On January 25, in a 2-1 decision in U.S. ex rel. Sheldon v. Allergan Sales, LLC, 2022 WL 211172, the Fourth Circuit became the most recent federal appellate court to hold that the objective scienter standard in the Supreme Court’s Safeco decision applies to the False Claims Act (FCA). Under the Fourth Circuit’s decision, the FCA’s scienter element cannot be met if the defendant’s interpretation of applicable statutory or regulatory requirements was objectively reasonable and no authoritative guidance from a circuit court or government agency warned the defendant away from its interpretation.

The Seventh Circuit’s similar holding last year in U.S. ex rel. Schutte v. SuperValu Inc. was one of the most important False Claims Act cases of 2021. Expect Sheldon to be a consequential decision as well.

Factual Background

The Fourth Circuit’s opinion in Sheldon follows from a declined complaint in which the relator alleged that a pharmaceutical manufacturer, Forest Laboratories, LLC (later merged into Allergan Sales, LLC), fraudulently reported its “Best Price” under the Medicaid Drug Rebate Statute, 42 U.S.C. § 1396r-8. The Rebate Statute requires manufacturers seeking to have their drugs covered by Medicaid to provide quarterly rebates to the government based on sales of their drugs. The rebate amount is the greater of a statutory minimum rebate or the difference between the manufacturer’s Average Manufacturer Price and its Best Price. The Rebate Statute and Centers for Medicare...

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