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The False Claims Act’s “Filed Under Seal” Requirement

by | Aug 19, 2016 | Whistleblowers

Under SealThe federal False Claims Act provides that when a new case is filed, there are certain rules that must be followed to keep the case confidential and to prevent the defendant from finding out that the government is conducting an investigation.

The procedure, known as “filing under seal,” requires that a complaint “be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders.” 31 U.S.C. § 3730(b)(2). This part of the False Claims Act reads like a procedural rule for lawyers, but actually puts very important obligations on the whistleblower too.

So what does “under seal” really mean to a whistleblower?

A Whistleblower’s Obligations While The Case Is Under Seal

The False Claims Act’s filing-under-seal requirement exists to give the government time to investigate the alleged fraud and decide whether it will prosecute the suit itself before the target is tipped off. Various court interpretations make clear that the seal requirement does not impart a requirement of absolute silence about the alleged fraudulent conduct. Such a requirement would place a burden on the whistleblower that exceeds the language or purpose of the False Claims Act.

As a practical matter, however, prudent practice is to exercise an abundance of caution when discussing any aspect of a False Claims Act case or the underlying allegations with anyone other than the whistleblower’s attorneys and the government agents assigned to the case. Most importantly, a whistleblower should never disclose the actual filing of a qui tam case without speaking with their attorneys first. Although a qui tam case is only under seal by statute for the first sixty days, the cases often remain under seal for months or even years while the government investigates, so it is important for a whistleblower to know the exact status of a qui tam case at all times. During the period of time that a case is under seal, a whistleblower must be prepared to exercise a level of discretion that may be difficult to maintain, but is of utmost importance to the success of a case.

Two Recent Cases Where Whistleblowers Discussed Sealed Cases

Two recent cases illustrate the dangers of discussing case that is under seal.  In U.S. ex rel. Bibby v. Wells Fargo Home Mortg. Inc., 76 F. Supp. 3d 1399 (N.D. Ga. 2015), appeal dismissed (Apr. 16, 2015), a federal court in Georgia sanctioned two whistleblowers named Victor Bibby and Brian Donnelly for violating the seal in their False Claims Act case by requiring them to return $1.6 million to the United States.

The details of the fraud are heartbreaking: veterans were being overcharged on closing costs from a VA loan refinancing program. The government extended the seal for five years before ultimately declining the case. The men pressed forward on their own to recover more than $161 million from six lenders on behalf of the government. For their efforts, they were awarded some $43 million. And then, ordered to repay $1.61 million.

So what went wrong?

In mid-2009, the men reached out to local and national media outlets to disclose the fraud that they had witnessed. The case was still under seal and they knew they weren’t supposed to talk, but evidently they couldn’t stand that nothing had been done to stop the fraud that they reported nearly four years earlier.

To be clear, Bibby and Donnelly’s seal violation was not accidental or minimal. For two years, the men shared detailed information with two journalists, including emails and phone calls with progress updates, attorneys’ memoranda, and records of meetings with various government entities and agents so it was difficult for them to argue against a sanction.

On the other end of the disclosure spectrum is the case of U.S. ex rel. Betteroads Asphalt LLC v. R&F Asphalt Unlimited, Inc., et al., Case No. 14-1855, 2016 WL 861244 (D. P.R. Mar. 7, 2016).  In that case a paving company blew the whistle on a rival for making “false representations about the type of asphalt it would use to pave the runway” of an airport.  Prior to the qui tam complaint being filed under seal, the whistleblower’s CEO was quoted in a newspaper article describing the fraud and stating that his company had informed the Puerto Rico Port Authority and Federal Aviation Administration.

After the the complaint was filed under seal, the whistleblower’s CEO again took to the media to provide quotes for a newspaper article and radio show describing the same paving fraud and even accusing the defendant of improper activities in other government projects.  However, the CEO never mentioned the existence of his company’s qui tam complaint.

The United States later intervened and settled the lawsuit for $7.2 million of which the whistleblower was slated to receive a 20% whistleblower award.  The defendant then moved to sanction the whistleblowers for the disclosures to the media and asked the court to bar the whistleblowers from receiving an award.  Although the government maintained that the disclosures were inappropriate and not approved, the United States sided with the whistleblowers arguing that:

  1. the whistleblowers did not disclose the existence of the qui tam complaint,
  2. the disclosures merely repeated information that had already been disclosed to the public nine months before the qui tam complaint was filed under seal, and
  3. the disclosures did not harm the United States’ investigation.

Fortunately for the whistleblowers, the court agreed with the government and the Fourth Circuit Court of Appeals that the seal requirement “prohibits the relator only from disclosing the existence of the qui tam action and does not restrict disclosure of the alleged fraud.”  The court further found that sanctions were not warranted because there was no harm to the government and the disclosures were minor because it was merely repeating publicly available information.

Had the Court sided with the defendants, the whistleblowers could have lost their ability to claim the whistleblower reward of almost $1.5 million.

The lesson from both cases is that whistleblowers must use caution when discussing cases that are under seal and under no circumstance should reveal the actual filing of a qui tam lawsuit or potentially lose their ability to share in the government’s recovery.

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