For more information about this blog post, please contact Michael P. O'Mullan, Charles B. McKenna, or Labinot Alexander Berlajolli.

The Supreme Court of the United States (“SCOTUS”) started the month of June with a major decision clarifying the standard for liability under the False Claims Act (“FCA”) and effectively killing the objectively reasonable Safeco standard that had been adopted by every Circuit Court that had addressed the issue, including the Seventh Circuit. See United States ex rel. Proctor v. Safeway, Inc., 30 F.4th 649 (7th Cir. 2022) and United States v. SuperValu Inc., 9 F.4th 455 (7th Cir. 2021).

Whistleblowers sued Safeway Inc. and SuperValu Inc. alleging that they offered prescription drugs at discounted prices to customers while charging higher rates to the government in violation of federal law, which requires pharmacies to bill Medicare and Medicaid at the same prices as the general public under the pharmacy’s “usual and customary” rate.  The pharmacies in each case argued that the Medicare and Medicaid billing requirements were unclear and their conduct was supported by an “objectively reasonable” reading of the law. The Seventh Circuit, adopting the “objectively reasonable” standard from Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), agreed and held that neither pharmacy acted with the requisite scienter because they made an “objectively reasonable” interpretation of an ambiguous policy.

SCOTUS rejected the “objectively reasonable” standard adopted by the Seventh Circuit and applied in Safeway and SuperValu, and unanimously held that the plain text of the FCA's “knowledge” standard required an assessment of a defendant's subjective beliefs about potential wrongdoing as opposed to determining what an objectively reasonable person may have known or believed. Since the Seventh Circuit applied the wrong standard, SCOTUS vacated the judgments in both Safeway and SuperValu. The full opinions are here.