On June 1, the U.S. Supreme Court unanimously refused to apply the Safeco objective knowledge standard to the False Claims Act (FCA), holding instead in U.S. ex rel. Schutte v. Supervalu Inc. that the FCA’s scienter element turns on a defendant’s “knowledge and subjective beliefs,” not on “what an objectively reasonable person may have known or believed.”
Although the Supreme Court’s measured opinion avoided the heated debates that characterized lower court rulings on this issue, the Court’s holding guts the Safeco defense defendants have relied on to secure dismissals at the motion to dismiss and summary judgment stages. The upshot is that defendants have lost an essential tool they have come to rely on in FCA actions.
Background
As we’ve covered in our False Claims Act Fundamental series, the FCA requires the government or a relator to prove that the defendant “knowingly present[ed] . . . a false or fraudulent claim for payment or approval.” This is known as the scienter element. The FCA defines knowledge as any of the following:
Historically, the scienter element was treated as a factual question to be resolved by the factfinder. As a result, the scienter element was typically not seen as a basis for dismissal on a motion to dismiss or at summary judgment.
But that changed after the Supreme Court’s 2007 opinion in Safeco Ins. Co. of America...
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