The author would like to thank Bob Fabrikant, Frank LaPallo, and Sirena Castillo for their contributions to this alert.
On January 25, 2022, the U.S. Court of Appeals for the Fourth Circuit issued an important opinion for companies trying to navigate the complex statutory scheme in heavily regulated areas like Medicare and Medicaid. In United States ex rel. Sheldon v. Allergan Sales, LLC, the Fourth Circuit held that companies in such industries should not be penalized under the False Claims Act (FCA) for adopting “objectively reasonable” interpretations of complex statutes and regulations when the relevant agency has not issued any “authoritative guidance” to the contrary or discouraged companies from adopting such interpretations. In affirming the dismissal of a qui tam relator’s complaint, the court more broadly clarified the standard for proving knowledge (or scienter) under the FCA, which should apply equally to actions brought by either relators or the government itself. The court emphasized that “[i]f the government wants to hold people liable for violating labyrinthine reporting requirements, it at least needs to indicate a way through the maze.” If the government fails to do so, then companies should not be held liable under the FCA for acting reasonably under the circumstances.
This consequential decision is reviewed in more detail below.
In Allergan Sales, the Fourth Circuit dismissed the relator’s FCA claim that a manufacturer had knowingly violated the...
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