USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 1 of 19
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 22-1491
UNITED STATES OF AMERICA,
Plaintiff − Appellant,
and
COMMONWEALTH OF VIRGINIA,
Plaintiff,
v.
WALGREEN CO.,
Defendant – Appellee.
------------------------------
CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; THE
AMERICAN MEDICAL ASSOCIATION; THE MEDICAL SOCIETY OF
VIRGINIA; NATIONAL ASSOCIATION OF CHAIN DRUG STORES,
INCORPORATED; NATIONAL HEALTH LAW PROGRAM,
Amici Supporting Appellee.
No. 22-4292
COMMONWEALTH OF VIRGINIA,
Plaintiff − Appellant,
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 2 of 19
and
UNITED STATES OF AMERICA,
Plaintiff,
v.
WALGREEN CO.,
Defendant – Appellee.
------------------------------
CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; THE
AMERICAN MEDICAL ASSOCIATION; THE MEDICAL SOCIETY OF
VIRGINIA; NATIONAL ASSOCIATION OF CHAIN DRUG STORES,
INCORPORATED; NATIONAL HEALTH LAW PROGRAM,
Amici Supporting Appellee.
Appeal from the United States District Court for the Western District of Virginia, at
Abingdon. James P. Jones, Senior District Judge. (1:21−cv−00032−JPJ−PMS)
Argued: May 4, 2023 Decided: August 15, 2023
Before DIAZ, Chief Judge, and WYNN and QUATTLEBAUM, Circuit Judges.
Vacated and remanded by published opinion. Chief Judge Diaz wrote the opinion, in which
Judge Wynn and Judge Quattlebaum joined.
ARGUED: Martin V. Totaro, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C.; Martin Jordan Minot, OFFICE OF THE ATTORNEY GENERAL OF
VIRGINIA, Richmond, Virginia, for Appellants. Jonathan M. Phillips, GIBSON, DUNN
& CRUTCHER LLP, Washington, D.C., for Appellee. ON BRIEF: Brian M. Boynton,
Principal Deputy Assistant Attorney General, Michael S. Raab, Charles W. Scarborough,
Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.;
Christopher R. Kavanaugh, United States Attorney, OFFICE OF THE UNITED STATES
2
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 3 of 19
ATTORNEY, Roanoke, Virginia, for Appellant United States of America. Jason S.
Miyares, Attorney General, Charles H. Slemp III, Chief Deputy Attorney General, W. Clay
Garrett, Assistant Attorney General, Andrew N. Ferguson, Solicitor General, Erika L.
Maley, Principal Deputy Solicitor General, Lucas W.E. Croslow, Deputy Solicitor General,
Rohiniyurie Tashima, John Marshall Fellow, OFFICE OF THE ATTORNEY GENERAL
OF VIRGINIA, Richmond, Virginia, for Appellant Commonwealth of Virginia. Reed
Brodsky, New York, New York, Matt Gregory, Francesca Broggini, GIBSON, DUNN &
CRUTCHER LLP, Washington, D.C., for Appellee. Tara S. Morrissey, Andrew R. Vance,
UNITED STATES CHAMBER LITIGATION CENTER, Washington, D.C., for Amicus
Chamber of Commerce of the United States of America. Elisabeth S. Theodore, Kolya D.
Glick, ARNOLD PORTER KAYE SCHOLER LLP, Washington, D.C., for Amici
Chamber of Commerce of the United States of America, The American Medical
Association, and The Medical Society of Virginia. Scott McIntosh, Kirti V. Reddy,
QUARLES & BRADY LLP, Washington, D.C., for Amicus National Association of Chain
Drug Stores. Martha Jane Perkins, Arielle Linsey, Catherine McKee, NATIONAL
HEALTH LAW PROGRAM, Chapel Hill, North Carolina, for Amicus National Health
Law Program.
