Will courts clarify the implied false certification theory? Ninth Circuit holds that the Supreme Court established a mandatory test, but the issue remains unsettled

Legal Sidebari

Will courts clarify the implied false
certification theory? Ninth Circuit holds that
the Supreme Court established a mandatory
test, but the issue remains unsettled
September 7, 2018
On August 24, 2018, the U.S. Court of Appeals for the Ninth Circuit became the latest circuit court to
weigh in on one of the most disputed areas of False Claims Act (“FCA”) jurisprudence—the implied false
certification theory. In United States ex rel. Scott Rose v. Stephens Institute, a panel of judges for the
Ninth Circuit held that the U.S. Supreme Court’s landmark 2016 decision, United Health Servs., Inc. v.
Escobar, established a mandatory two-part test for prevailing under the theory. However, several district
courts in other circuits have reached the opposite conclusion and held that Escobar’s test is not required;
further, the court in Stephens Institute suggested that its decision was compelled by Ninth Circuit
precedent rather than Escobar itself. Consequently, the scope of implied false certification liability will
likely remain uncertain unless and until the Supreme Court provides further guidance or Congress passes
a clarifying amendment to the FCA.
Implied False Certification Liability
The FCA is a Civil War-era statute that imposes liability on any person who “knowingly presents, or
causes to be presented,” to the United States or its representatives a “false or fraudulent claim for payment
or approval.” Over time, the statute has become the federal government’s primary weapon in combating
fraudulent claims to the federal purse. Yet despite its longevity and significance, key issues regarding its
application remain unclear. In particular, liability under the implied false certification theory has proven
to be one of the more controversial developments in FCA jurisprudence.
The implied false certification doctrine, as articulated by some courts, provides that FCA liability may
arise when a person requests payment for his services but fails to disclose his noncompliance with a
statutory, regulatory, or contractual requirement relevant to his eligibility for payment; the rationale is that
the claim for payment is false because the submission of the claim itself is an implicit certification of
compliance with the violated legal provision. It can be contrasted with the less controversial theory of
express false certification liability. As courts have explained, express false certification liability arises
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when the claim for payment includes an explicit, yet false, certification that the person complied with a
legal requirement.
Prior to Escobar, U.S. circuit courts diverged on whether and how the implied false certification theory
could create liability under the FCA. The U.S. Court of Appeals for the Seventh Circuit rejected the
theory outright, and those courts that adopted it differed on how it should be applied. Some courts, such
as the U.S. Court of Appeals for the Second Circuit, concluded that it should be limited to cases where the
defendant fails to disclose a violation of a provision that is an express condition of payment under the
government contract or program. Others, such as the U.S Court of Appeals for the D.C. Circuit, rejected
this restriction and held that the violated provision need only be material to the claim for payment.
Consequently, Escobar was highly anticipated by many in the hopes that it would bring clarity to this area
of the law. However, while the Supreme Court conclusively held that the implied false certification theory
is valid, its opinion continues to raise questions regarding the scope of the theory.
Escobar’s Two-Part Test
In Escobar, the Court explained that implied false certification liability can be established when two
conditions are satisfied: (1) the claim for payment “makes specific representations about the goods or
services provided”; and (2) “the defendant’s failure to disclose noncompliance with material statutory,
regulatory, or contractual requirements makes those representations misleading half-truths.” In one
respect, this test is less restrictive than some of the standards previously established by circuit courts
because it does not require that the statutory, regulatory, or contractual provision at issue be an express
condition of payment. Yet, in another respect, it is more restrictive because it requires that the claim
includes a specific representation, which is a condition that did not exist in prior standards.
However, the opinion also contains language suggesting that the Court did not intend the test to cover
definitively all circumstances in which implied false certification liability might arise. Specifically, the
Court wrote that liability can be established “at least” when both conditions in the two-part test are met. It
also stated that it “need not resolve whether all claims for payment implicitly represent that the billing
party is legally entitled to payment” because the “claims in this case do more than merely demand
payment” and “fall squarely within the rule that half-truths . . . can be actionable misrepresentations.”
These qualifiers appear to leave open the possibility that claims can still lead to implied false certification
liability if they simply request payment and do not contain specific representations.
Divergence in the Lower Courts
Shortly after the Supreme Court’s decision, lower courts began to grapple with the mandatory nature of
the Escobar test. The qualifying language in the Court’s opinion led several district courts to conclude
that the two-part test is not the exclusive means for establishing implied false certification liability. For
instance, district courts in the U.S Courts of Appeals for the Ninth Circuit, D.C. Circuit, and Second
Circuit all held that meeting Escobar’s two-part test is not required. These decisions pointed to the
Court’s use of the phrase “at least” and its statement that it “need not resolve” whether all claims
implicitly represent that the party is entitled to payment. In contrast, some district courts have treated the
two-part test as compulsory without explicitly analyzing the issue. For instance, a district court in the
U.S. Court of Appeals for the Eleventh Circuit wrote that the plaintiff “must” allege both conditions in
Escobar’s test, but it did not discuss Escobar’s qualifying language or analyze its import.
Before Stephens Institute, this issue was primarily addressed at the district court level with little direction
from federal appellate courts. However, importantly for the resolution of Stephens Institute, two opinions
issued in 2017 by the U.S. Court of Appeals for the Ninth Circuit seem to treat the Escobar test as
indispensable. On January 12, 2017, a three-judge panel writing for the Ninth Circuit held that a plaintiff
could not establish implied false certification liability under Escobar’s two-part test because the
defendant’s claims for payment did not include any specific representations. Several months later, another
Ninth Circuit panel similarly wrote that the “two conditions [of the Escobar test] must be satisfied.” As

