June 01, 2023

Supreme Court Decides United States et al. ex rel. Schutte et al. v. SuperValu Inc. et al.

On June 1, 2023, the U.S. Supreme Court decided U.S. ex rel. Schutte v. SuperValu, No. 21-1326, together with U.S. ex rel. Proctor v. Safeway, Inc, No. 22-111, vacating and remanding the decisions below and holding that the FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs — not to what an objectively reasonable person may have known or believed.

The False Claims Act (FCA) imposes liability on anyone who “knowingly” submits a “false” claim to the government. 31 U.S.C. § 3729(a). Federal regulations promulgated by the Federal Centers for Medicare and Medicaid Services establish that, in certain circumstances, pharmacies are required to bill Medicare and Medicaid for their “usual and customary” drug prices charged to the public. The question before the Court was whether the defendant pharmacies could meet the FCA’s requirement of a “knowing” action if they correctly understood the “usual and customary” language and thought that their claims were inaccurate.

Petitioners argue that respondents (in No. 22-1326, a group of companies collectively called SuperValu and in No. 22-111, Safeway, Inc.) defrauded the Government and violated the FCA by overcharging Medicare and Medicaid programs for years when seeking reimbursement for prescription drugs that the programs covered at higher prices than the ones that respondents usually and customarily charged to the public. In response to respondents’ competition, they adopted discount pricing for their drugs, and discounted prices comprised a majority of sales for many drugs to customers who paid in cash for at least some years during the discount programs’ operations. Petitioners presented evidence they claim supports their argument that respondents were informed that their lower, discounted prices were their “usual and customary” prices, believed their discounted prices were their “usual and customary” prices, and tried to hide their discounted prices from regulators and contractors.

The district court in No. 21-1326 determined that SuperValu’s discounted prices were its “usual and customary” prices and that, by not reporting them, SuperValu submitted claims that were false. But the district court nonetheless granted summary judgment for SuperValu, finding that SuperValu could not have acted “knowingly” under the FCA. Soon after, it granted Safeway summary judgment on the same basis. The Seventh Circuit affirmed and concluded that the respondents could not have acted “knowingly,” because their actions were consistent with an objectively reasonable interpretation of the phrase “usual and customary,” namely, that the phase could have been understood as referring to retail prices.

The Supreme Court vacated the judgments of the lower courts, holding that “the FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.” This is so, the Court concluded, even though the meaning of “usual and customary” may be ambiguous on its face. “Such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false.” In so concluding, the Court noted that the FCA’s standards focus primarily on what a defendant thought and believed and that the statute’s definition of “knowingly” encompasses actual knowledge, deliberate ignorance, or recklessness, which largely tracks the common-law scienter requirement for claims of fraud. 

Justice Thomas delivered the opinion for a unanimous Court. 

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