Supreme Court Unlikely to Adopt Automatic-Dismissal Rule for Violations of False Claims Act’s Seal Requirement

On November 1, 2016, the Supreme Court heard argument in State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, a False Claims Act case in which the defendant sought dismissal of a qui tam action after the whistleblower violated the FCA’s seal requirement, 31 U.S.C. § 3730(b)(2), and publicly disclosed the complaint.

Based on the Justices’ questions at oral argument, the Supreme Court seems likely to adopt a flexible discretionary test that allows district courts to fashion appropriate sanctions for the whistleblower’s, also known as the relator, violation of the FCA’s seal requirement—rather than the bright-line “automatic dismissal” rule proposed by State Farm.

Procedural History

In a sealed complaint filed under the qui tam provisions of the FCA, former insurance adjusters (the relators), alleged that State Farm had submitted false claims for payment to the federal government by misrepresenting wind damage caused by Hurricane Katrina as flood damage. Although wind damage would have been covered under certain State Farm homeowners’ policies, the company allegedly recast the wind damage as flood damage so that it would instead be covered under the federal National Flood Insurance Program.

While the complaint was under seal, the relators’ counsel violated the FCA’s seal requirement by revealing the existence and contents of the complaint to national news organizations. State Farm moved to dismiss the complaint, which was denied by the district court based on the Ninth Circuit’s discretionary three-factor test set forth in United States ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242 (9th Cir. 1995). The Lujan test considers the harm to the government from the violations, the severity of the violations, and evidence of willfulness or bad faith in determining whether dismissal is an appropriate sanction. The Second and Fourth Circuits, like the Ninth Circuit, have also adopted discretionary tests. See Smith v. Clark/Smoot/Russell, 796 F.3d 424, 429–30 (4th Cir. 2015); United States ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995, 998–1000 (2d Cir. 1995). 

On appeal, the Fifth Circuit affirmed the district court’s ruling and endorsed the Lujan test. See United States ex rel. Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457 (5th Cir. 2015). State Farm then petitioned the Supreme Court for a writ of certiorari, which was granted over the Solicitor General’s opposition.

Supreme Court Oral Argument

During oral argument before the Supreme Court, State Farm contended that the text, structure, history, and purpose of the FCA’s seal requirement support a bright-line rule like the one adopted by the Sixth Circuit in United States ex rel. Summers v. LHC Group, Inc., 623 F.3d 287, 296 (6th Cir. 2010), which held that “violations of the procedural requirements imposed on qui tam plaintiffs under the False Claims Act preclude such plaintiffs from asserting qui tam status.” The relators, on the other hand, with the support of the Solicitor General as amicus curiae, argued that the Court should instead adopt a flexible discretionary test like the Ninth Circuit’s Lujan test, because an automatic-dismissal rule would be draconian and contrary to the government’s interest in combating fraud.

Not a single Justice expressed support for an automatic-dismissal rule as proposed by State Farm. Rather, based on their questioning, the Justices seemed to favor a discretionary test that could address a wide range of violations of the seal requirement. Justices Ginsburg and Kennedy questioned why, if the seal requirement is primarily intended to benefit the government as it investigates allegations against a defendant, the defendant should be entitled to dismissal over the government’s objection. Justice Ginsburg further queried why the government should not be able to waive a requirement intended for its own benefit. The Chief Justice seemed to agree, observing that State Farm’s effort to vindicate the government’s interest “rings a little hollow when we see that the government is on the other side.” Justices Alito, Breyer, and Kagan seemed to suggest that an automatic-dismissal rule would not be appropriate for all violations of the seal requirement; for example where the disclosure is inadvertent and not made in bad faith. Nevertheless, Justices Breyer and Alito suggested that the Court’s opinion should stress the importance of a district court’s sealing order and the seriousness of a violation.

What the Future May Hold for the Seal Requirement

Whatever test the Supreme Court ultimately devises in Rigsby will, as Justice Alito predicted during argument, “change the legal landscape” regarding the FCA’s seal requirement. A defendant that is subject to an FCA complaint brought under the qui tam provisions should remain vigilant of the seal requirement, determine whether the relator has complied with the requirement, and seek all available sanctions, including dismissal, if the relator or relator’s counsel acted willfully or in bad faith by impermissibly violating the seal.


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