`
`
`
`PUBLISHED
`
`UNITED STATES COURT OF APPEALS
`FOR THE FOURTH CIRCUIT
`
`
`No. 20-2330
`
`
`UNITED STATES EX REL. DEBORAH SHELDON, Executrix of the Estate of
`Troy Sheldon, United States of America, ex rel.,
`
` Plaintiff – Appellant,
`
`v.
`
`ALLERGAN SALES, LLC,
`
` Defendant – Appellee.
`
`------------------------------
`
`UNITED STATES OF AMERICA; TAXPAYERS AGAINST FRAUD
`EDUCATION FUND,
`
` Amici Supporting Appellant.
`
`WASHINGTON LEGAL FOUNDATION; CHAMBER OF COMMERCE OF THE
`UNITED STATES OF AMERICA; PHARMACEUTICAL RESEARCH AND
`MANUFACTURERS OF AMERICA,
`
` Amici Supporting Appellee.
`
`
`
`Appeal from the United States District Court for the District of Maryland, at Baltimore.
`Ellen L. Hollander, Senior District Judge. (1:14-cv-02535-ELH)
`
`
`
`
`Argued: October 28, 2021
`
`
`Before WILKINSON, WYNN, and RICHARDSON, Circuit Judges.
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`
`
`Decided: January 25, 2022
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`
`

`

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`Affirmed by published opinion. Judge Wilkinson wrote the opinion, in which Judge
`Richardson joined. Judge Wynn wrote a dissenting opinion.
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`
`
`
`
`
`ARGUED: Joshua Yrion Dos Santos, UNITED STATES DEPARTMENT OF JUSTICE,
`Washington, D.C.; Joseph M. Callow, Jr., KEATING, MUETHING & KLEKAMP PLL,
`Cincinnati, Ohio, for Appellant. John Patrick Elwood, ARNOLD & PORTER KAYE
`SCHOLER LLP, Washington, D.C., for Appellee. ON BRIEF: Gregory M. Utter, Paul
`R. Kerridge, Collin L. Ryan, KEATING MUETHING & KLEKAMP PLL, Cincinnati,
`Ohio; Joel D. Hesch, THE HESCH FIRM, LLC, Lynchburg, Virginia, for Appellant.
`Michael A. Rogoff, Paula R. Ramer, New York, New York, Jeffrey L. Handwerker,
`Christian D. Sheehan, ARNOLD & PORTER KAYE SCHOLER LLP, Washington, D.C.,
`for Appellee. Brian M. Boynton, Acting Assistant Attorney General, Michael S. Raab,
`Charles W. Scarborough, Civil Division, UNITED STATES DEPARTMENT OF
`JUSTICE, Washington, D.C., for Amicus United States of America. Jacklyn De Mar,
`TAXPAYERS AGAINST FRAUD EDUCATION FUND, Washington, D.C.; John W.
`Black, Samuel J. Buffone, Jr., BLACK & BUFFONE PLLC, Washington, D.C., for
`Amicus Taxpayers Against Fraud Education Fund. John M. Masslon II, Cory L. Andrews,
`WASHINGTON LEGAL FOUNDATION, Washington, D.C., for Amicus Washington
`Legal Foundation. James C. Stansel, Melissa B. Kimmel, PHARMACEUTICAL
`RESEARCH AND MANUFACTURERS OF AMERICA, Washington, D.C., for Amicus
`Pharmaceutical Research and Manufacturers of America. Tara S. Morrissey, Andrew R.
`Varcoe, UNITED STATES CHAMBER LITIGATION CENTER, Washington, D.C., for
`Amicus Chamber of Commerce of the United States of America. John C. O’Quinn,
`Matthew S. Owen, Matthew D. Rowen, Andrea R. Butler, KIRKLAND & ELLIS LLP,
`Washington, D.C., for Amici Pharmaceutical Research and Manufacturers of America and
`Chamber of Commerce of the United States of America.
