Eighth Circuit Decision May Protect FCA Defendants

“Falsity” is the hallmark of any False Claims Act (FCA) case. The government and FCA whistleblowers routinely bring FCA cases predicated upon underlying violations of the Anti-Kickback Statute, based on the theory that a kickback “taints” all claims and renders them all false. The “tainted claim” theory of FCA liability has proven attractive to the government and whistleblowers because it purportedly does not require proof of falsity on a claim by claim basis. A recent Eighth Circuit decision may upend all that and provide some protection to FCA defendants in cases based on Anti-Kickback Statute violations.

In U.S. ex rel. Cairns v. D.S. Medical LLC, the Eighth Circuit reversed an FCA trial verdict against a neurosurgeon and a medical device distributor based on underlying Anti-Kickback Statute violations. The court focused on well-established 2010 amendments to the Anti-Kickback Statute that added a method to establish a false or fraudulent claim: “a claim that includes items or services resulting from a violation of this section [of the Anti-Kickback Statute] constitutes a false or fraudulent claim for purposes of [the FCA].” Congress’s 2010 amendment led to more questions about the requisite level of causation the government or whistleblower must prove to show that an item or service is “resulting from” an Anti-Kickback Statute violation. In Cairns, the Eighth Circuit held that the phrase “resulting from” requires but-for causation.

In Cairns, the trial court provided the following jury instructions: “it is enough for the United States to show that the claim failed to disclose the Anti-Kickback Statute violation.” The defendants appealed, arguing, among other things, that the jury instruction misconstrued what the government must show to prove an item or service is “resulting from” an Anti-Kickback Statute violation. The government maintained that “all that is required is that the illegal kickbacks ‘tainted’ the ‘claim[] for goods or services’ or the anti-kickback ‘violation itself may have been a contributing factor.’” The Eighth Circuit disagreed, finding that the phrase “resulting from” requires the government to establish but-for causation in order to prove a false claim.

In reaching its decision, the court relied on the Supreme Court’s interpretation of the phrase “results from” in the Controlled Substances Act in Burrage v. U.S. Since Burrage found that the phrase “results from” required a showing of but-for causation, the Eighth Circuit reasoned that the same interpretation should be applied to the almost identical phrase as it appears in the Anti-Kickback Statue. The Eighth Circuit was unpersuaded by the government’s arguments that it should adopt an alternative causal standard and found the government’s reliance on pre-2010 cases and floor statements unpersuasive considering the plain reading of the text.

In reaching its conclusion, the Eighth Circuit emphasized that its ruling is “narrow” and does not require but-for causation for every FCA case. Instead, “when a plaintiff seeks to establish falsity or fraud through the 2010 amendment, it must prove that a defendant would not have included particular ‘items or services’ but for the illegal kickbacks.”

While Cairns marks a clear victory for FCA defendants by clarifying that a higher but-for causation standard must be proven by the government and whistleblowers when bringing an FCA case predicated upon Anti-Kickback Statute violations, the Eighth Circuit “recognize[d] that the Third Circuit came out differently in United States ex rel. Greenfield v. Medco Health Solutions, Inc.” Given the increasing number of FCA cases based on kickback theories, it will be interesting to see whether more circuits weigh in on the issue, and attorneys should continue to monitor the ever-changing landscape.