In a unanimous opinion issued December 6, 2016, the U.S. Supreme Court held that violation of the False Claims Act’s (FCA’s) seal requirement is not grounds for automatic dismissal. The Court declined to provide guidance for when dismissal may be appropriate and instead deferred to the discretion of the district courts. The case is State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, and the opinion is available here.
In the case, relators alleged that State Farm falsely classified wind damage caused by Hurricane Katrina as flood damage, which would shift payment responsibility to the government under federal flood insurance policies. The relators’ attorney provided certain filings subject to the seal to national news media outlets in an intentional violation of the FCA’s seal requirement. The district court allowed the case to proceed, concluding the government was not prejudiced by the publication and given that the attorney violating the seal was removed from the case. The Fifth Circuit affirmed the district court’s decision, rejecting a prior Sixth Circuit holding that dismissal is mandatory for any violation of the FCA seal.
The Supreme Court examined the structure of the FCA, which does not specify a remedy for seal violations. However, the Court identified a number of provisions in the FCA that do expressly require dismissal. The Court concluded that, had Congress intended to require dismissal for a seal violation, it would have included such language. Noting that defendants’ reputations may be harmed by potential seal violations, the Court stated that district courts have a full range of sanctions available, including dismissal, monetary penalties, and attorney discipline, to address violations.
In leaving discretion with district courts, the Court indicated that the balancing factors included in the Ninth Circuit’s United States ex rel. Lujan v. Hughes Aircraft Co. opinion “appear to be appropriate” but left the standards to be discussed “in the course of later cases.” 67 F.3d 242 (9th Cir. 1995). The factors in Lujan include (1) the extent of harm to the government, (2) the severity of the violation, and (3) whether the disclosure was made in bad faith.