SCOTUS Says “Break The Seal”

By John Alan Doran

It’s the holiday season, replete with booze-rich holiday parties and admonitions not to “break the seal” too early during a party. Rest easy, as the Supreme Court held today it’s okay to break the seal…at least in the context of the False Claims Act (“FCA”). State Farm Fire & Cas. Co. v. U.S. ex rel. Rigsby  The FCA’s qui tam provisions give individuals a private right of action to sue, on behalf of the government, those who defraud the federal government. The FCA requires, however, that any such lawsuit be filed under seal, that is, the initial Complaint in a qui tam action must be filed confidentially without disclosure to the defendant or anyone other than the government.

Plaintiffs in this case sued State Farm for allegedly defrauding the government with respect to government-backed wind damage insurance covering the devastation of Hurricane Katrina. Plaintiffs’ infamous (now disbarred) attorney, who is reputedly the richest attorney in the world, deliberately violated the seal requirement by disseminating the Complaint to news outlets and others.  State Farm cried foul, arguing that the case must be dismissed because Plaintiffs broke the FCA’s seal requirement.  The Supreme Court, in a short unanimous opinion, rejected the argument.  The Court held that the FCA does not require dismissal of a qui tam action when the seal is broken.  According to the decision, while the trial court arguably could have dismissed the case for breaking the seal, it acted just as appropriately when it chose not to dismiss the action.  Unfortunately, the Court failed to provide trial courts with any guidance as to when a qui tam action should (or should not) be dismissed when the seal is broken.  Trial courts will continue to struggle with this thorny and recurring issue.