Does Violation of the Seal Requirement Require Dismissal? Supreme Court Will Decide

By on June 2, 2016
Posted In Uncategorized

On May 31, 2016, the Supreme Court of the United States granted certiorari in the False Claims Act (FCA) case of State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby.  At issue is whether a qui tam relator’s violation of the seal requirement, 31 U.S.C. § 3730(b)(2), requires a court to dismiss the suit.

Section 3730(b)(2) requires qui tam complaints to be filed under seal for at least 60 days and provides that they shall not be served on the defendants until the court so orders.  The purpose of the seal is to give the government time to investigate.  In practice, the government often seeks numerous extensions while it investigates the conduct alleged in the relator’s complaint.  This investigatory period can, on occasion, extend for years.

According to State Farm’s petition for certiorari, the relators in this case intentionally violated the seal by alerting the media to the FCA allegations in their complaint.  State Farm argued that relators did so in order to “to fuel a media campaign designed to demonize and put pressure on State Farm to settle,” hiring “one of the nation’s most prominent public relations firms to assist them with this all-out campaign, which featured the Rigsbys in media interviews, filming, and photo shoots.”  The US District Court for the Southern District of Mississippi declined to dismiss relators’ complaint on the basis of the seal violations, and the US Court of Appeals for the Fifth Circuit affirmed that decision, holding that the seal violations did not warrant dismissal.  The Fifth Circuit, however, acknowledged a three-way circuit split on this issue.

The Fifth Circuit adopted the Ninth Circuit’s approach, which holds that dismissal is appropriate only if the relator’s seal violation caused actual harm to the government.

The Second and Fourth Circuits, by contrast, have concluded that dismissal is proper where a seal violation “incurably frustrate[s]” the congressional goals underlying the seal requirement, including the ability of the government to fully evaluate the propriety of an enforcement suit and determine whether the suit involves matters already under investigation.

Finally, the Sixth Circuit has held that any violation of the seal requirement requires dismissal.

The Supreme Court’s resolution of this split in favor of the Sixth Circuit’s approach would give defendants a greater ability to seek dismissal of FCA claims in situations where relators have attempted to use publicity as a lever to coerce a defendant under investigation to settle.  By contrast, resolving the split in favor of either the Second and Fourth, or Fifth and Ninth Circuits’ approaches would make it more difficult for defendants to seek dismissal based on seal violations, particularly before discovery.

The Supreme Court is expected to address this matter next term.