SAN FRANCISCO – A new ruling by the U.S. District Court for the Northern District of California has opened implied certification claims to the elimination of proof in a two-part test.
The Rose v. Stephens Inst. case established a new precedent that had the Northern District of California Court ruling regarding the two-part test that was established in the Universal Health Services Inc. v. United States ex re. Escobar suit. The court claimed the two-part test was too rigid of a measure that need not apply in all implied certification cases for liability under the False Claims Act.
“The reason for this is simple,” Sean C. Cenawood, a partner at Dentons told the Northern California Record. “The government can’t possibly audit every single claim there is. They just can’t do it. Basically, the idea is there’s an honor system going on. If you violate that and they find out you were trying to get one over in some way with the government, there would be serious penalties. That’s why there are triple damages and fines.”
Because of the enormity of these claims, the Supreme Court established a two-part test under the Escobar case that held that an implied certification claim must require payment and make a misrepresentation about the products and services as well as to have failed to disclose compliance with necessary rules and regulations of the contract.
While the two-part test has been the standard that most courts follow in implied certification cases, the Northern District Court of California ruled differently in Rose.
“The Rose court in the Northern District basically stated that Escobar set forth a rigid two-part test for falsity that had to be met in every implied certification case,” said Cenawood. “Basically, they said that Escobar was one type of implied certification case and others could exist.”
The abrupt change may open the courts up to more implied certification litigation.
“I think it’s wrong but I’m not surprised,” said Cenawood. “The Supreme Court didn’t really give the best decision they could have. The court is sort of walking this tightrope of allowing implied certifications to go forward while limiting the scope. I do think these two factors that were set forth were a good way to limit it.”
With Rose, the view taken on implied certification has been widened, creating more concern for government contractors and the opportunity to be liable for claims under the False Claims Act.
“Basically, it means any violation of any regulation that you require that is not material to the government payments decision is enough to bring a False Claims Act case whether or not there was any specific misrepresentation made by the defendants,” said Cenawood. “That’s exactly the sort of concern that the Supreme Court was trying to address when it set forth this two-part test and I think it probably goes beyond what the Supreme Court expected when it rendered its decision.”