Legal Docket: The price of truth

MARY REICHARD, HOST: It’s Monday, May 29th. We’re glad you’ve joined us for today’s edition of The World and Everything in It. Good morning. I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher.

REICHARD: Invigorating! So excited for that next generation of Christian journalists, and I’m glad you and so much of our team could be there investing in them.

And here’s hoping that during this week we can find a new generation of first time donors to help carry on the work.

EICHER: Because there is so much work to do, so we’d best get to it. It’s time now for Legal Docket.

The Supreme Court has five weeks left in this term, with more than thirty opinions due before the end of it. That includes the college admissions dispute at Harvard and the challenge to President Biden’s plan to cancel student loans, not to mention a major First Amendment case involving a custom wedding website designer. It’s another of the many controversies that has grown out of the court’s same-sex marriage ruling back in 2015, now eight years ago.

Last week, the court handed down three opinions, all of them unanimous opinions

REICHARD: First, the case of the 94-year-old woman who lost her condo over a property tax dispute. That may be fresh in your memory. That was argued in April and we covered it three weeks ago.

Quick refresher on the facts: Geraldine Tyler fell behind on her property taxes and penalties by $15,000. Hennepin County, Minnesota seized her condo, sold it for $40,000, and kept the $25,000 difference.

Well, she won her case. The court held that the Fifth Amendment of the U.S. Constitution, the provision known as the Takings Clause, does not permit the state to appropriate more than what it’s owed.

You can hear the eventual outcome in this from Chief Justice John Roberts during oral argument:

JUSTICE ROBERTS: What's the point of the Takings Clause? I mean, that was something that was pretty important to the framers. The Constitution seemed to have a different idea in mind.

EICHER: If you’re a history buff, you might enjoy reading the unanimous opinion that Roberts wrote. It highlights history going back to the Magna Carta in the year 12-15. That’s where our Takings Clause has origins. We’ll link to the opinion in today’s transcript.

Now for the second opinion in a case captioned Dupree v Younger.

We gave you a deep dive just last week, so quick release. Again a refresher:

Here, a jury found a prison official liable for assault of an inmate. Bit of a technical issue here involving an official named Neil Dupree and a procedural rule about preserving arguments for appeal. So what Dupree was looking for was the ability to claim on appeal an issue the lower court had already denied.

Dupree wins again unanimously, the court saying he needn’t raise an issue after trial that he raised before trial. Case remanded.

REICHARD: This last opinion today is a win for a married couple who’ve been battling the Environmental Protection Agency for 15 years. And specifically, big setback for the enormous power of the administrative state. Exclamation point on it, too, because this decision was unanimous.

In this one: Michael and Chantell Sackett bought less than an acre of land in Idaho about 300 feet from a lake. They started to prepare the lot to build their house. But the EPA told them to stop, deeming the property as containing wetlands protected under the Clean Water Act. The agency threatened fines up to $40,000 per day.

All nine justices agreed the federal agency was wrong to claim oversight of the property. The court cut back on the meaning of the phrase in the law “waters of the United States.”

During oral argument, the attorney for the EPA and Justice Neil Gorsuch tangled this way:

FLETCHER: I am sympathetic to the idea of “how does a landowner know under the standard whether their land is covered?”

JUSTICE GORSUCH: So, if the federal government doesn't know, how is a person subject to criminal time in federal prison supposed to know?

EICHER: Now, we said it was unanimous in the judgment. Here’s where it breaks down a little bit. The justices split 5-4 on how to interpret the Clean Water Act going forward. Several justices expressed their concern over other wetlands now beyond the scope of EPA authority by this decision.

That case is remanded for further proceedings back down the legal system, so we’ve not heard the end of it.

REICHARD: Now for our oral argument today from April.

Maybe you’ve used price-match coupons to save money at your favorite stores? In this dispute, a grocery chain that operates thousands of stores with 800 in-house pharmacies used a price-match program to compete with other pharmacies. It discounted some prescription drugs to match competitors’ prices.

The chain is SuperValu. The program was perfectly legal, but reporting rules got the company into some trouble. Between 2006 and 2012, SuperValu reported non-discounted prices for reimbursement to government healthcare programs like Medicaid.

EICHER: Two pharmacists decided to sue SuperValu under the FCA, the False Claims Act. They did this on behalf of the federal government coming to the court as “relators.” A relator is someone who files a lawsuit on behalf of the government in exchange for a portion of any recovery.

The False Claims Act requires a company to know it is doing wrong, defined as “actual knowledge” of wrongdoing. In legal parlance, that’s called having scienter.

