UNITED STATES et al. ex rel. SCHUTTE et al. v. SUPERVALU INC. et al.

Certiorari To The United States Court Of Appeals For The Seventh Circuit

No. 21–1326. Argued April 18, 2023—Decided June 1, 20231

In these cases, petitioners have sued retail pharmacies under the False Claims Act (FCA), 31 U. S. C. §3729 et seq. The FCA permits private parties to bring lawsuits in the name of the United States against those who they believe have defrauded the Federal Government, §3730(b), and imposes liability on anyone who “knowingly” submits a “false” claim to the Government, §3729(a). Here, petitioners claim that respondents—SuperValu and Safeway—defrauded two federal benefits programs, Medicaid and Medicare. Both Medicaid and Medicare offer prescription-drug coverage to their beneficiaries, and both often cap any reimbursement for drugs at the pharmacy’s “usual and customary” charge to the public. But, according to petitioners, SuperValu and Safeway for years offered various pharmacy discount programs to their customers—yet reported their higher retail prices, rather than their discounted prices. Petitioners also presented evidence that the companies believed their discounted prices were their usual and customary prices and tried to prevent regulators and contractors from finding out about their discounted prices. In sum, petitioners claim that the evidence shows that respondents thought their claims were inaccurate yet submitted them anyway.

  Two essential elements of an FCA violation are (1) the falsity of the claim and (2) the defendant’s knowledge of the claim’s falsity. The District Court ruled against SuperValu on the falsity element—finding that its discounted prices were its usual and customary prices and that, by not reporting them, SuperValu submitted false claims. However, the court granted SuperValu summary judgment based on the scienter element, holding SuperValu could not have acted “knowingly.” In a separate case, the court granted Safeway summary judgment on that same basis. The Seventh Circuit affirmed in both cases, relying heavily on Safeco Ins. Co. of America v. Burr, 551 U. S. 47—a case that interpreted the term “willfully” in the Fair Credit Reporting Act. As the Seventh Circuit read Safeco, the companies could not have acted “knowingly” if their actions were consistent with an objectively reasonable interpretation of the phrase “usual and customary.” Thus, the Seventh Circuit concluded, the companies were entitled to summary judgment even if they actually thought that their discounted prices were their “usual and customary” prices (and thus thought their claims were false).

Held: The FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed. Pp. 8–17.

 (a) The FCA’s text and common-law roots demonstrate that the FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs. The FCA sets out a three-part definition of the term “knowingly” that largely tracks the traditional common-law scienter requirement for claims of fraud: Actual knowledge, deliberate ignorance, or recklessness will suffice. See §3729(b)(1)(A). Each term focuses on what the defendant thought and believed: “Actual knowledge” refers to what the defendant is aware of. “Deliberate ignorance” encompasses defendants who are aware of a substantial risk that their statements are false, but intentionally avoid taking steps to confirm the statements’ truth or falsity. And “[r]eckless disregard” captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway. These forms of scienter track the common law of fraud, which generally focuses on the defendant’s lack of an honest belief in the statement’s truth. Restatement (Second) of Torts §526, Comment e. The focus is on what a defendant thought when submitting a claim—not what a defendant may have thought after submitting it. Pp. 8–11.

 (b) Even though the phrase “usual and customary” may be ambiguous on its face, such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false. That is because the Seventh Circuit did not hold that respondents made an honest mistake about that phrase; it held that, because other people might make an honest mistake, defendants’ subjective beliefs became irrelevant to their scienter. Respondents make three main arguments to support that theory, but the Court finds none to be persuasive.

 First, the facial ambiguity of the phrase “usual and customary” does not by itself preclude a finding of scienter under the FCA. Even if the phrase is ambiguous, respondents could have learned its correct meaning. Indeed, petitioners argue that the companies received notice that the phrase referred to their discounted prices, comprehended those notices, and then tried to hide their discounted prices.

 Second, the companies’ reliance on Safeco’s interpretation of the common-law definitions of “knowing” and “reckless” is misplaced, because Safeco interpreted a different statute with a different mens rea standard. 551 U. S., at 52. In any event, Safeco did not purport to set forth the purely objective safe harbor that respondents invoke. “Nothing in Safeco suggests that [one] should look to facts”—or, here, legal interpretations—“that the defendant neither knew nor had reason to know at the time he acted.” Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U. S. 93, 106.

