Earlier this week, the Supreme Court agreed to resolve an emerging circuit split regarding what standard governs the decision to dismiss a relator’s claim for violation of the FCA’s seal provision, 31 U.S.C. § 3730(b)(2), which requires FCA complaints to be filed in camera, remain under seal for at least 60 days, and not be served on the defendant until the court so orders.

Case on Review

The case on review involves an FCA suit by insurance adjustors against State Farm alleging that the insurance company fraudulently misclassified claims related to flood policies in order to get them paid by the federal government in the aftermath of Hurricane Katrina.

The insurance company argued that the suit should be dismissed because the relators violated the seal provision by revealing on three separate occasions the existence of the lawsuit to various media outlets. Siding with the relators, the district court ruled that the seal violations were not “severe” and did not warrant dismissal because there was no evidence they “had led to a public disclosure in the news media that this action had been filed” or had impeded the government’s investigation. The court further found that the relators had not acted in bad faith because there was no evidence they had authorized their attorney’s improper disclosures.

On appeal, the Fifth Circuit affirmed, relying in part on an opinion from the Ninth Circuit, also involving the disclosure of a qui tam suit to the media, in which the court held that in determining whether to sanction a relator for violations of § 3730(b)(2) with dismissal, the court must consider: (1) whether and to what extent the seal violation caused harm to the government; (2) the relative severity or nature of the disclosure; and (3) whether the disclosure occurred in bad faith.

The Circuit Split

While the Fifth and Ninth Circuits employ the three-part test first articulated by the Ninth Circuit, the Second and Fourth Circuits have adopted an “incurable frustration” test when deciding whether dismissal for seal violations is warranted. Under that test, suits should be dismissed when the violations “incurably frustrate” the interests protected by § 3730(b)(2), which include: (1) allowing the government time to investigate and decide whether to intervene; (2) protecting defendants from having to answer complaints without knowing whether the government or relators will pursue the litigation; (3) protecting a defendant's reputation from meritless qui tam actions; and (4) incentivizing defendants to settle to avoid the unsealing of a case.

Finally, the Sixth Circuit has found that the balancing tests used by other circuits constitute judicial overreach, and instead applies a per se rule that any violation of the seal requires dismissal.

Practical Considerations

The court will hear oral arguments and issue a ruling in the case during its next term, which begins in October and ends in June 2017. The decision isn’t likely to have a sweeping impact on FCA litigants, as seal violations are fairly uncommon, but if the Court endorses the Sixth Circuit’s per se rule, FCA defendants will have additional grounds for getting FCA suits dismissed before discovery.

The case is State Farm Fire & Casualty v. United States, ex rel. Rigsby.