This morning, the U.S. Supreme Court heard oral arguments in State Farm Fire and Casualty Company v. U.S. ex rel. Rigsby. Having suffered a 758-thousand-dollar jury verdict for defrauding the Government following Hurricane Katrina, State Farm is now attempting judicial gymnastics to avoid paying the judgment.  State Farm is asking the Supreme Court to automatically dismiss False Claims Act cases where whistleblowers violate the FCA’s seal provision (31 U.S.C.S. § 3730(b)(2)), instead of using a balancing test—which courts in the United States have historically employed when seal violations occur—to determine the appropriate course of action.

Justice Elena Kagan honed in on a very important question during today’s argument, “…. given that the government is the beneficiary of this [seal] provision, why shouldn’t we give very significant discretion to the government?” This is a critical question for the Court to answer in reaching its decision.  In 1986, Congress made clear that the seal provision was designed for the exclusive benefit the U.S. government.  Mandatory dismissal would undermine the FCA and hurt taxpayers—the intended beneficiaries of the False Claims Act.

As the U.S. government argued today before the Court, seal violations incorporate “the basic background of flexibility that district courts have always had to remedy violations of protective orders and sealing orders.”  The U.S. government also reiterated that the FCA seal is aimed to protect the government, “by making sure that potential targets of criminal and civil investigations are not tipped off.” This is not to say that violations of the FCA’s seal provision should go unpunished, simply that mandatory dismissal is not an appropriate sanction—nor does it align with Congressional intent.

NWC’s Executive Director Stephen M. Kohn asserted that the Court should follow the logic the 5th Circuit set out in its State Farm decision—“The 5th Circuit ruled against mandatory dismissal, in favor of a flexible balancing test that prioritizes the interests of the government.”  Kohn added, “The Court must remember that the False Claims Act has become the most successful antifraud law in the world—due in large part to the contributions of courageous whistleblowers. The U.S. has a sincere interest in fostering the FCA’s continued success and ensuring that whistleblowers are able to actively participate in stopping those who defraud the government.”