Last week, the U.S. Supreme Court granted the petition for writ of certiorari in State Farm Fire and Casualty Co. v. United States ex rel. Rigsby and will consider what standard should determine when a relator’s complaint should be dismissed for violating the FCA’s seal requirement. In Rigsby, former claims adjusters who worked with State Farm after Hurricane Katrina filed suit against the company under § 3730(b), alleging that State Farm misclassified wind damage as flood damage to shift the costs of paying those claims to the federal government. After a jury found that State Farm falsely claimed that damages to a home in Mississippi were caused by flooding, the district court ordered State Farm to pay $758,000 in damages and awarded the relators $227,000. State Farm appealed the verdict, citing the district court’s failure to dismiss the lawsuit despite the district court’s finding that the relators’ attorneys breached the FCA’s seal requirement by disclosing the existence of the case to the media.
The district court declined to dismiss the action because it found no evidence that the disclosure to media members resulted in a public disclosure in the news media that the action had been filed and concluded that the breach of the seal was not severe and did not hamper the government’s investigation. Additionally, the district court found that the relators had not acted willfully or in bad faith because they did not authorize their attorneys’ improper disclosures.
The Fifth Circuit affirmed the district court’s standard for dismissal of FCA seal violations, deepening a three-way circuit split on the issue. In doing so, the Fifth Circuit joined the Ninth Circuit in employing a three-part test, considering: (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 was made in bad faith.
The Second and Fourth Circuits have adopted an “incurable frustration” test, analyzing whether the disclosure incurably frustrates the interests of §3730(b)(2). Those interests include: (1) providing the government with 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 defendants’ reputations from meritless qui tam actions; and (4) incentivizing defendants to settle to avoid the unsealing of a case. The Sixth Circuit utilizes a per se rule that requires dismissal anytime the seal is violated. The U.S. Supreme Court will now determine what standard courts should utilize when deciding whether to dismiss FCA claims as a result of improper disclosures relating to a sealed action.