It is an end-of-June ritual nearly as reliable as the Summer Solstice. As the Supreme Court term draws to a close, the national press and general public await the court’s opinions in a handful of blockbuster cases. In the meantime, under everyone’s noses the court issues one or two opinions of enormous consequence that escape general notice.
The strongest candidate for sleeper status this term, which will end in the next few days, is Universal Health Services v. United States ex rel Escobar.
The “ex rel” signals that the case is brought under the False Claims Act, the most important federal law that most people have never heard of. The act provides for treble damages against contractors who defraud the government. And it incentivizes whistleblowers with knowledge of government fraud to come forward, by providing a potential share — generally between 15 percent and 30 percent — of the eventual recovery.
The central legal issue in the Escobar case is whether a contractor can be liable to the government if it makes an implied, as opposed to an express, false certification. What happens if a contractor delivers goods to the government that it knows aren’t suitable, but there is no false statement on the face of the invoice?
In fact, that’s the sort of conduct that led to the enactment of the False Claims Act in the first place. Passed during the Civil War, the act, also known as “Lincoln’s law,” was a response to crooked contractors who bilked the Union Army by selling inferior goods — sand in place of sugar, sawdust for gunpowder, crippled horses and boots made of cardboard. It’s safe to assume that these fraudsters didn’t submit bills that expressly made false claims, such as stating that the horses were healthy or the boots sturdy.
The whistleblowers in the case now before the court were the parents of a 17-year-old student who received mental health treatment from Universal Health Services. Their lawsuit alleges that the defendants knowingly hired unlicensed and unqualified mental health counselors, in violation of clear Medicaid requirements, but billed the government as if they had provided licensed professionals. The parents say the unlicensed substitutes provided gravely inadequate treatment to their daughter, who ended up killing herself.
At the oral argument in the case, some of the justices analogized these allegations to the original purpose of the False Claims Act. They pursued the theory of “implied representation” — that by submitting a bill for payment, the government contractor was making an implied (and false) representation about its goods or services — for example, that the boots could be worn or the horses could be ridden.
In much the same way, the Escobars argue, a claim for payment for mental health services carries an implied representation that the service providers are licensed and qualified. The court of appeals sided with them. Given the current eight-person makeup of the Supreme Court, that decision will be affirmed if four justices agree.
In the Supreme Court argument, Justice Elena Kagan’s questioning cut to the chase: “The government contracts to buy boots — this was all within the context of the Civil War — the boots fell apart after 12 hours. The government contracts to buy food; the food was rancid. I would think that … this is the exact same — that the contract was for a … doctor’s medical care, and a doctor’s medical care was not provided. A nondoctor’s care was provided.”
Opponents of implied certification — and, reflecting the high stakes of the case, many groups on all sides submitted briefs to the court — argue that, were the court to approve an implied-certification theory, it would subject contractors to enormous potential liability for even picayune misrepresentations.
They were buoyed at oral argument by the questioning of Chief Justice John Roberts, who asked whether contractors would face treble damages for satisfying a contract nearly in full but failing to comply with a regulatory requirement to use American staplers.
But the act already includes a requirement that any lie be not just knowing but also material, something that the government reasonably could withhold payment over (as opposed to the failure to use an American stapler). So, while the concern about liability in outlandish or silly cases is understandable, it shouldn’t mean that a contractor who makes an implied misrepresentation can’t be held liable.
In recent years, the False Claims Act has emerged as the federal government’s most powerful weapon against fraud on the public. False-claims cases have resulted in the return to the federal treasury of more than $20 billion since 2011. The great majority of these — in numbers of cases and in dollars returned — were originated by whistleblowers such as the Escobars.
The Escobar case is probably the most important False Claims Act case in a generation, and one of the most important ever. It gives the court the opportunity to make clear that implied false representations trigger liability under the act. And because the False Claims Act plays such a central role in the recovery of fraudulently obtained taxpayer funds, and the challenges to the act in the case before the court are so fundamental, the financial stakes are arguably the highest of any case this term, easily running into the hundreds of millions of dollars.
A reversal by the court would create a gaping hole in False Claims Act enforcement, since invoices for payment often do not expressly certify compliance with all material terms in a contract. It would also leave the act unavailable to address much of the sort of flagrant fraud that led to its passage in the first place.
So, over the next 10 days or so, watch the headlines about the court’s upcoming opinions in closely followed cases involving affirmative action (Fisher v. University of Texas), abortion (Whole Women’s Health v. Hellserstadt), and immigration (United States v. Texas). But also keep an eye out for the afterthought stories. One of them should tell you whether “Lincoln’s law” will remain the government’s most robust tool for fighting fraud.
Harry Litman, a former U.S. attorney for Western Pennsylvania, is an attorney at Constantine Cannon, where he specializes in whistleblower cases, and a visiting professor at University of California-San Diego School of Global Policy & Strategy.