Today the Fourth Circuit U.S. Court of Appeals in Richmond, Virginia, issued a long-awaited decision upholding the seal provision of the False Claims Act (FCA), 31 U.S.C. § 3730(b)(2). The decision is a victory for whistleblowers who depend on the seal provisions to protect themselves from retaliation and to preserve evidence that might be destroyed if fraudsters learn of the impending government action against them. The decision lets stand a 2009 decision to dismiss a suit brought by the American Civil Liberties Union (ACLU), OMB Watch and the Government Accountability Project (GAP). Now is the time to urge these three organizations to accept this decision and stop this misguided litigation.
The FCA is the most powerful whistleblower protection law and America’s most successful tool against fraud. It 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. Dep’t of Justice, False Claims Act Statistics (Nov. 23, 2010). Since 1986, the government has recovered more than $27 billion. Whistleblowers have filed 63% of FCA cases since 1987. While whistleblowers filed only 8% of FCA matters in 1987, they filed 80% of FCA matters in 2010.
The “seal” is a key provision of the FCA’s success. 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. The FCA provides that the seal will prevent public disclosure of the suit for 60 days while the federal government decides whether to intervene in the case. The government can request an extension of the time for this seal, or move to stay the case under 31 U.S.C. § 3730(c)(4). The courts determine if the extension or stay is in the public interest. These fraud schemes are often complex and usually require more than 60 days to investigate them. 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 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 perpetrators of the alleged fraud.
Corporate wrongdoers despise this “seal” 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 constitutional challenge was initially filed by the ACLU, OMB Watch and GAP in the U.S. District Court for the Eastern District of Virginia on November 19, 2009. The district court rejected the lawsuit.
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. When whistleblowers sue and win, they are the ones that pay. 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 ACLU, OMB-Watch and GAP. 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 investigations. FCA claims are judicially monitored and any extension of the seal must be monitored by a judge. The seal will eventually expire in all cases. 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 during the seal.
If this ACLU lawsuit were successful in striking the seal period, it would have caused 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 would have had a tremendous “chilling effect” on whistleblowers and would have strengthened the hand of already powerful corporate criminals to both cover-up the wrongdoing and 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 the named plaintiff organizations 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 criminal allegations without having to 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 attack on the FCA would have undermined 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.
In today’s opinion, the majority provides an extensive history of the FCA at pp. 2-7. It also explains how the FCA works today (pp. 7-11). The Fourth Circuit majority notes that the First Amendment gives the public limited access to records of criminal cases, the Supreme Court has not addressed the question of any First Amendment right to access court records in civil cases. At p. 13, the majority assumes that the First Amendment does extend a right of public access to a court’s records of a civil case. However, the court concludes that, “The United States has a compelling interest in protecting the integrity of ongoing fraud investigations.”
The court then noted how the FCA narrows the seal provisions to meet the compelling governmental interest in fraud investigations. First, the initial mandatory seal is limited to 60 days. Second, the court must oversee any extensions of the seal to assure that they are entered for “good cause” and in the public interest. Third, the seal only limits disclosure of the civil case. The seal does not limit the whistleblower’s right to disclosure the allegation of fraud. The court, p. 16, also noticed that even the appellants agreed that some FCA cases deserve to be sealed. As such, this is not a case where the FCA seal is “facially invalid” as alleged by the appellants.
The court also held that as “willing listeners,” they would have standing to challenge the FCA only if they could identify an actual FCA whistleblower who wanted to speak to them, but was barred from doing so by the FCA. As they had not, the court concluded that they did not have standing to challenge the FCA.
The court also concluded (pp. 19-20) that, “the FCA’s seal provisions are a proper subject of congressional legislation and do not intrude on ‘the zone of judicial self-administration to such a degree as to prevent the judiciary from accomplishing its constitutionally assigned functions.'” Quoting United States v. Brainer, 691 F.2d 691, 698 (4th Cir. 1982).
In response to the dissent, the court cited to where Congress explained its reasons for adding the seal provision in 1986. It noted (p. 20) that the FCA seal provisions
only preclude a qui tam relator who wants to use the FCA to recover money from discussing the FCA complaint for a brief period of time. Given that Congress created the FCA’s qui tam right to bring suit in the name of the United States, Congress certainly could add conditions to safeguard the interests of the United States. Moreover, as we have explained, the FCA does not bar the qui tam relator from discussing the underlying fraud.
The court respected that Congress made the policy decision about how to balance the rights of whistleblowers, the government and those accused of fraud. As the government’s interest is compelling, and Congress was acting with this scope of its authority, the court deferred to that policy decision. The court concluded, at p. 22, that
“sunlight” and “openness” are important values that further the functioning of this republic and note that in every FCA case, the qui tam complaint will be unsealed. Thus, in every FCA case, the people will be able to see how the Executive and the Judiciary have fulfilled their constitutional and statutory roles.
Congratulations to the U.S. Justice Department and to Taxpayers Against Fraud (TAF) who filed briefs against the ACLU’s appeal. The TAF brief, in particular, shows how experienced whistleblower attorneys recognize the irreparable harm that would be done to the whistleblower cause if the ACLU, OMB Watch and GAP appeal had succeeded. We hope that the three groups will accept today’s decision and refrain from filing any further petitions or appeals.