Posts Tagged ‘filing under seal’

Supreme Court Arguments on Seal Seem to Favor Relators

Oral arguments were held before the Supreme Court this week in the case of State Farm Fire & Casualty Co. v. U.S. ex rel. Rigsby.  The decade-old case originates from claims made by Cori and Kerrie Rigsby, sisters from Alabama, who filed a False Claims Act case alleging that State Farm defrauded the government in the wake of Hurricane Katrina.

As background, State Farm was responsible for covering damages caused by windstorms while the United States had a program to pay for damages caused by flooding. The Rigsby sisters allege that State Farm intentionally misclassified windstorm damages as flooding to hoist the burden of payment on the United States.  In 2013, a jury in Mississippi found in favor of the Rigsbys, and determined that the United States had been damaged to the tune of $250,000.  Pursuant to the trebling and penalties provisions of the False Claims Act, the jury awarded the United States $758,000 in damages.

During the course of litigation, State Farm learned that the Rigsbys’ original attorney, Dickie Scruggs, had violated the seal provisions of the False Claims Act by providing information about the lawsuit to three media outlets.  Scruggs provided the information as background to explain the fraud allegations, and the news outlets never disclosed the existence of a False Claims Act case while the seal was in place.  Regardless, State Farm moved to dismiss the case based on the alleged seal violation, but the district court denied the motion.  After the jury verdict in the relator’s favor, State Farm unsuccessfully appealed to the Fifth Circuit, and then to the Supreme Court.

State Farm put before the Court the narrow issue of the appropriate standard for the decision to dismiss a relator’s claims for violations of the False Claims Acts seal requirement.  During the one-hour of oral arguments from counsel for State Farm, the Rigsbys, and the United States of America (in support of the relators), the eight Supreme Court justices appeared unlikely to reverse the Fifth Circuit’s holding and grant State Farm’s request for mandatory dismissal of a case following a seal breach.

All of the justices appeared to be skeptical of State Farm’s drastic approach, particularly given that the seal requirement was put into place to protect the government and the United States has sided with the Rigsbys in this dispute.  Chief Justice Roberts noted to State Farm’s counsel that, “[Y]ou’re arguing the government’s interests, but it rings a little hollow when we see that the government is on the other side.”

John Bash, Assistant to the Solicitor General arguing for the United States, reaffirmed that focus, stating, “[W]e think that the overall focus should be courts should remedy protective orders and seal orders with a healthy dose of discretion, but in light of the purpose of this provision, to protect the government.”  Some justices, including Justice Ginsburg, appeared to suggest that the government’s preference should be the guiding, if not only, consideration as to whether a case should be dismissed following a seal breach.

Several justices asked for suggestions as to how to properly frame a workable standard which would discourage future violations while also allowing for the flexibility for district courts to conduct case-specific evaluations.  The justices also seemed to focus on whether the evaluation should consider the potential for harm versus the actual harm resulting from the breach.  (In the Rigsbys’ case, the newspapers did not print anything about the lawsuit itself, thus mitigating any actual harm from the seal breach.)

This is a very important case for relators because a State Farm victory could put another fatal arrow in the quiver of defendants and their counsel.  If defendants could guarantee a dismissal for even a minor, unintentional seal breach, they would be incentivized to engage in intense, scorched-earth discovery of relators and their counsel to try to find any mention of the lawsuit to a third party.  Fortunately, the Supreme Court seems reluctant to accept such a fatalist position and instead appears poised to set standards for a discretionary test which evaluates the circumstances of each case with an ultimate focus on protecting the government’s interest.

An opinion is due by the end of June 2017, so we’ll post an update as soon as the order is handed down.

 

The False Claims Act’s “Filed Under Seal” Requirement

Under SealThe federal False Claims Act provides that when a new case is filed, there are certain rules that must be followed to keep the case confidential and to prevent the defendant from finding out that the government is conducting an investigation. Read More…

 

Successful Whistleblowers Fined For Disclosing Case to the Media

top_secretAt the outset of every case, we explain and re-explain the concept that a False Claims Act complaint will be filed “under seal.” This is a basic tenant of False Claims Act law, yet is a unique concept to most individuals since most cases are filed in court and are immediately accessible to the public.  False Claims Act cases are different — they are filed confidentially and served only on the United States or any participating state, not on the defendant.

