Amicus Curiae Brief — State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 136 S. Ct. 872 (2016) (No. 15-513)

STATE FARM FIRE AND CASUALTY GOMPANY,

PETITIONER

V.

UNITED STATES OF AMERICA, EX REL. QORI RIGSBY,

ET AL.

ON PETITION FOR A WRIT OF CBRTIORARI

TO THE UNITED STATES COURT Of APPHALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATESAS AMICUS CURIAE

QUESTIONS PRESENTED

1. Whether the court of appeals erred in holding

that, if a qui tam relator violates the False Claims

Act’s seal requirement, 31 U.S.C. 3730(b)(2), the dis-

trict court need not automatically dismiss the relator’s

complaint but instead has discretion to fashion an

appropriate alternative sanction.

2. Whether the court of appeals erred in holding

that the evidence of scienter in this case was sufficient

to support the jury’s finding of liability.

(I)

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TABLE OF CONTENTS

Page

e 22 1

r , A as eee TE 1

D ae ee Te 6

I. The court of appeals’ holding that district courts

have discretion to determine the appropriate

sanction for FCA seal violations does not warrant

16 ————ñ—— 7

II. The court of appeals’ holding that there was

sufficient evidence of scienter to support the

jury’s verdict does not warrant review. 17

8 RITE SEAR Pe 23

TABLE OF AUTHORITIES

Cases:

ACLU v. Holder, 673 F .3d 245 (4th Cir. 2011) ................... 12

Arbaugh v. Y & H Corp, 546 U.S. 500 (2006) ~

Chambers v. NASCO, Inc., 501 U.S. 32 (1991).................... 10

Coleman v. American Red Cross, 23 F. 3d 1091

..... a 11

Dolan v. United States, 560 U.S. 605 (2010) —

Greiner v. City of Champlin, 152 F.3d 787 (8th Cir.

1998) i Oe RE eT EN 11

Grove Fresh Distribs., ane John Labatt Ltd.,

No. 95-2603, 1998 WL 54676 (7th Cir. Feb. 5, 1998),

cert. denied, 525 U.S. 877 (1998) — —

Hallstrom v. Tillamook Cnty., 493 US. 20 (1989)... 1 9

Mach Mining LLC v. EEOC, 135 S. Ct. 1645 (2015) 10

Marrocco v. General Motors Corp, 966 F. 2d 220

2 11

McFadden v. United States, 135 S. Ct. 2298 (2015)........... 20

McNeil v. United States, 508 U.S. 106 (1993) 1 9

Scarborough v. Principi, 541 U.S. 401 (2004) . 10

(IIT)

Cases—Continued: Page

Smith v. Clark/Smoot/Russell, 796 F.3d 424 (4th Cir.

— — e 13, 14, 15

Toon v. Wackenhut Corr. Corp., 250 F. 3d 950

6—.;— . 11

United States v. Bank of New England, 821 F.2d 844

(Ist Cir.), cert. denied, 484 U.S. 943 (1987). 22

United States v. Bornstein, 423 U.S. 308 (1976) 18

United States v. Krizek, 111 F.3d 934 (D.C. Cir.

lini lecsnanchintethtiecintiemnscibtcteniiuiiasttbiiiinegdiinidieniataitesenensseessenaes 19

United States v. McNinch, 356 U.S. 595 (1958) 11

United States v. Science Applications Int'l Corp.

626 F. ad 1257 (D.C. Cir. 2010) 21, 22

United States ex rel. Aflatooni v. Kitsap Physicians

Seru, 314 F.3d 995 (Sth Cir. 2002) 19

United States ex rel. Bibby v. Wells Fargo Home

Mortg., Inc., 76 F. Supp. 3d 1399 (N. D. Ga. 2015) 16

United States ex rel. Harrison v. Westinghouse

Savannah River Ca, 352 F.3d 908 (4th Cir. 2003) .... 21, 22

United States ex rel. Hutcheson v. Blackstone Med.,

Inc., 647 F.3d 377 (Ist Cir.), cert. denied, 132 S. Ct.

815 (2011).————— „ß d ——— 18

United States ex rel. Lujan v Hughes Aircraft Ca.

67 F. 3d 242 (9th Cir. 1995) ; 4. 13, 14

United States ex rel. Marcus v. Hess, 317 U.S. 537

EE Nc en a 12, 18

United States ex rel. Pilon v. Martin Marietta

Corn, 60 F.3d 995 (2d Cir. 1995) 13. 14

United States ex rel. Schmidt v. Zimmer, Inc.,

J... ˙ 7 19

United States ex rel. Summers v. LHC Grp, Inc.,

F. ad 287 (6th Cir. 2010), cert. denied, 131 S. Ct.

— — —-—: ſ — 13, 15, 16

**

V

Case Continued : Page

United States ex rel. Tex. Portland Cement Co. v.

ene 9, 10

Statutes:

False Claims Act, 31 U.S.C. 3729 et ge. 1

r 1. 17

r 2. 17

r arma 2. 17

rr 2

r 2

e catesiemicsenansinns passim.

Zr 3. 16

.... 12

Fraud Enforcement and Recovery Act of 2009,

Pub. L. No. 111-21, § 4(a), 123 Stat. 1621 2

Patient Protection and Affordable Care Act, Pub. L.

