On June 1, 2023, the U.S. Supreme Court unanimously settled a long-standing dispute over a subjective versus objective standard for scienter under the False Claims Act (FCA), holding that a defendant’s own subjective belief is relevant to scienter, rather than what an “objectively reasonable” person may have known or believed.
The case in question, U.S. ex rel. Schutte v. SuperValu Inc., consolidated from two lower court decisions, involved allegations that the defendants, two retail pharmacy chains, overcharged the government for prescription drugs in violation of the FCA. The FCA provides for liability for a defendant that “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” “Knowingly” is defined as acting with (1) “actual knowledge” of the falsity, (2) “deliberate ignorance of the truth,” or (3) “reckless disregard of the truth.” 31 U.S.C. §3729.The companies were accused of overcharging Medicaid and Medicare for drugs by submitting amounts as their “usual and customary” prices that did not reflect the significantly discounted prices that their retail customers were often actually paying.
The Supreme Court agreed to hear the case after the U.S. Court of Appeals for the Seventh Circuit held in favor of the defendants and found that that when a defendant’s interpretation is considered objectively reasonable, the defendant’s subjective intent is irrelevant to the scienter inquiry under the FCA. Resoundingly rejecting the...
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