9 F.4th 455
7th Cir.2021Background
- SuperValu operated a national price‑match program (2006–2016) where pharmacists applied lower competitor prices upon customer request and processed those sales as cash transactions; SuperValu nonetheless reported its higher retail cash prices as its "usual and customary" (U&C) prices to PBMs and state Medicaid agencies.
- Relators (qui tam) alleged SuperValu knowingly caused false claims to be submitted to Medicare/Medicaid by reporting retail prices rather than the lower price‑matched amounts; the government declined to intervene.
- The district court granted summary judgment for the Relators on falsity (relying on this Court's precedent in Garbe that certain public discount programs can constitute U&C prices) but granted summary judgment for SuperValu on scienter after applying the Safeco objective‑reasonableness standard.
- The Seventh Circuit (majority) held that Safeco v. Burr’s objective‑reasonableness + lack‑of‑authoritative‑guidance test for reckless/willful violations applies to the FCA’s statutorily defined "knowingly" standard and that failing that Safeco threshold precludes liability under any of the FCA’s three scienter alternatives.
- Applying Safeco, the court concluded SuperValu’s interpretation of U&C price was objectively reasonable and that the CMS manual did not provide sufficiently specific, authoritative guidance to warn SuperValu away; summary judgment for SuperValu was affirmed.
- Judge Hamilton dissented: he argued the statutory text, legislative history, Restatement §526, and the record evidence supported a finding of actual knowledge or deliberate ignorance and that Safeco should not supplant the FCA’s subjectively focused scienter inquiry.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Safeco’s scienter test (objective reasonableness + lack of authoritative guidance) applies to the FCA’s "knowingly" requirement | Relators: Safeco (an FCRA case) should not control; FCA requires inquiry into subjective knowledge/deliberate ignorance per statute and history | SuperValu: Safeco governs common‑law scienter terms and should be imported to the FCA | Held: Safeco applies to the FCA; common‑law terms carry their ordinary meaning and Safeco supplies that meaning for reckless/willful scienter |
| Whether failure to meet Safeco's objective test nonetheless allows liability under FCA's other scienter prongs (actual knowledge; deliberate ignorance) | Relators: Safeco covers only reckless disregard; actual knowledge and deliberate ignorance remain actionable even if Safeco’s test fails | SuperValu: Safeco sets a threshold; if objective standard not met, no liability under any of the three prongs | Held: Safeco’s standard functions as a threshold that, if unmet, precludes liability under all three statutory scienter alternatives |
| Whether SuperValu’s U&C interpretation was objectively reasonable and whether authoritative guidance warned it away | Relators: Garbe and CMS guidance show SuperValu should have known discounts counted as U&C; factual record supports knowing falsehoods | SuperValu: its interpretation was objectively reasonable; CMS manual footnote was not sufficiently specific/authoritative; PBM contract definitions varied | Held: SuperValu had an objectively reasonable interpretation and no authoritative, sufficiently specific guidance warned it away; summary judgment affirmed |
| Whether record evidence raised a genuine factual dispute as to subjective knowledge/deliberate ignorance | Relators: extensive sales data and internal documents show executives knew price‑matching made claimed U&C rates false or deliberately avoided learning the truth | SuperValu: subjective intent irrelevant under Safeco; objective inquiry disposes of scienter as a matter of law | Held: Majority found Safeco-controlled objective inquiry dispositive; dissent would have held factual disputes precluded summary judgment and remanded for trial |
Key Cases Cited
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (adopting an objective‑reasonableness plus absence‑of‑authoritative‑guidance test for willfulness/reckless misconduct under the FCRA)
- United States ex rel. Garbe v. Kmart Corp., 824 F.3d 632 (7th Cir. 2016) (held certain public discount programs can constitute a pharmacy’s usual and customary price)
- Univ. Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) (FCA falsity/materiality governed by common‑law fraud principles)
- United States ex rel. Purcell v. MWI Corp., 807 F.3d 281 (D.C. Cir. 2015) (applied Safeco‑style analysis to FCA scienter)
- United States ex rel. Donegan v. Anesthesia Assocs. of Kan. City, PC, 833 F.3d 874 (8th Cir. 2016) (applied Safeco standard to FCA scienter inquiry)
- United States ex rel. Phalp v. Lincare Holdings, Inc., 857 F.3d 1148 (11th Cir. 2017) (held scienter is not determined solely by regulatory ambiguity and treated subjectivity as relevant)
- Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923 (2016) (refused to extend Safeco’s objective‑recklessness framework to patent enhanced‑damages context where subjective bad faith matters)
- Farmer v. Brennan, 511 U.S. 825 (1994) (definition of recklessness as an unjustifiably high risk that is known or obvious; cited in Safeco)