No. 111-148, Tit. X,. Subtit. A, § 10104(j\2),

EE EE SE 2 2

ENE . 9

e a 10

r - 9

Miscellaneous:

S. Rep. No. 345, 99th Cong., 2d Sess. (1986)............. 2, 12, 20

In the Supreme Court of the Anited States

No. 15-513

STATE FARM FIRE AND CASUALTY COMPANY,

PETITIONER

v.

UNITED STATES OF AMERICA, EX REL. CORI RIGSBY,

ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

INTEREST OF THE UNITED STATES

This brief is submitted in response to the Court’s

order inviting the Solicitor General to express the

views of the United States. In the view of the United

States, the petition for a writ of certiorari should be

denied.

STATEMENT

1. The False Claims Act (FCA or Act), 31 U.S.C.

3729 et seq., imposes civil liability on any person who

“knowingly presents, or causes to be presented, a

false or fraudulent claim for payment” from the feder-

al government, or “knowingly makes, uses, or causes

to be made or used, a false record or statement mate-

rial to a false or fraudulent claim.” 31 U.S.C.

(1)

2

3729(a)(1)(A) and (B). The FCA defines “knowingly”

to mean that a person “(i) has actual knowledge of the

information; (ii) acts in deliberate ignorance of the

truth or falsity of the information; or (iii) acts in reck-

less disregard of the truth or falsity of the infor-

mation.” 31 U.S.C. 3729(b)(1).

The Attorney General may bring a civil action to

enforce the FCA. 31 U.S.C. 3730(a). Alternatively, a

private person (known as a “relator”) may bring a qui

tam action. 31 U.S.C. 3730(b)(1). The FCA requires

that a qui tam complaint be served on the government

along with written disclosures of “all material

evidence and information” the relator possesses.

31 U.S.C. 3730(b)(2). The statute further provides

that “[t]he complaint shall 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.”

Ibid. Those procedural requirements are intended to

afford the government an opportunity to investigate

the allegations and make an informed decision wheth-

er to intervene in the action before the defendant

becomes aware of the suit. S. Rep. No. 345, 99th

Cong., 2d Sess. 24 (1986) (Senate Report).

2. During the period relevant to this case, petition-

er issued government-backed flood insurance policies

in addition to its own homeowner’s insurance policies.

Pet. App. 3a-4a. Many homeowners had both types of

Since this lawsuit was filed, Congress has twice amended the

FCA. See Patient Protection and Affordable Care Act, Pub. L.

No. 111-148, Tit. X. Subtit. A. § 10104(jX(2), 124 Stat. 901; Fraud

Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 4(a),

123 Stat. 1621; see also Pet. App. 7a n.4. Those amendments are

not material to the questions presented here. This brief cites the

current version of the FCA.

3

policies. Id. at 2a. The flood policy covered flood

damage but excluded wind damage, while the home-

owner's policy covered wind damage but excluded

flood damage. Ibid. Flood claims therefore would be

paid from the federal treasury, while wind claims

would be paid from petitioner’s own funds. /bid.

Respondents are individuals who adjusted claims

for petitioner following Hurricane Katrina. Pet. App.

3a. They allege a fraudulent scheme in which peti-

tioner misclassified wind damage as flood damage for

properties covered by both types of policies in order

to shift the costs of those claims to the federal gov-

ernment. Id. at 4a-7a.

3. On April 26, 2006, respondents filed their qui

tam complaint in camera and under seal, as Section

3730(b)(2) requires. Pet. App. 62a, 73a. The district

court subsequently issued several orders extending

the initial 60-day sealing period. /d. at 62a; see 31

U.S.C. 3730(b)(3). In January 2007, the court partially

lifted the seal to permit disclosure of the case’s exist-

ence to judicial officers in related litigation, and in

August 2007 it fully lifted the seal. Pet. App. 62a. In

January 2008, the government declined to intervene.

Id. at Ta.

a. Petitioner moved to dismiss the compiaint on the

ground that respondents had breached the seal. The

district court denied that motion. Pet. App. 44a-69a.

The court found that the attorneys then representing

respondents had violated the seal requirement on

three occasions in August and September 2006 by

disclosing the existence of the FCA actior to several

media outlets. Id. at 65a; see id. at 21a.“ To deter-

* The district court rejected petitioner's other allegations of seal

violations, finding that the conduct on which those allegations were

4

mine an appropriate sanction for those violations, the

court applied the balancing test adopted in United

States ex rel. Lujan v. Hughes Aircraft Ca, 67 F.3d

242 (9th Cir. 1995), which requires consideration of

(1) the harm to the government, (2) the severity of

the violations, and (3) the existence of bad faith. Pet.

App. 59a. Because the court found “no evidence” that

the improper disclosures had “led to a public disclo-

sure in the news media that this action had been

filed,” it concluded that the breach had not “hampered

the government’s investigation” and was not “severe.”

Id. at 67a-68a. The court further found that respond-

ents had not authorized their attorneys’ violations and

so had not “acted willfully or in bad faith.” Id. at 68a.

