United States: Taking Escobar Seriously

Last Updated: November 14 2019
Article by Manvin S. Mayell and Christian D. Sheehan

In its 2016 Escobar decision, the Supreme Court declared that the FCA's materiality standard is "demanding" and "rigorous." In many instances since this pronouncement, however, courts have not been very demanding, often holding that an alleged misrepresentation or regulatory violation could be material because it might have affected the government's payment decision. But in some recent cases, courts have gotten tougher, putting FCA plaintiffs to their proof of having to show that the purported falsity would have—not could have—affected payment.

In three of these recent cases, courts dismissed FCA claims on materiality grounds at different points in the litigation—one on a motion to dismiss, one on summary judgment and a third on a JMOL motion following trial. While each involved different facts, the courts took the Supreme Court's Escobar directives seriously and sent plaintiffs packing.

In the first case, a court in the Northern District of Illinois dismissed a partially intervened FCA case based on Escobar, taking to heart the requirement that FCA plaintiffs point to specific representations in an allegedly false claim that are misleading because of omissions. United States ex rel. Castillo v. Walgreen Co. et al., No. 14-cv-1558, 2019 WL 4749904 (N.D. Ill. Sept. 30, 2019). In Walgreen, the government alleged that a Walgreen specialty pharmacy was automatically refilling prescriptions in violation of an Illinois Medicaid regulation prohibiting automatic refills and requiring authorization from the patient or his or her doctor. The court examined the claim form finding no specific representation about whether the pharmacy had received authorization for the refill. Nor could the court infer that any refill claim for an Illinois Medicaid patient necessarily represented that authorization had been obtained because Illinois Medicaid laws provide for various exceptions to the authorization requirement. The court also took a tough line on Rule 9(b) chastising the government for identifying only one example of a refill claim without authorization where the government claimed to have reviewed spreadsheets of each refill claim submitted to Illinois Medicaid. Because the court dismissed without prejudice, the government has already indicated that it will go back to the drawing board to beef up its case.

In the summary judgment case, United States ex rel. Raffington v. Bon Secours Health System, Inc., No. 10-cv-9650, 2019 WL 4373599 (S.D.N.Y. Sept. 13, 2019), the court took a hard look at the materiality of allegations that a hospital defrauded Medicare and Medicaid by submitting claims beyond a permitted budget for individual patients and claims with forged or missing doctor signatures. The court dismissed that budget-related claim finding that the relator submitted no proof that the government had ever "denied claims or likely would deny payments based on over-budget billing." Id. at *11. The court even dismissed the forged signature claims, ruling that "there is insufficient evidence for a jury to find that, in situations where a physician had actually authorized the services at issue, [N.Y. Department of Health] would find it material . . . that the form . . . did not contain a proper signature of the physician—either because the signature had been written by someone else or because it was missing entirely." Id. at *20. Even though the relator had survived a motion to dismiss, that was not enough on summary judgment as the court required actual evidence that the supposed falsities would have affected payment.

Finally, in the trial case, United States ex rel. Kiro v. Jiaherb, Inc., No. 14-cv-2484, 2019 WL 4451215 (C.D. Cal. July 12, 2019), the relator alleged that an importer of Chinese herbs had fraudulently relabeled products to evade customs duties. At trial, the relator established 212 instances in which the defendant relabeled products from one name to another. But he could not show what impact any of those name changes had on any customs duties the defendant owed. Without any evidence of "how much money [customs] was actually owed," the relator failed to show that any noncompliance "was actually substantial as to payment." Id. at *4.

These cases show that Escobar is very much alive. While predominantly used to get rid of cases on motions to dismiss, the Kiro and Raffington cases show that materiality should be top of mind throughout the litigation because it is ultimately plaintiff's burden to prove that a supposed falsity or fraud would have resulted in fewer dollars out of the public treasury.

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