cut the other way – for example, that the closing costs regulations were conditions of payment and essential to the bargain – as a reason for denying summary judgment and leaving materiality to be resolved by the factfinder at trial. 70 Several district courts have adopted similar approaches in healthcare cases, citing a need for discovery and a more thorough analysis of the underlying facts as a reason not to dismiss cases on materiality grounds at the pleading stage. For example, in U.S. ex rel. McIver v. ACT for Health, Inc. , the district court held that materiality had been plausibly alleged even though the government had continued to make payments to the defendant after learning about alleged violations of home health licensure requirements. 71 While the district court acknowledged that the continued payments could reflect a lack of materiality, it noted that discovery might evince additional evidence relevant to materiality – particularly concerning the nature of the government’s knowledge – and thus declined to dismiss the relator’s claims at the pleading stage. 72 Echoing this reasoning, in U.S. ex rel. Frey v. Health Management Systems , the district court
important to this conclusion was that the government had continued to pay the defendant’s claims despite having actual knowledge of the alleged violations. In other cases, however, courts have eschewed the “holistic” approach to materiality favoring a more searching focus on individual Escobar factors. And, in many of these cases – which are arguably more faithful to Escobar’s description of the materiality requirement as “rigorous” and “demanding” – courts have continued to cite the government’s continued payment of the defendant’s claims (or similar claims by other parties) as a reason for dismissing FCA claims.
Focusing on the government’s actual response to alleged regulatory violations, courts also dismissed several cases that involved purported violations of program conditions of participation because they would not automatically have resulted in the cessation of payments by the government.
emphasized that a relator cannot be expected “to know precisely the Government’s prosecutorial practices without the benefit of discovery,” and thus held that the relator’s materiality allegations survived a motion to dismiss. 73 As these cases illustrate, a more “holistic” approach to the materiality analysis usually benefits relators, but that is not always the case. For example, in U.S. ex rel. Foreman v. AECOM , the Second Circuit analyzed several Escobar materiality factors and reached
Several district courts have cited a need for discovery and a more thorough analysis of the underlying facts as a reason not to dismiss cases on materiality grounds at the pleading stage.
Take the district court’s decision in U.S. ex rel. Druding v. Care Alternatives , a case initially dismissed on falsity grounds but remanded to the district court by the Third Circuit. 75 On remand, the district court once again granted summary judgment for the defendant, but this time on materiality grounds. Emphasizing the “demanding” nature of the FCA’s materiality element, the district court held that the relators could not establish that element because “[n]othing in the record … suggest[ed] the Government ever refused any of [the defendant’s] claims” despite the government having received the allegedly flawed or inadequate documentation at issue. In reaching this decision, the district court specifically rejected the relators’ plea for it to apply “a holistic assessment of a falsehood’s capacity to affect the government’s payment decision.” In another example of this same reasoning, the district court in United States v. Boston Scientific Corp. granted summary judgment for a defendant while reasoning that even if certain of the defendant’s statements to the government were blatantly false, they were nonetheless immaterial to the approval of a U.S. Food and Drug Administration (FDA) application. 76 That was because the government had access to the true information yet still approved the medical devices in question. Likewise, focusing on the government’s actual response to alleged regulatory violations, courts also dismissed several cases that involved purported violations of program conditions of participation because they would not automatically have resulted in the cessation of payments by the government.
mixed conclusions about their weight and importance. 74 On balance, however, the Second Circuit held that the district court had correctly dismissed all but one of the relator’s claims because the overall picture suggested the alleged violations of contractual recordkeeping requirements “were not plausibly material to the government’s payment decision.” Most
70 In U.S. ex rel. Cimino v. IBM Corp. , 3 F.4th 412 (D.C. Cir. 2021), the D.C. Circuit reached much the same conclusion, but at the pleading stage. It held that although additional litigation might ultimately show that the government’s continued payment of claims refuted materiality, plausible allegations that the defendant’s misrepresentations were capable of affecting the government’s payment decision were sufficient to preclude dismissal under Rule 12(b)(6). 71 536 F. Supp. 3d 839 (D. Colo. 2021). 72 See also U.S. ex rel. Sirls v. Kindred Healthcare, Inc. , 517 F. Supp. 3d 367 (E.D. Pa. 2021) (surveying three different arguments by defendants about a lack of materiality but concluding none was independently sufficient to defeat materiality at the pleading stage). 73 2021 WL 4502275 (N.D. Tex. Oct. 1, 2021); see also U.S. ex rel. Menoher v. FPoliSolutions, LLC , 2021 WL 3513860 (W.D. Pa. Aug. 10, 2021) (holding materiality allegations were sufficient for pleading purposes while noting that the relator’s failure to provide examples of the government’s refusal to pay in similar situations, as well as the government’s decision not to intervene, were not dispositive). 74 19 F.4th 85 (2d Cir. 2021).
75
2021 WL 5923883 (D.N.J. Dec. 15, 2021).
76 2021 WL 3604848 (D. Minn. Aug. 13, 2021); see also U.S. ex rel. Yu v. Grifols USA, LLC , 2021 WL 5827047 (S.D.N.Y. Dec. 8, 2021) (granting motion to dismiss on materiality grounds because the government had not withdrawn FDA approval for the drug at issue even after learning about allegations that the defendants had concealed and falsified information to obtain the approval).
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