United States: 9th Circuit Makes Mandatory Escobar's Implied False Certification Test, But Fails To Faithfully Follow Escobar's Directives

Key Points

  • Escobar's two-part implied false certification test is mandatory in the 9th Circuit.
  • Though couched as adopting the Escobar standard, the 9th Circuit panel's decision may actually undermine Escobar's overarching directives.
  • The 9th Circuit panel noted that its decision was based on binding precedent and signaled that the holding could be revisited in an en banc review.

A three-judge panel of the 9th Circuit ruled that False Claims Act (FCA) plaintiffs must satisfy the two-pronged test for implied false certification claims set out in Universal Health Services, Inc. v. United States ex rel. Escobar. Although the panel's ruling on this hotly debated issue is seemingly helpful for FCA defendants, the 9th Circuit's decision may actually undermine the fundamental principles set forth in Escobar, allowing garden-variety regulatory breaches to proceed as FCA cases, despite the Supreme Court's instructions to the contrary. Also notable, the panel reached this holding reluctantly based on binding precedent and signaled that the case would be a good candidate for en banc review. For these reasons, this case will be closely monitored for further developments and to see how FCA defendants are ultimately impacted as the case law on implied false certification claims post-Escobar continues to develop.

Background on Escobar's Implied Certification Test and Materiality Standard

In the unanimous landmark Escobar decision in June 2016, the U.S. Supreme Court sanctioned the implied false certification theory of FCA liability. Under this theory, a defendant can be liable for knowingly submitting a false or fraudulent claim for payment, even if the claim is factually true and accurate, if the defendant is knowingly not in compliance with an applicable statutory, regulatory or contractual requirement, and compliance with the requirement at issue is deemed material to the government's payment decision.

In Escobar, the Court made clear that the FCA is not "an all-purpose antifraud statute." The Court further declared that the FCA is not a "vehicle for punishing garden-variety breaches of contract or regulatory violations," and "emphasize[d]" that "the False Claims Act is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations." Instead, as one recent court summarized, "Escobar assumes and enforces a course of dealing between the government and a supplier of goods or services that rests comfortably on proven and successful principles of exchange–fair value given for fair value received. Escobar rejects a system of government traps, zaps, and zingers that permits the government to retain the benefit of a substantially conforming good or service but to recover the price entirely–multiplied by three–because of some immaterial contractual or regulatory non-compliance."

Thus, given its focus on goods or services–and their fair value–that underlie the FCA, the Court, though allowing implied false certification claims to proceed, defined the theory in such a way as to limit its application to specific representations regarding goods or services. Specifically, the Court held that FCA liability can exist under an implied false certification theory where "at least" two conditions are satisfied: (1) the defendant's claim "makes specific representations about the goods or services provided," and (2) "the defendant's failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths."

This approach, limiting application of the implied false certification theory to specific representations about the goods or services provided, makes sense in that, historically, courts have expressed concern regarding FCA implied false certification theories. This is because, unlike "factual falsity" claims–where the defendant purportedly lies on the claim form itself–or "express false certification" claims–where the defendant certifies to a state of facts that do not exist on the face of the claim form–in implied false certification claims the actual claim form itself is truthful and accurate. This raises concerns of whether the defendant responding to an implied false certification claim actually had fair notice of an alleged FCA breach before suffering the imposition of treble damages and massive civil penalties. It further raises concerns about whether, under these circumstances, the FCA is simply being improperly used as a general antifraud super statute to enforce every other government statute, regulation and standard that is in existence.

Consistent with the limits that it placed on implied false certification claims, the Escobar Court provided guidance on how the FCA's materiality requirement should be enforced, and it clarified that the materiality standard is "rigorous" and "demanding." The Court identified a couple of factors that may be relevant to materiality, as well as a number of limiting factors. In sum, the Court shifted the focus away from whether a provision is labeled a condition of payment (this is still relevant, but not dispositive) or whether the government would be entitled to decline to pay, and toward what the government actually did, or would have done, knowing of the alleged noncompliance. Specifically, the Court noted, "if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material." (Emphasis added.) This rationale supports the principle that the FCA protects actual government payments and also ensures that relators cannot subvert government programs by contending that specific regulatory violations should be pursued under the FCA's treble damages and civil penalty framework when expert government administrators charged with safeguarding and administering government programs would, in fact, "regularly" treat the infraction in some other, less severe fashion.

The Court's rulings as to implied false certification and materiality protect against the FCA being used, contrary to its intended purpose, as a general antifraud statute that is invoked to police merely garden-variety regulatory or contractual breaches.

