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Cases brought by whistleblowers <a href="https://www.whistleblowersattorneys.com/what-is-the-false-claims-act/">under the False Claims Act (FCA)</a> must be filed under seal, meaning that only the government and the court have access to the allegations of the complaint.  31 U.S.C. § 3730(b)(2).  One of the purposes of the seal provision is to prevent the whistleblower from tipping off the defendant about the case while the government conducts its investigation into the whistleblower's allegations.  Accordingly, the whistleblower is forbidden from disclosing the existence of the lawsuit before the court formally lifts the seal on the case.

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But what happens when a whistleblower – or a <a href="https://www.whistleblowersattorneys.com/choosing-a-whistleblower-lawyer/">whistleblower's attorney</a> – violates the seal provision?  The Supreme Court answered that question on Tuesday in its opinion in State Farm Fire &amp; Casualty Co. v. United States ex rel. Rigsby et al., 580 U.S. __ (2016).

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The whistleblowers in&nbsp;Rigsby&nbsp;were claims adjusters who alleged that State Farm misclassified insurance claims stemming from Hurricane Katrina as flood damage, rather than wind damage, because State Farm was required to pay for wind damage, while the government paid for flood damage. &nbsp;

The whistleblowers filed their FCA&nbsp;qui tam&nbsp;complaint under seal as required by statute in 2006.&nbsp; While the case was still under seal, the whistleblowers' attorney, Dickie Scruggs, disclosed the existence of the complaint to journalists at ABC, the Associated Press, and the New York Times.&nbsp; Those journalists then ran stories about the allegations against State Farm, but did not disclose the existence of the lawsuit.&nbsp; The whistleblowers themselves then disclosed the existence of their lawsuit to a Mississippi Congressman, who spoke out against State Farm, but did not discuss the lawsuit.

The court later partially lifted the seal on the whistleblowers' case, but only so that it could be disclosed to another federal court hearing a related lawsuit.&nbsp; Scruggs nonetheless disclosed the existence of the case to others, including a public relations firm and CBS.&nbsp; In 2008, Scruggs was indicted for attempting to bribe a state-court judge, and withdrew from the whistleblowers' case.&nbsp;

In 2011, State Farm moved to dismiss the whistleblowers' complaint because of the seal violations.  The district court refused to dismiss the case after considering three factors:  (1) the actual harm to the government, (2) the severity of the violations, and (3) the evidence of bad faith.  The case then went to trial, resulting in a victory for the whistleblowers.  State Farm appealed to the Fifth Circuit, arguing that a seal violation requires automatic dismissal of an FCA case, as the Sixth Circuit had previously held.  The Fifth Circuit, however, joining the Second and Ninth Circuits, rejected State Farm's argument in favor of a more nuanced approach involving consideration of the factors used by the district court and other circuit courts.  Upon consideration of those factors, the Fifth Circuit affirmed the district court's refusal to dismiss the case for violations of the seal. 

The Supreme Court's Opinion in Rigsby

The Supreme Court unanimously agreed with the whistleblowers and the Fifth Circuit that a seal violation does not necessarily require the dismissal of a&nbsp;qui tam&nbsp;complaint:&nbsp; "The FCA does not enact so harsh a rule."&nbsp; Analyzing the language of the statute, the Supreme Court acknowledged that the seal provision is "a mandatory rule the relator must follow," but noted that the statute "says nothing . . . about the remedy for a violation of that rule."&nbsp; The Court also noted that other provisions of the FCA do require mandatory dismissal in some circumstances, but the seal provision contained no such requirement, suggesting that dismissal is not mandatory.

The Court also considered the purpose of the FCA and the seal provision in rejecting the mandatory dismissal rule.&nbsp; The groundbreaking amendments to the FCA in 1986 were meant to "encourage more private enforcement suits," and bring additional private resources to bear on the government's fight against fraud.&nbsp; "Because the seal requirement was intended in main to protect the Government's interests, it would make little sense to adopt a rigid interpretation of the seal provision that prejudices the Government by depriving it of needed assistance from private parties."&nbsp;

State Farm argued that even if dismissal was not mandatory, the district court failed to consider the proper factors when considering whether to dismiss the case.  The Court again rejected State Farm's position, holding that "whether dismissal is appropriate should be left to the sound discretion of the district court."  The Court noted that the factors used by the district court "appear[ed] to be appropriate," but declined to explore those factors finding that, in this case, the district court "did not abuse its discretion . . . much less commit plain error." 

How Does Rigsby Affect Whistleblowers

Rigsby makes clear that a violation of the seal provision of the FCA does not automatically result in the dismissal of an FCA complaint, reversing the Sixth Circuit's holding to the contrary.  Rigsby also tacitly approves of the factors traditionally used by the courts in determining the appropriate sanction on whistleblowers for seal violations:  (1) the actual harm to the government, (2) the severity of the violations, and (3) the evi­dence of bad faith.

But&nbsp;Rigsby&nbsp;does not eliminate the possibility that FCA&nbsp;qui tam&nbsp;complaints can be dismissed for seal violations.&nbsp; Nor does&nbsp;Rigsby&nbsp;limit the possibility that whistleblowers face some other punishment for violating the seal.&nbsp;&nbsp; As Justice Kennedy wrote:&nbsp;

But even if every seal violation does not mandate dismissal, that sanction remains a possible form of relief.&nbsp; District courts have inherent power, moreover, to impose sanctions short of dismissal for violations of court orders. . . . &nbsp;Remedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.

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Whistleblowers must still <a href="https://www.whistleblowersattorneys.com/filing-a-whistleblower-claim/">comply with the seal provision of the FCA</a>, and should have counsel who can advise them about the seal provision, including some of the complicated issues that arise regarding the unique nature of the FCA's qui tam provisions.

If you have information about fraud against the government, <a href="https://www.whistleblowersattorneys.com/contact/">contact Goldberg Kohn for a free consultation</a>.

False Claims Act Cases and the Seal Provision: What Happens When the Seal is Breached?

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