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When the court enters a sealing order at the outset of the False Claim Act (FCA) case, such an order typically directs that the complaint and all other papers simply be filed “under seal.” See, e.g., Order, United States ex rel. Boyd v. Riverpoint 714 LLC et al., 15 Civ. 1406 (E.D. Cal. Aug. 28, 2015) (“The plaintiff's complaint shall be filed in camera and under seal.”); Order, U.S. ex rel. Littlewood v. King Pharmaceuticals, Inc., 10 Civ. 973 (D. Md. Apr. 21, 2010) (“IT IS, THEREFORE, ORDERED that the Court shall maintain the Complaint and all other papers filed in this case UNDER SEAL until further Order of the Court.”); United States ex. Rel. Johnson v. Walmart Stores, Inc., 13 Civ. 2277 (E.D. Ca. Nov. 6, 2013) (granting motion to “seal the matter”); U.S. ex rel. Arkfeld v. Bleiberg, 08 Civ. 106460 (E.D.Mich. Feb. 14, 2008) (“Having considered Relators' Motion to File The Complaint under Seal, the motion is granted and it is ORDERED that the Complaint of Plaintiffs/Relators, Ted A. Arkfled, D.C. and Ann Myers be filed, under seal, in paper format, with the Clerk of Court, in accordance with U.S.C.
§ 3730(b)(2) of the False Claims Act.”).
It is hard to see how a defendant could ever violate such an order, which is not even directed at the defendant and not disclosed to the defendant. In re False Claims Act Proceedings, 98 Civ. 825 (S.D. Ohio Oct. 30, 1998) (“This case … shall be filed in camera and shall remain under seal for at least 60 days, pursuant to 31 U.S.C. §3730(b)(2). No documents, pleadings or other materials in this case, including the Relator's Statement, shall be provided to or served on Defendant until the Court so orders or at least sixty (60) days have expired pursuant to 31 U.S.C. §3730(b)(2). Under no circumstances shall the names of the parties or the existence of the lawsuit be publicly disclosed to otherwise disclosed to Defendant, in any manner, while this Order remains in effect.”).
Furthermore, an order “partially unsealing” a qui tam complaint typically authorizes the government to disclose the qui tam complaint to the defendant, and directs that the complaint “remain under seal.” See, e.g., United States ex rel. Johnson v. Walmart Stores, Inc., 13 Civ. 2277 (E.D. Cal. May 8, 2015) (“The complaint and all other filings shall remain under seal, except insofar as the seal has been partially lifted by this Court.”); United States ex rel. Creekside Hospice II, LLC, 13 Civ. 167 (D. Nev. Sept. 23, 2013) (“AND FURTHER ORDERED that the seal shall remain in place in all other respects.”); U.S. ex rel. James Moran v. Automotive Testing Laboratories, Inc., 98 Civ. 825 (S.D. Ohio Dec. 16, 2004) (“It is HEREBY ORDERED that the United States' application for partial lifting of the seal is granted and the United States is permitted to disclose the relator's complaint to Defendant Automotive Testing Laboratories, Inc.; … IT IS FURTHER ORDERED that, except as provided herein, the record in this lawsuit, including this Order and the United States' Unopposed Application for Partial Lifting of Seal and Motion for Four Month Extension of Time to Make Election Whether to Intervene and Memorandum in Support, shall remain under seal until further order of this Court.”).
While the DOJ refers vaguely to the (undisclosed) unsealing order as the source of the defendant's non-disclosure obligation with respect to the complaint, the typical partial unsealing order on its face is not directed at the defendant and it certainly does not, by its terms at least, purport to “gag” the defendant. Indeed, if the government intended to impose a non-disclosure order on a defendant, it would presumably be required to justify such a gag order with evidence sufficient to overcome the defendant's First Amendment right to speak. But because a sealing order is ministerial in nature and binds, at most, the filer (and perhaps the clerk's office), a “partial unsealing” order that does no more than merely “extend” or “maintain” the case “under seal” arguably adds nothing to the obligations on the defendant.
