Government knowledge no longer serves as an absolute bar to False Claims Act (“FCA”) actions as it did in the past. Now, the focus is on the defendant’s state of mind. Courts consider whether at the time of submitting the false claims to the government, the defendant fully cooperated and shared all information as to the claims, sufficient to show that the defendant did not intend to trick the government. If the defendant did not fully communicate and cooperate with the government, then the defendant is not entitled to the “government knowledge inference” in refuting scienter (intent or knowledge of wrongdoing).
Fraud Went Unprosecuted Prior to the 1986 Amendments to the False Claims Act
Prior to the 1986 amendments to the FCA, most qui tam cases were dismissed based on a broadly-applied government knowledge bar. As a result, fraud against the government skyrocketed and went unprosecuted. With the 1986 amendments to the Act, Congress repealed the absolute government knowledge defense. Since that time, courts have instead applied a much narrower government knowledge inference.
The Government Knowledge Inference Only Applies in the Rare Cases of Defendant’s Complete Communication and Cooperation With the Government
As seven different Circuit Courts have ruled, the government knowledge inference applies only in those rare cases where the defendant has completely communicated and cooperated with the government regarding its conduct and false claims. See United States v. Bollinger, 775 F.3d 255, 264 (5th Cir. 2014), United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Grp., Inc, 400 F.3d 428, 454 n.21 (6th Cir. 2005); United States ex rel. Becker v. Westinghouse Savannah River Co., 305 F.3d 284, 289 (4th Cir. 2002); Shaw v. AAA Eng’g. & Drafting, Inc. 213 F.3d 519, 534 (10th Cir. 2000); United States ex rel. Durcholz v. FKW Inc., 189 F.3d 542, 544-45 (7th Cir. 1999); United States ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1157 (2d Cir. 1993); United States ex rel. Hagood v. Sonoma Cnty. Water Agency, 929 F.2d. 1416, 1421 (9th Cir. 1991).
Government Knowledge Inference Does Not Automatically Negate Scienter
Moreover, even in those unusual circumstances where there has been complete communication and cooperation from the defendant, the government knowledge inference functions not as an absolute defense, as during the pre-1986 Amendment time period, but rather as one of the ways in which a defendant may try to rebut scienter. See Bollinger, 775 F.3d at 264 (holding that the government knowledge inference “serves simply as a factor weighing against the defendant’s knowledge, as opposed to a complete negation of the knowledge element.”).
A defendant is liable under the FCA if the defendant has knowledge (i.e., acts with deliberate ignorance or reckless disregard) that its claims are false. In analyzing a defendant’s knowledge of the falsity of its claims, the Courts have looked to whether the defendant “completely cooperated and shared all information” with the government as to the facts underlying its false claims sufficient to show the defendant lacked the requisite intent to deceive. Shaw, 213 F.3d at 534 (quoting United States ex rel. Butler v. Hughes Helicopters, Inc., 71 F.3d 321, 327 (9th Cir. 1995))). The focus of the Court’s inquiry remains on the defendant’s knowledge and not on the government’s. See United States v. Incorporated Village of Island Park, 888 F. Supp. 419, 442 (E.D.N.Y.1995) (“[T]he government’s knowledge as to the falsity of a claim does not automatically bar the claim for a False Claim Act violation”).
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