`
`
`
`
`
`
`
`2
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`

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`WILKINSON, Circuit Judge:
`
`Plaintiff Troy Sheldon filed a False Claims Act qui tam suit against his employer,
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`Forest Laboratories, LLC. He alleged that Forest engaged in a fraudulent price reporting
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`scheme under the Medicaid Drug Rebate Statute, 42 U.S.C. § 1396r-8, by failing to
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`aggregate discounts given to separate customers for purposes of reporting “Best Price.”
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`Because Forest’s reading of the Rebate Statute was at the very least objectively reasonable
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`and because it was not warned away from that reading by authoritative guidance, it did not
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`act “knowingly” under the False Claims Act. As a result, we affirm the district court’s
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`dismissal of Sheldon’s complaint.
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`We thank our friend for his thoughtful dissent. We do of course agree with him that
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`“[t]he False Claims Act is the government’s primary litigative tool for the recovery of
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`losses sustained as the result of fraud against the government.” Dissenting Op. at 32
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`(quoting Avco Corp. v. U.S. Dep’t of Just., 884 F.2d 621, 622 (D.C. Cir. 1989)).
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`Regrettably, despite all protestations, the dissent nullifies the whole concept of scienter
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`about which the Supreme Court has shown an especial solicitude. The FCA unquestionably
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`has a punitive aspect, and the kinship between civil scienter and criminal mens rea in this
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`case is closer than Sheldon or the dissent is willing to acknowledge.
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`Sheldon’s position takes the FCA a very long step toward a strict liability statute. It
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`conflates factual fraud and legal fraud, thereby facilitating steep liability for those whose
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`factual representations are not alleged to be either false or duplicitous and those whose
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`legal position is not only arguable but correct. Sheldon does not so much as allege reckless
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`disregard or deliberate indifference or nefarious knowledge here with respect to, in the
`3
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`operative word of the statute, the “information.” 31 U.S.C. § 3729(b)(1)(A). Yet the
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`relator’s position instead makes sinister actors out of parties who have followed the law in
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`every respect and sought administrative guidance where none was ever provided. Given
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`the veritable thicket of Medicaid regulations, it is not too much to expect something more
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`in the way of clarity and direction than was ever offered here. To reward the state with
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`treble damages for this treatment of parties in the private sector is something no court
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`should do.
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`Sheldon would disregard Judge Hollander’s sound counsel that the Rebate Statute’s
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`“plain and natural reading” did not require aggregating discounts, along with her sensible
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`conclusion that there was not “a single example where CMS explicitly state[d] that
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`manufacturers must aggregate discounts to different customers along the supply chain in a
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`given sale.” United States ex rel. Sheldon v. Forest Laboratories, LLC, 499 F. Supp. 3d
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`184, 209, 211 (D. Md. 2020). Sheldon in addition recommends we ignore all our sister
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`circuits which have followed the framework that the Supreme Court has set forth in Safeco
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`Insurance Co. of America v. Burr, 551 U.S. 47 (2007), thus opening wide a stark circuit
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`split. See United States ex rel. Schutte v. SuperValu Inc., 9 F.4th 455, 459 (7th Cir. 2021);
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`United States ex rel. Streck v. Allergan, Inc., 746 F. App’x 101, 106 (3d Cir. 2018); United
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`States ex rel. McGrath v. Microsemi Corp., 690 F. App’x 551, 552 (9th Cir. 2017); United
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`States ex rel. Donegan v. Anesthesia Assocs. of Kansas City, PC, 833 F.3d 874, 879–80
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`(8th Cir. 2016); United States ex rel. Purcell v. MWI Corp., 807 F.3d 281, 290–91 (D.C.
`
`Cir. 2015). Moreover, Sheldon proposes to disregard the Supreme Court’s insistence that
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`the concept of scienter be given “rigorous” application, Universal Health Servs., Inc. v.
`4
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`United States ex rel. Escobar, 136 S. Ct. 1989, 2002 (2016), and the dissent dismisses as
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`“dictum” Supreme Court guidance which it finds inconvenient, Dissenting Op. at 31. All
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`this—at all three levels of the judicial system—Sheldon and the dissent would overturn, in
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`deference to a view that is not sustainable under law or under any notion of notice and due
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`process with which we are familiar.
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`I.
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`A.
