False Claims Act

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US Supreme Court

Case Name: State Farm Fire & Casualty Co. v. United States Ex Rel. Rigsby et al.

Case No.: 15-513

Focus: False Claims Act

A seal violation does not mandate dismissal of a relator’s complaint.

Petitioner moved to dismiss the suit on the grounds that respondents had violated the seal requirement. Specifically, it alleged, respondents’ former attorney had disclosed the complaint’s existence to several news outlets, which issued stories about the fraud allegations, but did not mention the existence of the FCA complaint; and respondents had met with a Congressman who later spoke out against the purported fraud. The District Court applied the test for dismissal set out in United States ex rel. Lujan v. Hughes Aircraft Co., 67 F. 3d 242, 245–247. Balancing three factors—actual harm to the Government, severity of the violations, and evidence of bad faith—the court decided against dismissal. Petitioner did not request a lesser sanction. The Fifth Circuit affirmed. It first concluded that a seal violation does not require mandatory dismissal of a relator’s complaint. It then considered the same factors weighed by the District Court and reached a similar conclusion.

The FCA does not enact so harsh a rule. Section 3730(b)(2)’s requirement that a complaint “shall” be kept under seal is a mandatory rule for relators. But the statute says nothing about the remedy for violating that rule; and absent congressional guidance regarding a remedy, “the sanction for breach [of a mandatory duty] is not loss of all later powers to act.” United States v. Montalvo-Murillo, 495 U. S. 711, 718. The FCA’s structure supports this result. The FCA has a number of provisions requiring, in express terms, the dismissal of a relator’s action. E.g., §§3730(b)(5), (e)(1)–(2). It is thus proper to infer that Congress did not intend to require dismissal for a violation of the seal requirement. See Marx v. General Revenue Corp., 568 U. S. ___, ___. This result is also consistent with the general purpose of §3730(b)(2), which was enacted as part of a set of reforms meant to “encourage more private enforcement suits,” S. Rep. No. 99–345, pp. 23–24, and which was intended to protect the Government’s interests, allaying its concern that a relator filing a civil complaint would alert defendants to a pending federal criminal investigation. It would thus make little sense to adopt a rigid interpretation that prejudices the Government by depriving it of needed assistance from private parties.

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.