United States ex rel. Schutte v. Supervalu Inc.
598 U.S. 739 (2023)
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Rule of Law:
The scienter element of the False Claims Act (FCA) turns on the defendant's subjective beliefs and knowledge at the time a claim is submitted, not on what an objectively reasonable person may have known or believed.
Facts:
- Respondents SuperValu and Safeway operate national retail pharmacies that are reimbursed for prescription drugs by federal programs like Medicare and Medicaid.
- These programs often cap reimbursement at a pharmacy's 'usual and customary' price charged to the general public.
- To compete with Walmart's low-priced generic drug program starting in 2006, SuperValu and Safeway implemented price-match and membership discount programs, offering drugs at significantly lower prices than their standard retail prices.
- For many popular drugs, a majority of cash-paying customers received these lower, discounted prices.
- Despite the prevalence of these discount programs, SuperValu and Safeway continued to report their higher, non-discounted retail prices to Medicare and Medicaid as their 'usual and customary' prices.
- A pharmacy benefit manager notified both companies that the phrase 'usual and customary' refers to discounted prices, and state Medicaid agencies sent similar notices to Safeway.
- Internal communications at both companies revealed concerns about regulators discovering their discounted prices, with executives describing one discount program as a 'stealthy approach' and worrying about the 'integrity' of their 'U&C price' claims.
Procedural Posture:
- Petitioners filed separate qui tam lawsuits against SuperValu and Safeway in federal district court, alleging violations of the False Claims Act.
- In the SuperValu case, the District Court found the claims were false but granted summary judgment to SuperValu, concluding the company could not have acted 'knowingly' given the ambiguity of the term 'usual and customary.'
- The District Court later granted summary judgment to Safeway on the same grounds.
- Petitioners appealed both cases to the U.S. Court of Appeals for the Seventh Circuit.
- The Seventh Circuit affirmed the district courts' grants of summary judgment, holding that a defendant could not act 'knowingly' if its actions were consistent with an objectively reasonable interpretation of the law, irrespective of the defendant's subjective beliefs.
- The Supreme Court of the United States granted certiorari.
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Issue:
Does the False Claims Act's scienter requirement, which penalizes those who 'knowingly' submit a false claim, inquire into a defendant's subjective understanding and beliefs about their claim's truth or falsity, even if an objectively reasonable person might have interpreted the relevant law or regulation differently?
Opinions:
Majority - Justice Thomas
Yes. The False Claims Act's scienter element refers to a defendant's knowledge and subjective beliefs. The FCA defines 'knowingly' to include actual knowledge, deliberate ignorance, or reckless disregard of the truth or falsity of the information, which mirrors the common-law standard for fraud that focuses on a defendant's subjective state of mind. Therefore, if a defendant correctly interpreted an ambiguous regulation and believed their claims were false when submitted, they can be found to have acted 'knowingly,' regardless of whether a hypothetical, objectively reasonable person might have been confused. The Seventh Circuit's reliance on Safeco Ins. Co. of America v. Burr was misplaced, as that case interpreted a different statute with a different mens rea standard and did not establish a purely objective safe harbor that would ignore a defendant's actual knowledge. Finally, the defendants' claims were not mere misrepresentations of law; by stating 'this is our usual and customary price,' they made an actionable assertion of fact about their pricing practices.
Analysis:
This decision clarifies that the FCA's 'knowingly' standard is fundamentally subjective, rejecting a purely objective scienter defense. It prevents sophisticated defendants from escaping liability by devising a post-hoc, objectively reasonable (but incorrect) interpretation of an ambiguous rule that they did not actually believe at the time of their conduct. The ruling strengthens the FCA by focusing the inquiry on the defendant's contemporaneous beliefs and intent, making it more difficult for parties to consciously disregard or exploit regulatory ambiguities while submitting claims they suspect are false.
