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WBK Industry News - Litigation Developments

7th Circuit Abandons “But-For” Causation Test in FCA Cases, Citing Escobar

The Seventh Circuit recently joined other circuits in adopting a “proximate causation” test in False Claims Act cases, citing the Supreme Court’s Escobar decision in abandoning that circuit’s decades-long precedent—which applied a “but-for” causation test—and resolving a previous, long-standing circuit split on the matter.

In the case, United States v. Luce, the United States brought a number of claims—including some under the False Claims Act (FCA)—against an individual for allegedly defrauding the government by falsely asserting that he had no criminal history so that his company could participate in an FHA program.  The lower court entered summary judgment for the government, and the defendant appealed.  On appeal, the Seventh Circuit rejected the appellant’s arguments that the government’s conduct after discovering the alleged fraud—including its approval of insurance for new loans after learning of the false certifications—supported finding of immateriality, pointing instead to HUD’s decision to institute debarment proceedings as evidence of materiality.

The court of appeals reversed the district court’s judgment in part, however, on the issue of causation, overruling United States v. First National Bank of Cicero, which applied a “but-for” causation test to FCA cases.  Since Cicero, other circuits had adopted a proximate causation test and rejected the Seventh Circuit’s “but-for” causation test.  In light of the Supreme Court’s Escobar decision’s discussion of causation—and despite the fact that Escobar did not explicitly overrule the circuit’s “but-for” test—the court of appeals was persuaded to abandon the old causation test after closely reviewing the FCA’s statutory language, the principles of common-law fraud, and the rationale of other circuit courts.  The court thus adopted a proximate cause standard for FCA cases, and remanded the case for the district court to consider the issue of causation under that standard.

The decision can be accessed here.