The court accordingly ruled that dismissal of the ac-

tion would not be appropriate. /d. at 69a.

b. The case proceeded to trial on a bellwether

claim involving one insured property (the McIntosh

property). The jury returned a unanimous verdict

finding that petitioner had knowingly submitted a

false claim and a false record with respect to that

property by attributing the Hurricane Katrina dam-

age to flood rather than wind. Pet. App. la-2a, 117a.

4. The court of appeals affirmed in relevant part.

Pet. App. la-4la.

a. The court of appeals rejected petitioner’s argu-

ment that the seal violations required automatic dis-

missal of respondents’ complaint. Pet. App. 18a-21a.

The court instead adopted Lujan’s balancing test,

finding that approach more consistent with the con-

based either did not involve disclosure of the suit’s existence or

had occurred after the seal was partially lifted. Pet. App. 61a-67a;

see id. at 21la-23a.

5

gressional purpose of encouraging qui tam actions.

Id. at 20a.

The court of appeals held that the district court had

not abused its discretion in declining to dismiss the

complaint. Pet. App. 20a-23a. Because the suit’s ex-

istence had not been publicized before the seal was

partially lifted, the court of appeals found that “the

government was not likely harmed” and that “a fun-

damental purpose of the seal requirement—allowing

the government to determine whether to join the suit

without tipping off a defendant—was not imperiled.”

Id. at 22a. The court further observed that the seal

violations were “considerably less severe” than in

other cases because they “did not involve a complete

failure to file under seal or serve the government.”

Id. at 22a-23a. Finally, the court reasoned that even if

the bad faith of respondents’ attorneys were imputed

to respondents themselves, the balance of factors stil!

tilted in respondents’ favor. /d. at 23a.

b. The court of appeals also rejected petitioner’s

contention that no reasonable jury could have found

the scienter needed to support FCA liability. Pet.

App. 36a-40a.

The court of appeals disagreed that the scienter ev-

idence was insufficient because the adjusters who

submitted the claim had a good-faith belief that it was

accurate. Pet. App. 36a-37a. That “constricted theory

of FCA liability,” the court stated, “would enable

managers at an organization to concoct a fraudulent

scheme—leaving it to their unsuspecting subordinates

to carry it out on the ground—without fear of repris-

al.” Id. at 37a. The court emphasized that the FCAs

“plain text” imposes liability on those who knowingly

“cause[]” a false claim or false record to be made.

6

Ibid. (citation omitted). The court additionally noted

that several courts of appeals had rejected similar

“ignorant certifier” defenses. /bid.

The court of appeals further held that a reasonable

jury could have found the requisite scienter based on

the mental state of Lecky King, a supervisor who

allegedly perpetrated the fraudulent scheme. Pet.

App. 38a-39a. The court cited evidence that King had

told adjusters “to presume flood damage instead of

wind damage,” had “concealed evidence of wind dam-

age, and [had) strong-armed an engineering firm to

change its reports,” including with respect to the

McIntosh property. /bid.; see id. at 4a-6a. Although

“King’s alleged manipulation of the McIntosh engi-

neering reports occurred after the McIntosh claim

was paid,” the court observed that the jury could “use

post- payment evidence to evaluate [petitioner’s} pre-

payment knowledge” because ſelireumstantial evi-

dence is appropriate in determining scienter in an

FCA case.” Id. at 38a n.15. The court concluded that

“the jury could have reasonably believed that King

alone, ‘act{ing] in reckless disregard of the truth or

falsity’ of the information,” had caused a false claim

and false record to be made. /d. at 39a (citation omit-

ted; brackets in original).

DISCUSSION

Petitioner challenges the court of appeals’ conclu-

sions that (1) a district court need not apply an auto-

matic rule of dismissal when a qui tam relator violates

the FCA’s seal requirement; and (2) sufficient evi-

dence supported the jury’s finding that the FCA’s

scienter requirement was satisfied. Further review is

not warranted with respect to either question.

7

Consistent with the view of three other circuits, the

court below correctly held that district courts have

discretion to fashion appropriate sanctions for FCA

seal violations. Although the Sixth Circuit has applied

a rule of mandatory dismissal, that decision has be-

come an outlier, raising the possibility that the court

could revisit the issue en banc and eliminate the cir-

cuit split. In any event, it is not clear that the Sixth

Cireuit would require dismissal in a case like this, in

which the seal violations occurred outside the initial

60-day sealing period.

The court of appeals also applied the correct legal!

standard in upholding the jury’s scienter finding, and

its factbound sufficiency-of-the-evidence ruling does

not warrant this Court’s review. Contrary to petition-

er’s contention, there is no circuit conflict concerning

the “collective knowledge” theory of FCA liability,

under which a corporate defendant may sometimes be

held liable based on the aggregated mental states of

several employees. In any event, this case is not an

appropriate vehicle to consider that theory because

the court below held that the evidence of scienter was

sufficient “[e]ven if * * * one individual must have

knowledge that a claim is false.” Pet. App. 39a. The

petition for a writ of certiorari should be denied.

