According to a recent decision in United States ex rel. Scollick v. Narula, Case No. 14-cv-1339 (D.D.C. Nov. 6, 2020), the fraudulent inducement theory of False Claims Act (“FCA”) liability does not require plaintiffs to satisfy the “demanding” materiality standard set forth in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).  Though that may sound like good news for plaintiffs, it is not.  The fraudulent inducement theory holds that fraud in a contractor’s proposal can taint every claim for payment it submits under the resulting contract, making them all “false claims” under the FCA.  This bears hefty consequences if proven: the defendant could be liable for civil penalties on every single claim for payment submitted over the life of the contract, in addition to treble damages the government may have suffered as a result of the fraud.  Perhaps in recognition of these severe consequences, the U.S. District Court for District of Columbia held that a plaintiff must plead and prove an even higher standard than Escobar materiality to establish fraudulent inducement liability—actual causation.  Rather than alleging that misrepresentation by the defendant merely was material to the government’s decision to award the contract to defendant, the Scollick decision concludes that “a misrepresentation in the defendant’s bid must have caused the government to award the defendant the contract.”  If the FCA materiality standard is “demanding,” then the actual causation standard is formidable.
Continue Reading “Would You Rather…” – Escobar’s Demanding Materiality Standard or Actual Causation?

With the Department of Justice’s (DOJ) decision to drop charges against Michael Flynn, materiality has come to the forefront of popular legal discourse.  At the same time, prosecutors and whistleblowers will carefully consider enforcement/false claims actions against entities who may have wrongfully received relief funds under the Coronavirus Aid, Recovery, and Economic Stability Act (CARES Act).  Such actions likely will turn on whether alleged misrepresentations were materially false.  Those applying for CARES Act funds, such as those under the Paycheck Protection Program (PPP), must ensure all of their representations and certifications are truthful.  However, those accused of making misrepresentations in order to receive government funds may find refuge in a more narrow view of the materiality requirement.
Continue Reading Materiality Concerns For CARES Act Enforcement Cases