Article Summary

Based on oral arguments in State Farm Fire and Casualty Co. v. U.S. ex rel. Rigsby, the Supreme Court is unlikely to adopt a rule demanding automatic dismissal of cases where a secrecy order has been violated under the False Claims Act. Instead, the Court will likely prescribe a case-by-case examination of whether dismissal is appropriate — or whether other sanctions would achieve a better result.

This expert analysis by TELG managing principal R. Scott Oswald was published by Law360 on November 2, 2016.

Originally published in:

Justices Shun Bright-Line Rule for FCA Seal Violations

By R. Scott Oswald

In oral arguments Tuesday about the proper remedy for violations of secrecy orders under the False Claims Act (FCA), the eight justices of the U.S. Supreme Court seemed loath to adopt any bright-line rule — a recognition of what Justice Stephen Breyer called the “vast range” of scenarios and possible outcomes of such violations.

“Life is complicated,” said Justice Breyer. “There are all kinds of factors [that] affect the basic fairness of the situation. … Like many, many, many decisions, this is conferred upon [district courts] to make a fair decision.”

Speaking for State Farm, the petitioner in State Farm Fire and Casualty Co. v. United States ex rel. Rigsby, Kathleen M. Sullivan had urged the Court to require dismissal as a matter of law for every seal violation — what she initially called a “per se” rule but later reduced, under pressure from Justice Samuel Alito, to a “per se rule with de minimus exceptions.”

To Ms. Sullivan’s evident discomfort, the justices were far more interested in the exceptions than the rule. By the end of arguments, when she reappeared at the lectern for rebuttal, her plucky assertion that the Court would rule for State Farm was met with laughter.

A more likely outcome, given the tenor of discussion: The Court will endorse some version of the so-called Lujan factors, which lower courts have applied for more than 20 years to decide whether dismissal is appropriate for FCA seal violations — and which were affirmed in this case by the U.S. Court of Appeals for the Fifth Circuit. Such a result was recommended both by the U.S. government and by the Rigsby plaintiffs, whose counsel Tejinder Singh argued that a stricter rule would amount to “trying to throw the baby out with the bath water.”

A Fraud Born in Hurricane Katrina

The Rigsby case was filed by two sisters, Cori and Kerri Rigsby, who worked on behalf of State Farm as insurance adjusters in the devastation that followed Hurricane Katrina in 2005. In their FCA complaint, they claimed that State Farm ordered adjusters to say, falsely, that the homes of policyholders had been damaged by flood waters instead of by high winds — a finding that would save State Farm millions of dollars by shifting reimbursement to a taxpayer-funded flood insurance program.

The FCA, originally signed into law by President Abraham Lincoln in 1863, makes it illegal to deceive the federal government for financial gain. The law includes a “qui tam” provision that allows whistleblowers like the Rigsby sisters to file a legal complaint on behalf of the government and — if they prevail — to receive a share of the proceeds. FCA complaints are filed under seal and must remain secret for at least 60 days so that they don’t jeopardize any criminal investigations that might already be under way.

A federal jury found that State Farm violated the FCA. The insurer argued to dismiss the case, however, because the Rigsbys’ original attorney had broken the trial court’s seal by sharing some evidence from the case with reporters. According to State Farm, the FCA demands that any seal breach — no matter its outcome — should result in automatic dismissal. Both the trial court and the Fifth Circuit sided with the Rigsbys, however, noting that this violation had caused no harm to the government and that, on balance, a dismissal wouldn’t serve justice.

Rough Start for State Farm

Tuesday’s arguments started badly for Ms. Sullivan, as she tried to convince the Court that dismissing the case — in which U.S. taxpayers already had won judgment against her client — was actually a good outcome for the government, whose interests are supposed to be protected by the court seal.

“So you’re arguing the government’s interests,” said Chief Justice John Roberts, “but it … rings a little hollow when we see that the government is [arguing] the other side.”

“I’m in a difficult position,” she agreed, a bit sheepishly.