United States ex rel. Rose v. Stephens Institute

In United States ex rel. Rose v. Stephens Institute, the relators (former admissions representatives of an art university) alleged that the university violated the FCA by paying bonuses to admissions representatives for increasing student enrollment in violation of an incentive compensation ban in its financial aid federal funding agreement. On interlocutory appeal, a 9th Circuit panel considered several questions related to the impact of Escobar on 9th Circuit precedent. In particular, the panel addressed whether Escobar's "two conditions" must "always be satisfied" to maintain implied false certification liability under the FCA. Unlike the Escobar ruling, which focused on specific representations regarding goods or services, the 9th Circuit explained that it previously allowed a plaintiff to establish falsity by merely pointing to noncompliance with a law, rule or regulation that is somehow necessarily implicated in a defendant's claim for payment. The panel ultimately ruled that FCA plaintiffs "must satisfy Escobar's two conditions to prove falsity."

The 9th Circuit reached this holding reluctantly, explaining that it was bound by its recent post-Escobar decisions in United States ex rel. Kelly v. Serco, Inc. and United States ex rel. Campie v. Gilead Sciences, Inc. More specifically, the 9th Circuit suggested that these cases may have gone too far in making the test mandatory, noting that the Escobar Court "did not state that its two conditions were the only way to establish liability under an implied false certification theory," but that its own decisions "appear[ed] to require Escobar's two conditions nonetheless."

The 9th Circuit, after clarifying the mandatory nature of the two-prong test to prove falsity, found that the university's action satisfied this test because it (1) "specifically represented that the student applying for federal financial aid [was] an 'eligible borrower' and [was] 'accepted for enrollment in an eligible program'" and (2) "failed to disclose its noncompliance with the incentive compensation ban," and, thus, "those representations could be considered 'misleading half-truths.'" Accordingly, the 9th Circuit found that relators had created a genuine issue of material fact as to falsity.

The 9th Circuit went on to apply the Escobar materiality standard, concluding that, although the burden does not shift to the defendant, the university had not established immateriality as a matter of law. The 9th Circuit reached this conclusion based on evidence that (1) payment was conditioned on compliance with the incentive compensation ban (notwithstanding defendant's argument that it was a condition of participation, not a condition of payment); (2) the government "did care about violations" because it took various remedial measures short of "limiting, suspending, or terminating schools' access to federal student aid," including recouping money, at least in some instances, from schools that violated the incentive compensation ban (as reflected in two Government Accountability Office (GAO) reports–although it appears that one GAO report specifically noted that, for 27 of the 32 schools reviewed, the government had either elected to pursue some lesser administrative remedy, such as merely mandating corrective action by requiring the cessation of such payments, and, in only one of the 32 cases, it pursued the same remedy that the relator apparently was pursuing, that is, total recoupment of the claim); and (3) the bonuses at issue were as much as $23,000, as opposed to "cups of coffee or $10 gift cards."

The dissent disagreed on this point, finding that there was "simply no evidence" on "how the Government would respond" to the specific alleged violations in question based on "aggregate evidence that the Government cares" and the fact that payment was conditioned on compliance with the incentive compensation ban. As the dissent noted, "caring is not enough" under the Escobar materiality standard.

Impact of the Rose Holding

The 9th Circuit panel's holding in Rose on the mandatory nature of the implied false certification test, although reluctant, is noteworthy. FCA plaintiffs in the 9th Circuit must now unequivocally demonstrate that they can satisfy Escobar's two-part test when asserting that a claim is impliedly false, in addition to satisfying the "rigorous" and "demanding" materiality element.

However, the panel's failure to faithfully apply Escobar's overarching mandate to the facts at hand is even more significant. The panel claims to be guided by Escobar, but ignores its directives. Namely, as to implied false certification theory, the panel does not address how the alleged falsity (noncompliance with the incentive compensation ban) impacted the services provided (student education). Indeed, the panel does not indicate that the students failed to receive an education, that classes were not held, that the education provided was inadequate, that phantom students were claimed or any other specific representation as to the service provided that would indicate that the government did not receive fair value for the fair value paid. Instead, rather than actually apply Escobar's two-prong implied false certification test, as it represented, it instead appeared to apply the prior test that it purported to reject: that is, that the plaintiff could establish falsity by merely pointing to noncompliance with a law, rule or regulation that is somehow necessarily implicated in a defendant's claim for payment. As to materiality, although the panel articulated Escobar's materiality test looking to the remedy the government "regularly" pursues based upon the infraction, the court actually appears to have failed to apply that test to its facts because it allowed the relator to pursue a remedy that, according to a GAO report, the government's expert administrators would not typically pursue in the sound administration of their programs.

As the Escobar Court made clear, the FCA should not be used to punish such unrelated garden-variety breaches of contract or regulatory violations. As a result, though cloaked as adoptive of the Escobar standard, the panel's decision may actually undermine Escobar. Although Rose provides a mandatory implied certification test upon which FCA defendants may rely, this holding may ultimately be overshadowed by the 9th Circuit panel's misguided application of Escobar.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions