A breach of seal in a False Claims Act whistleblower lawsuit is a serious matter. Even an innocent breach can have dire consequences. When a person files a whistleblower complaint in federal court, the case is automatically sealed meaning it is secret and can’t be disclosed. While sealed neither the whistleblower nor his or her lawyer can discuss the case. Even admitting there is a case is a breach of the seal.
Depending on how serious the breach or where it occurred, the “cost” of the breach could be a hefty fine or even dismissal of the case. Courts and prosecutors take the secrecy of these complaints seriously. This month the U.S. Supreme Court agreed to consider a breach of seal case and offer guidance of what should happen when the seal is improperly breached.
Carol and Kerry Rigsby are sisters and former insurance adjusters. After the devastation caused in 2005 by Hurricane Katrina, they became dissatisfied as to how State Farm was handling insurance claims. The sisters said that State Farm was declaring certain homes were destroyed by floodwaters instead of wind damage. This allowed the insurance company to avoid paying claims. Federal flood insurance monies were used instead.
When State Farm wouldn’t listen and pressured adjusters to blame floodwaters instead of wind for homes damaged by Katrina, the Rigsbys filed a False Claims Act lawsuit.
The False Claims Act is a Civil War era law that allows private individuals to file lawsuits on behalf of the government. If the suit is successful, the whistleblower – called a relator – can keep up to 30% of what the government recovers.
Because there are so many potential claims, just one case was sent to a jury as a test case. According to evidence from that trial, State Farm was issuing homeowners both private insurance policies that covered everything but floodwater damage and government backed flood insurance. By falsely claiming homes were damaged by floodwaters, State Farm was not having to pay claims. That meant the claims were being paid by the government.
State Farm denied the claims and ultimately the matter went to trial. State Farm lost that case and was ordered to pay a $3 million penalty plus attorneys’ fees. Despite losing, State Farm asked the court to toss the case because the Rigsby sisters had committed a breach of seal before the court had lifted the seal.
The court record suggests that the actual breach was caused by the Rigsbys’ attorney. No matter who breached the sea, the trial judge found that the breach caused no harm and that the government’s investigation was not jeopardized. After losing at the trial level and the Court of Appeals, State Farm appealed to the U.S. Supreme Court.
To better understand the issues before the Supreme Court, some background is necessary.
False Claims Act Sealing Requirements
Congress requires False Case Act claims be filed under seal so that the government can investigate the case in secret. Unlike ordinary lawsuits which are served on the wrongdoer, in a whistleblower case the government gets served. Prosecutors then have 60 days to investigate and decide whether or not they wish to take over the case. Despite the 60 day period set by statute, courts almost always give prosecutors far more time. As long as the government is still investigating, the case usually remains under seal.
As noted earlier, the trial judge refused to dismiss the case despite State Farm’s claim that the seal was breached. A three judge appeal panel later agreed. Now the matter is about to be decided by the U.S. Supreme Court.
Most appeals to the Supreme Court are never heard. The court agreed to here this case, however, in part because there are widespread differences in how courts deal with seal breaches.
How Courts Treat Breach of Seal Cases
Some courts believe the proper sanction for a breach of seal should mean automatic dismissal. That means the whistleblower gets nothing. Courts on the west coast look to see if the government’s investigation was jeopardized by the breach. If it was, then dismissal can follow. Still other courts look to see if the government’s investigation was harmed or if the defendant’s reputation was harmed.
Even when a court doesn’t dismiss the case, courts retain the ability to sanction or fine the person breaching the seal. Normally that is the whistleblower but sometimes it is the whistleblower’s lawyer.
The False Claims Act itself is silent on the issue. A previous U.S. Supreme Court opinion says that to determine the appropriate sanction, a court should accordingly look “to statutory language, to the relevant context, and to what they reveal about the purposes that [the rule] is designed to serve.”
Since the 2010 decision, however, courts still don’t agree on how to address a breach of the seal. The answer should be forthcoming in the next several months.
Common Breach of Seal Examples
This case involved the Rigsbys’ lawyer violating the sealing order. Most often a breach of the seal comes from the whistleblower. Telling friends, telling one’s employer, listing the False Claims Act case as an asset in a bankruptcy filing and making an inadvertent disclosure in a companion unemployment or workplace discrimination case are all common scenarios. Each has its own peculiar rules and work arounds.
Obviously, are best advice is to tell no one and always consult us first before answering any questions or testifying in another court hearing. If you are compelled to testify in another case or if your employer demands answers, we can quickly jump in and protect you from harm.
We doubt the Supreme Court will dismiss the Rigsby case because of their lawyer’s breach but we have seen huge sanctions and fines imposed in similar situations.
Although we believe the whistleblowers will prevail, the U.S. Chamber of Commerce is already lobbying that the case be dismissed and the whistleblowers get nothing. If that happens, State Farm gets a free ride despite an earlier court finding that they defrauded the government.
This is a case we will closely follow.
MahanyLaw for All Your Whistleblower Needs and Questions
If you have inside information about fraud involving a government program or tax dollars, give us a call. Our mission is to right the wrong, protect you from retaliation and help you collect the maximum whistleblower award possible. Already our clients have received over $100 million in awards under the False Claims Act. The next award could be yours.
Our whistleblower lawyers are tough, experienced and not afraid to take on big banks and corporations. Investigating these claims and filing a sealed lawsuit is no easy task. We have the experience, however, to guide you through the entire process. And unless you win an award, you owe us nothing for our services.
Have questions? Give us a call. All inquiries are protected by the attorney – client privilege and kept strictly confidential. For more information, contact attorney Brian Mahany at or by telephone at (direct). You can also visit our 11 step guide to whistleblowing. It’s free and we don’t ask you any questions before you download.
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