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False Claims Act Statistics, News & Analysis

Could Good Things Come in Threes?

In 2015, there was Carterin 2016, there was Escobar, and a cert. grant in Rigsby on May 31, 2016, brought FCA practitioners a crucial step closer to a trifecta of good news for the defense bar. The latest case to be taken up is State Farm & Casualty Company v. United States ex rel. Rigsby (No. 15-513), which is on review from the Fifth Circuit. The Supreme Court could deliver another victory for defendants if it decides that relators’ violation of the FCA sealing provision requires dismissal of their suit.

The seal provision of the FCA, 31 U.S.C. § 3730(b)(2), requires relators to file their complaints under seal while the government investigates and decides whether to intervene. While the statutory seal period is only 60 days, the government typically obtains extensions – sometimes for years – of the period under which FCA cases remain under seal pending completion of its investigation. Nevertheless, there are circumstances (and Rigsby presents a striking example) where the seal is breached.

In Rigsby, two relators claimed that defendant State Farm attempted to fraudulently reclassify wind damage claims stemming from Hurricane Katrina into flood damage claims, thereby shifting liability from purely commercial insurance to flood insurance issued by State Farm but supported by the federal government through the National Flood Insurance Program (NFIP). Relators’ counsel then hired a public relations firm to publicize the case to the national media, despite the fact that the case remained under seal. The trial court found that relators’ violation of the seal did not require dismissal of the case, and the Fifth Circuit agreed, siding with the Ninth Circuit, which has adopted a multi-factor test that focuses primarily on whether the government has been harmed by a seal violation. In contrast, the Sixth Circuit has adopted a “binary” test – requiring dismissal if there is a seal violation. The Second and Fourth Circuits have adopted yet a third approach – looking to whether the violation frustrates the congressional purpose behind the seal and to the potential (rather than actual) harm to the government resulting from a breach.

Provided a majority can be reached among eight justices, the Supreme Court will now bring needed clarity to this morass – which it should do, in our view, by adopting the Sixth Circuit’s simple and definitive approach. Just as the government is required to strictly maintain grand jury secrecy, a relator, in order to have standing under the FCA, should be required to strictly maintain the seal, with clear and immediate consequences for failing to do so.

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