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`
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`Medicaid offers federal financial assistance to states that reimburse certain medical
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`expenses for eligible individuals. Pharm. Rsch. & Mfrs. of Am. v. Walsh, 538 U.S. 644,
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`650 (2003). One of those expenses is prescription drugs. 42 U.S.C. § 1396d(a)(12). To
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`make sure that Medicaid programs receive “the benefit of the best price for which a
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`manufacturer sells a prescription drug to any public or private purchaser,” H.R. Rep. No.
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`101-881, at 96 (1990), Congress enacted the Medicaid Drug Rebate Statute in 1990, see 42
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`U.S.C. § 1396r-8.
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`
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`Under the Rebate Statute, manufacturers seeking to have their drugs covered by
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`Medicaid must enter into Rebate Agreements with the Secretary of Health and Human
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`Services and provide quarterly rebates to states on Medicaid sales of covered drugs. Id.
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`§ 1396r-8(a)(1), (c)(1)(A). The manufacturer reports the “Average Manufacturer Price”
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`and the “Best Price” for its covered drugs to the Centers for Medicare & Medicaid Services
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`(CMS); CMS then calculates the rebate amount that the manufacturer must pay to the states
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`for each drug. See id. § 1396r-8(b)(3)(A). For covered drugs, the rebate amount is the
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`greater of two numbers: (1) the statutory minimum rebate percentage, or (2) the difference
`5
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`between the Average Manufacturer Price and the Best Price. Id. § 1396r-8(c)(1)(A).
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`Federal payments to each state are reduced by the rebates that the state receives from
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`manufacturers. Id. § 1396r-8(b)(1)(B).
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`The Rebate Statute defines Best Price as “the lowest price available from the
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`manufacturer during the rebate period to any wholesaler, retailer, provider, health
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`maintenance organization, nonprofit entity, or governmental entity,” which “shall be
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`inclusive of cash discounts, free goods that are contingent on any purchase requirement,
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`volume discounts, and rebates.” Id. § 1396r-8(c)(1)(C)(i), (ii)(I). CMS regulations likewise
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`define Best Price as “the lowest price available from the manufacturer during the rebate
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`period to any entity in the United States,” including “all sales and associated rebates,
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`discounts and other price concessions provided by the manufacturer to any entity.” 42
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`C.F.R. § 447.505(a) (2007). Best Price “shall be net of cash discounts . . . and any other
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`discounts or price reductions and rebates . . . which reduce the price available from the
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`manufacturer.” Id. § 447.505(e)(1) (2007). And the Rebate Agreement defines Best Price
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`as “the lowest price at which the manufacturer sells the [covered drug] to any purchaser in
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`the United States,” which “shall be adjusted by the manufacturer if cumulative discounts,
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`rebates or other arrangements subsequently adjust the prices actually realized.” J.A. 213;
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`see 56 Fed. Reg. 7049, 7050 (Feb. 21, 1991).
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`
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`Acknowledging Medicaid’s complexity, the Rebate Agreement provides that “[i]n
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`the absence of specific guidance,” manufacturers should “make reasonable assumptions in
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`[their] calculations of . . . Best Price, consistent with the requirements and intent of [the
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`Rebate Statute], Federal regulations and the terms of this agreement.” J.A. 217. In
`6
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`subsequent rulemaking, CMS has reaffirmed the need for manufacturers to make such
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`reasonable assumptions. See, e.g., Medicaid Program; Prescription Drugs, 72 Fed. Reg.
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`39,142, 39,164 (July 17, 2007).
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`
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`Because Medicaid involves submitting claims to the government, it implicates the
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`False Claims Act (FCA). Relevant here, the FCA imposes liability if a person “knowingly
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`makes, uses, or causes to be made or used, a false record or statement material to an
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`obligation . . . to the Government” or “knowingly conceals or knowingly and improperly
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`avoids or decreases an obligation . . . to the Government.” 31 U.S.C. § 3729(a)(1)(G). The
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`FCA defines “knowingly” to mean that a person “(i) has actual knowledge of the
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`information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or
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`(iii) acts in reckless disregard of the truth or falsity of the information.” Id. § 3729(b)(1)(A).