Ms. Sullivan proposed that, in addition to protecting the government, a court seal also protects “the operation of the statute” — so that the integrity of the FCA itself is threatened by a violation. The justices seemed disinclined to discuss statutory construction, however: In a Court without Justice Antonin Scalia on call to parse commas, this line of attack petered out.

Also counting against State Farm: Its failure to seek, in lower proceedings, any sanction other than dismissal — a point raised by Justice Anthony Kennedy almost immediately after Ms. Sullivan started speaking. Chief Justice Roberts followed up by questioning whether State Farm, if it lost its main argument, had even preserved a fallback position. It had, Ms. Sullivan insisted, but any sanction other than dismissal was still inadequate.

Furthermore, she said, to follow the “toothless” Lujan balancing test as originally articulated by the U.S. Court of Appeals for the Ninth Circuit in United States ex rel. Lujan v. Hughes Aircraft Co. — and as applied below — would “[invite] open season on deliberate, bad-faith leaks to the press” via seal violations.

A Confident Case for Relators

Arguing for the Rigsbys, Mr. Singh was breezy almost to a fault: He frequently dropped colloquialisms such as “you know” and “Right?” and seemed confident that Lujan would survive the day. In a strategic move, he quickly noted that dismissal remains a possible sanction for seal violations — just not in this case.

“The question [is] not really whether the courts will punish and deter violations of the False Claims Act seal requirement,” he said, “but whether they will do so in a way that is counterproductive to the government’s interest — or whether they will instead impose other sanctions that would benefit the government, allow cases to go forward, and simultaneously create an effective deterrent.”

Mr. Singh began to assemble language for the Court’s opinion, rejecting the admitted bad conduct by the Rigsbys’ previous attorney — but emphasizing that the standard in this case is whether the lower courts abused their discretion in applying the Lujan test.

And the justices largely seemed to indulge him, mostly questioning the mechanics of a balancing test in the mold of Lujan, which asks courts to weigh the seriousness of a seal breach; the resulting harm to the government; and whether the violation was committed in bad faith.

Sensing little resistance, Mr. Singh tried to sit down while he was ahead, only to get pulled back into discussion by Justice Alito. In response, he again noted that dismissal is on the table for egregious seal violations — but that where the government says a case should proceed, as here, courts “should really listen.”

It was a neat transition to the government’s argument in support of the Rigsbys.

The Government Sums Up

John F. Bash, assistant to the U.S. Solicitor General, took a similarly confident tone — and indeed, jumped immediately to “what we think the standard should be, how we think the Court ought to write the opinion, and then how we think the Court ought to dispose of this case.”

He fielded a few questions about the Lujan factors, and in particular whether courts should consider the reputational harm from a seal breach to a defendant such as State Farm — something that Justice Breyer, in particular, seemed inclined to weigh as part of “the overall fairness of the situation.”

Only in “an idiosyncratic case,” replied Mr. Bash, accurately noting that “merely disclosing the allegations of fraud does not violate the seal. So the sort of reputational harm you’d be talking about is the incremental harm from the disclosure that a suit has been filed.”

In an indication that the justices had few remaining concerns, Justice Kennedy then took Mr. Bash up on his opening offer, half-jokingly inviting the advocate to tell the Court “how to write the ideal platonic opinion.”

“I wouldn’t presume,” said Mr. Bash — but then he presumed anyway, ably summarizing the key points:

[C]ourts should remedy these seal orders like they always remedy protective orders and seal orders, with a healthy dose of discretion, but, in light of the purpose of this provision, to protect the government. More specifically, the three factors identified by the courts below: actual harm to the government; severity of the violation, which … correlates with potential harm; and intent or bad faith are the three key factors in a mine-run case. But we don’t think the Court should exclude that in an idiosyncratic case … other factors could be relevant. We also [recommend sending] a strong message that these violations will not be tolerated.

Based on the tone of arguments, this may serve as a decent syllabus for the ultimate opinion in Rigsby.


R. Scott Oswald represents whistleblowers under the FCA. He is managing principal of The Employment Law Group, P.C., a law firm based in Washington, D.C.

(Note: This version has been slightly edited from the version published by Law360.)