Supreme Court’s Chevron Reversal Reshapes False Claims Act Litigation Landscape

The False Claims Act (FCA) legal environment underwent significant transformation in 2024, with the Supreme Court’s landmark decision overturning the 40-year-old Chevron doctrine leading the way among several major developments.

In Loper Bright Enterprises v. Raimondo, the Supreme Court delivered a 6-3 ruling that fundamentally alters how courts interpret agency regulations. The decision overturned Chevron U.S.A. Inc. v. National Resources Defense Council, which had required courts to defer to federal agencies’ reasonable interpretations of ambiguous statutes they administer.

The Court determined that the Administrative Procedure Act “incorporates the traditional understanding of the judicial function” and that courts must exercise independent judgment when interpreting statutory provisions. This rejection of automatic agency deference opens new avenues for FCA defendants challenging allegations based on agency interpretations of ambiguous statutes.

Legal experts note this represents a seismic shift in administrative law, potentially strengthening the position of defendants in cases where regulatory compliance forms the basis of alleged false claims.

Meanwhile, the Department of Justice (DOJ) has intensified its Civil Cyber-Fraud Initiative, launched in 2021. The program, which uses the FCA to target cybersecurity-related fraud by government contractors and grant recipients, secured settlements totaling over $15 million in 2024.

The DOJ also filed its first complaint-in-intervention in a qui tam action under the initiative, signaling its commitment to pursuing entities that promise stronger cybersecurity measures than they deliver. However, questions remain about how the government will evaluate compliance with often vague or general contractual cybersecurity standards.

Constitutional challenges to the FCA’s qui tam provisions also gained momentum in 2024. A United States District Court for the Middle District of Florida ruling deemed the FCA’s whistleblower provision unconstitutional under the Appointments Clause of Article II of the U.S. Constitution.

While this ruling currently stands as an outlier, an appeal is pending in the Eleventh Circuit. Three sitting Supreme Court justices – Thomas, Kavanaugh, and Barrett – have previously expressed interest in reviewing the constitutionality of these provisions, setting the stage for a potential circuit split and Supreme Court review.

The implications of the Supreme Court’s 2023 decision in United States ex rel. Schutte v. SuperValu Inc. continued to reverberate through lower courts. In that case, the Court held that a defendant’s subjective state of mind is sufficient to establish scienter (knowledge of wrongdoing) under the FCA, even when the defendant’s actions were objectively reasonable.

Courts are now grappling with what role, if any, objectively reasonable but incorrect interpretations of ambiguous regulations should play in FCA cases.

The healthcare sector also saw increased scrutiny, with the U.S. Attorney’s Office for the District of Massachusetts identifying “rare disease research and treatment and genetic testing” as a new enforcement priority. Recent settlements indicate growing DOJ focus on manufacturer-sponsored testing programs, which could create risk under the federal Anti-Kickback Statute and the FCA if improperly structured.

The year proved exceptionally active for FCA enforcement overall, with the DOJ reporting over $2.9 billion in recoveries for fiscal year 2024. The 558 settlements and judgments achieved represent the second-highest annual total, reflecting the government’s continued focus on health care fraud, pandemic relief program fraud, and cybersecurity requirement violations.

Of the total recoveries, more than $2.4 billion stemmed from qui tam suits pursued by either the government or private whistleblowers. Whistleblowers filed 979 qui tam lawsuits in FY2024, the highest number ever recorded in a single year, ensuring robust FCA activity will continue in the months ahead.

As these legal developments unfold, companies operating in heavily regulated industries or contracting with the federal government face a complex and evolving compliance environment that demands heightened vigilance and adaptive legal strategies.