Reasonable interpretation of undefined term results in zero FCA liability for Florida exporter

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As qui tam whistleblower cases under the federal False Claims Act proliferate, a government contractor or healthcare provider may best be able to defend itself by showing that it made reasonable, good-faith efforts to comply with legal or contractual requirements, even if its actions ultimately did not comply with the law. A recent decision of the U.S. Court of Appeals for the District of Columbia Circuit reaffirmed that robust attention to compliance can have significant benefits:

“The False Claims Act does not reach an innocent, good-faith mistake about the meaning of an applicable rule or regulation. Nor does it reach those claims made based on reasonable but erroneous interpretations of a defendant’s legal obligations.” United States ex rel Purcell v. MWI Corp.

In U.S. ex rel Purcell v. MWI Corp, a whistleblower alleged that a borrower made false statements to the Export-Import Bank to obtain financing for an international sales transaction. Specifically, it was alleged that the borrower falsely certified that it had paid only “regular commissions” to the sales agent involved in the transaction. The Court agreed that no False Claims Act liability could exist because the borrower relied in good-faith on its reasonable interpretation of the ambiguous term “regular commissions.”

Many qui tam cases involve allegations that contractors failed to comply with (or falsely certified compliance with) complex federal regulations or Medicare payment rules. As the D.C. Circuit reaffirmed, the False Claims Act only reaches claims that the claimant knew were false when made. Therefore, relying in good-faith on advice of counsel or following a reasonable interpretation of an ambiguous requirement is a complete defense, even if it later turns out that the interpretation was wrong. In that situation, the claimant may have to repay the money, but they do not owe treble damages and attorney's fees under the False Claims Act.

The takeaway from this case is that the best way to avoid False Claims Act liability is through robust and proactive compliance planning.

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