The Coalition for Government Procurement and the National Defense Industrial Association filed an amicus brief in the consolidated Supreme Court cases United States ex rel. Schutte v. SuperValu, Inc. and United States ex rel. Proctor v. Safeway, Inc. The brief urges the Court to hold, consistent with the decisions of multiple federal courts of appeals, that a defendant cannot be liable under the False Claims Act (“FCA”) for “knowingly” submitting a “false” claim if (1) it acted in accordance with an objectively reasonable reading of an ambiguous statute, regulation, or contract provision and (2) there was no authoritative guidance warning it away from that interpretation. The Amici are represented by Covington & Burling LLP.
In SuperValu and Safeway, the Court is asked to resolve questions over the role that subjective intent plays in evaluating whether a defendant satisfies the FCA’s “knowledge” requirement. Petitioners argue that a contractor can be liable under the FCA for submitting a claim that is premised on an objectively reasonable interpretation of an ambiguous legal provision if the contractor recognized that the provision could be interpreted a different way. However, as the amicus brief explains, such a claim cannot be false for alleged noncompliance with the ambiguous legal provision that has not otherwise been clarified by authoritative guidance. Nor can such a contractor knowingly submit a false claim just because it was aware that the legal obligation may be interpreted differently.
The amicus brief explains why Petitioners’ lax scienter requirement would fail to give contractors fair notice. An ambiguous legal requirement by definition fails to apprise regulated parties about what the law permits and prohibits. It is a fundamental tenet of our legal system that defendants should not be punished for acting in accordance with what was at the time a reasonable interpretation of an ambiguous requirement, simply because a court subsequently adopts a different interpretation of that requirement.
The amicus brief also details the strain that a subjective scienter requirement places on government contractors, the defense industry, and national security. As the brief explains, contractors grapple with an extraordinary number of complex and often intentionally ambiguous regulations, from Department of Defense (“DoD”) cybersecurity regulations that require contractors to provide “adequate security” yet do not provide any meaningful definition of the term, to the Federal Acquisition Regulation’s open-ended multi-factor definition of cost “reasonableness.” These uncertainties force contractors to make difficult interpretive decisions when bidding for, performing, and billing under contracts that are often not subject to clear resolution.
The brief argues that subjecting contractors who operate in such an uncertain legal landscape to treble damages and other essentially punitive remedies for acting in accordance with objectively reasonable legal interpretations is not only inconsistent with the FCA and the Court’s prior decision in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), but also could threaten to chill contractors’ ability and willingness to support the government’s critical contracts and goals. Facing the threat of incurring enormous liability for making reasonable choices in the face of unclear legal requirements, some companies (especially non-traditional offerors with limited contracting experience) could decline to bid on contracts, while others may choose to exit the government-contracting space. Such diminished participation could thwart the efforts of the DoD and other agencies to increase their supplier base, impede their efforts to promote vigorous competition, and threaten their ability to address national-security needs, especially in a timely manner.
Petitioners argue that their subjective test will not burden companies that do business with the government because those companies can always ask agencies to clarify the meaning of ambiguous laws, statutes, and regulations. As the amicus brief further explains, however, Petitioner’s argument is impractical. Agencies that have deliberately promulgated vague regulations are unlikely to offer further guidance about what those regulations mean. Agency staff are often reluctant to advise contractors on how to navigate ambiguous legal requirements, and will often lack the resources to respond to requests about how to interpret countless uncertain or contradictory laws. Even when agencies do respond to requests for clarification, those responses will often take months or years, making it impossible for contractors to obtain clarification before submitting claims.
However it turns out, the Court’s decision in SuperValu and Safeway may prove to be a watershed decision, perhaps as important as the Court’s 2016 Escobar decision. Argument is scheduled for April 18, 2023, with a decision expected by the end of the Court’s term.