3
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 4 of 19
DIAZ, Chief Judge:
The United States and the Commonwealth of Virginia (together, the “governments”)
appeal the district court’s dismissal of their complaint under the False Claims Act, 31
U.S.C. § 3729 et seq., and Virginia state law. The governments allege that Walgreen Co.
(“Walgreens”) misrepresented that certain patients met Virginia’s Medicaid-eligibility
requirements for expensive Hepatitis C drugs.
The district court dismissed the complaint, holding that Virginia’s eligibility
requirements violated the Medicaid Act, and therefore Walgreens’s misrepresentations
were immaterial as a matter of law. We hold that the governments plausibly allege facts
that establish materiality. So we vacate and remand.
I.
A.
The governments’ complaint alleges the following.
1.
Virginia participates in Medicaid and administers its state plan through its
Department of Medical Assistance Services. The Department, in turn, contracts with
Magellan Medicaid Administration and two managed-care organizations (Virginia Premier
and Aetna) to administer patients’ Medicaid claims and cover prescription drugs.
4
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 5 of 19
The Department covers Sovaldi, Harvoni, and Daklinza, which are direct-acting
antiviral drugs that treat Hepatitis C. 1 These drugs are “extremely expensive.” J.A. 17
¶ 40. To control costs, the Department requires prior authorization before patients may
obtain the drugs. See 42 U.S.C. § 1396r-8(d)(1)(A) (“A State may subject to prior
authorization any covered outpatient drug.”).
During the relevant time, the Department had built into its prior-authorization
process two eligibility requirements that are at issue here. First, a patient’s Hepatitis C had
to be sufficiently severe; this generally required a fibrosis score of at least 0.59, a metavir
stage of at least F3, or documented cirrhosis of the liver. 2 Second, a patient must have
abstained from alcohol and illicit substances for six months, as shown by an acceptable
drug- and alcohol-screening test.
The Department tasked Magellan, Virginia Premier, and Aetna with ensuring that
Medicaid patients seeking coverage for direct-acting antiviral drugs met Virginia’s
eligibility requirements. If they determined that the patient satisfied the criteria (including
the disease-severity and substance-abstinence requirements), the patient would receive
Medicaid coverage for the requested drugs and pharmacies like Walgreens would be
reimbursed by Medicaid for dispensing them. Conversely, a patient deemed ineligible
would be denied coverage and told why.
1
Hepatitis C is an infection caused by the hepatitis C virus that primarily affects the
liver.
The fibrosis and metavir scoring systems are used to assess fibrosis, or scarring of
2
the liver, in patients with Hepatitis C.
5
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 6 of 19
2.
Enter Amber Reilly, a clinical pharmacy manager for a Walgreens store in
Kingsport, Tennessee. Reilly told her store manager she had become “an expert in
customizing [Medicaid-coverage] appeal letters” to “receiv[e] approvals [for direct-acting
antiviral drugs], which in turn . . . increased profits and strengthened relationships with
providers.” J.A. 20 ¶ 56.
But rather than “customizing” Medicaid paperwork, Reilly was falsifying patient
records and other documents to satisfy Virginia’s eligibility requirements.
The governments’ complaint illustrates the fraudulent scheme with twelve Virginia
Medicaid patients, Patients 1 through 12. For instance, Virginia Premier at first denied
Patient 3’s prior-authorization request for direct-acting antiviral drugs because it wasn’t
backed up by “negative urine drug screens.” J.A. 29 ¶ 107. In response, Reilly’s
Walgreens store submitted reports that falsely showed Patient 3 passed the drug test. After
that, the Department approved the request, costing Virginia Medicaid over $64,000.
Similarly, Patient 8 was denied prior authorization for the drugs, and on appeal to
the Department, acknowledged falling short of Virginia’s metavir-score threshold. The
Department upheld the denial. Then Reilly’s Walgreens store got involved, submitting a
false lab report that changed Patient 8’s fibrosis score from 0.19 to 0.59 and metavir level
from F0 to F3, after which the Department approved coverage and paid Walgreens over
$96,000.
