U.S. Supreme Court Sides with Relators in False Claims Act Seal Dispute

“Because the seal requirement was intended in main to protect the Government’s interests, 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 False Claims Act requires that qui tam lawsuits be filed "under seal," meaning that only the court, government, and relators are aware of the existence of the lawsuit. We frequently and repeatedly caution our clients that breaching the seal--by telling their friends, family, coworkers, financial advisors, or others that they have an FCA case--could lead to disastrous consequences. But the statute does not say what those consequences are. This was the issue raised before the Supreme Court in State Farm Fire & Casualty Co. v. United States ex rel. Rigsby.

In Rigsby, the relators' former attorney had disclosed the existence of the complaint to various news outlets, which reported on the allegations of fraud, but not on the existence of the False Claims Act case. State Farm argued that by breaching the seal in this fashion, thereby violating a federal court order, the case must be dismissed.

A unanimous Supreme Court rejected this interpretation, noting that the FCA does not enact so harsh a rule. It noted that the purpose of the seal is to protect the Government's interests, so that it may conduct its investigation without alerting the defendants, and so it would make little sense to adopt a penalty that would deprive the Government of assistance from the relators.

Rather, the opinion crafted by Justice Kennedy held that the lower courts have discretion to administer the balancing test and penalty they see fit for seal breaches. The lower court in Rigsby balanced three factors: (1) the actual harm to the Government, (2) the severity of the violations, and (3) the evidence of bad faith. Other courts may look at different factors, and some may still dismiss cases for breaching the seal. Remedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.

Full text of the opinion and all briefing may be found at the scotusblog website.