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The FCA’s Seal Requirement: Important But (Maybe) Not Fatal

By Jonathan DeSantis

On December 6, 2016 in State Farm Fire and Casualty Co. v. United States ex rel. Rigsby,[1] the Supreme Court resolved a circuit split in holding that a violation of the False Claims Act’s (“FCA”) seal requirement does not automatically require dismissal of a relator’s claims.  Still, relators and their counsel should stringently adhere to the seal requirement since Rigsby confirms that courts maintain discretion in fashioning appropriate sanctions for seal violations.

The False Claims Act

The FCA provides that a private person, referred to as a relator, may bring actions on behalf of the federal government to recover for the presentment of false claims to a government entity, and several states have also adopted similar statutes.  The relator is required to provide the complaint and all material evidence in the relator’s possession to the government so that the government may investigate the relator’s claims.  The government must then elect whether to intervene in the lawsuit, i.e. whether to formally enter the lawsuit and pursue the claims jointly with the relator.

The FCA requires that when a relator files a complaint, “[t]he complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders.”[2]  This means that documents related to the lawsuit cannot be publicly accessed and that the relator cannot disclose anything about the lawsuit, including the existence of the lawsuit itself, to anyone except the relator’s attorneys.  After the initial 60 day period, the government may request extensions of the seal period, and courts routinely grant as many extensions as the government desires.[3]  The lawsuit is not unsealed until the government completes its investigation and decides whether to intervene.  The complaint is then served on the defendant and the lawsuit thereafter proceeds like other civil lawsuits.

Purpose of the Seal Requirement

As various courts have explained, the paramount purpose of the seal requirement is to provide the government with an opportunity to investigate the relator’s claims and decide whether to intervene without the defendant learning about the case.[4]  One court distilled four purposes of the seal requirement: “(1) to permit the United States to determine whether it already was investigating the fraud allegations (either criminally or civilly); (2) to permit the United States to investigate the allegations to decide whether to intervene; (3) to prevent an alleged fraudster from being tipped off about an investigation; and, (4) to protect the reputation of a defendant in that the defendant is named in a fraud action brought in the name of the United States, but the United States has not yet decided whether to intervene.”[5]

Violating the Seal Requirement

While the FCA requires that a complaint be filed under seal, it does not specify any ramifications for a violation of the seal requirement.  The most common violations are failure to file the complaint under seal or publicly disclosing the existence of or information about the lawsuit before the seal is lifted.  Before the Supreme Court’s recent decision in Rigsby, the circuit courts of appeal were split as to the appropriate remedy for these and other violations.  The minority view, applied only by the Sixth Circuit, was that violation of the seal requirement mandated automatic dismissal of the relator’s claims.[6] The majority view, endorsed by the Second, Fourth, Fifth, and Ninth Circuit, was that violation of the seal requirement did not require automatic dismissal and instead requires a court to apply a balancing test of various relevant factors to determine whether a sanction is appropriate, and if so, to determine an appropriate sanction.[7]

State Farm Fire and Casualty Co. v. United States ex rel. Rigsby

In Rigsby, two relators filed a lawsuit under the FCA against State Farm, and at the government’s request, the district court extended the initial seal period several times.  While the case remained under seal, the relators’ attorney sent an email to several news organizations about State Farm’s fraud that formed the basis for the relators’ lawsuit, and the attorney’s email discussed the lawsuit itself.  The news organizations issued stories about the fraud allegations but did not disclose the relators’ lawsuit.  Even so, the attorney’s conduct clearly violated the seal requirement.  State Farm moved to dismiss the case based on the seal violation.  The district court considered three factors in evaluating whether to dismiss the lawsuit, including actual harm to the government arising from the seal violation, the severity of the seal violation, and evidence of bad faith.  The district court decided that dismissal was inappropriate, and State Farm did not request any lesser sanction.[8] On appeal, the Fifth Circuit affirmed the district court’s denial of State Farm’s motion to dismiss.[9]

The Supreme Court granted review and affirmed the Fifth Circuit.  Like the district court and the Fifth Circuit, the Supreme Court rejected a per se rule requiring dismissal for seal violations and instead found that the determination of an appropriate sanction, if any, for a seal violation rests within the discretion of the district court.  The Supreme Court found that the three factors considered by the district court – “actual harm to the Government, severity of the violations, and evidence of bad faith” – appear to be appropriate factors in guiding this analysis but did not expressly adopt a test for courts to apply and suggested that there might be “other relevant considerations.”  As a result, after Rigsby, courts will likely consider any relevant circumstances but focus on the three factors identified above.

Of course, Rigsby does not foreclose the possibility that a court could conclude that dismissal is an appropriate remedy for violation of the seal requirement but strongly suggests that dismissal is only appropriate for willful violations that result in substantial prejudice to the government.  With that said, relators and their attorneys should scrupulously adhere to the FCA’s seal requirement.  While automatic dismissal is inappropriate, it remains a possibility and at least one court has dismissed an FCA claim after Rigsby where the relator failed to file the complaint under seal upon finding that the relator “made no attempt to file the complaint under seal and afford the government an opportunity to review his allegations.”[10]  Moreover, Rigsby authorizes courts to exercise discretion in imposing a different sanction for seal violations.  Finally, the government will likely be extremely displeased with seal violations while evaluating whether to intervene, and this is a particularly significant ramification of seal violations given that the likelihood of a favorable outcome for relators drastically increases with government intervention.

The Fifth Circuit’s decision in Rigsby is available at this link, and the Supreme Court’s decision in Rigsby is available at this link.

[1] 137 S. Ct. 436 (2016).

[2] 31 U.S.C. § 3730(b)(2).

[3] 31 U.S.C. § 3730(b)(3).

[4] See e.g. U.S. ex rel. Summers v. LHC Grp., Inc., 623 F.3d 287, 292 (6th Cir. 2010) (“[T]he seal requirement g[i]ve[s] the Government the chance to determine whether it was already investigating the claims stated in the suit and then to consider whether it wished to intervene prior to the defendant’s learning of the litigation.”) (internal quotation marks omitted);   U.S. ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242, 245 (9th Cir. 1995) (explaining that the seal requirement “allow[s] the government the opportunity to study and evaluate the relator’s information for possible intervention in the qui tam action or in relation to an overlapping criminal investigation”).

[5] Am. Civil Liberties Union v. Holder, 673 F.3d 245, 250 (4th Cir. 2011).

[6] U.S. ex rel. Summers v. LHC Grp., Inc., 623 F.3d 287, 292 (6th Cir. 2010).

[7] U.S. ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242 (9th Cir. 1995); U.S. ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995 (2d Cir. 1995); U.S., ex rel., Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457 (5th Cir. 2015); Smith v. Clark/Smoot/Russell, 796 F.3d 424, 430 (4th Cir. 2015).

[8] U.S. ex rel. Rigsby v. State Farm Fire & Cas. Co., 2011 WL 8107251 (S.D. Miss. Jan. 24, 2011).

[9] U.S., ex rel., Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457 (5th Cir. 2015).

[10] E.g. Meyn v. Citywide Mortg. Assocs., Inc., 2016 WL 7336415, at *2 (D. Kan. Dec. 19, 2016) (dismissing an FCA claim)

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