The Supreme Court ruled today (December 6, 2016) in State Farm Fire & Cas. Co. v. U.S. ex rel. Rigsby, ___ S. Ct. ___ (2016). The case probed whether a violation of the False Claims Act’s seal requirement mandated dismissal of a Relator’s complaint.

As we reviewed in earlier posts (here and here), Rigsby stemmed from allegations that State Farm violated the FCA by mischaracterizing insurance claims in the wake of Hurricane Katrina.  The Relators were two former State Farm adjusters who alleged that State Farm encouraged assessing damage as “flood damage,” payable from government funds administered by State Farm, rather than as “wind damage,” payable instead from State Farm’s own coffers.

The Relators’ former attorney had disclosed the existence of the qui tam suit to the media.  State Farm sought dismissal of the complaint as a sanction for Relators’ violation of the FCA’s 60-day seal requirement.

Justice Kennedy, writing for a unanimous Court, held that courts should exercise discretion to determine what sanction is appropriate for a seal violation, rather than dismissing a complaint outright.  While dismissal is a possible sanction, a court may instead decide on something less draconian.  The Court affirmed the Fifth Circuit’s decision below, which in turn approved the use of a three-factor test by the U.S. District Court for the Southern District of Mississippi.  That test, articulated in U.S. ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242 (9th Cir. 1995), regards (1) the actual harm to the Government from the seal violation; (2) the severity of the violations; and (3) the evidence of bad faith.

The Supreme Court stated that the Hughes factors appeared appropriate, but it declined to explore the extent to which these or other considerations should guide courts’ discretion.

The Court also noted that State Farm failed to ask for any sanction other than dismissal, and stated that “remedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.”  Accordingly, FCA defendants in future cases should consider seeking these lesser penalties for a violation of the seal requirement, in addition to outright dismissal.

The Court’s opinion is available here.