United States ex rel. Schutte v. Supervalu Inc.

Relators Tracy Schutte, Michael Yarberry, and Thomas Proctor filed qui tam actions against Supervalu and Safeway, alleging the pharmacy chains violated the False Claims Act by reporting inflated "usual and customary" drug prices to Medicare and Medicaid, thereby receiving higher reimbursements while offering lower prices to cash customers. The Seventh Circuit ruled for the defendants, holding that they did not act "knowingly" because their interpretation of the ambiguous regulation was objectively reasonable. On June 1, 2023, the U.S. Supreme Court unanimously reversed, holding that the scienter requirement under the FCA focuses on the defendant’s subjective belief about the lawfulness of their conduct, not on whether an objective, post hoc interpretation might render their actions reasonable. The case was remanded for further proceedings.

The Supreme Court unanimously vacated the Seventh Circuit’s judgment and remanded the case, holding that what matters for FCA scienter is the defendant’s subjective knowledge and beliefs at the time of the claim submission, not what an objectively reasonable person might have known or believed.

Whether the False Claims Act’s scienter element—acting "knowingly"—is determined by the defendant’s subjective beliefs regarding legal compliance, or by whether their conduct was based on an objectively reasonable interpretation of the relevant statute or regulation.

The ruling clarifies that companies cannot escape liability under the False Claims Act by relying on a post-hoc, objectively reasonable interpretation of ambiguous rules if they subjectively believed their claims were false at the time. It strengthens whistleblower actions and imposes greater compliance obligations on healthcare providers and government contractors, reinforcing the protection of federal funds against fraud.