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`It “require[s] no proof of specific intent to defraud.” Id. § 3729(b)(1)(B).
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`The FCA allows private individuals known as relators to bring qui tam actions “for
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`the person and for the United States Government.” Id. § 3730(b)(1). The United States can
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`choose to intervene in the relator’s action if it wishes. Id. § 3730(b)(2), (4). When, as here,
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`the government declines to intervene, the relator generally receives 25–30% of any
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`proceeds of the action, plus attorney’s fees and costs. Id. § 3730(d)(2). If an FCA action
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`succeeds, defendants are liable for treble damages as well as a civil penalty of up to $10,000
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`per claim. Id. § 3729(a).
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`7
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`B.
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`Relator Troy Sheldon filed this FCA suit against his employer Forest Laboratories,
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`LLC in 2014.1 In essence, Sheldon alleged that Forest gave discounts to separate customers
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`along distribution chains but failed to account for the combined amount of all discounts in
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`calculating Best Price, which led to the submission of false pricing reports to the
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`government. This allegedly reduced the rebates that Forest paid to participating states and
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`resulted in the federal government paying at least $680 million more than it would have if
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`Forest had accurately reported Best Price.
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`To give an example: on one covered drug, Sheldon alleged that in FY2013 Forest
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`gave a 20% discount to a patient’s insurance company and a 10% discount to the same
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`patient’s pharmacy—two different entities on the distribution chain. See J.A. 98. Sheldon
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`alleged that Forest was required to aggregate these discounts, report a Best Price of 70%,
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`and give Medicaid a 30% rebate. Instead, Forest did not aggregate these discounts because
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`they were given to different entities, reported a Best Price of 80% (based on the highest
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`discount given to a single entity), and gave Medicaid a 23.1% rebate (the statutory
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`minimum rebate percentage for that year, see 42 U.S.C. § 1396r-8(c)(1)(B)(i)(VI)).
`
`
`1 Troy Sheldon died after filing this action and Deborah Sheldon, his wife, was
`substituted as plaintiff. And in 2018, Forest merged into Allergan Sales, LLC. For clarity,
`we refer to Troy Sheldon rather than Deborah and to Forest rather than Allergan.
`
`Sheldon sued on behalf of the United States. The suit was initially filed under seal.
`See 31 U.S.C. § 3730(b)(2). After a five-year investigation and every opportunity to
`intervene, the government declined to do so, and the suit was unsealed in October 2019.
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`
`
`8
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`Sheldon alleges that this led to the federal government paying 6.9% more for this drug than
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`it would have if Forest had accurately reported Best Price.
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`Forest moved to dismiss Sheldon’s complaint, and the district court in a thoughtful
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`opinion granted Forest’s motion. 499 F. Supp. 3d 184. The district court found that Sheldon
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`had failed to plead both that the claims at issue were false and that Forest had made them
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`knowingly.2 Relevant here, it held that Forest had offered “a plausible and objectively
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`reasonable interpretation” of the Rebate Statute. Id. at 209. Beginning with the statutory
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`text, the district court found that its “plain and natural reading” did not require aggregating
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`discounts. Id. And looking at the regulatory language and history, the district court did not
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`find “a single example where CMS explicitly state[d] that manufacturers must aggregate
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`discounts to different customers along the supply chain in a given sale.” Id. at 211. The
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`district court then concluded that CMS guidance “was not so clear as to warn Forest away
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`from its interpretation,” especially considering the complexity of the statutory scheme. Id.
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`at 212. So it held that Forest did not act with the requisite scienter when submitting Best
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`Price reports to the government.
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`
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`II.
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`
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`We review de novo the dismissal of a relator’s complaint under Rule 12(b)(6).
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`United States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694, 700 (4th Cir. 2014). To
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`plead his FCA claim, Sheldon must plausibly allege that Forest (1) made a false statement;
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`2 Because we hold that Forest did not act knowingly under the FCA, we have no
`occasion to address the district court’s holding as to falsity.
