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July 10, 2024 - Compliance, False Claims Act

The End of Chevron Deference: What It Means for False Claims Act Litigation

Gavel and books

Under the Supreme Court’s decision in Chevron USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), for decades courts have sometimes been required “to defer to ‘permissible’ agency interpretations of [ambiguities in] statutes those agencies administer—even when a reviewing court reads the statute differently.” This is known as “Chevron deference” or the “Chevron doctrine.” Loper Bright Enters. v. Raimondo, 603 U.S. __, 2024 WL 3208360, at *16 (June 28, 2024). Last month, the U.S. Supreme Court overruled Chevron and held that courts “may not defer to agency interpretation of the law simply because a statute is ambiguous.” Id. at *62. 

The Court made it clear that “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the [Administrative Procedure Act] APA requires.” Id. at *61-62. The APA was enacted “as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.” Id. at *32. The Court found that Chevron deference cannot be squared with the APA, which specifies that courts, not agencies, will decide all relevant questions of law and set aside agency action inconsistent with the law as the courts interpret it.  Id. at *38.

A detailed overview of the Supreme Court’s decision in Loper can be found on our website, and another article discussing the potential impacts of the Supreme Court’s decision on government contractors is available on our Government Contracts Insights blog. This article discusses the potential impacts the fall of the Chevron doctrine may have on False Claims Act (FCA) litigation. In short, the end of the Chevron doctrine may create situations in which it is easier to defend against FCA cases based on violation of a regulation.

Last year in United States ex rel. Schutte v. SuperValu, Inc., 598 U.S. 739 (2023), the Supreme Court determined that a defendant’s contemporaneous subjective beliefs about a legal requirement matter, which made it harder to win a motion to dismiss on the ground that the requirement was unclear or open to more than one interpretation (i.e., the “objective reasonableness” or “clever lawyer” defense). The Supreme Court may now have revived a similar (though not exactly the same) defense through the back door, allowing a defendant to argue that a regulation underlying an FCA case is contrary to, or unsupported by, the governing statute.

For example, if an FCA defendant is accused of a regulatory violation in which its alleged conduct does not violate the underlying statute but does violate an implementing regulation, the defendant might contend the regulation is inconsistent with the statute. In that scenario, the defendant could move to dismiss on the ground that, even if the facts are as alleged, they do not support a legal violation. Under Loper, a court would have more latitude to consider that argument. Unlike the “objective reasonableness” defense the Supreme Court rejected in Schutte, which focused on the scienter element of an FCA claim, this new avenue would focus on the falsity element, arguing that it is not false or fraudulent to violate an unlawful regulation.

Before Chevron’s undoing, deference to agency interpretations of statutes may have given relators and the federal government a leg up in FCA cases, while defendants faced an uphill battle against years of agency rulemaking and a thumb on the scale in favor of agency interpretations. Now, savvy defense attorneys may look for potential daylight between a statute and the regulation a defendant is accused of violating.