Circuit Court Signals Potential Impacts of Escobar

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Lower courts have begun grappling with the implications of the U.S. Supreme Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar.

In U.S. ex rel. Sheet Metal Workers International Association v. Horning Investments, LLC, a union filed a qui tam lawsuit against Horning Investments, LLC. Horning, a roofing company, was acting as a subcontractor for a construction project for the U.S. Department of Veterans Affairs. The union claimed that Horning violated the False Claims Act by failing to pay union workers in accordance with the Davis-Bacon Act. Under the Davis-Bacon Act, contractors who are performing construction projects for the federal government must pay their workers the “prevailing wage,” a number that changes based on a number of factors, including regions.

Horning created a trust for its employee insurance benefits and deducted a portion of employee wages to go into the trust. The relators claimed this deduction violated the Davis-Bacon Act, but chose to pursue its relief under the False Claims Act. The relators posited that Horning’s submission of certified payroll reports and applications for payment, which included the allegedly false statement that Horning was paying prevailing wage rates to its employees, directly violated the False Claims Act. Horning moved for summary judgment on the basis that, among other things, the company did not have the requisite knowledge that its statements were false for False Claims Act liability to attach. The district court granted Horning’s motion, and the union appealed.

The Seventh Circuit identified three elements the union would have to prove to defeat the grant of summary judgment: (1) that Horning made a statement in order to receive money from the government; (2) that the statement was false; and (3) that the defendant knew the statement was false. The court conceded that the union proffered sufficient evidence to meet the first element. However, noting that it was not clear whether Horning’s actions would qualify as the kind of “implied false certification” the Supreme Court contemplated in Escobar, the court found that the determination of whether the statement was indeed false was “less certain.” Ultimately, the court did not address this issue further or solicit briefing on the impact of Escobar, instead finding that the union failed to demonstrate that Horning knew its statement was false.

The decision provides interesting insight into the possible legacy of Escobar. The Seventh Circuit’s uncertainty demonstrates the ways the decision may have muddied the waters around implied certification theory. Prior to Escobar, the Seventh Circuit previously did not recognize the implied certification theory as a viable theory of liability under the False Claims Act. Thus, the Seventh Circuit is in new territory when it comes to the False Claims Act, and its decision in Horning suggests some reticence to begin interpreting Escobar before other courts have weighed in.

Other courts will have to contend with Escobar as well. This blog will continue covering decisions that address or interpret Escobar since such decisions will help solidify the definition of falsity and the scope of the implied certification theory of liability under the False Claims Act.