 Finally, respondents contend their conduct is not actionable according to the common law of fraud incorporated by the FCA because common law fraud does not encompass misrepresentations of law. Respondents then posit that their alleged claims were false only because their claims’ falsity turned in part on the meaning of the phrase “usual and customary”—which, they argue, means that their claims would be false only as misrepresentations of law. But that does not follow. Even assuming that the FCA incorporates some version of this rule, respondents did not make a pure misrepresentation of law; they did not say, for example, “this is what ‛usual and customary’ means.’ ” Rather, they made a statement that implied facts about their prices, essentially saying “this is what our ‛usual and customary’ prices are.” Petitioners’ case thus makes out a valid fraud theory even under respondents’ common-law rule. Pp. 11–16.

No. 21–1326, 9 F. 4th 455; No. 22–111, 30 F. 4th 649, vacated and remanded.

 Thomas, J., delivered the opinion for a unanimous Court.

Notes
1 Together with No. 22–111, United States et al. ex rel. Proctor v. Safeway, Inc., also on certiorari to the same court.


GLACIER NORTHWEST, INC., dba CALPORTLAND v. INTERNATIONAL BROTHERHOOD OF TEAMSTERS LOCAL UNION NO. 174

Certiorari To The Supreme Court Of Washington

No. 21–1449. Argued January 10, 2023—Decided June 1, 2023

Glacier Northwest delivers concrete to customers in Washington State using ready-mix trucks with rotating drums that prevent the concrete from hardening during transit. Concrete is highly perishable, and even concrete in a rotating drum will eventually harden, causing significant damage to the vehicle. Glacier’s truck drivers are members of the International Brotherhood of Teamsters Local Union No. 174. After a collective-bargaining agreement between Glacier and the Union expired, the Union called for a work stoppage on a morning it knew the company was in the midst of mixing substantial amounts of concrete, loading batches into ready-mix trucks, and making deliveries. The Union directed drivers to ignore Glacier’s instructions to finish deliveries in progress. At least 16 drivers who had already set out for deliveries returned with fully loaded trucks. By initiating emergency maneuvers to offload the concrete, Glacier prevented significant damage to its trucks, but all the concrete mixed that day hardened and became useless.

   Glacier sued the Union for damages in state court, claiming that the Union intentionally destroyed the company’s concrete and that this conduct amounted to common-law conversion and trespass to chattels. The Union moved to dismiss Glacier’s tort claims on the ground that the National Labor Relations Act (NLRA) preempted them. While a federal law generally preempts state law when the two conflict, the NLRA preempts state law even when the two only arguably conflict. San Diego Building Trades Council v. Garmon, 359 U. S. 236, 245. In the Union’s view, the NLRA—which protects employees’ rights “to self-organization, to form, join, or assist labor organizations, . . . and to en gage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” 29 U. S. C. §157—at least arguably protected the drivers’ conduct, so the State lacked the power to hold the Union accountable for any of the strike’s consequences. The Washington Supreme Court agreed with the Union, reasoning that “the NLRA preempts Glacier’s tort claims related to the loss of its concrete product because that loss was incidental to a strike arguably protected by federal law.”

Held: The NLRA did not preempt Glacier’s tort claims alleging that the Union intentionally destroyed the company’s property during a labor dispute. Pp. 6–12.

