Justices Hold Violating Seal in False Claims Act Case Not Fatal

(CN) - A unanimous U.S. Supreme Court ruled on Tuesday that a violation of the False Claims Act's seal requirement does not require that a lawsuit filed under the Act be dismissed.

Cori and Kerri Rigsby brought the case in Mississippi a decade ago, claiming that State Farm Fire and Casualty submitted false claims to the U.S. government for payment on flood policies arising from damage caused by Hurricane Katrina.

Though the Rigsbys filed their April 2006 complaint under seal and served a copy to the government, State Farm said that attorneys for the Rigsbys spread word of the lawsuit to the media.

News outlets got hold of the evidentiary disclosures and engineering reports, sometimes including the case caption, and the Rigsbys sat for interviews that culminated in the publication of multiple news stories, State Farm said.

Though the Rigsbys' case remained fully sealed until early 2007, ABC's program "20/20" publicized one such interview, and a Mississippi congressman also received notice of the FCA action.

The Rigsbys ultimately prevailed at trial on a single bellwether false claim, but State Farm argued on appeal that the Rigsbys' violations of the FCA's seal requirement independently warrant dismissal.

A three-judge panel of the Fifth Circuit disagreed last year.

"Although they violated the seal requirement, the Rigsbys' breaches do not merit dismissal," that ruling said.

State Farm then petitioned the Supreme Court, arguing the justices must resolve what standard governs the decision whether to dismiss a relator's claim for violation of the FCA's seal requirement.

The court's decision was delivered by Justice Anthony Kennedy, who wrote that while the Act mandates that a complaint be kept under seal for a limited time, the statute "says nothing about the remedy for violating that rule."

"[A]bsent congressional guidance regarding a remedy, 'the sanction for breach [of a mandatory duty] is not the loss of all later powers to act,'" the justice wrote.

During oral arguments before the justices in November, State Farm attorney Kathleen Sullivan tried to convince the court that the insurer was seeking dismissal, in part, to protect the government's interest in False Claims Act cases.

But Kennedy and his fellow justices rejected that argument and said only one fact mattered: "Petitioner can show no textual indication in the statute suggesting that the relator's ability to bring suit depends on adherence to the seal requirement."

The court also rejected State Farm's contention that the district court failed to consider proper factors when it declined to dismiss the complaint.

"This Court holds the District Court did not abuse its discretion by denying petitioner's motion, much less commit plain error," Kennedy wrote. "In light of the questionable conduct of respondents' prior attorney, it well may not have been reversible error had the District Court granted the motion' that possibility, however, need not be considered here."

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