The U.S. Supreme Court’s decision in Loper Bright Enterprises v. Raimondo marked a pivotal shift in administrative law by ending the longstanding doctrine of Chevron deference. This change, which limited judicial scrutiny of agency interpretations of ambiguous statutes, has significant implications for how courts approach complex regulatory issues—particularly in False Claims Act (FCA) cases. For defendants facing liability under the FCA, the end of the Chevron deference could offer new avenues to challenge the materiality of regulatory violations in these cases.
The Shift in Chevron Deference and Its Implications for FCA Cases
Before Loper Bright, when a statute was silent or unclear on a given issue, courts were generally required to defer to the agency’s interpretation of the law as long as it was deemed a “permissible construction.” This doctrine, known as Chevron deference, meant that even if a court disagreed with an agency’s interpretation, it would largely accept the agency’s judgment.
However, the Loper Bright decision overturned this precedent. The Court ruled that courts must take a more active role in interpreting statutes, ensuring that agencies do not exceed their statutory authority. This represents a major shift in how courts view agency interpretations, especially in cases where an agency’s regulatory guidance is at issue.
In the context of the FCA, this change could affect how courts evaluate the materiality of regulatory violations. In cases where liability hinges on the interpretation of an agency’s regulations, defendants may now have more tools to argue that the agency’s interpretation does not carry the weight of law, and therefore cannot be used to support FCA claims.
FCA Materiality: The Heart of False Claims Liability
The False Claims Act imposes liability on individuals or entities who knowingly submit false or fraudulent claims for payment from the government. One of the key elements of FCA liability is materiality. Under 31 U.S.C. § 3729, a claim is considered false or fraudulent if it involves a “false record or statement material to a false or fraudulent claim” for payment from the government.
In 2016, the U.S. Supreme Court clarified the materiality standard in Universal Health Services v. U.S. ex rel. Escobar. The Court held that a regulatory or contractual requirement is not automatically material simply because it is labeled a “condition of payment” by the government. Instead, the key question is whether the defendant knowingly violated a requirement that was so central to the government’s decision to pay the claim that the government would not have paid it had it known of the violation.
This standard, which requires proof of the centrality of the regulation to the government’s decision-making process, has made it more challenging for relators (whistleblowers) and the government to establish materiality based on technical or minor regulatory breaches.
Loper Bright and Materiality Under the FCA
Now, with the Loper Bright decision in hand, FCA defendants have an additional argument: that the interpretation of an agency regulation may not meet the Escobar standard for materiality, particularly if that interpretation does not have the force and effect of law.
In the past, courts might have deferred to an agency’s interpretation of ambiguous regulations under Chevron deference. In such cases, even if the agency’s interpretation was not strictly binding, courts would often allow it to shape the outcome of FCA cases. But in the wake of Loper Bright, courts are no longer required to give such deference. Instead, courts must evaluate whether the agency’s interpretation truly falls within its statutory authority and whether it has the power to enforce the regulation in question.
This could have a direct impact on FCA cases involving interpretive rules—those rules that reflect an agency’s interpretation of a statute or regulation, but do not carry the same legal weight as substantive rules. Historically, courts have struggled with the question of whether violations of such interpretive rules could give rise to FCA liability, with some courts holding that they could, and others suggesting they could not.
The Role of Interpretive Rules and Their Materiality
The central issue here is whether an agency’s interpretive rule—rather than a substantive or legislative rule—can be considered material to a government decision to pay a claim under the FCA. Interpretive rules merely provide guidance on how an agency interprets existing law or regulations, but they do not have the same legal force as substantive rules.
For instance, in its 2019 decision in Kisor v. Wilkie, the Supreme Court held that interpretive rules could not form the basis of an enforcement action because they do not impose legally binding requirements on private parties. In other words, an interpretive rule, while offering valuable guidance, does not have the same weight as a substantive rule, which has the force and effect of law.
If a defendant violates an interpretive rule, it could still potentially be liable under the FCA if that violation is shown to be material to the government’s decision to pay a claim. However, this could be a much harder argument to sustain post-Loper Bright. Defendants might now argue that an interpretive rule, by its nature, lacks the binding legal authority needed to establish materiality under the FCA.
The Analogy: The Fox and the Grapes
To understand this shift, consider Aesop’s fable of The Fox and the Grapes. In the story, a fox sees a bunch of grapes hanging high on a vine and desperately tries to reach them. After numerous failed attempts, the fox gives up and declares that the grapes are probably sour anyway, suggesting that they were never worth the effort.
Before Loper Bright, courts were often like the fox, reaching for regulatory interpretations offered by agencies without questioning whether those interpretations were truly necessary or appropriate. They accepted that, just as the grapes were always out of reach, the agency’s interpretation must be taken as law, regardless of its true relevance to the case at hand.
With Loper Bright, the judicial attitude has changed. Now, courts must question whether the “grapes” of regulatory interpretation are truly worth the reach, and whether they are indeed central to the government’s payment decision. If the grapes are not as valuable as they seem, or if the agency’s interpretation is not within its proper authority, then the court may well decide they are not worth pursuing.
Conclusion: A New Era for FCA Defendants
Loper Bright opens a new chapter for False Claims Act litigation. By ending Chevron deference, the Supreme Court has empowered courts to scrutinize agency regulations more closely, particularly when it comes to the materiality of violations under the FCA. Defendants now have a stronger foundation for challenging the materiality of regulatory violations, especially when those violations stem from interpretive rules that lack the force of law.
The upshot without the legalese? By not deferring to agency decisions, Medicare and Medicaid providers have slightly skewed the tilt of power in their direction.