The U.S. Supreme Court will decide within the next few weeks whether to hear a False Claims Act (FCA) case that has garnered media attention because it involves alleged wrongdoing by Planned Parenthood. In Gonzalez v. Planned Parenthood of Los Angeles (No. CV 05-8818, C.D. Cal.), the relator alleged that Planned Parenthood knowingly overcharged the government for contraceptives it provided to low income individuals in California.
The issue in the case turns on the role of government knowledge as a defense to scienter, i.e., the notion that when the government knows about or approves of the billing practices at issue, the defendant does not knowingly or recklessly submit a false claim. In Gonzalez, the Ninth Circuit held that the district court properly dismissed the relator's claims because documents attached to the complaint showed that the government knew about Planned Parenthood's allegedly improper billing practices. These documents included correspondence between Planned Parenthood and the California Department of Health Services, in which Planned Parenthood candidly disclosed its billing practices (to which it received no response or contradiction), as well as a letter from the Department to Planned Parenthood explaining that it would not seek a refund from Planned Parenthood because the key term at issue was not defined, and because the Department was concerned that "conflicting, unclear, or ambiguous representations have been made to providers" with regard to the billing practices at issue. Accordingly, Planned Parenthood lacked the requisite scienter to establish a "knowing" submission of a false claim.
In seeking certiorari, the relator argued that there is a split between the Ninth Circuit and other circuits on the issue of government knowledge. While the relator did not dispute that a number of circuits held that government knowledge can refute allegations of knowledge or recklessness, the relator argued that the Ninth Circuit deviated from the approach taken by all other circuits by dismissing a case based on government knowledge at the pleadings stage, rather than at summary judgment.
On this issue, Planned Parenthood has the better argument. As Planned Parenthood noted in its opposition, numerous cases in numerous circuits have found that government knowledge is relevant to scienter under the FCA. The Ninth Circuit's decision merely follows a long line of cases standing for this principle. While it is true that the Ninth Circuit dismissed the case at the pleadings stage, it did so because the complaint (including evidence contained in documents the relator attached to the complaint) permitted such a dismissal. The Court found that this evidence "fatally undercut" the relator's allegation that Planned Parenthood "knowingly" submitted false claims. Accordingly, the relator did not state a "plausible" claim under Federal Rule of Civil Procedure 8(a).
Such compelling evidence is not often available at the pleading stage, so it is unsurprising that in many cases the government knowledge issue is not in play until later stages of the litigation. Yet the availability of such evidence here—provided by relator himself in connection with his complaint—was sufficient to warrant dismissal.
In sum, while the government knowledge issue arose at a procedurally early point in Gonzalez, it is not an issue worthy of the Supreme Court's attention. It is well-established that government knowledge can undermine an FCA claim. Whether it does so, turns on the specific facts of each case. In Gonzalez, those facts were set forth in documents that the relator himself attached to his complaint.
We will continue to monitor this case and will provide a further update if the Supreme Court grants cert.
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