6
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 7 of 19
This fraudulent scheme took place from at least January 2015 through June 2016.
During that time, Reilly’s Walgreens store’s revenue increased more than 320% over the
year before.
Walgreens learned about the fraudulent scheme at least as early as 2016, when
Tennessee and Walgreens both launched investigations. Reilly has since pleaded guilty to
engaging in the same scheme to defraud Tennessee’s Medicaid program. But Walgreens
still hasn’t paid back any of the money it received for Virginia Medicaid Patients 1 through
12.
B.
The governments sued Walgreens, alleging (1) violations of the federal False
Claims Act and Virginia’s state-law version; and (2) state-law claims of fraud, unjust
enrichment, and payment by mistake.
Walgreens moved to dismiss and asked the district court to take judicial notice of
various documents. One was the Centers for Medicare and Medicaid Services’ Release
No. 172 from November 2015, entitled Assuring Medicaid Beneficiaries Access to
Hepatitis C (HCV) Drugs.
In that Release, the Centers expressed “concern[] that some states are restricting
access to [direct-acting antiviral] drugs contrary to the [Medicaid Act] by imposing
conditions for coverage that may unreasonably restrict access to these drugs,” including by
requiring a “metavir fibrosis score F3” or higher, or by “requiring a period of abstinence
from drug and alcohol abuse as a condition for payment” for the medications. J.A. 97–98.
The Centers noted that any restrictions on coverage must satisfy the Medicaid Act and
7
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 8 of 19
“should not result in the denial of access to effective, clinically appropriate, and medically
necessary treatments” using these medications. J.A. 98.
The district court held a hearing. Walgreens argued that Reilly’s store’s
misrepresentations couldn’t be material because they went to eligibility requirements that
violated the Medicaid Act, so the drugs should’ve been covered no matter if patients had a
sufficient fibrosis score, abstained from drugs, and so on.
The district court agreed with Walgreens’s materiality argument. The court held
that Virginia’s eligibility requirements violated the Medicaid Act because they restricted
coverage of medically necessary drugs beyond the permissible restrictions laid out in 42
U.S.C. § 1396r-8(d)(1)(B).
As for materiality, the district court reasoned:
On a superficial level, the fraudulent statements and records did influence
the decision of [the Department] and its contractors to approve
reimbursement for the relevant drugs. But the falsified records should not
have so influenced the decision-making because the drugs should have been
covered for Patients 1 through 12 regardless of the information contained on
the falsified records. The relevant drugs should have been covered because
they were properly prescribed medically necessary treatments for which
there was not an equally effective covered alternative. The plaintiffs have
not alleged that the drugs were not medically necessary for Patients 1 through
12 or that there were equally effective alternative medications that would
have been covered.
United States v. Walgreen Co., No. 1:21CV00032, 2021 WL 5760307, at *11 (W.D. Va.
Dec. 3, 2021). So while the district court found the fraud to be “regrettable, to say the
least,” it determined that “Walgreens was entitled to be reimbursed by Virginia Medicaid
under the federal statute governing Medicaid funds.” Id. at *12. This foreclosed the
8
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 9 of 19
governments from pleading the necessary element of materiality under the False Claims
Act and doomed their state-law claims as well, the court held.
The governments appealed. 3
II.
We review de novo the district court’s dismissal under Federal Rule of Civil
Procedure 12(b)(6). United States ex rel. Taylor v. Boyko, 39 F.4th 177, 189 (4th Cir.
2022). We view factual allegations in the light most favorable to the governments, without
crediting “legal conclusions couched as facts or unwarranted inferences, unreasonable
conclusions, or arguments.” Id. (cleaned up). To avoid dismissal, the complaint must state
a claim to relief that is “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(cleaned up). 4
III.
To plausibly allege a claim under the False Claims Act, a plaintiff must generally
plead four elements: “(1) there was a false statement or fraudulent course of conduct; (2)
3
The governments also appealed the district court’s denial of their request for
reconsideration under Federal Rule of Civil Procedure 59. But we need not reach that issue
because we vacate the dismissal.
