The False Claims Act holds a defendant liable when it submits a claim to the government for goods or services that run afoul of a requirement or condition, usually listed in an underlying contract, regulation, or law. For years, in the Fourth Circuit, fraudsters have been able to evade False Claims Act liability if they could convince the Court that a particular condition or requirement violated, was not an explicit condition of payment spelled out in the claim submission form. In January 2015, the Fourth Circuit closed this supposed liability loophole when it joined the majority of circuits in embracing the “implied certification” theory of liability.

Like most courts, the Fourth Circuit stressed that the particular requirement or condition must still be “material” for FCA liability to attach. However, the Court determined that the government need only show that nonconformance with the requirement had the “natural tendency to influence, or be capable of influencing, the government’s decision to pay.” Importantly, under this “natural tendency” materiality standard, the plaintiff need not show that the government would have actually stopped paying the defendant if it had known of the noncompliance.

The Fourth Circuit even went one step further in this case, and noted that the defendants’ knowledge of the materiality can be suggested by the defendants’ efforts to hide its noncompliance. According to the court, “If Triple Canopy believed that the [ ] requirement was immaterial to the Government’s decision to pay, it was unlikely to orchestrate a scheme to falsify records on multiple occasions.”

In the wake of this decision, several False Claims Act defense law firms blasted the internet with client alerts, warning that the Fourth Circuit had “established a new and potentially significant False Claims Act precedent.” They are correct, for FCA liability now clearly attaches to those who knowingly seek payment for products or services that fall short of material requirements, and materiality and knowledge may be evidenced by defendants’ efforts to cover up its noncompliance.

More information for whistleblowers is located at the Nolan Auerbach & White website.