Supreme Court: Automatic Dismissal Not Required for Violating FCA's Seal Requirement | Practical Law

Supreme Court: Automatic Dismissal Not Required for Violating FCA's Seal Requirement | Practical Law

In State Farm Fire & Casualty Co. v. U.S. ex rel. Rigsby, the US Supreme Court held that violations of the False Claims Act's (FCA) seal requirement do not automatically mandate dismissal of the complaint. In so holding, the Court resolved a split among the four circuit courts that have considered the issue.

Supreme Court: Automatic Dismissal Not Required for Violating FCA's Seal Requirement

Practical Law Legal Update w-004-9007 (Approx. 3 pages)

Supreme Court: Automatic Dismissal Not Required for Violating FCA's Seal Requirement

by Practical Law Litigation
Published on 12 Dec 2016 • USA (National/Federal)
In State Farm Fire & Casualty Co. v. U.S. ex rel. Rigsby, the US Supreme Court held that violations of the False Claims Act's (FCA) seal requirement do not automatically mandate dismissal of the complaint. In so holding, the Court resolved a split among the four circuit courts that have considered the issue.
On December 6, 2016, in State Farm Fire & Casualty Co. v. U.S. ex rel. Rigsby, the US Supreme Court held that violations of the False Claims Act's (FCA) seal requirement do not automatically mandate dismissal of the complaint. In so holding, the Court resolved a split among the four circuit courts that have considered the issue ( (U.S. Dec. 6, 2016)).
In April 2006, respondents Cory and Kerri Rigsby filed a qui tam complaint under the False Claims Act against petitioner State Farm Fire & Casualty Company (State Farm). The Rigsbys were former claims adjusters for one of State Farm's contractors, and they alleged that State Farm instructed them to misclassify damage caused by Hurricane Katrina. The practical effect of these instructions was to shift economic losses from State Farm to the federal government, which had backed certain flood insurance policies.
The FCA imposes civil liability for knowingly submitting false payment claims to the federal government, and allows a private relator to bring an FCA suit on behalf of the federal government and collect a portion of the ultimate damages award. Relator suits are subject to certain filing restrictions and procedures. As relevant to this case, the complaint must be filed under seal for a period of time (31 U.S.C. § 3730(b)(2)).
The Rigsbys properly filed their complaint under seal in 2006. In January 2007, the district court partially lifted the seal and seven months later, lifted the seal in full. However, in the months before the partial lifting, the Rigsbys' attorney at the time disclosed the complaint's existence to journalists. While the journalists discussed fraud allegations broadly, they did not reveal the FCA complaint's existence.
In January 2011, State Farm moved to dismiss the Rigsbys suit alleging they had violated the seal requirement. The district court denied State Farm's motion, based on the factors set out in Lujan v. Hughes Aircraft Co., 67 F.3d 242, 245-247 (9th Cir. 1995). The case went to trial and the Rigsbys prevailed.
State Farm appealed to the US Court of Appeals for the Fifth Circuit, who affirmed the denial of State Farm's motion to dismiss. The court agreed with the Second and Ninth Circuits but broke with the Sixth Circuit, finding that the FCA does not require automatic dismissal of a complaint. State Farm appealed to the Supreme Court, who granted certiorari.
The Supreme Court affirmed the Fifth Circuit, holding that a violation of the FCA's seal provision does not automatically require a relator's complaint to be dismissed. In reaching this conclusion, the court examined:
  • The text of the statute. The statute creates a mandatory seal rule but says nothing about a remedy for violation of that rule.
  • The organization of the statute. The FCA contains several provisions that explicitly require dismissal of a relator's action, and the seal requirement is not one of them.
  • The purpose and legislative history of the statute. The seal provision was enacted to protect the government's interests by encouraging private enforcement suits without alerting defendants to a pending criminal investigation. The Court held that State Farm's rigid interpretation of the seal requirement would undermine those interests by depriving the government of assistance from private parties.
The Court also noted that dismissal is a possible sanction for violation of a seal order, but whether it is appropriate is within the district court's discretion.