4
While not at issue, the governments’ fraud claims must also satisfy Rule 9(b)’s
heightened pleading standards. Taylor, 39 F.4th at 189. A defendant’s mindset can be
alleged generally, but plaintiffs must particularly allege the “who, what, when, where, and
how of the alleged fraud.” Id. (cleaned up).
9
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 10 of 19
made or carried out with the requisite scienter; (3) that was material; and (4) that caused
the government to pay out money or to forfeit moneys due.” Taylor, 39 F.4th at 188
(cleaned up).
We hold that the governments’ complaint plausibly alleges facts that establish False
Claims Act materiality as explained in Universal Health Services, Inc. v. United States ex
rel. Escobar, 579 U.S. 176 (2016). So we vacate the dismissal and remand for further
proceedings.
The district court and the parties took on the daunting question whether Virginia’s
eligibility requirements violated the Medicaid Act. But we don’t think it necessary to
answer that question (at least at this point in the proceedings) because it doesn’t control
materiality as a matter of law.
The governments allege that the misrepresentations did, in fact, influence the
decisionmakers. As we explain below, that’s what matters under Escobar. And in any
event, we’re persuaded by the governments’ argument that Walgreens can’t collaterally
attack Virginia’s eligibility requirements as a defense to fraud.
A.
We begin by summarizing the authorities that bear on this case.
According to the False Claims Act’s text, “the term ‘material’ means having a
natural tendency to influence, or be capable of influencing, the payment or receipt of money
or property.” 31 U.S.C. § 3729(b)(4).
Escobar is the key case on materiality, which the Court called a “rigorous”
requirement. 579 U.S. at 181. Materiality “looks to the effect on the likely or actual
10
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 11 of 19
behavior of the recipient of the alleged misrepresentation.” Id. at 193 (cleaned up). So
whether a requirement is an express condition of payment might be “relevant, but [it’s] not
automatically dispositive” of materiality. Id. at 194. The Court went on:
Likewise, proof of materiality can include, but is not necessarily limited to,
evidence that the defendant knows that the Government consistently refuses
to pay claims in the mine run of cases based on noncompliance with the
particular . . . requirement. Conversely, if the Government pays a particular
claim in full despite its actual knowledge that certain requirements were
violated, that is very strong evidence that those requirements are not material.
Id. at 194–95.
Following Escobar’s lead, we’ve analyzed materiality at the pleading stage. In
Taylor, we upheld the dismissal of a False Claims Act claim when the relator failed to
allege how or whether a misrepresentation about corporate certificates of authorization
impacted government decision-making on claims for payment. 39 F.4th at 191, 202.
The relator alleged only that the government generally rejected claims by individual
healthcare providers who had lost their personal medical licenses. Id. at 191. But medical
licenses are distinct from corporate certificates of authorization, and the relator didn’t
plausibly allege how the government would treat a claim by a company that truthfully
represented it lacked such a certificate. Id. at 193–94. Even if a certificate were an express
condition of payment, that’s not enough under Escobar. Id. at 190. Rather, the relator had
to allege how the misrepresentations at issue would influence government decision-making
in practice. Id. at 194–95.
11
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 12 of 19
B.
We hold that the governments’ complaint sufficiently alleges materiality under
Escobar and Taylor. As alleged, the Department and its proxy decisionmakers rejected (or
required more information about) claims when patients truthfully stated they didn’t satisfy
Virginia’s disease-severity or substance-abstinence requirements. The decisionmakers
changed course and approved these same patients’ claims only after Walgreens doctored
documents and lied to indicate compliance with those requirements.
Taking these allegations as true, they show that Walgreens’s misrepresentations had
“a natural tendency to influence, or [were] capable of influencing,” the government
decisionmakers. 31 U.S.C. § 3729(b)(4). In fact, they did influence the decisionmakers.
