In another strongly worded dissent, Seventh Circuit Judge David Hamilton faults the majority for overlooking clear evidence of fraudulent intent in Proctor v. Safeway, and says that both Safeway and the earlier SuperValu decision – on which the court relied heavily here – should be overruled.
In U.S. ex rel. Thomas Proctor v. Safeway Inc., Seventh Circuit No. 20-3425, Seventh Circuit Judge David Hamilton reiterated his dissent from Schutte v. SuperValu and called for the prior decision to be overruled.
According to Hamilton, the majority in SuperValu misinterpreted the False Claims Act’s knowledge definition to create “a safe harbor for deliberate or reckless fraudsters whose lawyers can concoct a post hoc legal rationale that can pass a laugh test.” Hamilton found the evidence of fraud in Safeway to be even stronger and the defendant’s post hoc rationale less plausible. “If the False Claims Act cannot reach Safeway’s conduct here, the Act will neither deter nor remedy many frauds that loot the federal treasury,” Hamilton wrote.
Hamilton argues that the majority misinterprets the FCA’s standard of fraudulent intent, which turns on the defendant’s apparent state of mind, and thereby ignored the evidence of Safeway’s knowledge of its misconduct. According to Hamilton, the relator established “ample evidence of fraudulent intent, both in Safeway’s internal decision-making and in circumstantial evidence—the sheer scale of the differences between Safeway’s real prices for cash customers and the much higher prices it told the government were ‘usual and customary.’”
Hamilton views the evidence as showing that Safeway recognized that competition from Walmart—which offered inexpensive generic prescriptions—was not good for business and that matching Walmart’s pricing would substantially lower its profits. The complaint included evidence that Safeway executives purposefully did not put its discount policy in writing, after CMS issued guidance saying that Walmart’s pricing represented its usual and customary pricing.
Further, two large pharmacy benefit managers reminded Safeway that discounts had to be included in reported U&C pricing, including competitor price matching. In 2008, a pharmacy manager told Safeway headquarters that Nebraska’s Medicaid program said when a price is matched, that lower price becomes the usual and customary price, and any prescriptions filled that same day have to be priced that way.
According to the evidence, Safeway executives expressed concern that state Medicaid programs would learn of the price matching if it were advertised and committed to keeping a “low profile” on the price match program. Emails in evidence also showed executives were expressly aware of the dollar difference between their regular reimbursement and the amount they would garner if they reported the price matching in their U&C reporting.
Judge Hamilton viewed this as overwhelming evidence that Safeway was aware of CMS requirements for reporting U&C pricing and knowingly concealed their discounted pricing from the government. Hamilton concluded that a reasonable jury could reasonably find that the post hoc interpretation of CMS guidance provided by Safeway counsel was merely an attempt to obfuscate the fraud. The judge also described Safeway’s loyalty program as merely a “fig leaf” effort to disguise the fact that price matching offers were extended to any customer that requested them.
In their opinion affirming the district court’s grant of summary judgment to Safeway, the majority acknowledged that in hindsight, Safeway’s behavior looked suspect. However, Hamilton argues that the majority erred, as this conduct was clearly fraudulent at the time it occurred.
“For these reasons, and the reasons explained in my dissent in SuperValu, we should not double down on our earlier mistake,” Hamilton concluded. “We should instead overrule SuperValu and reverse summary judgment here.”