I. THE COURT OF APPEALS’ HOLDING THAT DISTRICT

COURTS HAVE DISCRETION TO DETERMINE THE

APPROPRIATE SANCTION FOR FCA SEAL VIOLA-

TIONS DOES NOT WARRANT REVIEW

The court of appeals correctly held that a violation

of the FCA’s seal requirement does not compel dis-

missal of the complaint. The court’s holding is con-

sistent with Section 3730(b)(2)’s text and purpose, and

with the background understanding that courts ordi-

8

narily possess broad discretion to determine the ap-

propriate sanction for violations of similar procedural

requirements.

A. Section 3730(b)(2) states that a qui tam com-

plaint “shall 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). The FCA does not specify the conse-

quences of a violation of those requirements. To de-

termine the appropriate sanction, a court should ac-

cordingly look “to statutory language, to the relevant

context, and to what they reveal about the purposes

that [the rule] is designed to serve.” Dolan v. United

States, 560 U.S. 605, 610 (2010). Those sources sup-

port the conclusion that the FCA does not compel dis-

missal of a qui tam complaint if the seal is breached.

1. A relator’s violation of the FCA’s seal require-

ment does not strip the court of subject-matter juris-

diction over the suit. As a general matter, “when

Congress does not rank a statutory limitation * * *

as jurisdictional, courts should treat the restriction as

nonjurisdictional in character.” Arbaugh v. Y & H

Corp., 546 U.S. 500, 516 (2006). The FCA does not

indicate that the seal requirement is jurisdictional,

and compliance with sealing requirements in general

is not typically treated as a prerequisite to a court’s

exercise of jurisdiction. See pp. 10-11, infra. The

court below therefore correctly held that a seal viola-

tion does not affect a district court’s jurisdiction over

the relator’s qui tam suit. Pet. App. 18a-19a. No

court of appeals has held to the contrary.

Petitioner contends (Pet. 19-25) that, because the

seal requirement “is a ‘mandatory, not optional condi-

tion precedent’ to the [FCA’s] private right of action,”

9

any violation of that condition necessitates dismissal

of the suit. Pet. 22 (quoting Hallstrom v. Tillamook

Cnty., 493 U.S. 20, 26 (1989)). The decisions on which

petitioner relies, however, involved statutes that spe-

cifically stated that an action could not be instituted

unless a procedural requirement was satisfied. In

Hallstrom, for example, the Court concluded that the

plaintiff's failure to comply with a statutory 60-day

notice requirement required dismissal because the

statute stated that “[njo action may be commenced”

without the requisite notice. 493 U.S. at 25-26 (quot-

ing 42 U.S.C. 6972(b)(1) (1982)). The Court reasoned

that the suit could not proceed ſulnder a literal read-

ing of the statute.” Id. at 26.

Similarly in McNeil v. United States, 508 U.S. 106

(1993), the Court held that a suit must be dismissed

for failure to exhaust because the statute provided

that an “action shall not be instituted” unless exhaus-

tion had occurred. Id. at 111 (quoting 28 U.S.C.

2675(a)). And in United States ex rel. Teras Portland

Cement Co. v. McCord, 233 U.S. 157 (1914), the Court

held that a suit had been filed prematurely because

the statute stated that individuals were “authorized to

bring suit” only “if no suit” had been “brought by the

United States within six months” from specified

Those decisions are also distinguishable because they focused

on events that must occur before a suit is filed. Here, in contrast,

respondents initially complied with the FCA’s requirement that

their complaint be filed under seal. Petitioner sought dismissal of

the complaint based on seal violations that occurred several

months after the suit was instituted.

ee

10

events, and the six-month period had not yet elapsed

when the suit was commenced. Id. at 161-162.

Section 3730(b)(2) contains no comparable lan-

guage, but simply states in relevant part that a

qui tam complaint “shall be filed in camera” and “shall

remain under seal for at least 60 days.” 31 U.S.C.

3730(b)(2). The statutory text accordingly provides no

support for petitioner’s proposed rule of automatic

dismissal. Cf. Scarborough v. Principi, 541 U.S. 401,

405-406 (2004) (holding that dismissal was not re-

quired despite plaintiff's initial failure to comply with

statutory requirement that an applicant for attorney

fees “allege that the position of the United States was

not substantially justified”).

2. In the absence of specific statutory direction,

courts ordinarily have significant discretion to deter-

mine whether dismissal is an appropriate sanction for

noncompliance with a procedural rule or statutory

requirement. See, e.g., Chambers v. NASCO, Inc., 501

U.S. 32, 44-45 (1991) (recognizing a district court’s

“discretion * * * to fashion an appropriate sanction

for conduct which abuses the judicial process,” includ-

ing but not limited to “outright dismissal”).

With respect to violations of seal requirements in

particular, trial courts regularly and appropriately

* Petitioner also relies on thie Court’s decision in Mach Mining,

LLC v. EEOC, 135 S. Ct. 1645 (2015), to argue (Pet. 22) that

“court{s} will usually dismiss a complaint for failure to comply”

with a statutory prerequisite to suit. But Mach Mining clarified

that the “appropriate remedy” for the EEOC’s failure to comply

with a pre-suit conciliation requirement is to stay the litigation and

order the EEOC to conciliate. 135 S. Ct. at 1656; see 42 U.S.C.

2000e-5(f)(1) (authorizing such a stay). Mach Mining thus illus-

trates that dismissal does not automatically follow even when a

plaintiff fails to comply with a statutory precondition to suit.