According to Escobar and Taylor, that’s what materiality under the False Claims Act is all
about.
The district court erred when it held that it wasn’t enough for the governments to
plead that “the fraudulent statements and records did influence the decision of [the
Department] and its contractors to approve reimbursement for the relevant drugs.”
Walgreen, 2021 WL 5760307, at *11. The court suggested that the governments also
needed to allege that the falsified representations “should . . . have so influenced the
decision-making.” Id. But that’s more than the statutory text, Escobar, and Taylor require.
The legality of Virginia’s eligibility requirements might be relevant to whether the
misrepresentations had a natural tendency to influence, or could influence, the
decisionmakers. But it isn’t dispositive, the same way that labeling something an express
condition of payment “is relevant to but not dispositive of” materiality. Escobar, 579 U.S.
12
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 13 of 19
at 190. 5 And the complaint plausibly (in a non-conclusory way) alleges that the
misrepresentations did, in fact, influence the decisionmakers.
As Escobar explains, the Act’s “focus remains on those who present or directly
induce the submission of false or fraudulent claims” to the government. Id. at 182. There’s
no dispute that Reilly’s Walgreens store fraudulently submitted false claims. Allowing
Walgreens to avoid liability by challenging Virginia’s eligibility criteria only after getting
caught would hinder the Act’s purpose of holding fraudsters accountable.
Indeed, the very act of falsifying records to feign compliance with requirements
suggests that Walgreens itself thought that those requirements were material. See United
States ex rel. Badr v. Triple Canopy, Inc., 775 F.3d 628, 638 (4th Cir. 2015) (“Triple
Canopy’s actions in covering up the guards’ failure to satisfy the marksmanship
requirement suggests its materiality. If Triple Canopy believed that the marksmanship
requirement was immaterial to the Government’s decision to pay, it was unlikely to
orchestrate a scheme to falsify records on multiple occasions.”).
5
The guidance from the Centers for Medicare and Medicaid Services that the district
court found to be a “compelling interpretation of the applicable statute,” Walgreen, 2021
WL 5760307, at *10, was published eleven months after the fraudulent scheme had begun.
So we question the district court’s conclusion that the decisionmakers should’ve paid out
the claims no matter if patients met Virginia’s eligibility requirements at a time when they
didn’t have the benefit of this guidance. The district court didn’t engage with this fact and
Walgreens hasn’t either. We leave open whether a misrepresentation can be material when
it goes to a requirement that’s so blatantly illegal that no reasonable decisionmaker could
be influenced by it. That’s not the case here, where the legality of Virginia’s requirements
was fairly debatable—both before and after Release 172.
13
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 14 of 19
Triple Canopy was decided shortly before Escobar, which vacated our decision and
remanded for further consideration. 579 U.S. 924 (2016). But we’ve continued to cite the
vacated opinion’s persuasive reasoning.
For instance, in Taylor, we cited Triple Canopy for the proposition that the
government’s early intervention in the qui tam action was an indicator of materiality. 39
F.4th at 194. So too here: If the government’s early intervention signals materiality, then
the fact that the governments here were the original plaintiffs to bring this False Claims
Act suit should be an even stronger indicator of materiality.
C.
Vacating the dismissal is necessary for other reasons, too.
1.
The complaint alleges at least one misrepresentation unrelated to the eligibility
requirements Walgreens challenges. When Walgreens steered Patient 12’s request through
the prior-authorization process for the drugs at issue, Virginia asked whether Patient 12
might instead be able to use “the preferred alternative, Viekira Pak.” J.A. 49 ¶ 254. 6 In
response, the Walgreens store falsely represented that Patient 12 couldn’t use Viekira Pak
6
Amici supporting Walgreens explain that this is typical of the way prior
authorization is intended to operate. See, e.g., Brief of the National Association of Chain
Drug Stores as Amicus Curiae in Support of Defendant-Appellee at 8 (“To comply with
this [statutory] regime, a provider wishing to prescribe a medication requiring prior
authorization will typically call a government hotline, at which point the government and
a provider can discuss whether there is a cost-effective, therapeutically comparable drug to
the one the provider wishes to prescribe. The government may persuade the provider to
prescribe another drug, or it may not; coverage is assured so long as the provider takes the
administrative step of calling the state.” (cleaned up)).
