In 2014, the Ninth Circuit issued an important decision on the notion that good faith disputes and/or disputed interpretations of contract requirements should not be actionable as false claims.
In Gonzalez v. Planned Parenthood, 759 F.3d 1112 (9th Cir. 2014), the relator alleged that the Medi-Cal billing manual required Planned Parenthood to bill Medi-Cal “at cost” for contraceptives; which the relator alleged meant at Planned Parenthood’s acquisition cost. When Planned Parenthood submitted bills to Medi-Cal it billed costs for contraceptives at its “usual and customary rates.” In 1997, the California Department of Healthcare Services, the governing body for Medi-Cal, informed Planned Parenthood that its claims for reimbursement of contraceptives should be made “at cost.” Planned Parenthood wrote back to the California Department of Healthcare Services and informed it that its clinics billed at the “usual and customary rate.” In 2004, the Department audited Planned Parenthood and found that it was not complying with the Medi-Cal billing manual practices. The Department also wrote Planned Parenthood and stated that the billing manual was unclear and therefore the Department would not be seeking reimbursement from Planned Parenthood for the charges. In 2005, acting as a whistleblower, Gonzalez, the former CFO of Planned Parenthood brought a suit against his former employer alleging that by overbilling Medi-Cal for contraceptives Planned Parenthood was in violation of the Federal and California False Claims Acts.
The Ninth Circuit affirmed the dismissal of the Relator’s complaint on a Motion to Dismiss. The court found that the earlier exchange of correspondence between Planned Parenthood and the California Department of Healthcare Services on the issue “contradicted” Gonzalez’s allegations that Planned Parenthood knowingly submitted false claims for reimbursement. Notably, Planned Parenthood’s correspondence was attached to and referred to by Relator in his Complaint. The Court found that the letters on the issue expressly contradicted the allegations Relator was asserting in his Complaint and provided an alternative explanation for Planned Parenthood’s actions – that Planned Parenthood lacked the scienter required under the FCA due to its alternate explanation for what happened (confirmed via correspondence exchange with the California Department). Additionally, the Department’s acknowledgement that its billing manual was ambiguous was “persuasive in its determination that there was no knowing falsity under the FCA.”
Why is this decision important for government contractors? There is now support in the Ninth Circuit that a “knowing” violation of the FCA cannot be found when there is a credible and supported reasonable explanation for one’s actions. This decision also reaffirms that FCA actions concerning ambiguous and/or good faith interpretations of requirements can, and should, be addressed through a Motion to Dismiss.