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Goldberg Kohn Litigation Chair <a href="https://www.goldbergkohn.com/people/david-chizewer/">David Chizewer</a> is quoted in "Supreme Court Reopens Fraud Suits Against SuperValu, Safeway," published in the June 1, 2023, edition of BloombergLaw.

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The article reports that on Thursday, June 1, 2023, the U.S. Supreme Court revived two False Claims Act suits filed by whistleblowers alleging that SuperValu Inc. and Safeway Inc. overcharged the government for prescription drugs. The U.S. Court of Appeals for the Seventh Circuit had rejected the suits for lack of scienter because their pricing arose from a reasonable regulatory interpretation. But the appeals court improperly failed to consider evidence of subjective intent, that the companies believed they were wrongly seeking payments from the government, the Supreme Court said.

The FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs, not what an objectively reasonable person may have known or believed, Justice Clarence Thomas wrote in a unanimous opinion.

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The companies are accused of telling Medicaid and Medicare that they sought reimbursement at their “usual and customary” price for the drugs, even as retail customers paid less.

The Supreme Court “reaffirmed the generally understood concept of what it means to be dishonest,” <a href="https://www.goldbergkohn.com/people/david-j-chizewer/">David Chizewer</a> is quoted as saying. Contractors who understand the law “cannot use ambiguity to feign a reasonable belief in an interpretation that is more favorable to the contractor,” he said.

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The article continues to report that both the text of the FCA and the common law “point to what the defendant thought when submitting the false claim,” not on post hoc interpretations that might have rendered a defendant’s claim accurate, the court said.

The term usual and customary is “less than perfectly clear,” but the Seventh Circuit didn’t hold that SuperValu and Safeway made an honest mistake in their interpretations, the court said.

Nothing in the Supreme Court’s 2007 decision in Safeco Ins. Co. of Am. v. Burr, which was cited by the Seventh Circuit, suggests that one should consider facts or legal interpretations that defendants neither knew nor had reason to know when they acted, Thomas said.

In United States ex rel. Schutte v. SuperValu Inc., a divided US Court of Appeals for the Seventh Circuit affirmed the rejection of a suit filed by pharmacists Tracy Schutte and Michael Yarberry. A divided court rejected similar pricing fraud claims raised by pharmacist Thomas Proctor in United States ex rel. Proctor v. Safeway Inc.

The high court consolidated the cases in January 2023 when it agreed to review them.

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