Recently, the Supreme Court handed down its much-anticipated opinion in Universal Health Services, Inc. v. United States ex rel. Escobar et al.—a case addressing the viability of the implied certification theory in FCA litigation. Justice Thomas, writing on behalf of a unanimous Court, found that the implied certification theory can in fact serve as a basis for FCA liability where a defendant has misleadingly failed to disclose its noncompliance with material statutory, regulatory, or contractual obligations.
From a litigation perspective, Escobar has swept away years of precedent on the bright-line rule. Despite the Court’s effort to bolster materiality as a defense in implied certification cases, the loss of the bright-line rule will make it more difficult for defendants to win motions to dismiss. The Court addressed this problem in a footnote, arguing that the pleading standards require the government and relators to plead facts to support their allegations of materiality. No doubt the pleading standards will be an avenue to attack materiality on a motion to dismiss, but the Court may be overly optimistic. Materiality is generally a mixed question of law and fact, meaning trial courts will be reluctant to dismiss a case before discovery. As a result many cases that would have previously been dismissed will now go through expensive discovery.