In April 2006, claim-adjuster sister plaintiffs Cori and Kerri Rigsby bring a qui tam action under the False Claims Act, 31 U.S.C.
§ 3729 et seq., claiming
that State Farm Fire and Casualty Company submitted false claims
to the United States government for payment
on flood policies arising out of damage caused
by Hurricane Katrina. The FCA allows private parties to bring a suit for the
United States against anyone submits false or fraudulent claims to the government.
A winning private party gets part of the recovery. At trial, the Rigsbys prevail on a single bellwether false claim under the FCA. Black’s
Law Dictionary calls a “bellwether trial” as a nonbinding trial of a case
or set of cases, on issues representative of the common claims of a mass tort
proceeding, held to determine the merits of the claims and the strength of the
parties’ positions on the issues. It adds that such a trial is often used as a
procedural device to encourage settlements. The
district court later
keeps the Rigbys from conducting further
discovery, and denies
State Farm’s motions for a new trial and judgment notwithstanding the verdict.
Both sides appeal.
The issue of importance to federal law as a whole is whether the Rigsbys’ alleged
violations of the FCA’s seal requirement independently warrant dismissal. This
is an issue of first impression in the fifth circuit. The three other circuits disagree
about the effect of a seal violation.
State Farm says that the Rigsbys’ violations of the FCA’s
seal requirement independently warrant dismissal. The FCA requires that a “copy of the complaint and written disclosure of substantially all material evidence and information the person possesses
shall be served on the government.” The complaint must be filed in camera and remain under seal until the court orders it served on the defendant. Whether a violation of this requirement compels
dismissal presents
a statutory interpretation question reviewed de novo. The seal requirements are procedural, not jurisdictional.
In U.S. ex rel. Lujan
v. Hughes Aircraft Co., the plaintiff filed her FCA suit under seal but subsequently disclosed, to a national newspaper, the existence of the suit
and the nature of her allegations about a government contractor mischarging for its
work on a plane’s
radar system. 67 F.3d 242, 243–44 (9th Cir. 1995). Two articles
were subsequently published revealing that the suit had been filed
and relaying the substance of the claims. Id. at 244. The district court dismissed the suit because of the seal violations. Id. at 243.
The Ninth Circuit reversed. Id. at 243, 247. The court determined
that no provision
in the FCA explicitly authorizes dismissal as a sanction for a seal violation. Id. at
245. The court then looked to the
legislative history surrounding the passage of the 1986 amendments to the FCA that added the seal provision, and determined that Congress sought
to strike a balance between encouraging private FCA actions
and allowing the government an adequate opportunity to evaluate
whether to join the suit. Id. (citing S. Rep. No. 99-345,
at 23–25 (1986)).
The Lujan court concluded that the plaintiff
had violated the seal requirement, but remanded
with instructions for the district court to
evaluate three factors in determining
whether dismissal was warranted:
1)
the harm to the government from the violations;
2)
the nature of the violations; and
3)
whether the violations were made willfully or in bad faith. Id. at 245–47.
B. The Second Circuit
The Second Circuit adopted a similar
analysis in U.S. ex rel. Pilon v. Martin
Marietta Corp., 60 F.3d 995, 997,
999–1000 (2d Cir. 1995).
C.
The Sixth
Circuit
By
contrast, the Sixth Circuit held that
any violation of the seal requirement, no matter
how trivial, requires dismissal. See Summers, 623 F.3d at 299. The Summers court
determined that Congress’s choice
of a 60-day seal period already
reflected legislative balancing of the interests identified by the Lujan court. See id. at 296. The Summers court also feared that a balancing test would
encourage “plaintiffs to comply
with the FCA’s under-seal requirement
only to the point the costs of compliance are outweighed
by the risk” of dismissal. Id. at 298.
D. Conclusion
While cognizant of the justification for and the merits of a per se rule,
we conclude that a seal violation does not automatically mandate dismissal. As the Lujan court recognized
and the government
stated as amicus in this case, nothing in the text of § 3730(b)(2) “explicitly authorizes dismissal as a sanction for disclosures in violation
of the seal requirement.” 67 F.3d at 245. Perhaps more essentially, though, the 1986 amendments to the FCA were intended to encourage more, not fewer, private FCA actions.
See S. Rep. No. 99-345, at 1– 8, 23–25. Holding that any violation of the seal requirement mandates dismissal would frustrate that purpose, particularly when the government suffers minimal
or no harm from
the violation. We therefore embrace
the Lujan test for addressing violations of § 3730(b)(2) and turn
to the relevant facts
here. We review the district court’s
application of the Lujan factors, and its election of a remedy for a seal violation, for abuse of discretion. See Lujan, 67 F.3d at
247 (“Imposition of dismissal as a sanction
is reviewed for abuse of discretion.”); Pilon, 60 F.3d at 1000.
The Rigsbys filed their initial complaint
under seal on April 26, 2006, and served
a copy to the government. State
Farm alleges that the Rigsbys’ prior counsel then disclosed
the existence of the lawsuit
to several news outlets by emailing copies
of the evidentiary disclosures and engineering reports,
sometimes including the case caption. State Farm also alleges
that the Rigsbys themselves sat for interviews that culminated in the publication of multiple news stories—including one interview that was the subject
of a national broadcast on ABC’s 20/20 program—and notified a Mississippi congressman of their FCA action. Most of these events occurred before the seal was partially lifted on January
10, 2007, to allow the Rigsbys
to address related
litigation in Alabama.
The seal was fully lifted on August 1, 2007.
First, we limit
the scope of our inquiry
to the period
between the filing of the
complaint and the partial seal lift. Indeed, while
neither party appears to have scrutinized the docket in the related litigation, the existence of this qui tam litigation was revealed
there in another party’s public
filings within days of the partial
seal lift. This effectively mooted the original seal. We also confine our analysis to disclosures of the existence
of the suit itself,
and do not consider disclosures of the underlying allegations. 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.
Having closely reviewed each of the disclosures offered by State Farm that fall into the aforementioned time period and relate to the existence of the FCA suit, the court first
concludes that the Rigsbys
violated the seal provision, but
the opinion agrees with the district
court’s determination that none of the disclosures appear to have resulted in the publication of the existence
of this suit before the seal was partially
lifted. First that the
government was not likely harmed.
If State
Farm was not tipped off about the existence
of the suit from the Rigsbys’ disclosures, a fundamental purpose of the
seal requirement—allowing the government to determine whether to join the suit without tipping
off a defendant—was not imperiled
Second, the violations here—unlike those in many other cases that resulted in dismissal,—did not involve
a complete failure to file under seal or serve the government, and were therefore considerably less severe. The fifth circuit acknowledges that some of the above-mentioned publications revealed that the Rigsbys turned over material
to federal and state prosecutors. But each reference to those disclosures is in the context of allegations about State Farm misleading policyholders, not the federal government. The distinction is significant because
the revelation of possible private or public enforcement to protect policyholders would not alert State Farm to a pending FCA suit.
With respect to bad faith, the district court
determined that “there is nothing in the record to suggest
that the disclosures in question . . . were authorized by or made at the suggestion of the Relators,” and held that a finding of bad
faith or willfulness was
unwarranted. There is no indication that the Rigsbys
themselves communicated the existence of the suit in the relevant interviews. Was the appeals court to impute
their former attorneys’ disclosures to them, however, we would conclude that they acted in bad faith. Even presuming bad faith, the Lujan factors favor the Rigsbys.
Although they violated the seal requirement, the Rigsbys’ breaches
do not merit dismissal.
The appeals court therefore affirmed the district court’s decision
with respect to the seal violations.
