FCA seal violation triggers three-part balancing test

posted on:
January 10, 2017

author:
Andrew Brashier

On Dec. 6, 2016, the Supreme Court ruled in an 8-0 decision that violating the False Claims Act’s seal requirement does not require an automatic dismissal of the case. The Supreme Court left the decision as to whether or not to dismiss the case in the discretion of the district courts.

Section 3730(b)(2) of the False Claims Act (FCA) requires the plaintiff to file the complaint in camera (under seal) for at least 60 days and not to serve the defendant until the court so orders. In State Farm Fire & Causality Co. v. United States Ex Rel. Rigsby ET AL (Rigsby), the whistleblowers’ attorney leaked the sealed complaint to several news outlets who ran stories on the alleged fraud, without mentioning the FCA case. The district court used a three part-balancing test to determine whether to dismiss the case due to seal violations.

The Supreme Court examined the district court’s use of the three-prong test and affirmed its decision. The district court’s balancing test weighed three factors. These factors were (1) the actual harm to the Government, (2) the severity of the violations, and (3) evidence of bad faith.

The district court ruled that dismissal was inappropriate because the factors weighed in favor of the whistleblowers (also known as relators). Because none of the news outlets stated there was a pending investigation or case, the Supreme Court ruled the Government was in all likelihood not harmed by the disclosures.

Additionally, because the relators had complied with the seal requirements when filing suit, the district court ruled the violations were not severe in their repercussions. Finally, the district court ruled the relators’ attorney’s bad faith acts, in leaking the facts of the underlying case, could be imputed to the relator; however, because the first two factors weigh in the relators’ favor, the district court ruled against dismissing the case.

The Rigsby case could have turned out quite differently had the relators not followed the seal requirements at the start of the case or had the news mentioned the existence of the case. Therefore, even though seal violations might not constitute automatic dismissal of FCA cases, whistleblowers still need to keep the existence of the case completely to themselves.

Additionally, it is crucial that a potential whistleblower acquire competent counsel to advise, guide, and ensure complete adherence to the requirements of the FCA. A whistleblower or inexperienced counsel could trigger the three-part balancing test by disclosing the existence of an FCA case and, thus, could have the case dismissed due to seal violations.

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Are you aware of fraud being committed against the federal government, or a state government? If so, the FCA can protect and reward you for doing the right thing by reporting the fraud. If you have any questions about whether you qualify as a whistleblower, please contact an attorney at Beasley Allen for a free and confidential evaluation of your claim. There is a contact form on this website, or you may email one of the lawyers on our whistleblower litigation team: Archie Grubb, Larry Golston, Lance Gould or Andrew Brashier.

Sources:
580 U.S. ___ (2016)
Law360
31 U.S.C. §3730(b)(2)

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