U.S. Supreme Court To Provide Guidance On 'Implied Certification' False Claims Act Liability: What Does This Mean For Nonprofits?

On Friday, December 4, 2015, the Supreme Court of the United States (SCOTUS) granted review in United States v. United Health Services, Inc., 780 F.3d 504 (1st Cir. 2015) cert. granted in part, 84 U.S.L.W. 30337 (U.S. Dec. 4, 2015) (No. 15-7), to determine important issues about the scope of the federal False Claims Act (FCA), 31 U.S.C. § 3729, a statute that makes it unlawful for any person to knowingly submit a false or fraudulent claim for payment to the federal government. The FCA applies to both federal contractors and recipients of federal grant and cooperative agreement assistance. The steep damages associated with an FCA violation (three times the damage sustained by the government, plus civil penalties of $5,500 to $11,000 per claim) have enabled the federal government in recent years to recover billions of dollars from various entities, including numerous nonprofit organizations, in both court victories and FCA settlements.

Much of the significant uptick in government enforcement actions is a result of the government's increasingly aggressive assertion of the "implied certification" theory under the FCA. Under this theory, a claim for reimbursement submitted when a recipient of federal funds is noncompliant with a grant, regulation, or other federal, state, or local law is "false" under the theory that the government would not have paid for the services had it known of the nonprofit's noncompliance. Under the implied certification theory, this is true even where the government does not expressly condition payment on the breached provision, regulation, or law. The theory raises important questions about the difference between a breach of the contract or grant agreement and "defrauding" the government.

Circuit Courts are split over how to interpret and administer the implied certification theory. The Seventh Circuit rejected implied certification altogether, stating that the theory "lack[ed] a discerning limiting principle." See United States v. Sandford-Brown, Ltd., No. 14-2506, 2015 WL 3541422, at *12 (7th Cir. June 8, 2015). The Second and Sixth Circuits recognize the implied certification theory, but only if the government expressly conditions payment on compliance. See Mikes v. Strauss, 274 F.3d 687, 700 (2d Cir. 2001); Chesbrough v. VPA, P.C., 655 F.3d 461, 468 (6th Cir. 2011). The First, Fourth, and D.C. Circuits recognize the condition of payment requirement; they do not require the legal obligation in question to be...