March 18, 2021 Articles

Mission Creep: The Evolving Impact of the Supreme Court’s Heightened Materiality Standard for False Claims Act Cases on Common-Law Fraud Claims

Elements of the Escobar standard have begun showing up in garden-variety, common-law fraud cases.

By T. Brandon Waddell

In the federal False Claims Act case of Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the Supreme Court articulated what lower courts and commentators have described as a “heightened materiality standard” for claims alleging fraud against the government. Elements of that standard have begun showing up in garden-variety, common-law fraud cases. This article examines that development and offers practical observations about it for lawyers who litigate such cases.

Common-law torts aren’t known for evolving quickly. Sometimes, though, decisions in other areas of the law can create the possibility for rapid shifts. A recent Supreme Court decision under the federal False Claims Act (FCA), Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), appears to be having such a gravitational effect on common-law fraud. Courts and commentators have described Escobar as a landmark decision for a number of reasons. But the most significant is the Court’s description of the FCA’s “materiality” standard—the framework under which courts decide if a government contractor’s misrepresentation induced the government to pay. Although Escobar was decided in the context of an idiosyncratic federal statutory scheme, its articulation of the materiality principle has begun to crop up in state fraud cases, including in motions to dismiss, motions for summary judgment, and jury instructions. This article looks at that interesting development and makes a few practical observations about what lawyers litigating fraud cases should know about Escobar.

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