Read More…

 

What Does “Under Seal” Really Mean?

The federal False Claims Act provides that when a new case is filed, there are certain rules that must be followed to keep the case confidential and to prevent the defendant from finding out that the government is conducting an investigation.  The procedure, known as “filing under seal,” requires that a 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.”  31 U.S.C. § 3730(b)(2).  This part of the False Claims Act seems to be a mostly procedural rule for lawyers to follow, but in reality, it puts very important obligations on the relator too.

So what does “under seal” really mean to a relator?

Relator’s Obligations

The False Claims Act’s filing-under-seal requirement exists to give the government time to investigate the alleged fraud, determine whether it is already investigating the alleged fraud, and decide whether it will prosecute the suit itself before the target is tipped off.   Various court interpretations make clear that the seal requirement does not impart a requirement of absolute silence about the alleged fraudulent conduct.   Such a requirement would place a burden on the Relator that exceeds the language or purpose of the False Claims Act.

As a practical matter, however,  prudent practice is to exercise an abundance of caution when discussing any aspect of a False Claims Act case or the underlying allegations with anyone other than the relator’s counsel and the government agents assigned to the case.  Most importantly, a Relator should never disclose the actual filing of a qui tam case without speaking with their attorney first.  Although a qui tam case is only under seal by statute for the first sixty days, the cases often remain under seal for months or even years while the government investigates, so it is important for a relator to know the exact status of a qui tam case at all times.  During the period of time that a case is under seal, a relator must be prepared to exercise a level of discretion that may be difficult to maintain, but is of utmost importance to the success of a case.

Recent Case Law

The most recent case to analyze a relator’s seal obligation is U.S. ex rel. Gale v. Omnicare out of the Northern District of Ohio, Case No. 1:10-cv-127 (June 7, 2013).  In Gale, the Defendant argued that the Relator had violated the seal requirement by disclosing the lawsuit to his wife in private, and by making vague statements about lawyers or a lawsuit to two former Omnicare colleagues.   Omnicare argued that if the relator so much as mentions any aspect of a qui tam case – even just that he has lawyers or is involved in a lawsuit with the defendants – then the case must be dismissed.  Omnicare relied largely on United States ex rel. Summers v. LHC Group, Inc., a 2010 Sixth Circuit case, to make this argument.  But in Gale, the court ruled that Omnicare’s interpretation of the law went too far.

In Summers, the plaintiff brought a qui tam action for Medicare fraud but did not file her complaint under seal.  Because of this error, the defendants found out about the case and filed a Motion to Dismiss twenty-five days after Summers’s filing, well within the minimum sixty-day seal period.  The district court dismissed the case and the Sixth Circuit affirmed.  The Sixth Circuit 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.”  In simple terms, that means that if a relator does not follow the filing procedures, he cannot bring the qui tam case.

But, the Summers court did not go so far as to consider exactly how limiting the seal may or may not be.  Two other courts have considered the issue, however.  The Fourth Circuit has found that “the seal provisions limit the relator only from publicly discussing the filing of the qui tam complaint. Nothing in the FCA prevents the qui tam relator from disclosing the existence of the fraud.”  Am. Civil Liberties Union v. Holder, 673 F.3d 245, 254 (4th Cir. 2011).   Years before that, the Ninth Circuit determined that the seal did forbid a relator from “making statements to the Los Angeles Times about the existence and nature of her qui tam suit.”  U.S. ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242, 244 (9th Cir.1995).   The legislative history of the modern False Claims Act also reflects that Congress adopted the seal provision “in response to Justice Department concerns that qui tam complaints filed in open court might tip off targets of ongoing criminal investigations.”  S.Rep. No. 99-345, at 16 (1986).

After a detailed discussion,  the Gale court determined that Gale’s comments to his wife do not constitute public statements, even if his wife happened to also work for Omnicare.  Likewise, a vague reference to meeting with attorneys – regardless of what the listener thought the statement meant – was not a disclosure of the filing of the qui tam suit.  Ultimately, the court reached the most recent state of the law on the seal requirements, finding that all of the previous case law is consistent with one overarching principle: “[T]he False Claims Act’s seal requirements prevent the relator from publicly discussing the filing of the qui tam complaint, but not the nature and existence of the fraud.”  

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Written by Jesse Hoyer