On January 25, 2022, in United States ex rel. Sheldon v. Allergan Sales, LLC,1 a divided panel of the U.S. Court of Appeals for the Fourth Circuit held that a defendant accused of violating the False Claims Act (FCA) by knowingly making a false certification of its compliance with a law as a condition of payment lacks the necessary scienter if it bases its actions on an objectively reasonable interpretation of the law and was not warned away from that interpretation by authoritative guidance. In reaching this conclusion, the court relied on Safeco Insurance Co. of America v. Burr,2 in which the Supreme Court established this approach to scienter for alleged violations of the Fair Credit Reporting Act (FCRA). In extending Safeco’s analysis to the FCA, the Fourth Circuit joined a growing consensus of courts of appeals that have come to the same conclusion on this highly consequential question.
Case Background
Like many recent FCA cases, this case arises in the heavily regulated health care context. Under the Medicaid Drug Rebate Statute, pharmaceutical manufacturers seeking to have a drug covered by Medicaid must report to the Centers for Medicare & Medicaid Services (CMS) the drug’s “Best Price,” which the statute and CMS regulations define as the lowest price available to any entity inclusive of rebates and discounts. In 2014, relator Troy Sheldon filed a qui tam action under the FCA against his former employer Forest Laboratories (now part of Allergan), alleging that...
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