14
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 15 of 19
because of an adverse reaction to a related drug. After Walgreens made that representation,
Virginia approved Patient 12’s request for direct-acting antiviral drug coverage, for which
it paid over $98,500.
In other words, this alleged misrepresentation (that Patient 12 couldn’t use the
cheaper drug alternative) has nothing to do with the eligibility requirements Walgreens
now challenges. The district court didn’t explain how the supposed illegality of Virginia’s
eligibility requirements rendered this misrepresentation immaterial or how it otherwise
failed to state a claim.
2.
We’re also persuaded that Walgreens can’t avoid liability by collaterally
challenging the eligibility requirements’ legality, under a line of cases beginning with
United States v. Kapp, 302 U.S. 214, 217–18 (1937) (stating that a defendant can’t avoid
criminal liability by arguing that a fraudulent statement was about an illegal requirement).
a.
Walgreens says that the governments haven’t preserved this argument. But the
governments pressed at the motion hearing that Walgreens couldn’t “collaterally attack”
Virginia’s eligibility requirements to avoid liability for fraud. See J.A. 777 (district court
noting the governments’ argument “that this is an impermissible collateral attack on the
state regulations”). 7
See also J.A. 781 (similar); Walgreen, 2021 WL 5760307, at *10 (noting the
7
governments’ argument that Walgreens is “collaterally attacking” the requirements).
15
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 16 of 19
While the governments may now be putting a finer point on their argument by
expressly invoking Kapp and similar cases, the district court and Walgreens were on notice
of the contention. See Wards Corner Beauty Acad. v. Nat’l Accrediting Comm’n of Career
Arts & Scis., 922 F.3d 568, 578 (4th Cir. 2019) (requiring that “the lower court be fairly
put on notice as to the substance of the issue” to preserve an issue for appeal (cleaned up));
see also In re Under Seal, 749 F.3d 276, 288 (4th Cir. 2014) (noting that issues are
preserved when they’re “plainly encompassed by the submissions in the underlying
litigation” (cleaned up)).
In any event, we have inherent discretion to consider issues that weren’t properly
preserved. Singleton v. Wulff, 428 U.S. 106, 121 (1976). And we choose to do so here,
since (1) we’re reviewing de novo whether the complaint states a claim, (2) the Kapp
question is purely legal, and (3) the parties have fully briefed it.
b.
A long line of Supreme Court cases beginning with Kapp establishes that criminal-
fraud defendants can’t escape liability by arguing that their fraudulent statements went to
illegal requirements. See, e.g., Kapp, 302 U.S. at 218 (“It is cheating the government at
which the [false claims] statute aims and Congress was entitled to protect the government
against those who would swindle it regardless of questions of constitutional authority as to
the operations that the government is conducting.”). 8
8
See also United States v. Knox, 396 U.S. 77, 79 (1969) (“[O]ne who furnishes false
information to the Government in feigned compliance with a statutory requirement cannot
defend against prosecution for his fraud by challenging the validity of the requirement
(Continued)
16
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 17 of 19
Walgreens says that the Kapp precedents don’t apply because they’re criminal
cases. It emphasizes that Dennis, for instance, expressly notes the case was “a [criminal]
prosecution directed at petitioners’ fraud,” and “not an action to enforce the statute claimed
to be unconstitutional.” 384 U.S. at 867. But the governments aren’t seeking to enforce
Virginia’s eligibility requirements. Rather, they seek civil damages caused by Walgreens’s
factual misrepresentations. Nothing in Dennis and its related precedents foreclose their
applicability to civil fraud.
In fact, we’ve already applied Kapp’s principles in the civil context. In Acanfora v.
