Baron & Budd whistleblower attorney Noah Rich recently wrote an article for the University of Cincinnati’s Law Review, titled “The Common-Law Roots of Materiality Under the False Claims Act.” In the article, Rich details the long, winding, and complicated history of “materiality,” a term used to describe whether a falsehood or omission is important enough to be punishable. The issue of materiality has plagued courts for centuries, with judges and litigants struggling to define materiality and determine when a misstatement is actionable under the law. Although the courts generally reached a consensus regarding the issue of materiality decades ago, cases interpreting the FCA have lagged behind.

Landmark Case Leaves More Questions Than Answers

The landmark 2009 FCA suit in a case known as Escobar, argues Rich, was meant to provide clarity on this matter, but only muddied the waters further. The case involved the death of Yarushka Rivera, a young woman who perished while receiving treatment from a mental health clinic that fraudulently certified its staff’s credentials to receive Medicaid reimbursements. In the suit, the young woman’s family contended that if the government had known it was being billed for care provided by unlicensed and unqualified individuals, it would have refused to pay for not only Rivera’s treatment, but the treatment of numerous other patients. In its decision, the Supreme Court agreed with the established test in common law: a misstatement is material if it has a natural tendency to affect, or is capable of affecting, the hearer’s actions—irrespective of the actual effect of the misstatement. The Supreme Court then identified several factors that could assist the lower courts in deciding the issue of materiality under the FCA.

A Path Forward for Clarity on Materiality

Unfortunately, according to Rich. jurists and litigants have often misinterpreted Escobar, at times applying its materiality inquiry to displace, rather than complement, the precedent on which it relied. Because of this, lower courts have failed to apply the straightforward materiality standard uniformly applied in other contexts and instead solely rely on the factors laid out in Escobar, which, on their own, leave more questions than answers. And in some instances, courts have relied on a misquotation of Escobar to impose a standard that rules out an FCA suit unless a litigant can prove that the falsehood actually affected a hearer’s decision—a far more stringent standard than the common-law consensus that a misstatement must only have a tendency to affect a hearer’s actions. Such a misreading of Escobar may wrongly discourage suits that expose genuinely fraudulent activity. By returning to the common-law roots of materiality, argues Rich, Escobar can be understood in its proper context and used to empower litigants and jurists to rein in the type of fraud that drains taxpayer funds.

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