FCA Defendant Was a Partnership. The Relator Was a Former Partner. Why Couldn’t the Relator’s Knowledge of Falsity Be Imputed to the Defendant?

The relator was a former partner of the defendant. He argued that he knew the defendants were submitting false claims, so his knowledge should be imputed to the defendants. The Eighth Circuit disagreed. The relator’s alleged knowledge was simply the opinion of a disgruntled non-managing partner. This could not be imputed to the defendant as actual knowledge.

U.S. ex rel. Kraemer v. United Diaries, LLP, 8th Cir., No. 22-3306

• District Court Proceedings – The relator filed a qui tam action, alleging defendants submitted false claims to a federal crop insurance program. The district court found no FCA violation. The defendants had not knowingly submitted false claims. The court did find the defendants had been unjustly enriched. But the court later vacated the unjust enrichment award, finding it lacked jurisdiction to award unjust enrichment damages in an FCA case.
• Materiality –  The relator appealed to the Eighth Circuit, which affirmed. The court held the relator hadn’t satisfied the materiality requirement of an FCA claim. The relator alleged the defendants obtained insurance payments for grain corn when they had planted silage corn. The court, however, determined the insurance companies that paid the claims knew the defendants had planted silage corn. This indicated the alleged misrepresentation was not material.
• Knowledge – The district found the defendant didn’t knowingly submit false claims. The relator argued he was a former partner, he knew the defendants were submitting false claims, so his knowledge should be imputed to the defendants. The Eighth Circuit didn’t agree. The relator’s knowledge was simply the opinion of a disgruntled non-managing partner. In submitting claims, the defendants relied on the opinions of their insurance agents. This did not amount to knowledge of falsity.
• Unjust Enrichment – The district vacated the unjust enrichment judgment when the U.S. filed a post-trial motion. The relator argued the district court should not have considered a post-trial motion from the government. But as this was a qui tam action, the government was the real party in interest. Moreover, the FCA is a creature of statute. It does not give relators rights to assert common law or equitable actions against defendants on behalf of the government.

–Case summary by Craig LaChance, Senior Editor