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`
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`9
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`(2) with the requisite scienter (“knowingly”); (3) that was material; and (4) that caused the
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`government to pay out money. Id.; see also 31 U.S.C. § 3729(a)(1)(G). Here, we interpret
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`the second element, scienter, in line with the Supreme Court’s guidance in Safeco.
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`Applying that analysis, we hold that Forest did not act knowingly under the FCA.
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`A.
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`1.
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`We are tasked with “strict enforcement” of the FCA’s “rigorous” scienter
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`requirement. Escobar, 136 S. Ct. at 2002. As noted, the FCA defines “knowingly” to mean
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`that a person “(i) has actual knowledge of the information; (ii) acts in deliberate ignorance
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`of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or
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`falsity of the information.” 31 U.S.C. § 3729(b)(1)(A). Yet it does not further define these
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`terms or signify how they apply in situations where it is unclear if a defendant complied
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`with the law.
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`
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`Fortunately, we are not without guidance in this area. In Safeco, the Supreme Court
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`interpreted the Fair Credit Reporting Act’s analogous scienter provision. Like every other
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`circuit to consider the issue, we hold that Safeco applies with equal force to the FCA’s
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`scienter requirement. See Schutte, 9 F.4th at 459; Streck, 746 F. App’x at 106; McGrath,
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`690 F. App’x at 552; Donegan, 833 F.3d at 879–80; Purcell, 807 F.3d at 290–91.
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`Safeco interpreted the scienter requirement of the Fair Credit Reporting Act
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`(FCRA), which required defendants to act “willfully.” See 15 U.S.C. § 1681n(a). Because
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`the FCRA did not define this common law term, the Court looked to its common law
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`meaning. Safeco, 551 U.S. at 58. It interpreted the FCRA’s “willfulness” requirement to
`10
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`cover both knowing and reckless violations of the statute. Id. at 57. Then it defined
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`recklessness as “conduct violating an objective standard: action entailing ‘an unjustifiably
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`high risk of harm that is either known or so obvious that it should be known.’” Id. at 68
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`(quoting Farmer v. Brennan, 511 U.S. 825, 836 (1994)). Accordingly, it found a
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`defendant’s subjective intent irrelevant: “To the extent that [plaintiffs] argue that evidence
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`of subjective bad faith can support a willfulness finding even when the company’s reading
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`of the statute is objectively reasonable, their argument is unsound.” Id. at 70 n.20.
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`The Safeco Court set forth a two-step analysis as to reckless disregard, first asking
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`whether defendant’s interpretation was objectively reasonable and then determining
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`whether authoritative guidance might have warned defendant away from that reading. Id.
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`at 69–70. Because defendant’s reading “was not objectively unreasonable” and “ha[d] a
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`foundation in the statutory text,” it did not act recklessly—even though its reading was
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`ultimately “erroneous.” Id. And defendant had no guidance from the courts of appeals or
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`the implementing agency that “might have warned it away from the view it took.” Id. at
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`70. “Given this dearth of guidance and the less-than-pellucid statutory text, [defendant’s]
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`reading was not objectively unreasonable, and so falls well short of raising the
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`‘unjustifiably high risk’ of violating the statute necessary for reckless liability.” Id. Failure
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`to meet this recklessness standard precluded a finding of knowledge as well: “Where, as
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`here, the statutory text and relevant court and agency guidance allow for more than one
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`reasonable interpretation, it would defy history and current thinking to treat a defendant
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`who merely adopts one such interpretation as a knowing or reckless violator.” Id. at 70
`
`n.20.
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`11
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`
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`As noted above, several of our sister circuits have applied Safeco’s scienter analysis
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`to the FCA. And with good reason. The FCA defines “knowingly” as including actual
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`knowledge, deliberate ignorance, and reckless disregard. 31 U.S.C. § 3729(b)(1)(A).
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`Safeco interpreted “willfully” to include both knowledge and recklessness. 551 U.S. at 57,
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`68. Given this parallel, we hold that Safeco’s reasoning applies to the FCA’s scienter
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`requirement. Under the FCA, a defendant cannot act “knowingly” if it bases its actions on
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`an objectively reasonable interpretation of the relevant statute when it has not been warned
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`away from that interpretation by authoritative guidance. This objective standard precludes
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`inquiry into a defendant’s subjective intent.
