District courts nationwide have been split on the issue of whether the two-part falsity test set forth in the U.S. Supreme Court’s opinion in Universal Health Services v. Escobar must always be satisfied in federal False Claims Act (FCA) cases premised on a theory of implied false certification. On August 10, Judge Deborah A. Batts of the U.S. District Court for the Southern District of New York joined a majority of courts in the Second Circuit in ruling that the test is mandatory.

The case is U.S. ex rel. Vincent Forcier v. Computer Sciences Corp. , case number 12-cv-01750. The plaintiff whistleblower in the case alleged that defendants Computer Sciences Corp. (CSC) and the City of New York fraudulently billed Medicaid for thousands of claims in violation of the FCA by failing to disclose an incentive compensation arrangement between CSC and the City that plaintiff alleged was illegal under State and Federal law. The DOJ intervened in the case.

The Escobar two-part test requires a plaintiff to establish that (1) defendant made “specific representations” regarding the services provided, and (2) failure to disclose noncompliance makes those representations misleading. Judge Batts, granting a partial motion to dismiss in favor of CSC, held that Escobar’s test for falsity is mandatory. Some district courts have taken a more expansive view of Escobar favored by DOJ and relators and held that the test is not the exclusive means to establish FCA liability under a theory of implied certification.

Applying the test, Judge Batts found that defendant CSC’s failure to disclose the allegedly noncompliant incentive compensation arrangement did not render any of its representations misleading. Judge Batts did note that the arrangement could be punishable under a separate theory of fraudulent inducement.

The district court’s opinion is available here.