Ninth Circuit Clarifies Implied-Certification Claims Test Under the FCA

Health Highlights

Recent Ninth Circuit case law created uncertainty about the requirements for establishing an implied false certification claim following the Supreme Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). Last month, the Ninth Circuit resolved that uncertainty in United States ex rel. Rose v. Stephens Institute, No. 17-15111, 2018 WL 4038194 (9th Cir. Aug. 24, 2018). It held that the two-part test for falsity set forth in Escobar must be satisfied in all implied-certification cases. That test is more stringent than the one the Ninth Circuit had previously articulated. As a result, the holding in Rose will assist entities that submit claims to government payers such as Medicare and Medicaid in defending against implied-certification claims.


In Rose, former admissions representatives at the Stephens Institute, dba Academy of Art University (the University), an art school in San Francisco, alleged that the University had violated the incentive-compensation ban, which is set forth in a federal statute and regulation as well as the University’s program-participation agreement with the Department of Education. The incentive-compensation ban prohibits schools from rewarding admissions officers for enrolling higher numbers of students. According to the relators, the University violated the ban by tying a portion of admissions representatives’ compensation directly to the number of students enrolled.

The district court denied the University’s summary judgment motion on May 4, 2016. After the United States Supreme Court decided Escobar just one month later, the school sought reconsideration. The district court declined to reconsider its ruling, but it certified certain questions concerning Escobar’s impact for interlocutory appeal.

Overview of the False Claims Act

The False Claims Act imposes liability on anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1)(A). A successful False Claims Act claim requires “(1) a false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due.” United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1174 (9th Cir. 2006). 

The False Claims Act’s falsity requirement can be satisfied in one of two ways. The first is by express false certification, which “means that the entity seeking payment [falsely] certifies compliance with a law, rule or regulation as part of the process through which the claim for payment is submitted.” Ebeid, 616 F.3d at 998. The other is by implied false certification, which “occurs when an entity has previously undertaken to expressly comply with a law, rule, or regulation [but does not], and that obligation is implicated by submitting a claim for payment even though a certification of compliance is not required in the process of submitting the claim.”  Id. (emphasis added).            

Falsity: Escobar’s Two-Part Test Applies in All Cases

In Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010), the Ninth Circuit addressed the requirements for establishing a violation of the False Claims Act under an implied false certification theory. The court held that a relator must show that “(1) the defendant explicitly undertook to comply with a law, rule or regulation that is implicated in submitting a claim for payment and that (2) claims were submitted (3) even though the defendant was not in compliance with that law, rule or regulation.” Id. at 998.

Six years later, in Escobar, the Supreme Court held that “[t]he implied certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” 136 S. Ct. at 2001 (emphases added).

In Rose, the Ninth Circuit noted a potential conflict between those two holdings. Under Ebeid, a relator bringing an implied-certification claim could show falsity by pointing to noncompliance with a law, rule or regulation that is necessarily implicated in a defendant’s claim for payment. No specific representation about the claim for payment was required. In contrast, Escobar’s two conditions expressly require “specific representations about the goods or services provided,” coupled with failure to disclose noncompliance so as to “make[ ] those representations misleading half-truths.” Escobar, 136 S. Ct. at 2001.

The court in Rose stated that if it were “analyzing Escobar anew,” it doubted that decision would require it to overrule Ebeid, since “[t]he Court did not say that its two conditions were the only way to establish liability under an implied false certification theory.” 2018 WL 4038194, at *4 (emphasis in original). But the court believed its hands were tied by two post-Escobar Ninth Circuit cases.

The first case is United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325, 332 (9th Cir. 2017), in which the court considered only Escobar’s two-part test in determining whether the plaintiff’s implied false certification claim failed. The court did not consider whether the claim met the lower standard for falsity enunciated in Ebeid. The second case is United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017). There, the court noted that Escobar “‘clarif[ied] some of the circumstances in which the False Claims Act imposes liability’ under [an implied false certification] theory.” Id. at 901 (emphasis added) (quoting Escobar, 136 S. Ct. at 1995). But the court then characterized Escobar as holding “that although the implied certification theory can be a basis for liability, two conditions must be satisfied.” Id. (emphasis added) (citing Escobar, 136 S. Ct. at 2000). 

The Rose court found that these two prior Ninth Circuit decisions require a relator to satisfy Escobar’s two conditions. Moreover, the court was bound by those three-judge panel opinions. As a result, the court concluded that “[r]elators must satisfy Escobar’s two conditions to prove falsity, unless and until our court, en banc, interprets Escobar differently.” 2018 WL 4038194, at *4.

While this holding is generally favorable to defendants, the panel upheld the district court’s denial of the University’s motion for summary judgment in the case before it. The court concluded that the evidence was sufficient to create an issue of material fact as to whether the University’s actions met the two Escobar requirements. In a Federal Stafford Loan School Certification form, the University had certified that the student applying for federal aid was an “eligible borrower” and was “accepted for enrollment in an eligible program.” Because the University did not disclose its violation of the incentive-compensation ban, the panel explained that the certification could be considered a “misleading half-truth.”


The court then split 2-1 on whether the alleged false certifications were material under Escobar. The majority concluded that a reasonable trier of fact could find that the violations were material because “the Department’s payment was conditioned on compliance with the incentive compensation ban, because of the Department’s past enforcement activities [against schools for violations of the incentive compensation ban], and because of the substantial size of the forbidden incentive payments.”

Judge N.R. Smith dissented. He emphasized that Escobar requires a “rigorous” and “demanding” inquiry into the government’s “likely or actual behavior” to determine whether the alleged misrepresentation was important to its decision to pay. Because the majority relied on evidence of how the government generally enforces the incentive-compensation ban—and not how the government would respond to the specific incentive-compensation-ban violations alleged—Judge Smith opined that the only real evidence supporting materiality was the fact that payment was conditioned on compliance with the ban. According to Judge Smith, that was not dispositive under Escobar


Rose has resolved the implied-certification standard in the Ninth Circuit following Escobar. But the panel did note the possibility of en banc review (and may have implicitly invited it), either in this case or in another confronting the issue. Additionally, other courts, including the Fourth Circuit, have endorsed a more expansive view of the implied-certification theory, similar to the one set forth in Ebeid. See U.S. ex rel. Badr v. Triple Canopy, Inc., 857 F.3d 174, 178 n.3 (4th Cir. 2017) (stating that it had “already answered” the question “left open” in Escobar by “holding that the Government pleads a false claim when it alleges a request for payment under a contract where the contractor withheld information about its noncompliance with material contractual requirements”). These conflicting interpretations could ultimately lead to Supreme Court review. For now, however, the Rose decision will be helpful to entities facing implied-certification claims.



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