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`
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`In adopting this standard, we join each and every circuit that has considered Safeco’s
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`applicability to the FCA. For example, the Seventh Circuit reasoned that Safeco “defined
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`a similar common law term . . . which the Court interpreted as encompassing the same
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`common law scienter terms used in the FCA.” 9 F.4th at 465. It rightly concluded that
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`Safeco “announced a standard inquiry for reckless disregard” and found “no reason why
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`the scienter standard established in Safeco (for violations committed knowingly or with
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`reckless disregard) should not apply to the same common law terms used in the FCA.” Id.
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`After all, the Supreme Court has held that the FCA “does employ the common law
`
`meaning” for other common law terms like false and fraudulent, so long as there are no
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`textual indicia to the contrary. Id. (citing Escobar, 136 S. Ct. at 1999 & n.2). Finding none
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`here, there was “no barrier to importing the Safeco standard to the FCA.” Id.
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`
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`Sheldon claims that Safeco should not apply, alluding to Halo Electronics, Inc. v.
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`Pulse Electronics, Inc., 136 S. Ct. 1923 (2016). But that case does not suggest a different
`12
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`result. See Schutte, 9 F.4th at 466–67 (finding Safeco more analogous to FCA than Halo
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`Electronics). Halo Electronics interpreted § 284 of the Patent Act, which allowed for treble
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`damages in certain infringement cases but did not specify scienter. 136 S. Ct. at 1928; see
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`35 U.S.C. § 284 (“[T]he court may increase the damages up to three times the amount
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`found or assessed.”). The Court found that such damages “are generally reserved for
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`egregious cases of culpable behavior” and clarified that a showing of objective recklessness
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`was not necessary in a context of “such deliberate wrongdoing.” Id. at 1932. It also
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`emphasized the district court’s discretion and the lack of textual limitations on that
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`discretion. Id. at 1931–32. The Court acknowledged Safeco’s standard but did not apply it
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`in the context of the Patent Act because its “precedents [made] clear that ‘bad-faith
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`infringement’ is an independent basis for enhancing patent damages.” Id. at 1933 n.*. In
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`this situation, a test of objective recklessness “impermissibly encumber[ed] the statutory
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`grant of discretion to district courts.” Id. at 1932 (quoting Octane Fitness, LLC v. ICON
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`Health & Fitness, Inc., 572 U.S. 545, 553 (2014)).
`
`
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`Context matters, and here two differences stand out. First, § 284 did not include a
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`scienter requirement, while the FCA clearly limits liability to claims that are made
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`“knowingly.” And the Supreme Court has instructed that this “rigorous” requirement ought
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`to find “strict enforcement” in the courts. Escobar, 136 S. Ct. at 2002. Second, while § 284
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`concerned whether district courts could issue a particular amount of damages after finding
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`liability, the relevant provision here concerns whether liability exists at all. Taking these
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`differences into account, the gap between the FCA and the Patent Act is much wider than
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`13
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`that between the FCA and the FCRA—both of which include an explicit scienter standard
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`(covering both knowledge and recklessness) that speaks to liability rather than damages.
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`
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`Sheldon also argues that Safeco improperly collapses the FCA’s statutory
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`definitions. But applying Safeco does not sap the FCA’s three scienter definitions of
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`independent meaning. Safeco itself recognized that recklessness and knowledge were
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`separate subcategories of willfulness. 551 U.S. at 60. Yet it still held that its standard served
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`as the starting point for both, refusing to treat a defendant who adopted a reasonable
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`interpretation “as a knowing or reckless violator.” Id. at 70 n.20 (emphasis added). The
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`same is true here. That actual knowledge, deliberate ignorance, and reckless disregard are
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`distinct—which we do not dispute—does not preclude them from sharing a threshold
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`requirement. See Schutte, 9 F.4th at 468. Nor does it preclude them from functioning as a
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`hierarchy, as is commonly understood. Reckless disregard has been called the “most
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`capacious,” United States ex rel. Watson v. King-Vassel, 728 F.3d 707, 712 (7th Cir. 2013),
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`the “loosest,” Purcell, 807 F.3d at 288, and the “baseline,” Schutte, 9 F.4th at 465, of the
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`FCA’s scienter standards. So if a defendant has not acted with reckless disregard in its view
`
`of the statute, “it follows a fortiori” that it has not acted with deliberate ignorance or actual
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`knowledge, which “plainly demand[] even more culpability.” Urquilla-Diaz v. Kaplan
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`Univ., 780 F.3d 1039, 1058 n.15 (11th Cir. 2015).
