June 26, 2020
One of the requirements for any False Claims Act case is that the falsity or fraud must be material. We explain what that term means, and how a whistleblower goes about proving the materiality of a fraud.
One of the elements or requirements of all fraud law (and contracts and torts for that matter), is that the subject of the the fraud be material. The purpose of the materiality requirement is to ensure that the “thing” that someone was defrauded about is important enough to justify legal action.
For example, imagine you purchase a car and the dealer tells you that the previous owner was a little old grandmother who only drove it 1,000 miles a year to and from church. Now, imagine that you later discover the dealer had lied to you and the grandmother actually drove 1,000 miles a week. That lie would be material. As a result, you would be justified in wanting your money back. Now, however, imagine that you discover the dealer had lied to you, and actually the car was only driven 1,000 miles a year, but it was by a little old grandfather drove it back and forth to church. That lie is probably not material, reasonable people wouldn’t care whether their car’s previous owner was a grandmother or a grandfather, so long as the condition of the car was as described.
It is the same with the False Claims Act. The materiality requirement ensures that the False Claims Act applies only when the false or fraudulent conduct was important enough that it would probably have influenced a government decision.
The False Claims Act prohibits seven specific fraudulent activities. 
They are laid out in the graphic to the right. In addition if you want to learn all about False Claims Act prohibitions, feel free to jump over to our explainer on that topic. If you look closely, you will notice that only two of those violations use the term material:
False Records or Statements – Making, using, or causing others to make or use, a false record or statement that is material to a false or fraudulent claim. 31 U.S.C. §§ 3729(a)(1)(B).
Reverse False Claims – Making, using, or causing to be made or used, a false record or statement material to an obligation to pay money to the government; or conceals, avoids, or decreases an obligation to pay money to the government. 31 U.S.C. §§ 3729(a)(1)(G).
But does that mean that the other five False Claims Act violations do not need to be material? The answer is no. Courts have long held that because the False Claims Act prohibits fraud, it incorporates the established elements of fraud. One of these is the requirement that the fraud be material.
The Supreme Court made this point clear in Universal Health Servs., Inc. v. United States ex rel Escobar:
The common law could not have conceived of ‘fraud’ without proof of materiality. We need not decide whether § 3729(a)(1)(A)’s materiality requirement is governed by § 3729(b)(4) or derived directly from the common law.
Since 2009, the False Claims Act has defined the term material as having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property. 31 U.S.C. § 3729(b)(4). This definition was used by Courts both before and after those amendments.
In Universal Health Servs., Inc. v. United States ex rel Escobar the Supreme Court held that the statutory definition of material was the same as that used elsewhere.
Section 3729(b)(4) defines materiality using language that we have employed to define materiality in other federal fraud statutes. . . See U.S. v. Neder, 527 U.S., at 16, (using this definition to interpret the mail, bank, and wire fraud statutes); Kungys v. United States, 485 U.S. 759, 770 (1988) (same for fraudulent statements to immigration officials).
The Supreme Court then held that when deciding if something is material, a court should look to the ways courts have defined material in other contexts
Under any understanding of the concept, materiality “look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” 26 R. Lord, Williston on Contracts § 69:12, p. 549 (4th ed. 2003) (Williston).
The Court looked not to just to fraud law but to tort law.
In tort law, for instance, a “matter is material” in only two circumstances: (1) “[if] a reasonable man would attach importance to [it] in determining his choice of action in the transaction”; or (2) if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter “in determining his choice of action,” even though a reasonable person would not. Restatement (Second) of Torts § 538, at 80.
and to the law of contracts.
Materiality in contract law is substantially similar. See Restatement (Second) of Contracts § 162(2), and Comment c, pp. 439, 441 (1979) (“[A] misrepresentation is material” only if it would “likely … induce a reasonable person to manifest his assent,” or the defendant “knows that for some special reason [the representation] is likely to induce the particular recipient to manifest his assent” to the transaction).
In Escobar, the defendants argued noncompliance with a regulation was not material unless the regulation stated that it was a prerequisite to payment. The Supreme Court said this is wrong.
when evaluating materiality under the False Claims Act, the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive.
136 S. Ct. 1989, 2003. The Supreme Court went on to identify other factors that were relevant, but not dispositive to materiality.:
In the aftermath of Escobar, defendants have tried mightily to use the dicta in the case to argue that courts should dismiss False Claims Act cases on materiality grounds. For the most part, they argue that lack of evidence that the government refused to pay when it learned of identical fraud is a requirement for whistleblowers and the government. Escobar said no such thing and for the most part, courts have rejected these claims.
Materiality is a requirement of all False Claims Act cases. It is designed to limit cases to frauds that would have reasonably influenced the government’s decision. While defendants have tried to argue that there are specific bright-line tests for materiality, courts reject this. Instead they take a holistic view of what it means for fraud to be material.