11

impose sanctions other than dismissal of a complaint.

See, e. g., Greiner v. City of Champlin, 152 F.3d 787,

789-790 (8th Cir. 1998) (upholding award of monetary

sanctions for violating seal); Grove Fresh Distribs.,

Inc. v. John Labatt Lid., No. 95-2603, 1998 WL 54676,

at *3-*5 (7th Cir. Feb. 5, 1998) (same), cert. denied,

525 U.S. 877 (1998); Coleman v. American Red Cross,

23 F.3d 1091, 1094-1096 (6th Cir. 1994) (declining to

order dismissal based on intentional violation of pro-

tective order). Courts ordinarily reserve dismissal for

egregious or bad-faith violations. See, e.g., Toon v.

Wackenhut Corr. Corp., 250 F.3d 950, 952-953 (5th

Cir. 2001) (finding dismissal appropriate for seal viola-

tion only if plaintiff acted in “bad faith”); Marrocco v.

General Motors Corp., 966 F.2d 220, 224 (7th Cir.

1992) (affirming dismissal of suit because plaintiff's

violation of protective order constituted “contuma-

cious conduct”). That background understanding

reinforces the inference that, by establishing a seal

requirement without specifying the consequences of a

violation, Congress vested district courts in FCA

cases with significant discretion to fashion appropriate

remedies based on the facts of individual cases.

3. Petitioner’s proposed per se rule of dismissal al-

so runs counter to the purposes of the FCA seal re-

quirement. Although dismissal will sometimes be an

appropriate sanction for a violation, a rigid rule auto-

matically requiring that penalty would disserve the

goals of the statute and the interests of the United

States.

The FCA was enacted to prevent and deter fraud

arising out of Civil War defense contracts. See United

States v. McNinch, 356 U.S. 595, 599 (1958). To pro-

mote vigorous FCA enforcement despite limited gov-

12

ernmental resources, Congress included qui tam pro-

visions authorizing relators to bring suit on the gov-

ernment’s behalf. See United States ex rel. Marcus v.

Hess, 317 U.S. 537, 540 (1943). Because relators who

bring successful suits receive a portion of the pro-

ceeds, 31 U.S.C. 3730(d), private citizens have an

incentive to uncover and prosecute fraud against the

government. ACLU v. Holder, 673 F.3d 245, 248 (4th

Cir. 2011).

In 1986, Congress amended the qui tam provisions

with the “overall intent” of “encourag[ing] more pri-

vate enforcement suits.” Senate Report 23-24. Con-

gress recognized, however, that a proliferation of qui

tam suits could potentially hinder the government’s

own investigative and enforcement efforts. The De-

partment of Justice had raised a concern that the

publie filing of qui tam suits containing allegations

already under governmental investigation “could po-

tentially ‘tip off’ investigation targets when the crimi-

nal inquiry is at a sensitive stage.” Id. at 24. Con-

gress enacted Section 3730(b)(2) to address that con-

cern. The seal requirement was “intended to allow the

Government an adequate opportunity to fully evaluate

the private enforcement suit and determine both if

that suit involves matters the Government is already

investigating and whether it is in the Government’s

interest to intervene and take over the civil action.”

Ibid.

Neither the statutory text nor the legislative history suggests

that Congress also intended the seal requirement to protect de-

fendants. To the contrary, the Senate Report stated that “[bly

providing for sealed complaints, the Committee does not intend to

affect defendants’ rights in any way.” Senate Report 24.

13

A mandatory dismissal rule would disturb the bal-

ance between encouraging qui tam litigation and

protecting the government’s investigative and en-

forcement interests. If a particular violation of the

seal requirement causes no prejudice to the govern-

ment, and no other factors lead the district court to

conclude that such a severe sanction is warranted,

dismissal would undermine the interests protected by

the statute and grant a windfall to the defendant.

The statutory objectives are better served by a rule

that permits district courts to “explore the facts un-

derlying violations of the seal requirements before

concluding that the extreme sanction of dismissal is

warranted.” United States ex rel. Lujan v. Hughes

Aircraft Co., 67 F.3d 242, 247 (9th Cir. 1995). Al-

though cases could arise in which additional factors

would be relevant, the three factors considered in

Lujan and applied below capture the most pertinent

criteria that a district court should consider. If the

government informs the court that its interests have

not been prejudiced by the violation and that contin-

ued prosecution of the qui tam suit would further its

own enforcement interests, the court should give that

assessment due weight in light of Section 3730(b)(2)’s

government-protective purposes.

B. Four of the five courts of appeals to consider

the appropriate sanction for an FCA seal violation

have rejected a per se rule of dismissal. Pet. App.

19a-20a; see Smith v. Clark/Smoot/Russell, 796 F.3d

424, 429-430 (4th Cir. 2015); Lujan, 67 F.3d at 245-

247; United States ex rel. Pilon v. Martin Marietta

Corp., 60 F.3d 995, 998-1000 (2d Cir. 1995). Only the

Sixth Circuit has required automatic dismissal of a

complaint when Section 3730(b)(2) is violated. United

14

States ex rel. Summers v. LHC Grp., Inc., 623 F.3d

287, 296-298 (2010), cert. denied, 131 S. Ct. 3057

(2011). The lopsided circuit split does not warrant

review at this time.

