On August 12, 2021, the Seventh Circuit joined the Third, Eighth, Ninth, and D.C. Circuits in holding that the “objective reasonableness” standard for determinations of scienter, as set forth by the Supreme Court in Safeco Insurance Co. of America v. Burr, 551 U.S. 47, 70 (2007), applies in the context of False Claims Act (FCA) litigation. In doing so, the Seventh Circuit observed that, under Safeco, a defendant cannot possess the requisite scienter under the FCA if: (1) it has an objectively reasonable reading of the statute or regulation; and (2) there was no authoritative guidance warning against its view. This case has significant implications for defendants in FCA litigation by finding that an objectively reasonable interpretation of the law will defeat allegations of false claims.
Further, the decision is the latest victory in a spate of cases brought by the plaintiffs’ bar claiming that pharmacies are required to report special prices—such as membership club prices or matched competitor prices—as their usual and customary (U&C) prices. Virtually every pharmacy that has operated a membership club has faced scrutiny through actions under the FCA and consumer-class actions. The Seventh Circuit’s decision comes in the wake of the recent jury verdict in favor of CVS in the matter of Carl Washington (formerly known as Corcoran) et al. v. CVS Pharmacy, Inc., No. 15-cv-03504 (N.D. Ca. Jun. 24, 2021). This victory will support pharmacies’ defenses in other similar litigation alleging the submission of false U&C prices, particularly when the alleged false conduct occurred before 2016, given that the Seventh Circuit found that reporting retail prices—as opposed to special prices such as price matches—was an objectively reasonable approach to U&C reporting.