A Closer Look at Rigsby and the Supreme Court’s Rejection of Mandatory Dismissal for Seal Violations

By and on December 13, 2016

In light of the rising civil monetary penalties under the False Claims Act (FCA) and the looming threat of bank-breaking treble damages, avenues to dismissal are paramount to defendants operating in industries vulnerable to FCA claims, including health care. The United States Supreme Court’s unanimous decision in State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, issued on December 6, 2016, narrows the path for one such avenue.

In Rigsby, the Supreme Court closed the door on what would have been a powerful tool for defendants facing qui tam complaints brought under the FCA: mandatory dismissal based on a relator’s violation of the 60-day seal requirement. The Court did not, however, foreclose dismissal as a possible sanction against relators who violate the seal‑requirements.

Under the FCA, qui tam complaints “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.” 31 U.S.C. § 3730(b)(2). This 60­‑day period—which is often extended for good cause, on the government’s motion, for periods of months or even years—is designed to give the government sufficient time to investigate the relator’s allegations and determine whether to intervene in the suit. While the complaint remains under seal, the government reviews the evidence in the relator’s disclosure statement, subpoenas records and witnesses, and consults with experts. At the conclusion of its investigation, and armed with enhanced information about the strength (or weakness) of the relator’s allegations, the government has several options—it can pursue a settlement, intervene in one or more counts of the complaint, decline to intervene, or move to dismiss the relator’s complaint. If the government intervenes, it will often file its own complaint separate from the relator’s and may pursue alternative arguments and legal theories, including claims under the Anti-Kickback statute.

In Rigsby, defendant State Farm argued that the relators’ violation of the FCA’s seal requirement mandated dismissal of their complaint. This argument, originally raised in a motion to dismiss almost five years after the complaint was filed and more than three years after the district court lifted the seal in full, arose from two disclosures by relators. First, relator’s counsel disclosed a sealed evidentiary filing to three news outlets: ABC, the Associated Press, and the New York Times. This disclosure resulted in the publication of multiple news stories discussing relators’ fraud allegations, though none of these stories specifically referenced the pending FCA complaint. Second, relators met with a member of Congress who subsequently spoke out against the defendant’s alleged fraud without citing the existence of an FCA action. Following the disclosing attorney’s indictment for bribery and the removal of his colleagues from relators’ case, the defendant moved to dismiss the qui tam complaint on the grounds that the relators violated the seal requirement.

In determining whether dismissal was warranted, the district court balanced the three factors articulated in the Ninth Circuit decision, United States ex rel. Lujan v. Hughes Aircraft Co.: (1) the actual harm to the government resulting from the premature disclosure; (2) the nature and severity of the violation; and (3) the evidence of bad faith. Concluding that these factors weighed against dismissal, the district court denied the motion and the case proceeded to a bellwether trial.

At trial, the relators prevailed. The Fifth Circuit affirmed on appeal. Holding that a seal violation does not automatically mandate dismissal of a qui tam complaint, and applying the three factors articulated in Lujan and relied on by the district court, the court determined that the circumstances underlying the relators’ seal violation did not require dismissal.

In an opinion authored by Justice Kennedy, the Supreme Court affirmed. The seal requirement is “a mandatory rule the relator must follow,” the Court opined. The FCA “says nothing, however, about the remedy for a violation of that rule.” Looking to the structure of the FCA, including the statute’s provisions mandating dismissal (based on lack of jurisdiction) for certain claims brought against service persons or members of Congress, see 31 U.S.C. § 3730(e)(1)–(2), the Court concluded that “had Congress intended to require dismissal for a violation of the seal requirement, it would have said so.” Rather than mandate dismissal for a violation of the seal requirement, the FCA is silent about possible remedies.

Because the seal requirement is designed to protect the government’s interests by concealing the nature and scope of the relator’s allegations until the government has sufficient time to investigate, the Court opined, “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.” The government agreed with this conclusion, asserting that a mandatory dismissal rule would harm its interests and thereby undermine the seal requirement’s purpose.

The Supreme Court also rejected the defendant’s argument that the district court failed to consider potential harm to the defendant as a factor in assessing the justification of a sanction. While the Court left open the question of which factors lower courts may consider in determining whether dismissal is warranted, it held that the district court did not abuse its discretion by relying on the test articulated in Lujan in denying the defendant’s motion to dismiss.

In its petition for certiorari, previously discussed here, the defendant argued that by violating the seal requirement, relators sought to “fuel a media campaign designed to demonize and put pressure on [defendant] to settle.” And the parties in Rigsby agreed that the disclosure by relators’ attorney issue did in fact violate the seal requirement. The weight of the Supreme Court’s opinion, however, rested on the analysis of potential harm to the government’s ability to investigate and assess defendants’ FCA exposure.

While the Rigsby decision reinforces the assumption that the sanction of dismissal of the complaint requires a high bar of justification, the Supreme Court noted that other, lesser sanctions can be considered in cases where the relator violates the seal. District courts “have inherent power. . . to impose sanctions short of dismissal for violations of court orders,” the Court observed, including “monetary penalties or attorney discipline.”

Before the district court, the defendant in Rigsby failed to seek any relief other than dismissal in response to the relators’ seal violation. However, the Supreme Court’s opinion makes clear that defendants have several tools available to them to discourage and penalize relators’ efforts to extract settlements through premature disclosures. On the one hand, monetary penalties or attorney discipline may be appropriate in those cases in which the seal violation is not particularly severe (because the relator initially complied with § 3730(b)(2)’s requirements) or there is little or no evidence of bad faith. On the other hand, defendants can still seek dismissal where there is a colorable argument that the government was harmed by the disclosure, e.g., because the disclosure publicized the pendency of the FCA suit before the seal was lifted. The Rigsby Court did not attempt to minimize the seriousness of violations of the seal by relators, but rather signaled that the remedy of dismissal should not be expected under circumstances that could undermine the United States’ ability to pursue, in good faith, FCA claims against defendants.

Alisha A. Johnson
Alisha Johnson advises clients on health care compliance, transactions and litigation matters. Previously, Alisha served as a law clerk to the Honorable Eric L. Clay of the US Court of Appeals for the Sixth Circuit and to the Honorable S. James Otero of the US District Court for the Central District of California. In these roles, she drafted opinions and orders in civil and criminal matters, including orders on motions to dismiss, motions for summary judgment and motions in limineRead Alisha Johnson's full bio.

T. Reed Stephens
T. Reed Stephens represents clients in the life sciences industry, including pharmaceutical and biotech manufacturers, wholesalers and individuals, as well as health care systems and non-health care related companies in other global industries such as the defense and financial services/banking sectors. He also represents clients in matters involving state and federal government law enforcement, voluntary disclosures and congressional investigations. Read T. Reed Stephens' full bio.