1. The court below “embrace[d] the Lujan test,”

which requires consideration of “1) the harm to the

government from the violations; 2) the nature of the

violations; and 3) whether the violations were made

willfully or in bad faith.” Pet. App. 19a-20a; see

Lujan, 67 F.3d at 245-247. The Second and Fourth

Circuits engage in a similar balancing inquiry. In

Pilon, the Second Circuit held that dismissal of a

complaint was appropriate where the government had

been harmed by the relators’ failure to file a complaint

under seal, 60 F.3d at 999, the violations were “partic-

ularly egregious,” id. at 998, and the record revealed

“a considerable lack of good faith,” id. at 999. The

Fourth Circuit in Smith weighed similar factors and

declined to dismiss a qui tam complaint where “the

Government was still able to investigate” and “the

seal violation involved disclosure between the parties

rather than the public.” 796 F.3d at 430.“

Because the decisions in Pilon and Smith refer to the frustra-

tion of congressional goals, petitioner suggests (Pet. 17) that the

Second and Fourth Circuits “have adopted an altogether different

standard” from the Fifth and Ninth Circuits. That is incorrect.

All of those courts have rejected a rule of automatic dismissal in

favor of a balancing test that permits consideration of the facta and

circumstances of the violation and of the case as a whole. Indeed,

Lujan relied on Pilon in formulating and applying its balancing

test. See Lujan, 67 F.3d at 245-247. As petitioner observes (Pet.

18-19), the courts in Pilon and Smith treated possible harm to a

defendant’s reputation as a factor relevant to the choice of remedy,

while the court in Lujan concluded that such harms are “not

relevant” in fashioning an appropriate sanction, 67 F.3d at 247.

15

In contrast, the Sixth Circuit has held that a rela-

tor’s failure to comply with Section 3730(b)(2) requires

automatic dismissal of the suit. See Summers, 623

F.3d at 296. That court feared that “a Lujan-style

balancing test would * * * represent a form of judi-

cial overreach” because Congress had already “identi-

fied the factors it found relevant * * * and decided

that a sixty-day in camera period was the correct

length of time required to balance those factors.”

Ibid.

2. When the relator in Summers sought this

Court’s review, the United States advised the Court

that the circuit conflict created by that decision

“would warrant this Court’s review in an appropriate

case.” U.S. Cert. Amicus. Br. at 18, United States ex

rel. Summers v. LHC Grp., Inc., 131 S. Ct. 3057 (2011)

(No. 10-827); see id. at 18-20 (arguing that the Sixth

Circuit had erred in adopting an automatic rule of

dismissal, but urging the Court to deny the petition

because the complaint was subject to dismissal on an

alternative, jurisdictional ground). Since that time,

however, two courts of appeals have expressly reject-

ed Summers’s analysis. Pet. App. 20a; see Smith, 796

F.3d at 430. The Sixth Circuit has had no occasion to

consider the issue in any subsequent case, and Sum-

mers’s increasing outlier status might prompt the

But petitioner does not contend that consideration of reputational

harm would have required dismissal here, where the seal violations

did not result in public disclosure of the FCA suit. See Pet. App.

22a, 67a; see also Smith, 796 F.3d at 430 (concluding that the

defendants’ “reputation suffered no harm” when the seal violation

did not involve public disclosure).

16

court to reconsider the decision en banc if the ques-

tion arises again within that circuit.

It is also not apparent that the Sixth Circuit would

apply Summers to violations like those at issue here,

which occurred before the seal had been lifted

but after the 60-day period prescribed by Section

3730(b)(2). See Pet. App. 65a (finding seal violations

on August 7, 2006, August 14, 2006, and September 18,

2006, which were 103, 110, and 145 days after the

filing of the complaint, respectively). In explaining its

rule of mandatory dismissal, the court in Summers

expressed the view that “Congress’s selection of sixty

days was intended to represent its own judgment as to

how to balance thle] interests.“ 623 F.3d at 297; see

id. at 296 (Congress “decided that a sixty-day in cam-

era period was the correct length of time.”).

Because Congress authorized district courts to ex-

tend the initial 60-day sealing period, 31 U.S.C.

3730(b)(3), a breach of a seal that has been extended is

properly viewed as a violation of Section 3730(b)(2).

But because Congress granted courts discretion to

decide whether and for how long to extend the seal

after the initial 60-day period has passed, the Sixth

Circuit might conclude that a court also has discretion

to select an appropriate sanction for a breach of any

such order. See United States ex rel. Bibby v. Wells

Fargo Home Mortg., Inc., 76 F. Supp. 3d 1399, 1411

(N.D. Ga. 2015) (noting this argument and distinguish-

ing Summers because that decision “did not contem-

plate” seal violations occurring after the 60-day peri-

od). Further review of this issue would accordingly be

premature until the Sixth Circuit has an opportunity

to clarify the scope and continued vitality of the rule

adopted in Summers.

17

Il. THE COURT OF APPEALS’ HOLDING THAT THERE

WAS SUFFICIENT EVIDENCE OF SCIENTER TO

SUPPORT THE JURY'S VERDICT DOES NOT WAR-

RANT REVIEW

Petitioner also challenges (Pet. 28-36) the court of

appeals’ conclusion that a reasonable jury could find

that petitioner possessed the scienter required for

FCA liability. In rejecting that claim, the court ap-

plied the correct legal standard, and its factbound

decision does not conflict with any decision of this

Court or another court of appeals.

