The Supreme Court Has Spoken – The FCA and Scienter

“For scienter, it is enough if respondents believed that their claims were not accurate.” 1

– Justice Thomas

On June 1, 2023, the Supreme Court issued its opinion on the ongoing False Claims Act (“FCA”) scienter issues (the “Opinion”) – i.e., does a company’s objective or subjective knowledge matter regarding whether its submissions to Medicare or Medicaid violated the FCA?

The Opinion combines United States ex rel. Schutte v. SuperValu, Inc. (“SuperValu”) and United States ex rel. Thomas Proctor v. Safeway, Inc. (“Safeway”) and questions whether respondents in the SuperValu and Safeway cases “could have the scienter required by the FCA if they correctly understood that standard and thought that their claims were inaccurate.” 2 In other words, the Court questions whether a company’s subjective knowledge that their claims were inaccurate is enough to find an FCA violation (with respect to the knowledge requirement).

The Seventh Circuit determined that “a claim would have to be objectively unreasonable, as a legal matter, before a defendant could be held liable for ‘knowingly’ submitting a false claim, no matter what the defendant thought.” 3 The Court rejected this standard and finds that “[w]hat matters for an FCA case is whether the defendant knew the claim was false . . . . [and] if respondents correctly interpreted the relevant phrase and believed their claims were false,
then they could have known their claims were false.” 4

Essentially, the Court determined that knowledge is knowledge, and it does not matter if some objectively reasonable person could think otherwise. According to the FCA and “its common- law roots,” the “FCA’s scienter element refers to respondents’ knowledge and subjective beliefs.” 5 The Court finds then that, under the FCA, scienter may be established in three ways: 6

1. Actual knowledge – to establish actual knowledge, a petitioner must show that respondents “actually knew that their reported prices were not their ‘usual and customary’ prices when they reported those prices.”

2. Deliberate indifference – to establish deliberate indifference, a petitioner must show that respondents “were aware of a substantial risk that their higher, retail prices were not their ‘usual and customary’ prices and intentionally avoided learning whether their reports were accurate.”

3. Reckless disregard of the truth or falsity of the information – to establish reckless disregard, a petitioner must show that respondents “were aware of such a substantial and unjustifiable risk but submitted the claims anyway.”

The Court acknowledges that the phrase “usual and customary” may be ambiguous but finds that such ambiguity is not enough to “preclude a finding that respondents knew their claims were false.” 7 Again, the Court reiterates that a respondent’s actual subjective knowledge (at the time the claim is submitted) is most important in determining whether an FCA violation occurred. 8

The Court looked to specific facts presented by both respondents but is neither ruling on whether SuperValu’s or Safeway’s claims were false, nor whether the discounted pricing was their “usual and customary pricing.” 9 With that being said, the following facts will likely be most relevant when the Seventh Circuit reviews each case again 10 :

– Emails between SuperValu executives describing “their discount program as a ‘stealthy approach’” and noting “concern for the ‘integrity’ of their ‘U&C price’ claims.” 11

– Statements from Safeway executives that Safeway “‘may have some issues with U&C’ and that ‘if you match a price offer, that becomes your usual and customary price for that day.” 12

– The direction that Safeway employees “should not ‘put any of this in writing to stores because our official policy is we do not match.’” 13

In one of Ward & Berry’s previous articles regarding this FCA issue, we anticipated that the Court would address certain questions. In addition to the above analysis, we briefly answer our own questions below.


Is the FCA’s knowledge requirement ambiguous?

No. In fact, the Court determined that the question surrounding FCA’s “scienter element” is “straightforward.” 14

Will a contractor’s subjective intent or thoughts at the time of the violation matter?

Yes. “The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.” 15

Will a contractor’s knowledge be considered a question of fact for the jury to decide?

The Court did not address this issue. This will likely be resolved at the Seventh Circuit level.

How should a contractor determine what their “usual and customary” pricing is? The price most often used? The price used 50% of the time? Or the standard rate against which discounts might be made?

The Court did not address this issue. This will likely be resolved at the Seventh Circuit level.

How should the Court treat a contractor who makes a reasonable interpretation of an ambiguous regulation to either continue performing a contract or submit a claim for payment. Under a subjective inquiry, contractors who had an objectively reasonable basis for its interpretation may be dragged through expensive litigation for a decision it had to make.

The Court did not address this issue. This will likely be resolved at the Seventh Circuit level.

Ward & Berry continues to track FCA Scienter issues. To read further on this subject, review our other articles which explain the FCA and the SuperValu and Safeway cases more in-depth. If you have any questions about potential FCA-related issues, please contact Ward & Berry.

– The False Claims Act Standard – Why Do We Care?

– The Supreme Court Continues to Define the False Claims Act

1 598 U.S. ____, at *16 (2023).
2 Id. at *2.
3 Id. at *7.
4 Id. at *2.
5 Id. at *8 (emphasis added).
6 Id. at 16; see also § 3729(b)(1)(A).
7 598 U.S. ____, at *8 (2023).
8 Id. at *11.
9 Id. at *8.
10 The Court vacated the judgments of both SuperValu and Safeway, and remanded the cases to the Seventh Circuit
“for further proceedings consistent with” the Opinion. Id. at *17.
11 Id. at *5.
12 Id. at *5–6.
13 Id. at *6.
14 Id. at *8.
15 Id. at *8.