According to the court, the relevant inquiry for purposes of determining materiality is the effect on the likely or actual behavior of the recipient of the allegedly false statement. Thus, a misrepresentation is material if a reasonable person would be induced to act on the statement or if the party making the statement either knew or had reason to know that the recipient of the statement attached special importance to the omitted information such that the recipient would be induced to act. The court described the materiality requirement as “demanding.” It observed that the requirement would not be satisfied merely because the government designated compliance as a condition of payment or if the government would have the option of declining payment if it knew of the noncompliance or if the noncompliance is minor or insubstantial. In this regard, the court stated the proof of materiality may lie in the actual consequences of noncompliance. If the government routinely pays a particular claim notwithstanding actual knowledge that the claimant violated certain requirements, this would be strong evidence that compliance (or the failure to disclose noncompliance) is not material.

If, on the other hand, the claimant is aware that the government consistently refuses to pay claims based on noncompliance with a particular regulatory requirement, this would be strong evidence that compliance with the requirement (or the failure to disclose noncompliance) is material. What Will the Future Hold? The Escobar decision harmonizes the law among the circuits with respect to the applicability of the implied false certification theory under the FCA. The decision expands the scope of what constitutes a false or fraudulent claim under the FCA to include the failure to disclose noncompliance with statutory, regulatory, or contractual requirements, to the extent that such noncompliance is material to deciding whether to pay the claim. The decision abandons whether regulatory compliance is a “condition of payment” as dispositive on the issue of materiality in favor of a potentially much more factually intensive inquiry.

Because materiality will turn on specific facts, this may make it more difficult for defendants to get FCA claims dismissed on a dispositive motion, but it also may make it more difficult for plaintiff to prove that a particular requirement is material. Minneapolis, MN | St. Cloud, MN | Washington, DC | Fargo, ND © 2016 Gray Plant Mooty | gpmlaw.com .