A. The FCA imposes liability if a defendant “know-

ingly presents, or causes to be presented, a false or

fraudulent claim for payment or approval” or “know-

ingly makes, uses, or causes to be made or used a false

record or statement material to a false or fraudulent

claim.” 31 U.S.C. 3729(a)(1)(A) and (B). A defendant

acts “knowingly” if it has “actual knowledge” or “acts

in deliberate ignorance” or in “reckless disregard of

the truth or falsity of the information.” 31 U.S.C.

3729 b)(1).

The court below found that a reasonable jury could

conclude that supervisor Lecky King, actſing] in

reckless disregard of the truth or falsity of the infor-

mation,” had caused a false claim to be presented and

a false record to be made. Pet. App. 39a (citation and

internal quotation marks omitted; brackets in origi-

nal). The court cited evidence that King had told

adjusters “to presume flood damage instead of wind

damage,” had “concealed evidence of wind damage,

and [had] strong-armed an engineering firm to change

its reports.” Id. at 38a-39a; see id. at 4a, 6a. Although

“King’s alleged manipulation of the McIntosh engi-

neering reports occurred after the McIntosh claim

18

was paid,” the court observed that “the jury was enti-

tled to use post-payment evidence to evaluate [peti-

tioner’s] pre-payment knowledge.” Id. at 38a n.15.

Thus, the court held that King’s execution of a scheme

that she knew would cause the submission of false

claims sufficed to uphold the jury’s verdict. /d. at 36a-

40a.

Petitioner contends (Pet. 31-35) that respondents’

proof of scienter was insufficient because the adjust-

ers who submitted the McIntosh claim did not realize

it was false. The court of appeals correctly rejected

that ignorant certifier’ defense[].” Pet. App. 37a. As

the court emphasized, liability exists when a person

“knowingly causes” the presentment of a false claim

or the use of a false record. /bid. (citation and inter-

nal quotation marks omitted); see Hess, 317 U.S. at

543-545 (extending FCA liability to “any person who

knowingly assisted in causing the government to pay

claims which were grounded in fraud”). That conduct

violates the FCA even if the person who ultimately

presents the claim is unaware of the fraud. See, e. g.,

United States v. Bornstein, 423 U.S. 303, 309 (1976)

(explaining that the FCA creates liability “against a

subcontractor who causes a prime contractor to sub-

mit a false claim to the Government,” whether or not

the prime contractor is complicit in the fraud); United

States ex rel. Hutcheson v. Blackstone Med., Inc., 647

F.3d 377, 390 (Ist Cir.) (rejecting contention that “a

submitting entity’s” truthful “representations con-

cerning its own conduct” can “immunize a non-

submitting entity from liability” if the non-submitting

entity engaged in conduct knowing it would cause a

false claim to be presented), cert. denied, 132 S. Ct.

815 (2011). If the jury concluded that King knowingly

19

caused the submission of the false McIntosh claim by

setting up a fraudulent scheme designed to classify

wind damage as flood damage, the jury could appro-

priately find petitioner liable on that basis, even if the

adjusters who presented the claim were unaware of

the unlawful scheme.

Petitioner further asserts (Pet. 32-33) that King’s

scheme to defraud the government cannot support

FCA liability because King was not personally in-

volved in the submission of the McIntosh claim.

Courts have recognized, however, that the scienter

requirement is satisfied when a person engages in

misconduct with knowledge that it will result in the

submission of false claims, even if the individual has

no contemporaneous awareness of a particular false

claim that is submitted under the scheme. See, e.g.,

United States ex rel. Schmidt v. Zimmer, Inc., 386

F.3d 235, 244 (3d Cir. 2004) (imposing liability where

defendant had not participated in submitting the false

claims but had “created and pursued a marketing

scheme that it knew would, if successful, result in

[others’] submission” of false certifications); United

States v. Krizek, 111 F.3d 934, 936, 942 (D.C. Cir.

1997) (holding a physician liable for claims his wife

submitted where billing practices ensured that the

government routinely received fraudulent bills, with-

out requiring knowledge of every claim when it was

made).

To dispute that point, petitioner relies (Pet. 33) on

United States ex rel. Aflatooni v. Kitsap Physicians

Service, 314 F.3d 995, 1002 (9th Cir. 2002). That deci-

sion is inapposite, however, since the court there re-

jected FCA liability on the ground that no false claim

was shown to have been made. See id. at 997. Afla-

20

tooni does not support petitioner’s contention that a

person who deliberately implements a fraudulent

scheme, knowing that it will result in the submission

of false claims, can shield herself from liability by

remaining ignorant of the particular claims that the

scheme generates. Cf. Senate Report 21 (observing

that the “reckless disregard” standard encompasses

“the ‘ostrich’ type situation where an individual has

‘buried his head in the sand’” and thereby avoided

learning that “false claims are being submitted”).

