Dec 62016

Supreme Court Rules That Violation of the FCA’s Seal Provision Does Not Mandate Dismissal

Gordon D. Todd and Jacquelyn E. Fradette
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On December 6, 2016 the Supreme Court ruled that violation of the FCA’s seal provisions does not mandate dismissal of a relators’ complaint. Rather, while Section 3730(b)(2) requires relators to file under seal, the text of the statute is silent as to the remedy for violating this requirement. The Court left to the District Court’s discretion to determine the appropriate remedy for violations of the seal provision.  Slip Op. at 10.

The Court declined to require mandatory dismissal for a number of reasons. First, the FCA requires dismissal of a relator’s action for other defects, such as bringing a qui tam action against members of the military.  See 31 U.S.C. §§3730(e)(1)–(2). The Court found persuasive the argument that if Congress had intended for automatic dismissal as a result of violation of the seal provision, it would have made such a remedy explicit. Second, the Court agreed with the Government that the seal provision was intended to prevent relators from informing defendants about pending federal investigations. The seal provision was part of a number of reforms aimed at encouraging more private suits, thereby giving the Government greater assistance from private parties. Automatic dismissal would undermine that purpose, the Court asserted. Third, the seal provision in the FCA provides no textual indication that Congress “conditioned the authority to file a private right of action on compliance with [this] statutory mandate.”  Slip Op. at 8.

While dismissal is not the mandatory remedy, the Court stated that a District Court could order dismissal if the circumstances warranted it and suggested that factors articulated in United States ex rel. Lujan v. Hughes Aricraft Co. “appear to be appropriate” for that consideration. Slip Op. at 10. In U.S. ex rel Lujan, the Ninth Circuit considered such factors as whether the Government was actually harmed by the disclosure, Congressional intent to encourage litigation through qui tam actions, and the presence or absence of bad faith or willfulness of the disclosure.

Ultimately, the Court ruled that the District Court did not abuse its discretion in denying State Farm’s motion to dismiss. The Court expressly did not consider whether lesser sanctions were appropriate in the instant case because petitioners’ requested no other sanction than dismissal and as a result the question was not preserved.

Gordon D. Todd

Washington, D.C.

gtodd@sidley.com

Jacquelyn E. Fradette

Washington, D.C.

jfradette@sidley.com

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