Finally, even if a court were to enter a more substantive unsealing order that purported to gag the defendant, it is hard to envision why a court would sanction a defendant for disclosing the qui tam complaint. As the Justice Department has explained, the seal requirement of the FCA was intended to protect the government's enforcement interests by keeping the defendant in the dark about the investigation, thereby protecting the government from “potential evasive action” by FCA defendants. Brief for the United States as Amicus Curiae Supporting Respondents, in State Farm Fire & Cas. Co. v. U.S., No. 15-513 (Sup. Ct. Sept. 2016) at 16. For that reason, the government takes the position that the choice of sanction imposed by the court for breach of the seal should be influenced by whether the disclosure undermined those enforcement interests. Id. at 24-25.
As the Justice Department explained, a “severe breach” of the seal — such as one that is likely to “tip off a defendant to a pending investigation” — should be treated differently from “selective disclosure of the suit to a single person who is not affiliated with the defendant,” as the latter breach “is far less likely to interfere with a government investigation.” Id. at 26, 28.
When the government itself has chosen to “tip off” the defendant to the existence of the qui tam suit, as it does when it seeks a partial unsealing order, a defendant's further disclosure of a qui tam complaint is not likely to undermine those interests, at least in the absence of other co-defendants who are not aware of the qui tam. While one defendant in a multi-defendant qui tam case arguably would face risk in disclosing a sealed qui tam complaint to another defendant, one in a single-defendant case that merely discloses the qui tam complaint to its shareholders, investors or insurers should face little to no risk of court sanction, as such “selective disclosures” could not reasonably be said to undermine the government's FCA enforcement interests. Id. at 26, 28.
But What About the Justice Department?
At least some targets should therefore face little likelihood of being held in contempt from privately and selectively disclosing the existence of a partially unsealed qui tam complaint. (If the government does not provide a copy of the partial unsealing order to the defendant, that defendant can also argue that it cannot be held in contempt because it lacks actual knowledge of the terms of the order. See, Michael G. Scheininger and Daniel L. Russell Jr., SEC Rules and the “Partially Unsealed” Qui Tam Complaint: Conflicting Obligations of Confidentiality and Disclosure?, American Bar Association's Civil False Claims Act and Qui Tam Enforcement 2008 CLE, at B-10, 11.) That is not to say, however, that even selective disclosure is without risk.
While the defendant that elects to disclose a partially unsealed qui tam has the law on its side, the fact remains that the Justice Department does not see it the same way. And when the government lawyer discloses the qui tam to the defendant with instructions to “proceed accordingly,” it is fair to assume that the government does not expect the defendant to simply ignore the sealed status of the complaint and disclose the complaint to anyone it chooses. Rather, the government expects the defendant to treat the sealed qui tam complaint as the government itself does, and therefore not disclose it. So while the disclosing defendant in a single-defendant case would probably not be held in contempt of court, it is usually not advisable in FCA investigations to antagonize the Justice Department during the course of an investigation by ignoring or defying its expectations.
Before further disclosing the qui tam complaint, therefore, the better course in most cases would be to notify the government in advance as to the nature of the disclosure and ensure that the government has no objection. Or, if the court is known, the defendant could apply to the court for an explicit grant of permission to disclose aspects of the sealed complaint to select persons or entities. Id. at B-20.
Conclusion
At least in single-defendant FCA cases, companies that learn about the existence of a qui tam case from the Justice Department face almost no risk of a court-imposed sanction by privately and selectively disclosing the existence of that complaint as necessary to the conduct of their business, such as to shareholders, investors, insurance carriers or others. The FCA's sealing provisions arguably don't bind or gag defendants, and defendants face little risk of contempt from further disclosing the qui tam suit or investigation in a manner that does not undermine the government's enforcement interests.
At the end of the day, however, the government believes that it — and not defendants — decides what those enforcement interests are, and whether a disclosure interferes with those interests. It may therefore be the wiser course in most cases to seek the government's permission before disclosing, lest the company risk antagonizing an agency with the power to pursue the draconian FCA remedies of treble damages and penalties.
*****
Andrew W. Schilling heads Buckley Sandler LLP's New York office and is a leader of the firm's False Claims Act & FIRREA practice. He was formerly Assistant U.S. Attorney (AUSA) and Chief of the Civil Division at the U.S. Attorney's Office for the Southern District of New York (SDNY). Megan E. Whitehill is an associate in the firm's New York office.
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