For its part, SuperValu argued that the term “price” wasn’t defined by regulation. So it defended itself saying that its action was objectively reasonable.

SuperValu lawyer, Carter Phillips:

CARTER PHILLIPS: In this case, I think you have to go back to 2005, when all -- when "usual and customary" had been in place for many years, Walmart adopts a pricing mechanism where it discounts deeply and across the board for all generics, and the question is, what do the rest of the pharmaceutical business do in that context? And it does it, against the backdrop that there is no usual and customary guidance. There is nothing from the federal government that tells you what the right answer is. And there are lots of different states that take lots of different positions. There's lots in the record in this case that says that the interpretation adopted by my clients was absolutely correct, those discounts didn't count.

REICHARD: On the other side arguing for the pharmacists, lawyer Tejinder Singh:

TEJINDER SINGH: The False Claims Act establishes three independent ways to prove scienter for a defendant who presented legally false claims. First, if the defendant correctly interpreted the law and then chose to break it, that's actual knowledge.

Going on to say deliberate ignorance or recklessness are the other ways to prove scienter—this knowledge of wrongdoing.

SINGH: On the other hand, if the defendant attempted to discern and follow the correct interpretation of the law and was transparent with the government about how it resolved ambiguities, there's no scienter. This rule is not easy for plaintiffs, but it is a fair rule that follows the plain meaning of the text, tracks more than a century of the common law of fraud, and achieves the fundamental purpose of scienter, which is to accurately separate culpable mind sets from innocent ones.

He argued we ought not incentivize companies the wrong way:

SINGH: Across the board, Respondents would replace existing incentives for companies to determine and then follow the law with an incentive to plunder every ambiguity for all it's worth. That flies in the face of the statute's text, the common law, and common sense.

Congress passed the FCA back in 18-63 to address rampant fraud during the Civil War. Unscrupulous vendors sold sick horses or rotten food to the Union Army. So this law gave people an incentive to call out wrongdoing. Today, it’s used more broadly, applied to entitlement programs like Medicaid.

The Department of Justice reports that in 2022 it recovered more than $1.7 billion dollars in false claims just from the healthcare industry.

Justice Clarence Thomas started off the questions noting different states required different ways of reporting. Listen to this exchange with Singh, lawyer for the pharmacists suing SuperValu:

JUSTICE THOMAS: You said that they took money they shouldn't take. So, in order to determine that, we have to know what they should have taken and they have to know what they should have taken.

SINGH: Yes. So the definition adopted by the lower courts was it's the -- so the definition in the regulations is the cash price charged to the general public. And so – so, also, I guess I should back up. You know, I took your question to be premised on a hypothetical world in which there was no guidance.

THOMAS: Yes.

SINGH: In this world, there was guidance. There --

THOMAS: Well, isn't the argument, though, about how much guidance you need in order for there to be -- a deviation to be false?

Lawyer Phillips for SuperValu got his share of questions, too, such as this exchange with Justice Gorsuch:

JUSTICE GORSUCH: I mean, I can easily imagine a case, Mr. Phillips, in which there's all kinds of internal communications, not among lawyers but among businesspeople, saying, we know this isn't our usual and customary price under any reasonable definition, but we're going to do it anyway, okay? And for reasons that turn out later with subsequent guidance, it might be objectively reasonable, if mistaken, but they knew. And that would be fraud in a normal circumstance. And I don't know why it wouldn't be here.

PHILLIPS: Because that's not this case. I don't have any problem --

GORSUCH: Oh, I --

PHILLIPS: I don't, frankly, have any problem with that case. But the case we --

GORSUCH: So -- so -- so you think --

PHILLIPS: In that because it goes to the frame, how you frame the issue.

GORSUCH: No, I think -- I think acknowledging that -- that you have no problem with that suggests the Seventh Circuit erred in suggesting otherwise.

EICHER: The federal government also argued in support of the pharmacists against SuperValu. Its argument is that even if a lot of interpretations of a law are possible, or even if the government didn’t give good enough guidance, SuperValu is still liable.

REICHARD: Business news outlets hope that’s not the case, as it could turn every concerning claim into a false claim. And that’s costly and time consuming to defend.

It’s so fraught trying to figure out where the justices are by the questions they ask, but I’ll try anyway: I do think the eventual opinion will take subjective understanding of SuperValu’s actions into consideration.

We’ll find out soon enough whether I’m right on that.

And that’s this week’s Legal Docket.

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