Third Circuit Confirms Government Knowledge Can Defeat Scienter And Materiality Requirements For False Claims Act Liability

In short

The Situation: In Spay v. CVS Caremark Corp., the Third Circuit became the latest court of appeals to hold that, in False Claims Act litigation, scienter can be lacking when the government has knowledge of "the facts underlying an allegedly false record or statement"—so long as the defendant has knowledge of the government's knowledge. The court further held that the formal materiality standard added to the FCA in 2009 merely clarified the preexisting, common-law materiality standard. Under Spay, case law construing the materiality standard codified in the current statute applies to older conduct that predated the formal standard's enactment.

Looking Ahead: Spay adds to a growing consensus that government knowledge can defeat both scienter and materiality in False Claims Act suits.