Eighth Circuit Decision Suggests Supreme Court's Rejection of "Objectively Reckless" Test in Patent Case Leaves Intact Safeco's "Objectively Reasonable" Test for False Claims Act Knowledge
Courts finding that FCA defendants lacked knowledge sufficient to impose liability have frequently cited the Supreme Court’s holding in Safeco Insurance Company of America v. Burr, that where there is more than one objectively reasonable interpretation of a statute, regulation, etc., a defendant cannot be found to have acted knowingly or recklessly. 551 U.S. 47, 68-71 (2007). Importantly, Safeco also establishes that where a defendant’s interpretation was objectively reasonable, the court need not consider the defendant’s subjective knowledge, id. at 71 n.20, paving the way for a court to dismiss a case before discovery has begun. Safeco arose in the context of the Fair Credit Reporting Act, which similar to the FCA, requires a showing of either a knowing violation or acting with reckless disregard for liability.
The Supreme Court in Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S. Ct. 1923 (2016), unanimously abrogated the Federal Circuit’s “objectively reckless” two-part test from another case, In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007), for determining whether patent infringement is willful such that it merits treble damages. While at first blush Halo’s holding seems inconsistent with the helpful standard for knowledge in Safeco, a recent Eighth Circuit case suggests that Halo leaves the Safeco standard intact.
The Seagate court relied at least in part on Safeco and held that a court must first conclude that the infringer acted with objective recklessness before it could consider the infringer’s actual understanding of the patent. 497 F.3d at 1371. The Supreme Court in Halo determined that the Seagate test was too rigid in the patent context because it prohibited courts from enhancing damages where a “wanton and malicious pirate” intentionally infringes on a patent but later presents a made-for-litigation objectively reasonable interpretation of the patent that might have allowed his conduct. Halo Elecs., 136 S. Ct. at 1932 (internal citation and quotation marks omitted).
In the recent Eighth Circuit FCA case, the government (as amicus) and relator argued in Rule 28(j) letters to the court that under Halo the court must consider the defendant’s subjective state of mind at the time it submitted the alleged false claims. In contrast, the defendant argued that Halo’s patent-specific analysis is not germane to the FCA knowledge inquiry. Ultimately, the Eighth Circuit held that under Safeco, the defendant did not act knowingly because it had an objectively reasonable interpretation of an ambiguous regulation and relator had not produced any evidence that at the time the defendant submitted the claim, there was government guidance that “warn[ed] a regulated defendant away from an otherwise reasonable interpretation.” United States ex rel. Donegan v. Anesthesia Assoc. of Kansas City, PC, No. 15-2420, 2016 WL 4254939 (8th Cir. Aug. 12, 2016) (citing United States ex rel. Purcell v. MWI Corp., 807 F.3d 281 (D.C. Cir. 2015)).
Post-Halo, in addition to the recent Donegan case, other litigants have continued to cite Safeco in arguing that a defendant’s objectively reasonable interpretation of ambiguous statutes or regulations can defeat the FCA’s knowledge requirement. See, e.g., Brief for Appellee CVS Caremark Corp., United States ex rel. Spay v. CVS Caremark Corp., No. 15-3548, 2016 WL 4055506, at *57-59 (3d Cir. July 25, 2016); Brief for Appellant Trinity Indus., United States ex rel. Harman v. Trinity Indus., Inc., No. 15-41172, 2016 WL 3970399, at *23 (5th Cir. July 21, 2016); Brief for Appellee Accredo Health at 43, United States ex rel. Lager v. CSL Behring L.L.C., No. 16-1452, 2016 WL 3438361 (8th Cir. June 17, 2016). LLB will continue to monitor whether and if so how courts apply the Safeco knowledge standard in FCA cases post-Halo.