Petitioner is also wrong to contend (Pet. 35-36) that

the court of appeals erred by considering King’s effort

to alter the McIntosh engineering report after the

false claim was submitted. Petitioner relies on cases

in which an employee had no pre-submission aware-

ness of a claim’s falsity. Here, in contrast, the court

found sufficient evidence to conclude that King knew

in advance that the fraudulent scheme she had orches-

trated would cause false claims to be submitted. Pet.

App. 38a-39a. King’s post-fraud conduct, the court ex-

plained, simply provided additional ſe lireumstantial

evidence” that she had “sufficient knowledge, before

the claim or record was submitted, to impose liabil-

ity.” Id. at 38a n.15. The court’s observation that

post-offense conduct can be relevant to proving a

defendant’s pre-offense state of mind is correct and

provides no ground for further review. See McFad-

den v. United States, 135 S. Ct. 2298, 2304 n.1 (2015)

(noting that “the requisite mental state” can be prov-

en through “circumstantial evidence,” including “a

defendant’s concealment of his activities” or other

subsequent “evasive behavior”).

B. Petitioner contends (Pet. 31) that the Fifth Cir-

cuit’s decision “exacerbates” an alleged circuit conflict

21

concerning the propriety of a “collective knowledge”

approach to proving corporate scienter in FCA cases.

No conflict exists, however, and this case does not in

any event implicate the “collective knowledge” issue.

1. Although petitioner asserts (Pet. 29-30) a con-

flict between the Fourth and D.C. Circuits, both

courts have expressed skepticism about the circum-

stances under which a corporate defendant may be

found liable based on the aggregated states of mind of

multiple employees. See United States ex rel. Harri-

son v. Westinghouse Savannah River Ca, 352 F.3d

908, 918 n.9 (4th Cir. 2003) (finding it unnecessary to

adopt the theory that a plaintiff may “prove scienter

by piecing together scraps of ‘innocent’ knowledge

held by various corporate officials”); United States v.

Science Applications Int'l Corp., 626 F.3d 1257, 1275

(D.C. Cir. 2010) (SAIC) (relying on Harrison to reject

an argument that a corporate defendant may be liable

when one employee knows the company’s representa-

tions to the government, another knows the company’s

actual practices, but neither is aware of the incon-

sistency between the two).

Petitioner contends (Pet. 30) that SAC requires a

single employee to have knowledge of facts that make

a claim false and knowledge that the false claim is

being submitted. SAC held, however, that a corpor-

ation could be found liable where a single employee

“knew or recklessly failed to know” that the corpor-

ation had violated a contractual requirement “that was

material to the receipt of payment”; the court did not

require knowledge of the submission of a specific false

claim. 626 F.3d at 1276. Indeed, SAIC further recog-

nized that a corporation acts with “reckless disregard”

when it adopts a compartmentalized structure that

22

prevents employees who have knowledge of falsity

from simultaneously knowing of the submission of

particular claims. /bid. In that respect, SA/JC and

Harrison are in accord. See Harrison, 352 F.3d at

919 (declining to adopt a rule encouraging corpor-

ations to “establish segregated ‘certifying’ offices” to

immunizſe] themselves against FCA liability”).

2. In any event, the decision below did not depend

on the “collective knowledge” theory. The court of

appeals held that, “[e]ven if * * * one individual must

have knowledge that a claim is false, the jury could

have reasonably believed that King alone, acting in

reckless disregard of the truth or falsity of the infor-

mation,” caused a false claim and record to be made.

Pet. App. 39a (brackets, citation, and internal quota-

tion marks omitted).’ Petitioner contends that the de-

cision below “effectively attaches liability to a pur-

ported generalized scheme on the part of persons who

did not approve the claim at issue and were not shown

to have influenced the decision to approve it.” Pet. 33

" Because the court of appeals did not apply a collective-

knowledge theory, petitioner’s second question presented—which

asks whether scienter may be based on such a theory, Pet. ii—is

misconceived. In any event, petitioner's critique (Pet. 31-32) of the

collective-knowledge doctrine lacks merit. Corporate knowledge

should be “the totality of what all of the employees know within the

scope of employment.” United States v. Bank of New England,

821 F.2d 844, 855 (Ist Cir.), cert. denied, 484 U.S. 943 (1987).

Contrary to the decisions in Harrison and SAIC, it is sometimes

appropriate to hold a corporate FCA defendant liable even though

no single employee acted with the scienter that the Act requires.

At a minimum, it is appropriate to consider corporate officials’

knowledge collectively when they work together to submit a false

claim, a circumstance neither decision considered. For the reasons

explained above, however, this case provides no opportunity to

analyze the propriety of that approach.

23

(emphasis added). The italicized language suggests

that petitioner views the evidence as insufficient to

establish that King caused a false claim and false

record to be submitted. But that factbound challenge

has nothing to do with the “collective knowledge”

theory, and it raises no issue of general importance

warranting this Court’s review.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

DONALD B. VERRILLI, JR.

Solicitor General

a C. — *

incipal istant

Attorney

MALCOLM L. STEWART

Deputy Solicitor General

ELIZABETH B. PRELOGAR

Assistant to the Solicitor

General

DOUGLAS N. LETTER

MICHAEL S. RAAB

THOMAS G. PULHAM

SARAH W. CARROLL

Attorneys

APRIL 2016