On March 5, 2025, a federal jury in the Central District of Illinois returned a significant verdict in favor of defendant SuperValu in the closely watched United States ex rel. Schutte et al. v. SuperValu, No. 3:11-cv-03290, holding that although the defendant had knowingly submitted false claims to the government, it had not caused any damages to the government.

The plaintiffs/relators alleged that the defendant, SuperValu, knowingly violated regulations that required it to charge no more to Medicare and Medicaid than the "usual and customary" (U&C) prices charged to the public for the same drugs. According to the plaintiffs, SuperValu incorrectly reported its retail prices as the usual and customary prices, when it should have adjusted those prices to account for its "price-match" pharmacy discount program that allowed discounted prices to compete with prices charged by competitors. By failing to account for these discounts, the plaintiff claimed, SuperValu knowingly caused false claims to be submitted to the government.

In the SuperValu litigation before the Seventh Circuit and ultimately the Supreme Court, the key issue has been SuperValu's argument that it could not have acted knowingly as defined in the False Claims Act (FCA), 31 U.S.C. § 3729(a), because it had operated under an objectively reasonable interpretation of the ambiguous phrase "usual and customary." In a major 2023 decision, a unanimous Supreme Court held that the FCA's scienter element refers to the defendant's subjective belief at the time the claim was submitted, regardless of whether the alternative (incorrect) interpretation of the law was reasonable. See United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023). 

By requiring scrutiny of subjective intent, the Court increased the difficulty for defendants to prevail at the motion to dismiss stage when FCA claims are brought based on the alleged violation of a facially ambiguous statute or regulation. For the same reason, the Supreme Court SuperValu decision increased the risks of FCA cases proceeding to trial due to disputed facts concerning the interior mental state of corporate officers and agents. 

The SuperValu trial, which began in mid-February, exemplified the fact-specific inquiry that is now required to establish scienter and the concomitant risk of an adverse jury verdict for cases that proceed to trial. Because the district court had already granted summary judgment in favor of the relators on the elements of falsity and materiality, the trial focused on the question of SuperValu's knowledge. 

In trial briefing, the relators stated their intent to bring evidence of internal emails, including an email in which the vice president of managed mare directed the recipient to "[m]ake sure our [lawyer] can defend our price match policy as not being our U&C." The relators also claimed that when the Department of Health and Human Services (HHS) served a subpoena on SuperValu in 2012, a district manager "instructed pharmacists to 'throw away all of your competitor's price matching lists and get rid of all signs that say we match prices.'" 

In response, SuperValu emphasized that the term "usual and customary" was not defined during the period of issue, and presented employee testimony that they did not believe that prices from price-matching programs were the usual and customary prices. SuperValu also argued that its price matching program was well known, and had been repeatedly disclosed to auditors, indicating good faith. Finally, SuperValu argued that the relators had insufficient evidence of damages because relators' expert had only attempted to quantify enrichment to SuperValu rather than financial loss suffered by the government.

Applying the Supreme Court's rule for establishing scienter, the jury found that SuperValu had knowingly submitted false claims to the government. The jury also determined, however, that the plaintiff had failed to sufficiently prove that the defendant caused any damages to the government. The favorable outcome for the defendant underscores the importance for relators to correctly examine harm suffered by the government. The jury's finding of subjective intent to defraud the government reinforces the risks that the FCA's scienter prong now poses, even to defendants who adopt reasonable interpretations of ambiguous legal requirements.

For more information, please contact:

William P. Barry, wbarry@milchev.com, 202-281-4467 

Kirby D. Behre, kbehre@milchev.com, 202-294-5960

Joshua Drew, jdrew@milchev.com, 202-626-5811

Bradley E. Markano, bmarkano@milchev.com, 202-626-6061

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