  (a) The parties agree that the NLRA protects the right to strike but that this right is not absolute. The National Labor Relations Board has long taken the position—which the parties accept—that the NLRA does not shield strikers who fail to take “reasonable precautions” to protect their employer’s property from foreseeable, aggravated, and imminent danger due to the sudden cessation of work. Bethany Medical Center, 328 N. L. R. B. 1094. Given this undisputed limitation on the right to strike, the Court concludes that the Union has not met its burden as the party asserting preemption to demonstrate that the NLRA arguably protects the drivers’ conduct. Longshoremen v. Davis, 476 U. S. 380, 395. Accepting the complaint’s allegations as true, the Union did not take reasonable precautions to protect Glacier’s property from imminent danger resulting from the drivers’ sudden cessation of work. The Union knew that concrete is highly perishable, that it can last for only a limited time in a delivery truck’s rotating drum, and that concrete left to harden in a truck’s drum causes significant damage to the truck. The Union nevertheless coordinated with truck drivers to initiate the strike when Glacier was in the midst of batching large quantities of concrete and delivering it to customers. The resulting risk of harm to Glacier’s equipment and destruction of its concrete were both foreseeable and serious. The Union thus failed to “take reasonable precautions to protect” against this foreseeable and imminent danger. Bethany Medical Center, 328 N. L. R. B., at 1094. Indeed, far from taking reasonable precautions, the Union executed the strike in a manner designed to achieve those results. Because such conduct is not arguably protected by the NLRA, the state court erred in dismissing Glacier’s tort claims as preempted. Pp. 6–8.

  (b) The Union’s efforts to resist the conclusion that the NLRA does not arguably protect its conduct are unavailing. First, the Union emphasizes that the NLRA’s protection of the right to strike should be interpreted generously. But the protected right to strike is not absolute, thus the Court must analyze whether the strike exceeded the limits of conduct protected by the statute.

  Second, the Union argues that workers do not forfeit the NLRA’s protections simply by commencing a work stoppage when the loss of perishable products is foreseeable, but this case involves much more than that. Given the lifespan of wet concrete, Glacier could not batch it until a truck was ready to take it. By reporting for duty and pretending as if they would deliver the concrete, the drivers prompted the creation of the perishable product. Then, they waited to walk off the job until the concrete was mixed and poured in the trucks. In so doing, they not only destroyed the concrete but also put Glacier’s trucks in harm’s way.

  Third, the Court acknowledges that the Union’s decision to initiate the strike during the workday and failure to give Glacier specific notice do not themselves render the Union’s conduct unprotected. Still, these actions are relevant considerations in evaluating whether strikers took reasonable precautions, whether harm to property was imminent, and whether that danger was foreseeable. See International Protective Services, Inc., 339 N. L. R. B. 701, 702–703. Here, the Union’s choice to call a strike after its drivers had loaded a large amount of wet concrete into Glacier’s delivery trucks strongly suggests that it failed to take reasonable precautions to avoid foreseeable, aggravated, and imminent harm to Glacier’s property.

  Finally, while the Union maintains that the drivers took some steps to protect the trucks, the Union concedes that the NLRA does not arguably protect its actions if those actions posed a material risk of harm to the trucks. Given that Glacier alleges that the Union took affirmative steps to endanger Glacier’s property rather than reasonable precautions to mitigate that risk, the NLRA does not arguably protect the Union’s conduct. Pp. 8–12.

198 Wash. 2d 768, 500 P. 3d 119, reversed and remanded.

 Barrett, J., delivered the opinion of the Court, in which Roberts, C. J., and Sotomayor, Kagan, and Kavanaugh, JJ., joined. Thomas, J., filed an opinion concurring in the judgment, in which Gorsuch, J., joined. Alito, J., filed an opinion concurring in the judgment, in which Thomas and Gorsuch, JJ., joined. Jackson, J., filed a dissenting opinion.