`
`2.
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`Safeco does not apply to all FCA suits. There are two general categories of false
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`claims under the FCA: those that are factually false and those that are legally false. See
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`United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011).
`14
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`The paradigmatic FCA action targets factually false claims—those in which someone “has
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`submitted an incorrect description of goods or services provided or a request for
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`reimbursement for goods or services never provided.” United States ex rel. Polukoff v. St.
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`Mark’s Hosp., 895 F.3d 730, 741 (10th Cir. 2018) (citation omitted); see, e.g., United States
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`ex rel. Citynet, LLC v. Gianato, 962 F.3d 154, 157 (4th Cir. 2020) (complaint alleged that
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`defendant billed the federal government for “material and labor it did not provide, and for
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`[projects] that were not constructed”); Affinity Living Grp., LLC v. StarStone Specialty Ins.
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`Co., 959 F.3d 634, 636 (4th Cir. 2020) (complaint alleged that defendant “submitted
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`reimbursement claims for resident services that were never provided”). Of a different
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`vintage are legally false claims, which “generally require knowingly false certification of
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`compliance with a regulation or contractual provision as a condition of payment.” Polukoff,
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`895 F.3d at 741.
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`Safeco simply does not reach factually false claims, where the law is clear. Instead,
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`it is narrowly cabined to legally false claims—like the one here—which involve contested
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`statutory and regulatory requirements. As we have recognized, “establishing even the
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`loosest standard of knowledge, i.e., acting in reckless disregard of the truth of falsity of the
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`information, is difficult when falsity turns on a disputed interpretive question.” United
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`States ex rel. Complin v. N.C. Baptist Hosp., 818 F. App’x 179, 184 (4th Cir. 2020)
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`(quoting Purcell, 807 F.3d at 288). After all, “[a] defendant might suspect, believe, or
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`intend to file a false claim, but it cannot know that its claim is false if the requirements for
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`that claim are unknown.” Schutte, 9 F.4th at 468.
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`Nor does Safeco write defendants a blank check. To start, Safeco’s first step requires
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`an objectively reasonable reading of the statute. If a defendant bases its actions on an
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`unreasonable view of the law, it runs a considerable litigation risk. Knowing an FCA claim
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`is waiting in the wings, it takes a serious chance that a court will find liability if it attempts
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`to concoct strained justifications for its actions. Much better to steer clear of danger than
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`to risk it all defending a questionable interpretation in court.
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`
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`And not every objectively reasonable reading will suffice. Safeco’s second step
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`allows the government to issue authoritative guidance that clarifies its interpretation of the
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`law and so warns defendants away from otherwise reasonable interpretations. The test thus
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`“does not shield bad faith defendants that turn a blind eye to guidance indicating that their
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`practices are likely wrong.” Id. But it does put the burden where it belongs. If the
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`government wants to hold people liable for violating labyrinthine reporting requirements,
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`it at least needs to indicate a way through the maze. See, e.g., Gates & Fox Co. v. OSHRC,
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`790 F.2d 154, 156 (D.C. Cir. 1986) (Scalia, J.) (citation omitted) (“If a violation of a
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`regulation subjects private parties to criminal or civil sanctions, a regulation cannot be
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`construed to mean what an agency intended but did not adequately express.”).
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`Safeco’s standard duly ensures that defendants must be put on notice before facing
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`liability for allegedly failing to comply with complex legal requirements. Without such
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`notice, defendants are not likely to receive due process. “A fundamental principle in our
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`legal system is that laws which regulate persons or entities must give fair notice of conduct
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`that is forbidden or required.” FCC v. Fox Television Stations, Inc., 567 U.S. 239, 253
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`(2012). Such “clarity in regulation is essential to the protections provided by the Due
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`Process Clause of the Fifth Amendment,” id., especially when, as here, defendants are
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`faced with “damages that are essentially punitive in nature,” Vt. Agency of Nat. Res. v.
