, the corporation is also liable for that violation.

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