3rd Circuit Case of First Impression Clarifies Lower Threshold for FCA Actions

March 6, 2020

Government contractors should take note of a March 4, 2020, ruling by the 3rd U.S. Circuit Court of Appeals (Court) that lowers the jurisdictional threshold for establishing a claim under the False Claims Act (FCA).

The 3rd Circuit’s decision in Druding v. Care Alternatives revived an FCA claim that the U.S. District Court for the District of New Jersey rejected through a grant of summary judgment. At the lower court, experts retained by the plaintiff and defendant disagreed about the factual basis of the alleged false claim. Confronted by this disagreement, the District Court ruled that “a mere difference of opinion between experts regarding the accuracy” of the claim at issue was “insufficient to create a triable dispute of fact as to the element of falsity.” The District Court opined that to meet the jurisdictional threshold, a plaintiff under the FCA must provide “evidence of an objective falsehood.” The appeals Court overturned the District Court’s finding that a viable claim must include evidence of an objective falsehood, instead finding that a dispute among the parties’ experts is enough to establish the basis of a triable claim because the expert’s testimony created a “genuine dispute of material facts as to the element of falsity.”

This case of first impression in the 3rd Circuit will allow more FCA cases to avoid early dismissal in the District Court, including those brought by qui tam relators, such as former employees. Relators are encouraged to bring qui tam actions because they are entitled to a portion of the recovered amount, subject to certain limitations. The Court reasoned that “[l]imiting falsity to factual falsity is inconsistent with our case law, which reads FCA falsity more broadly as legal falsity, encompassing circumstances where a claim for reimbursement is non-compliant with requirements under the statute and regulations.”

Government contractors, healthcare entities and other heavily regulated industries are encouraged to be proactive in mitigating the risk of enforcement actions, including through the maintenance of a robust Governance, Risk, and Compliance (GRC) internal infrastructure. McGuireWoods assists clients in gap analysis and remediation of compliance systems, audit support and FCA litigation defense. Proactive mitigating steps are especially important in areas where noncompliance includes high penalties, such as the potential for treble damages under the FCA statute.

This case creates a split of opinion among the circuits. The District Court opinion that was overturned applied the falsity standard adopted by the 11th Circuit in United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019); United States v. AseraCare Inc., 176 F. Supp. 3d 1282 (N.D. Ala. 2016); and United States v. AseraCare Inc., 153 F. Supp. 3d 1372 (N.D. Ala. 2015). McGuireWoods will monitor and report updates, including a potential Supreme Court resolution.

For questions or assistance, read about and contact McGuireWoods’ Government Contract Investigations and Enforcement team, McGuireWoods’ Government Contracts team, and/or Healthcare team.

McGuireWoods’ Government Investigations & White Collar Department is a nationally recognized team of nearly 60 attorneys representing Fortune 100 and other companies and individuals in the full range of civil and criminal investigations and enforcement matters at both the federal and state level. Our team is comprised of a deep bench of former senior federal officials, including a former Deputy Attorney General of the United States, former U.S. Attorneys, more than a dozen federal prosecutors, and an Associate Counsel to the President of the United States. Strategically centered in Washington, DC, our Government Investigations & White Collar Litigation Department has been honored as a 2019 Law360 Practice Group of the Year and earned the trust of international companies and individuals through our representation in some of the most notable enforcement matters over the past decade.