False Claims Act Defendants Need to Look Beyond Loper Bright

May 2, 2025

Since the US Supreme Court’s ruling in Loper Bright Enterprises v. Raimondo, attorneys have argued the overruling of Chevron offers a new arrow in the False Claims Act defense bar’s quiver.

Without Chevron deference, the argument goes, defendants can collaterally attack many FCA cases premised on regulatory violations. If the underlying regulation doesn’t pass muster, then the defendant couldn’t have engaged in fraud. A long line of cases creates a significant obstacle to such a defense.

The Kapp Rule

In the 1937 decision of US v. Kapp, the defendants were convicted of making false claims to the government when they lied about information required by the Agricultural Adjustment Act. They argued that the underlying requirement was unconstitutional, so a false claims conviction based on that requirement couldn’t stand.

The Supreme Court disagreed, finding that the constitutionality was irrelevant, saying the defendants “were not indicted for a conspiracy to violate the Agricultural Adjustment Act but for a conspiracy to violate the statute protecting the United States against frauds.”

The justices at the time reasoned, “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.”

The Kapp rule has been continuously reaffirmed ever since. Nearly 30 years later, in Dennis v. US, the Supreme Court again rejected an argument that a defendant’s fraud was excused because the underlying statutory requirement the defendant violated was unconstitutional.

The Dennis court didn’t limit the Kapp rule to constitutional attacks. Instead, it used much broader language, finding that the Kapp rule applied to any scenario in which the underlying statutory requirement was argued to be “somehow defective.”

The Supreme Court addressed a similar case three years later in Bryson v. US, in which the defendant submitted false information required by the National Labor Relations Board. Echoing the defendants in Kapp, Bryson argued that the NLRB lacked the legal authority to require such information, so he couldn’t have defrauded the government. The court found Dennis governed and rejected Bryson’s defense.

Application to FCA

District and circuit courts have applied the teaching of Kapp, Dennis, and Bryson to a litany of criminal and civil cases, including under the False Claims Act. In Cedars-Sinai Medical Center v. Shalala, a relator sued various hospitals based on purported noncompliance with a federal rule.

The underlying rule purportedly ran afoul of the Administrative Procedure Act. Relying on Bryson and Dennis, the US Court of Appeals for the Ninth Circuit held that whether the rule was valid under the APA was immaterial to the FCA claims: “If the Hospitals did indeed knowingly submit false claims in order to receive payment for devices not covered under the 1986 rule, the invalidity of the rule will be no defense.”

More recently, in US v. Walgreen Co., the US Court of Appeals for the Fourth Circuit applied the Kapp rule in an FCA case and foreclosed the defendant from collaterally attacking a Medicaid eligibility requirement which served as the linchpin of the FCA case. The panel ruled that “[n]othing in Dennis and its related precedents foreclose their applicability to civil fraud.”

The Kapp rule will create rough sledding for FCA defendants looking to wield Loper Bright. These cases suggest a bright line exists between garden variety regulatory actions and those involving fraud on the government. Regulatory attacks are permissible in the former but not the latter scenarios.

This distinction is rooted in the fundamentals of fraud jurisprudence. The FCA focuses on thwarting fraudsters from obtaining federal funds. If a wrongdoer knows of the government’s regulatory requirements, feigns compliance with material aspects of those requirements, and thereby obtains funds to which it isn’t entitled, that is classic fraud.

Take the following hypothetical: A regulation requires firearm manufacturers provide the US Army with M4A1 rifles with an effective range of 500 meters. A manufacturer feigns compliance with that provision and knowingly sells the military rifles with a 200-meter effective range. Even if the underlying regulation was later deemed invalid, few would seriously argue the manufacturer didn’t engage in fraud.

To hold otherwise would cause practical problems, too. The government systemically makes payments based on its understanding that contractors are complying with material regulatory mandates. To allow defendants to fraudulently sidestep those requirements and then avoid FCA liability via a post hoc attack on a regulation’s soundness would wreak havoc on government contracting.

While the Kapp rule poses a hurdle for FCA defendants, some defendants may be willing to swing for the fences. Although the current Supreme Court hasn’t been shy about upsetting precedent, the Kapp rule is longstanding, has been applied repeatedly in various contexts, and serves important public policy goals.

Those who choose to ignore regulatory obligations, and later collaterally attack them, are engaged in a risky gambit.

The cases are Loper Bright Enterprises v. Raimondo, U.S., 22-451, 6/28/24 and US v. Kapp, U.S., 97, 12/6/37.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.