When does a false claim “cause” the government to suffer a loss under the False Claims Act?

The False Claims Act (FCA) imposes treble damages for any losses the federal government sustains “because of” fraud. But how do courts tell when the government suffers losses because of fraud?

Generally, the government must show two things: (1) the loss would not have occurred without the fraud; and (2) the loss was a foreseeable result of the defendant’s conduct.

In some cases, causation is obvious. Consider a doctor who submits a claim to Medicare for treatment that has not been provided. The government would not pay the claim or incur any loss if it knew that the doctor had done nothing. And inducing payment by the government is not just a foreseeable result of the fraud; it’s the whole point.

At the other end of the spectrum, if a government contractor knowingly supplies goods that do not meet contractual requirements, but the goods have equivalent value and can serve the intended purpose, then the government may not suffer any loss because of the misstatement.

Other cases are more complicated. Following the subprime mortgage crisis, the government brought many suits under the FCA against lenders. It generally alleged that lenders had certified mortgages that did not meet requirements necessary to qualify for insurance by the Department of Housing and Urban Development.

The lenders argued that any allegedly false certifications did not “cause” the government’s losses because the mortgages had defaulted for unrelated reasons, such as a borrower’s death, divorce, or job loss that was unforeseeable when the loan was originally made.

Courts ultimately disagreed, finding that defaults were a foreseeable consequence of misstatements about creditworthiness, even if the precise reason for default could not be known in advance.  

Assessing whether the government suffers a loss “because of” a false statement requires a detailed assessment of the misstatement, the surrounding circumstances, and the reason for any applicable law or regulation. The stakes can be high, determining whether the government recovers the full value of the claim, or instead a smaller penalty.  

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