In the midst of a False Claims Act (FCA) case, the relators have blatantly violated the FCA’s seal provision.  Surely this will lead to dismissal, right?  Wrong.

On Tuesday, December 6, the Supreme Court unanimously ruled that violating the FCA’s seal requirement does not necessarily demand that a case be dismissed.

The case before the Court was State Farm Fire & Casualty Co. v. United States ex. rel. Rigsby et al.  In the years following the devastation of Hurricane Katrina, there were a massive number of insurance claims.  The National Flood Insurance Program was responsible for flood damage, whereas State Farm Fire & Casualty Company (SFFCC) was responsible for wind damage.  As one can imagine, there was some ambiguity in parsing out what damage was due to wind and what to flooding.  In this case, the relators alleged that SFFCC instructed claims adjusters to misclassify wind damage as flood damage, thereby fraudulently shifting the cost of insurance liability to the government.

The FCA’s seal requirement mandates that qui tam complaints be kept under seal until the court orders them unsealed.  This requirement was broken when the relators’ former attorney, Dickie Scruggs, leaked a sealed filing to several press outlets.  SFFCC moved for dismissal.  The District Court decided and the Court of Appeals for the Fifth Circuit affirmed that this violation did not merit automatic dismissal.  The Supreme Court has now affirmed this view.

In reaching its decision, the Supreme Court looked at both the language and purpose of the statutory provision, concluding that while there’s no doubt the language creates “a mandatory rule the relator must follow,” the statute does not require automatic dismissal.  Though the seal provision prescribes no remedy, the Court reasoned that several other provisions of the FCA do expressly require dismissal for certain violations, indicating that if Congress intended to require dismissal for violating the seal requirement, it would have said so.  Further, the Court saw their conclusion in line with the purpose of the statute.  Justice Kennedy remarked that the seal provision was meant to encourage more private enforcement suits and to protect the Government’s interests.  Given that, it wouldn’t be reasonable to see this provision in a way that would prejudice the Government “by depriving it of needed assistance from private parties.”  The Court held that whether a violation of the FCA’s seal requirement merits dismissal of the case is left with the sound discretion of the district court.

This decision clears up a prior ambiguity, ending a Circuit split.  So what does this mean for parties in FCA cases?

First, it means that defendants cannot count on a dismissal if a relator violates the seal provision.  However, it is key to remember that dismissal is still an option for the district court, along with a variety of lesser punishments.  Finally, though this decision does not mean relators can violate the FCA’s seal requirement with impunity, time will tell whether it emboldens relators to be somewhat less cautious.