Statutory Interpretation – FCRA and False Claims Act – Scienter

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7^th Circuit Court of Appeals

Case Name: United States of America ex rel. Tracy Schutte, et al., v. SuperValu Inc., et al.,

Case No.: 20-2241

Officials: ROVNER, HAMILTON, and ST. EVE, Circuit Judges.

Focus: Statutory Interpretation – FCRA and False Claims Act – Scienter

This Court is no stranger to False Claims Act qui tam actions. The present appeal, however, contains a novel question for this Circuit: does the Supreme Court’s interpretation of the Fair Credit Reporting Act’s scienter provision in Safeco Insurance Company of America v. Burr, 551 U.S. 47 (2007), apply with equal force to the False Claims Act’s scienter provision? We join the four circuits that have answered that question in the affirmative and hold that it does.

This issue comes to us in a lawsuit against Defendants (collectively, “SuperValu”), which claims that SuperValu knowingly filed false reports of its pharmacies’ “usual and customary” (“U&C”) drug prices when it sought reimbursements under Medicare and Medicaid. SuperValu listed its retail cash prices as its U&C drug prices rather than the lower, price-matched amounts that it charged qualifying customers under its discount program. Medicaid regulations define “usual and customary price” as the price charged to the general public. Based on our decision in U.S. ex rel. Garbe v. Kmart Corporation, 824 F.3d 632 (7th Cir. 2016), the district court held that SuperValu’s discounted prices fell within the definition of U&C price and that SuperValu should have reported them. Relators Tracy Schutte and Michael Yarberry (the “Relators”) thus established falsity, the first prong of their False Claims Act (“FCA” or “the Act”) claims. On the scienter prong, however, the court applied the Safeco standard to the FCA and held that SuperValu did not meet it.

We agree that the scienter standard articulated in Safeco applies to the FCA. Here, as with the Fair Credit Reporting Act (“FCRA”), there is no statutory indication that Congress meant its usage of “knowingly,” or the scienter definitions it encompasses, to bear a different meaning than its common law definition. We further hold that while the FCA’s scienter provision is defined via three distinct definitions, a failure to establish the Safeco standard as a threshold matter precludes liability under any of these definitions. Applying this standard to the case at hand, SuperValu did not act with the requisite knowledge under the FCA. The judgment of the district court is affirmed.

Affirmed

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Derek A Hawkins is Corporate Counsel, at Salesforce.