If you think that ignorance of the law is no excuse, take a look at the Eleventh Circuit’s opinion in US ex rel. Phalp v. Lincare Holdings. It leaves no doubt that in a False Claims Act case, ignorance can be a solid defense.
Oxygen supply company Lincare was sued by two former salesmen for violating of the FCA through conduct prohibited by Medicare regulations. They alleged that (a) Lincare used Medicare benefit assignments it received from oxygen customers in submitting claims for diabetes supplies distributed through an affiliate, and (b) it violated Medicare restrictions on telemarketing by allowing the affiliate’s diabetes personnel to contact the oxygen customers.
The trial court granted Lincare summary judgment, ruling the evidence insufficient to create a genuine issue with regard to scienter: whether the defendants knew or should have known that its conduct violated applicable regulations. The court said that whenever a defendant can show that its conduct was consistent with any reasonable interpretation of an ambiguous regulation, the conduct was not a knowing violation.
After the relators supplied additional evidence relating to the telemarketing, the court granted Lincare summary judgment on that issue, ruling that the Medicare patients had given the required permission.
The Eleventh Circuit affirmed the trial court’s award of summary judgment but quarreled with its reasoning. As the appeals court saw it, the scienter test is “whether the defendant actually knew or should have known that its conduct violated a regulation in light of any ambiguity at the time of the alleged violation.” A flaw in the trial court’s statement of the standard was that it would allow a defendant to exploit an ambiguity after the fact, although the defendant actually knew or should have known at the time of the conduct in question that it was violating the regulation.
Applying its standard, the Eleventh Circuit ruled that “there is nothing in the plain language” of the regulation that would put Lincare on notice that its conduct was prohibited. On the telemarketing issue, the court found that the calls fell squarely within the exception for calls to patients who had given permission.
The case is US ex Rel. Phalp v. Lincare Holdings, No. 16-10532 (11th Cir., May 26, 2017).
