Sixth Circuit Weighs In On Reasonable Interpretation Defense

A new defense gaining popularity among False Claims Act defendants is that a target defendant could not have knowingly violated the FCA because its conduct was consistent with some reasonable interpretation of an ambiguity in a governing statute, regulation, or contract term. Since lawyers are endlessly creative, nearly any defendant can invent an ambiguity after the fact in a statute, regulation, or contract.

In designing the False Claims Act, Congress sought to make defendants liable who fail to ask questions to confirm that their interpretation was correct. According to a Senate Report, the FCA’s knowledge standard reaches the “ostrich” situation “where an individual has ‘buried his head in the sand’ and failed to make simple inquiries which would alert him that false claims are being submitted.” S. REP. NO. 99-345, at 21, reprinted in 1986 U.S.C.C.A.N. 5266, 5286 (1986). See also, id. at 6–7, reprinted in 1986 U.S.C.C.A.N. at 5271–72. See also H.R. REP. NO. 99-660, at 21 (1986). Nevertheless, the reasonable interpretation defenses has gotten some traction in some ultraconservative courts, most notably in the Eighth Circuit.

The Sixth Circuit has now weighed in on the reasonable interpretation defense. Construing the similar Tennessee False Claims Act using case law regarding the federal False Claims Act, the Sixth Circuit reversed a district court’s grant of summary judgment based on a defendant’s assertion of the reasonable interpretation defense. The defendant, a telephone company, is required to send relators, a group of county ambulance districts, a list of telephone lines on which defendant collects statutory 911 fees. Defendant stated in the report that the list included telephone lines on which 911 fees were charged under the law. Defendant nowhere told relators that defendant was not charging 911 fees on certain lines and that it was engaging in statutory interpretation to justify this omission. The Sixth Circuit held that an issue of fact existed for trial, but did not rule on whether defendant could assert their reasonable interpretation defense at trial. County Emergency Commc’ns Dist. v. Bellsouth Telecommc’ns LLC, 2017 WL 1101087, *9-11 (6th Cir. Mar. 24, 2017).

The Sixth Circuit also held that relators were not required to prove that the defendant acted in bad faith in order to establish that the defendant acted knowingly. County Emergency Commc’ns Dist., 2017 WL 1101087, *13.

This finding was based on the Sixth Circuit’s interpretation of the Tennessee False Claims Act’s knowledge requirement—which is nearly identical to the federal False Claims Act’s knowledge requirement. In contrast to the typical defense argument that the False Claims Act is a fraud statute, the Sixth Circuit held that the knowledge requirement’s language that “‘[p]roof of specific intent to defraud is not required’, is significant; it means that knowing the truth and withholding it is enough. In other words, this is not a fraud action, this is a simple misrepresentation action. This is, of course, consistent with possibilities (ii) and (iii), ‘deliberate ignorance’ and ‘reckless disregard of the truth,’ respectively.” County Emergency Commc’ns Dist., 2017 WL 1101087, *12. While this is not our case, we are pleased to see the Sixth Circuit take this common-sense approach.

While we did not represent any of the parties in this case, our firm has a long history of advocating cases under the implied certification liability theory. Should you have any questions about the reasonable interpretation defense, ambulance fraud, or other aspects of the False Claims Act, do not hesitate to contact us.