Board of Education, a teacher deliberately omitted from his job application that he had
associated with a gay-rights group. 491 F.2d 498, 501 (4th Cir. 1974). The school district
admitted it wouldn’t have hired him had the teacher disclosed that association. Id. After
the teacher publicly supported gay rights, the school district transferred him to a
nonteaching position, and the teacher sued, alleging discrimination and a violation of his
First Amendment rights. Id. at 500–01. The school district refused to reinstate his teaching
position, citing the misleading omission on his job application. Id. at 500.
The district court dismissed the teacher’s case; we affirmed. Id. at 499. We clarified
that “[t]he principles stated in Kapp, Kay, Dennis, and Bryson have not been confined to
itself.”); Bryson v. United States, 396 U.S. 64, 72 (1969) (rejecting the argument that “a
citizen has a privilege to answer fraudulently a question that the Government should not
have asked”); Dennis v. United States, 384 U.S. 855, 865 (1966) (“[P]etitioners are in no
position to attack the constitutionality [of a likely-illegal provision requiring them to certify
they’re not communists]” when their indictment “alleges an effort to circumvent the law
and not to challenge it.”); accord Kay v. United States, 303 U.S. 1, 6 (1938).
17
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 18 of 19
criminal cases.” Id. at 502. Applying those principles, we held that the school district
could refuse to reinstate the teacher because he “purposely misled the school officials so
he could circumvent, not challenge, what he considers to be their unconstitutional
employment practices. He cannot now invoke the process of the court to obtain a ruling
on an issue that he practiced deception to avoid.” Id. at 504 (citing Kay, 303 U.S. at 6).
Walgreens criticizes Acanfora for condoning the school district’s “open
homophobia.” Appellee’s Br. at 40. But the shameful and discriminatory stigma that
formed the backdrop of that case is beside the point here. Acanfora teaches that Kapp’s
rule applies in the civil context. And if Kapp’s principles apply to a discrimination case, it
makes even more sense to apply them to claims under the False Claims Act, given that the
statute’s roots are in the common law of fraud and its civil penalties are meant to be
“essentially punitive in nature.” Escobar, 579 U.S. at 182 (cleaned up).
3.
Finally, Walgreens points to a separate line of cases under Kaiser Steel Corp. v.
Mullins, 455 U.S. 72 (1982), to support its illegality argument. Kaiser Steel held that courts
can’t enforce a promise that violates antitrust and labor laws. Id. at 77. Walgreens argues
that Kaiser Steel prevents the governments from attempting to enforce Virginia’s illegal
eligibility requirements. But seeking to recover False Claims Act damages for fraud isn’t
the same as enforcing an illegal requirement.
And Kaiser Steel and its ensuing precedents are largely collective-bargaining cases;
even at their broadest, they’re still limited to contract law. See id.; United Paperworkers
Int’l Union v. Misco, Inc., 484 U.S. 29, 42–45 (1987) (addressing the enforceability of an
18
USCA4 Appeal: 22-1492 Doc: 55 Filed: 08/15/2023 Pg: 19 of 19
arbitration award under a collective-bargaining agreement); Bassidji v. Goe, 413 F.3d 928,
936–37 (9th Cir. 2005) (applying Kaiser Steel’s reasoning to a private contract that would
violate an executive order). Walgreens offers no good reason why a contract-law (and even
more specifically, a collective-bargaining-contract-law) rule should displace the liability
created by the False Claims Act, a federal statute.
At bottom, the governments have the better argument, and Walgreens can’t evade
liability by collaterally attacking Virginia’s eligibility requirements as illegal under the
Medicaid Act.
IV.
One final point. We read the district court’s order of dismissal of all the
governments’ claims—not just those related to the False Claims Act—to be based on
materiality. For that reason, our decision today addresses that single legal error at the heart
of the district court’s dismissal. Having corrected that error, we leave all other issues to
the district court.
VACATED AND REMANDED
19