The United States Court of Appeals for the Fourth Circuit is expected to rule shortly on the constitutionality of a key provision of America’s most successful and powerful whistleblower protection law, the False Claims Act (FCA). ACLU v. Holder, Fourth Circuit Case No. 09-2086. The attack against the FCA is the most serious constitutional challenge to the law in over ten years.

The FCA allows whistleblowers to bring claims on behalf of the government to recover damages for fraud committed by government contractors and grant recipients. Last year alone, the U.S. government recovered over $3.1 billion as a result of FCA claims filed by whistleblowers under this law.

At issue in the lawsuit is whether whistleblowers must initially file their FCA claims “under seal,” as the law has required since 1986. This provision permits employees to confidentially file their claims, without having to expose their identities to their employer or other companies that may be hostile to hiring workers who blow the whistle while the government investigates their claim during the seal period.

However, at the end of the seal period, the court must unseal the case and the case file becomes pubic when the seal expires.

The “sealing” provision is a vitally important feature of FCA cases because it permits the government to conduct a confidential investigation of the whistleblower’s allegations and gives the government an opportunity to evaluate the claim and determine whether the government will intervene and litigate the case. Often this investigation results in a vindication of the whistleblower allegations, even in cases where the government declines to intervene. It is also not uncommon for the employee to act as a confidential insider or informant for the government during the “sealed” investigatory period. During the seal period the government frequently conducts criminal investigations of the

Corporate wrongdoers despise this provision, as they cannot learn the identity of the whistleblowers or the scope of the allegations of wrongdoing during the course of the government’s investigation. This prevents companies from intimidating witnesses and covering up their crimes.

The law requires that FCA claims be filed under “seal” for sixty days. But a court can extend the seal for “good cause,” if such an extension serves the public interest. As a practical matter the seal is often extended to afford the government the ability to gather evidence to corroborate the whistleblower’s allegations. These fraud schemes are often complex and usually require more than 60 days to investigate them.

The constitutional challenge was initially filed by three “public interest” groups in the U.S. District Court for the Eastern District of Virginia on November 19, 2009. The district court rejected the lawsuit.  However, the “public interest” groups filed an appeal to the Fourth Circuit, and the case was orally argued on September 20, 2010.   The Fourth Circuit generally rules on such cases within four to six months.

The funding sources for the litigation remain unclear. The lead attorney who authored the principal appellate brief attacking the False Claims Act was Benjamin Sahl, an attorney who now works for Cowan, Liebowitz, and Altman. The Cowan firm represents numerous corporations which oppose the FCA, including pharmaceutical companies like Eli Lilly, Merck, and SANOFI-Aventis as well as financial groups like Morgan Stanley and Citigroup. These corporate interests certainly feel the dent in their pockets because of the False Claims Act, the safeguard for all whistleblowers. Corporations would like to see the FCA weakened.

However, these corporate interests did not directly sponsor the litigation. Instead, the case was filed in the name of three “public interest” groups, the American Civil Liberties Union, OMB-Watch and the Government Accountability Project.   The financial donors who provided the tax-exempt donations that paid for the litigation were not revealed in court filings.

The purported justification for the challenge was the First Amendment. Under the theory advocated by attorney Sahl, the “public” has a right to know about cases filed in court. However, the real interests in the case are the companies targeted by the whistleblowers and the subsequent government investigators. Because FCA claims are judicially monitored, and the “seal” will expire in all cases and any extension of the seal must be monitored by a judge, there has never been a reported case in which anyone has proven damage due to the fact that the government was able to conduct a confidential investigation, and that a whistleblower was able to file claims without his company knowing his or her identity.

In fact, if this lawsuit is successful in striking the seal period it will cause long-term permanent damage to the government’s ability to evaluate FCA claims filed by whistleblowers. Moreover, striking the whistleblower’s right to initially file the FCA claim under seal will have a tremendous “chilling effect” on whistleblowers and will strengthen the hand of already powerful corporate criminals to both cover-up the wrongdoing and to retaliate against the whistleblowers who bring these claims.

The NWC believes that the transparency argument urged upon the court by attorney Sahl on behalf of his “public interest” clients actually results in a perversion of that concept. Transparency was never intended to result in whistleblowers losing their right to file claims confidentiality or to limit the ability of the government to investigate whistleblower allegations without having tell the wrongdoer what the underlying issues were.

Sahl proudly lists this case on the web site of his corporate firm as one of his main cases. If successful, the interests that stand behind this outrageous attack on the FCA will undermine one of the most important pillars of the FCA. The provision for proceeding under seal has enabled whistleblowers to file cases without losing their jobs. It allows employees to work with the Justice Department to uncover billions of dollars in corporate fraud.

We hope that the three “public interest” groups whose names were used in the litigation will immediately withdraw from the case and urge the court to reject this challenge.

However, short of a voluntary dismissal of this dangerous challenge to whistleblower rights, we can expect the Fourth Circuit to issue its ruling any day now – a decision which could very well end up destroying the most effective whistleblower law in the United States.

Prior blog posting: “ACLU loses challenge to FCA seals