SLACK TECHNOLOGIES, LLC, fka SLACK TECHNOLOGIES, INC., et al. v. PIRANI

Certiorari To The United States Court Of Appeals For The Ninth Circuit

No. 22–200. Argued April 17, 2023—Decided June 1, 2023

This case arises from a public offering of securities governed by the Securities Act of 1933, and the issue presented is what a public buyer must allege to state a claim under §11 of the Act. The 1933 Act requires a company to register the securities it intends to offer to the public with the Securities and Exchange Commission. See, e.g., 15 U. S. C. §§77b(a)(8), 77e; see also §77d. As part of that process, a company must prepare a registration statement that includes detailed information about the firm’s business and financial health so prospective buyers may fairly assess whether to invest. See, e.g., §§77f, 77g, 77aa. The law imposes strict liability on issuing companies when their registration statements contain material misstatements or misleading omissions. In this case, Slack Technologies—a technology company that offers a platform for instant messaging—conducted a direct listing to sell its shares to the public on the New York Stock Exchange in 2019. As part of that process, Slack filed a registration statement for a specified number of registered shares it intended to offer in its direct listing. Under the direct listing process, holders of preexisting unregistered shares in Slack were free to sell them to the public right away. Slack’s direct listing offered for purchase 118 million registered shares and 165 million unregistered shares. Fiyyaz Pirani bought 30,000 Slack shares on the day Slack went public, and later bought 220,000 additional shares. When the stock price dropped, Mr. Pirani filed a class-action lawsuit against Slack alleging, as relevant here, that Slack had violated §11 of the 1933 Act by filing a materially misleading registration statement. Slack moved to dismiss, arguing that the complaint failed to state a claim under §11 because Mr. Pirani had not alleged that he purchased shares traceable to the allegedly misleading registration statement, leaving open the possibility that he purchased shares not registered by means of the registration statement. The district court denied the motion to dismiss but certified its ruling for interlocutory appeal. The Ninth Circuit accepted the appeal and a divided panel affirmed.

Held: Section 11 of the 1933 Act requires a plaintiff to plead and prove that he purchased securities registered under a materially misleading registration statement. The relevant language of §11(a) authorizes an individual to sue for a material misstatement or omission in a registration statement when the individual has acquired “such security.” Slack argues the term “such security” refers to a security issued pursuant to the allegedly misleading registration statement; Mr. Pirani says that the term may encompass a security not registered under an allegedly misleading registration statement. While the word “such” usually refers to something that has already been described, there is no clear referent in §11(a) defining what “such security” means. As a result, the Court must ascertain the statute’s critical referent “from the context or circumstances.”

  Context provides several clues. First, the statute imposes liability for false statements or misleading omissions in “the registration statement.” §77k (emphasis added). The statute uses the definite article to reference the particular registration statement alleged to be misleading, and in this way seems to suggest the plaintiff must “acquir[e] such security” under that document’s terms. Ibid. In addition, the statute repeatedly uses the word “such” to narrow the law’s focus—for example, referring to “such part” of the registration statement that contains a misstatement or misleading omission—suggesting that when it comes to “such security,” the law speaks to a security registered under the particular registration statement alleged to contain a falsehood or misleading omission. Section 6 of the statute indicates that a registration statement is “effective” for “only . . . the securities specified therein,” which is also hard to square with Mr. Pirani’s reading. Damages caps in the statute also make less sense with Mr. Pirani’s account of the statute. Collectively, these contextual clues persuade the Court that Slack’s reading of the law is the better one. While direct listings like the one here are new, the Court’s conclusion is not. The majority of courts have for years held that §11(a) liability extends only to shares that are traceable to an allegedly defective registration.

  Resisting this conclusion, Mr. Pirani argues that the Court should read the phrase “such security” to include not only securities registered under a defective registration statement but also other securities that bear some sort of minimal relationship to a defective registration statement. Mr. Pirani contends that but for the existence of Slack’s registration statement for the registered shares, its unregistered shares would not have been eligible for sale to the public. But Mr. Pirani does not explain what the limits of his rule would be, how the Court might derive them from §11, or how any of this can be squared with the various contextual clues identified which suggest that liability runs with registered shares alone. Mr. Pirani argues that if Congress wanted liability under §11(a) to attach only to securities issued pursuant to a particular registration statement, it could have borrowed language from §5 to achieve that result. On its own terms, that argument also shows that Congress could have written §11(a) to explain more clearly that liability attaches to “any security” or “any security” bearing some specified relationship to a registration statement. Finally, Mr. Pirani argues that adopting a broader reading of “such security” would expand liability for falsehoods and misleading omissions and thus better accomplish the purpose of the 1933 Act. The Court cannot endorse that sort of reasoning. Nor is Mr. Pirani’s account of the law’s purpose altogether obvious; an alternate inference in the opposite direction is at least equally plausible. In any event, the Court’s function is to discern and apply existing law. The Court concludes that the better reading of §11 requires a plaintiff to plead and prove that he purchased shares traceable to the allegedly defective registration statement, and remands for the Ninth Circuit to consider that question in the first instance. Pp. 5-10.

13 F. 4th 940, vacated and remanded.

 Gorsuch, J., delivered the opinion for a unanimous Court.