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`United States ex rel. Stevens, 529 U.S. 765, 784 (2000) (describing FCA); see also Tex.
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`Indus. v. Radcliff Materials, Inc., 451 U.S. 630, 639 (1981) (“The very idea of treble
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`damages reveals an intent to punish past, and to deter future, unlawful conduct, not to
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`ameliorate the liability of wrongdoers.”).
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`It is profoundly troubling to impose such massive liability on individuals or
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`companies without any proper notice as to what is required. Safeco avoids this trouble by
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`making the government “provide a reasonably clear standard of culpability to circumscribe
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`the discretion of the enforcing authority and its agents.” United States v. Hoechst Celanese
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`Corp., 128 F.3d 216, 224 (4th Cir. 1997) (citation omitted). Rightly so. As the Supreme
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`Court has made clear, “concerns about fair notice and open-ended liability can be
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`effectively addressed through strict enforcement” of the FCA’s “rigorous” scienter
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`requirement. Escobar, 136 S. Ct. at 2002 (citation omitted). Safeco’s careful analysis is
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`just the right means to further this end. See, e.g., Purcell, 807 F.3d at 287 (“Strict
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`enforcement of the FCA’s knowledge requirement helps to . . . avoid[] the potential due
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`process problems posed by penalizing a private party for violating a rule without first
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`providing adequate notice of the substance of the rule.”) (citation omitted). We therefore
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`decline Sheldon’s invitation to make our circuit an outlier.
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`B.
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`
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`Applying Safeco’s test to Forest’s conduct, we conclude that Forest did not act
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`“knowingly” under the False Claims Act. Forest’s reading of the Rebate Statute was not
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`only objectively reasonable but also the most natural. And Forest was not warned away
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`from its reading by authoritative guidance from CMS. As a result, Sheldon failed to plead
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`scienter as required by the FCA.3
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`1.
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`We must first determine whether Forest’s reading was objectively reasonable by
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`examining the text of the statute. Safeco, 551 U.S. at 69–70. The Rebate Statute defines
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`Best Price as “the lowest price available from the manufacturer during the rebate period to
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`any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or
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`governmental entity.” 42 U.S.C. § 1396r-8(c)(1)(C)(i). The plain language here indicates
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`that Best Price is one offered to a single entity.
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`Notably, both “price” and all of the entities listed are singular, joined by the
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`disjunctive “or.” And “any” usually means a single member in a class if used with singular
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`nouns. Any, Oxford English Dictionary (3d ed. 2021). This linguistic construction (singular
`
`
`3 Sheldon argues that it was improper for the district court to decide the scienter
`question on a motion to dismiss. Yet the Supreme Court has generally urged us to resolve
`cases on a motion to dismiss when a claim is not “plausible on its face.” Ashcroft v. Iqbal,
`556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp v. Twombly, 550 U.S. 544, 570 (2007)).
`This plausibility standard “asks for more than a sheer possibility that a defendant has acted
`unlawfully.” Id. And that standard bars Sheldon’s claim, which does not allege any
`plausible theory of recovery. In addition, we have specifically held that a “district court did
`not err in deciding the issue of [FCA] scienter at the Rule 12(b)(6) motion-to-dismiss
`stage,” Complin, 818 F. App’x at 183 n.5 (citing Rostholder, 745 F.3d at 703)—even when
`the case involved the question of whether a defendant was warned away from its
`interpretation, see id. at 184 n.6. Other circuits have similarly conducted the Safeco analysis
`in the FCA context of a motion to dismiss. See, e.g., Streck, 746 F. App’x 101; United
`States ex rel. Hixson v. Health Mgmt. Sys., Inc., 613 F.3d 1186 (8th Cir. 2010). This is
`especially appropriate when, as here, the question of whether a defendant has been warned
`away depends upon the interpretation of legal materials.
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`nouns plus the disjunctive)