Fourth Circuit upholds False Claims Act seal provision

by Ben Vernia | March 29th, 2011

In a March 28 decision, a panel of the Fourth Circuit Court of Appeals upheld, on a 2-1 decision, the seal provisions of the False Claims Act, which was challenged by three organizations: the American Civil Liberties Union, OMB Watch, and the Government Accountability Project. Writing for the court, District Judge James C. Dever (of the EDNC, sitting by designation) described the three harms caused by the seal provision, according to the plaintiffs:

Appellants contend the seal provisions of 31 U.S.C. § 3730(b)(2)-(3) facially violate the First Amendment and the Constitution’s separation of powers. Specifically, appellants contend that the seal provisions violate the public’s First Amendment right of access to judicial proceedings, violate the First Amendment by gagging qui tam relators from speaking about their qui tam complaints, and infringe on a court’s inherent power to determine on an individualized basis whether a qui tam complaint should be sealed and thereby violate the separation of powers.

With respect to the First Amendment right of access to court proceedings, Judge Dever observed that it is not absolute, and could be overcome by a compelling government need and a narrowly tailored restriction. He found both, reasoning that the provision was narrowly tailored in three ways:

  • The Act provides a detailed process for launching a qui tam suit, including a narrow 60-day window of mandatory sealing of the records, an approach which took into account the complexity of modern fraud investigations.
  • The Act provides for judicial review of the seal at the end of the initial 60-day period.
  • The Act prevents the relator only from disclosing the existence of the case, not the existence of the fraud, so the restriction of whistleblowers’ rights is limited.

With respect to the plaintiffs’ alleged infringement on the First Amendment rights of whistleblowers, the court agreed with the District Court that the plaintiffs lacked standing. Although they were “willing listeners” for purposes of standing, they had not identified any particular qui tam relator who wished to speak concerning his or her False Claims Act suit but was prevented by the seal provision from doing so.

Finally, Judge Dever wrote, in rejecting the plaintiffs’ separation of powers argument that the judicial power infringed was of the sort least central to the independence of the judiciary, those “reasonably useful to achieve justice”:

As in [United States v. ] Brainer, [691 F.2d 691, 695-96 (4th Cir. 1982)], 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.”

Judge Gregory, dissenting, complained that the False Claims Act served the country for over 120 years without a seal requirement, and that the seal limited the effectiveness of the Act:

Consequently, we may never know what wasteful spending and fraud against the public fisc persists because of government delay, inaction, or underenforcement of the False Claims Act (FCA).

According to Judge Gregory:

The speech involved here is particularly valuable. Filing an FCA complaint is a symbolic and significant action—and the content of that complaint contains essential details about alleged fraud. Freedom to speak about the complaint allows relators to publicly say they have identified fraud and initiated a lawsuit, to invite the government to intervene, or to criticize the government for delay, inaction, or under-enforcement. The public interest in accessing FCA complaints is also especially strong, given the prominent and public role of qui tam relators. Transparency allows the public to monitor the progress of FCA enforcement since the “[p]ublicity of [court] records . . . is necessary in the long run so that the public can judge the product of the courts in a given case.” Columbus-America Discovery Group, 203 F.3d at 303. This is just the type of case where “the public interest in access, and the salutary effect of publicity, may be as strong as, or stronger than, in most criminal cases.” Gannett Co. v. DePasquale, 443 U.S. 368, 387 n.15 (1979).

More broadly, the freedom to speak about FCA complaints bolsters the public role of relators and pressures the government to rigorously enforce the FCA—or to expeditiously decline to intervene. It also reduces the risk that the government will under-enforce the FCA for political reasons, such as against campaign donors. Indeed, there is reason to believe that speech about FCA under-enforcement remains important. See, e.g., Department of Defense, Report to Congress on Contracting Fraud, Table 2 at 4 (January 2011), available at .pdf (finding that the United States paid $269 billion to defense contractors who had prior civil judgments against them for fraud, between 2007 and 2009 alone).

Judge Gregory disagreed with the majority’s First Amendment analysis, finding the Act not to be narrowly tailored, and the government’s interests not uniformly compelling.

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