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with the district courts reaching similar conclusions, these opinions appear to view the test as mandatory
without directly tackling the issue.
Stephens Institute and its Impact
In Stephens Institute, a panel of three judges writing for the Ninth Circuit took the circuit’s prior decisions
a step further and explicitly held that Escobar’s two-part test is mandatory. However, the panel made
clear that its decision was based on prior Ninth Circuit precedent rather than Escobar itself. It wrote that
it would likely reach a different conclusion were it “analyzing Escobar anew” because “the Court did not
state that its two conditions were the only way to establish liability under an implied false certification
theory.” Yet, it recognized that its prior opinions “appear to require Escobar’s two conditions
nonetheless” and concluded that it is bound by those opinions “unless and until our court, en banc,
interprets Escobar differently.”
At least in the near term, Stephens Institute firmly establishes the required nature of Escobar’s two-part
test within the Ninth Circuit. This development will likely be bad news for plaintiffs and welcome news
for defendants. As the court in Stephens Institute acknowledged, Escobar’s two-step test is a stricter
standard than pre-Escobar Ninth Circuit law, which simply asked whether the defendant was
noncompliant with a law, rule, or regulation that is “necessarily implicated” in the claim for payment.
Nonetheless, if the Ninth Circuit follows the panel’s nudge and rehears the matter en banc (i.e., before all
the judges rather than a panel), the state of the law in the Ninth Circuit could change. As Stephens
Institute and other courts have recognized, the qualifying language in Escobar provides an argument that
the Court did not intend for its two-part test to encompass the exclusive bounds of implied false
certification liability. Thus, an en banc court may very well overturn the prior panel decisions.
The Ninth Circuit aside, on the national level Stephens Institute far from resolves the nature of Escobar’s
two-part test. As mentioned, several lower courts in other circuits have held that the test is not mandatory;
these courts are not bound by Stephens Institute, and, indeed, the reasoning of the Ninth Circuit’s opinion
supports their holdings. The decision does create, however, an opportunity for a circuit split, which could
prompt Supreme Court review. Should a different federal appeals court conclude that Escobar’s two-part
test is not required, the Supreme Court might intervene to resolve the split. Alternatively, the scope of
implied false certification might also be solved through Congress passing a clarifying amendment to the
FCA. Absent either of these developments, this area of the law will likely remain unsettled for the
foreseeable future and create uncertainty for litigants and potential litigants in the FCA arena.


Author Information

Chris D. Linebaugh

Legislative Attorney

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