The United States District Court for the Eastern District of Michigan recently dismissed a False Claims Act ("FCA") lawsuit brought against the City of Detroit. The core issue in United States ex rel. Lynn v. City of Detroit revolved around Detroit's annual certifications and assurances to comply with federal laws and regulations as a condition for receiving federal funds. The relators argued that these certifications were false, thus constituting fraudulent claims under the FCA.
The court's decision to grant summary judgment in favor of Detroit was based on the distinction between future promises and fraud. The court noted that the certifications in question were forward-looking statements about future compliance, not assertions about past or present compliance. This distinction was crucial because, under established legal principles, fraud claims must relate to misrepresentations about past or existing facts. Future promises, on the other hand, are considered contractual and do not constitute fraud.
While some courts have recognized a "promissory fraud" exception, allowing fraud claims based on future promises if the plaintiff can prove that the defendant had no intention of complying at the time the promise was made, the Sixth Circuit has not endorsed this exception in the FCA context. Though even if it had, the outcome here would not change. The court explained that relators in this case failed to allege or provide evidence that the City officials who signed the certifications had no intention of complying with federal laws and regulations at the time they made the certifications.
This dismissal underscores the critical distinction between future promises and fraud, as well as the stringent requirements for invoking the promissory fraud exception. In the end, the court's ruling provides a clear message: future promises of compliance, without more, cannot form the basis of a fraud claim under the FCA.
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