Monday, November 28, 2016

Supreme Court Weighs False Claim Act Seal Provisions

What are the seal provisions in a qui tam complaint?

The U.S. Supreme Court is weighing the conditions under which a federal court should dismiss lawsuits brought by whistleblowers who violate the law's non-disclosure requirements. In short, a qui tam complaint must be filed and remain under seal for sixty days. During this period, the government investigates the allegations and decides whether to intervene while the plaintiff is barred from publicly disclosing the suit.

In November, the Court heard argument in State Farm Fire & Casualty Co. v. United State ex rel. Rigsby over the Act's seal provision. The case involves a qui tam complaint brought by plaintiffs Cori and Kerri Rigsby against State Farm. The Rigsbys, sisters and former claims adjustors for Allstate, claimed the company fraudulently mischaracterized wind damages caused by Hurricane Katrina as flood damages. Instead of Allstate being responsible for paying the damages, the cost would be covered by the government's flood insurance program.

While the plaintiffs filed the lawsuit under seal, it was allegedly disclosed shortly thereafter to several news outlets by the Rigsby's prior counsel. State Farm then moved for a dismissal which was declined by the district court (which also awarded the plaintiffs 30 percent of the $758,250 award against State Farm and $2.9 million in attorney fees and costs).

On appeal, the Fifth Circuit rejected the insurer's argument that a seal violation mandated dismissal and affirmed the trial judge's discretion in rejecting a "per se" dismissal rule. The court also applied a balancing test in finding that the disclosures were not revealed by the media and that the government's investigation had not been compromised.

The overarching issue before the Supreme Court is whether all violations of the seal requirement should be dismissed or if a balancing test similar to that of the Fifth Circuit's should be adopted. The Court must also consider a number of other factors such as the plaintiff's intent, whether the disclosure was limited or inadvertent, and the potential harm to the defendant or to the government's investigation.

Why This Matters

This case amplifies the high stakes of claims brought under the False Claims Act. While it is unclear at this time how the Supreme Court will rule, qui tam claims are unlikely to be rolled back. That being said, it is crucial for parties who bring claims under the Act to be aware of the seal requirement and that a violation of this provision could lead to a case being dismissed. If you need assistance defending a claim brought under the FCA, you should consult with an experienced attorney.

© 2021 Lehman & Eilen LLP | Attorney Advertising
50 Charles Lindbergh Blvd, Suite 505, Uniondale, NY 11553
| Phone: (516) 222-0888

Overview of Services | Broker-Dealers | Investment Management | Transactional and Business Law | Counseling and Compliance | Private and Public Financings | Securities Exchange Act Reporting | Regulatory Investigations and Enforcement Actions | Dispute Resolution | Special Regulatory Counsel | Our Professionals | About Our Firm

Law Firm Website Design by
Amicus Creative