Supreme Court Rejects Mandatory Dismissal as Remedy for FCA Seal Violations

In State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, No. 15-513, 580 U. S. ____ (Dec. 6, 2016) (“Rigsby”), the Supreme Court rejected the proposition that dismissal is the mandatory remedy for violations of the seal requirement of the False Claims Act (FCA).

In Rigsby, the relators were initially represented by an attorney who, while the case was still under seal, disclosed the lawsuit’s existence to several reporters.  None of the reporters revealed the existence of the lawsuit at that point; later on, the district court lifted the seal in part and the defendant learned of the lawsuit.  After the attorney responsible for the seal violation had withdrawn from the case (and had been indicted in connection with an unrelated matter), the defendant filed a motion to dismiss on account of the seal violation, while not seeking any lesser sanction.

The district court determined that, under those circumstances, dismissal was not an appropriate remedy for the breach, and since the defendant did not seek any lesser sanction, none was levied.  In affirming the district court’s ruling, the Fifth Circuit noted that the Government was “in all likelihood not harmed by the disclosures because none of them led to the publication of the pendency of the suit before the seal was lifted in part.” Rigsby, slip op. at *6.  The Fifth Circuit further determined that “the violations were not severe in their repercussions because respondents had complied with the seal requirement when they first filed suit.” Id.

The Supreme Court noted that the FCA seal requirement is “a mandatory rule the relator must follow,” but affirmed that “[t]he statute says nothing, however, about the remedy for a violation of that rule. In the absence of congressional guidance regarding a remedy, although the duty is mandatory, the sanction for a breach is not loss of all later powers to act.” Id. (internal quotation omitted). Therefore, the Court held, dismissal is not required where there has been a breach of the FCA’s seal requirement. Id.

The Court, in reaching its decision, relied on both the structure of the FCA and the purpose of the seal requirement. Regarding the structure of the FCA, the Court stated that “the FCA has a number of provisions that do require, in express terms, the dismissal of a relator’s action.” Id. at *7. The Court noted that the seal provision of the FCA, however, does not mandate dismissal in the event of a violation. Id. The Court reasoned that because “Congress’ use of explicit language in one provision cautions against inferring the same limitation in another provision…[i]t is proper to infer that, had Congress intended to require dismissal for a violation of the seal requirement, it would have said so.” Id.

Citing the FCA’s legislative history, the Court found that the purpose of the seal provision was to protect the government’s interest in conducting clandestine investigations of fraudulent activity. Id. The Court reasoned that “[b]ecause 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.” Id.

The Court made clear that there is no one-size-fits-all remedy for violations of the seal requirement, and rather than imposing a rigid rule as to how violations of the seal should be addressed by trial courts, the Court declared that district judges enjoy wide discretion in crafting remedies for FCA seal violations. Id. at *10. The Court even stopped short of announcing a standard to be applied to fashioning remedies for seal violations, but noted with approval the approach taken by the Ninth Circuit in United States ex rel. Lujan v. Hughes Aircraft Co., 67 F. 3d 242 (9th Cir. 1995).  In Lujan, the Ninth Circuit held that courts, in determining the appropriate remedy for a breach of the seal, should take into account three factors: (1) the actual harm to the Government, (2) the severity of the violations, and (3) the evidence of bad faith.  Id. at 245–247.

While the Supreme Court did not explicitly apply the Lujan factors to the facts before it in Rigsby, it did note that the district court was well within its discretion to have refused to dismiss the case based on the seal violations that occurred, even where the violations were arguably committed in bad faith by the relators’ former attorney (who, as the Court noted, had a checkered history of ethical violations). Rigsby, slip op. at *4, 10. In emphasizing the discretion that district courts have to craft remedies for seal violations, the Supreme Court noted that “[d]istrict courts have inherent power … to impose sanctions short of dismissal for violations of court orders.”  The Court held that dismissal “remains a possible form of relief” for seal violations, and that “[r]emedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.” Id. at *10.