Senator Grassley Points Out Stringent Materiality Standards

Written by Tony Munter

Senator Charles Grassley (R-Whistleblowers) released a letter written to the nominee for Attorney General, Merrick Garland on the False Claims Act last week.

It says something positive about the future of this law that one can imagine the prospective AG actually reading Senator Grassley’s letter.

Senator Grassley takes an aggressive stance regarding recent court decisions. He believes there needs to be some legislative fix, because of decisions creating a more stringent materiality standard, “than Congress wrote or intended,” in the False Claims Act. Left unsaid in the letter is what Garland and everyone else knows, when the main author of the modern False Claims Act says what the intent of the law is you have to pay attention.

There is a materiality provision in the law. The idea is that fraud may exist, but if it is not “material” to the government decision to pay, there should be no false claim. Grassley is saying this provision is being read too stringently and his willingness to say so is a big piece of news.

It really is amazing to read defense bar justifications based on the Supreme Court’s Escobar decision from which they have made this the issue. You probably know the Defense Bar has made “Escobar” stand for “if it is not material,” meanwhile, everyone seems to forget that Escobar was decided in favor of the Plaintiffs. Worse, as a good friend of mine says “Escobar was a declined case.” That means brave private counsel fought for years to preserve the right of a plaintiff to bring a case under what is euphemistically called the “implied certification” theory. That is the idea that when you bill the government, your bill implies some things to the government.

The Government did not pursue the case notwithstanding the allegations that unlicensed health care providers prescribed medication, patients died and nonetheless the defendants charged the Government for their services. Somehow this was not a false claim to the defense bar. They argued, at the time, that implied certification should not exist, that allowing it to exist would create a so-called “parade of horribles” (cases as bad as Esobar?) and that there should be no false claim in Escobar itself.

Think about that. Unlicensed and unqualified medical personnel prescribe medication, a patient dies and they bill the government, but that’s not a false claim.

You have to ask what would be a false claim under that theory. After they lost the fallback position, that the Supreme Court has created a new high materiality standard that would block almost anything else, is what we face all the time.

Now maybe you understand why Senator Grassley thinks this is a point worth underlining to the new AG.

Senator Grassley’s response is to point to history. He shows what happened when a previous all-purpose defense was allowed to stand. The 1943 version of the law allowed a prior government knowledge bar to any case.  Back then Grassley notes, “Defendants seeking to avoid liability were almost always able to find some government official somewhere who had some knowledge of the fraud.” So Congress had to eliminate this bar in 1986 or there really would be no way to use the law today.

It’s good to know that the Senator is working on the materiality issue right now and that he is addressing a new Attorney General about it as well.