Federal Judiciary

Ninth Circuit Weighs in on Split Re Measurement of "Materiality" in Context of False Claims Act

The Supreme Court has stated that "[i]n general, a false statement is material if it has 'a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it was addressed.' " Neder v. United States, 527 U.S. 1, 16, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999). Yet, circuit courts are split on how to measure materiality in the context of the FCA. See Medshares Mgmt. Group, Inc., 400 F.3d at 445. The Fourth and Sixth Circuits have adopted a "natural tendency test" for materiality, which focuses on the potential effect of the false statement when it is made rather than on the false statement's actual effect after it is discovered. Id. The Eighth Circuit has adopted a more restrictive "outcome materiality test," which requires a showing that the defendant's actions (1) had "the purpose and effect of causing the United States to pay out money it is not obligated to pay," or (2) "intentionally deprive[d] the United States of money it is lawfully due." Id. (citing Costner v. URS Consultants, 153 F.3d 667, 677 (8th Cir.1998)). We agree with the Fourth and Sixth Circuits that the natural tendency test is the appropriate measure for materiality because it is more consistent with the plain meaning of the FCA. Id. Applying the natural tendency test to this case, we hold that Appellants' cost report entries were material because they had the potential effect, or natural tendency, to decrease the amount CPMS owed Medicare in overpayments, despite the fact that cost reports were never audited.

Full post as published by Split Circuits on August 14, 2008 (boomark / email).