During this Supreme Court session, the Supreme Court ruled on two consolidated qui tam lawsuits, one against SuperValu and the other against Safeway, reviving them for the whistleblowers. The whistleblowers alleged that the supermarket and pharmacy chains overcharged government health care programs for prescription drugs, to the tune of hundreds of millions of dollars.
At issue in the two cases – U.S. ex rel. Schutte v. SuperValu Inc. and U.S. ex rel. Proctor v. Safeway, Inc. – the Supreme Court unanimously vacated and remanded lower-level decisions, giving the whistleblowers another chance to pursue their claims. The cases come from the companies’ attempts to match the $4 price that Walmart offers on many 30-day supplies of generic drugs. While the companies matched the discounted prices at their pharmacies, they reported to federal and state governments a higher “usual and customary” price when they sought reimbursement.
In the Safeway lawsuit, it was alleged that the company received $127 million more than it would have received at the discounted price. In the SuperValu case, it was said that the company matched Walmart’s discounted price 6.3 million times over the course of eleven years.
At issue was whether a defendant’s subjective belief is relevant in determining knowledge of whether its conduct was an objectively reasonable interpretation of the issue.
The Seventh United States Circuit Court of Appeals dismissed both qui tam suits, holding that their decisions to report the higher prices were not “objectively unreasonable” under the False Claims Act. Such a ruling could have meant that defendants would not be found liable under the False Claims Act so long as they could create an objectively reasonable interpretation after their actions – and even if they didn’t believe that interpretation.
Writing for the majority, Justice Clarence Thomas opined that the appeals court used the wrong standard. In a False Claims Act case, “what matters…is whether the defendant knew the claim was false.” He further said that the scienter elements in the False Claims Act refers to the “knowledge and subjective beliefs” of the defendants, “not to what an objectively reasonable person may have known or believed.”
In this case, Thomas stated that the whistleblowers showed that executives at the companies believed the discounted prices were the ones that should have been reported and took steps to hide the discounted prices from state and federal authorities. Thomas noted in his decision that if the defendants “correctly interpreted the relevant phrase [“usual and customary”] and believed their claims were false, then they could have known their claims were false.” However, he also said that the submission of the false claims may have been “a forgivable mistake if [they] had honestly read the phrase as referring to retail prices, not discounted prices,” but that it did not depend on whether “other people might make an honest mistake,” as the Seventh Circuit held, only whether the defendant believed such.
The Supreme Court did not ultimately rule on the case, however, instead remanding it for further proceedings to the Seventh Circuit Court of Appeals.