“Would You Rather…” – Escobar’s Demanding Materiality Standard or Actual Causation?

According to a recent decision in United States ex rel. Scollick v. Narula, Case No. 14-cv-1339 (D.D.C. Nov. 6, 2020), the fraudulent inducement theory of False Claims Act liability does not require plaintiffs to satisfy the “demanding” materiality standard set forth in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).  Though that may sound like good news for plaintiffs, it is not.  The fraudulent inducement theory holds that fraud in a contractor’s proposal can taint every claim for payment it submits under the resulting contract, making them all “false claims” under the FCA.  This bears hefty consequences if proven: the defendant could be liable for civil penalties on every single claim for payment submitted over the life of the contract, in addition to treble damages the government may have suffered as a result of the fraud.  Perhaps in recognition of these severe consequences, the U.S. District Court for District of Columbia held that a plaintiff must plead and prove an even higher standard than Escobar materiality to establish fraudulent inducement liability—actual causation.  Rather than alleging that misrepresentation by the defendant merely was material to the government’s decision to award the contract to defendant, the Scollick decision concludes that “a misrepresentation in the defendant’s bid must have caused the government to award the defendant the contract.”  If the FCA materiality standard is “demanding,” then the actual causation standard is formidable.