Opinion ID: 705223
Heading Depth: 2
Heading Rank: 1

Heading: Statutory Basis for Dismissal

Text: 10 We review the district court's interpretation of the FCA de novo. See Stephens v. City of Vista, 994 F.2d 650, 655 (9th Cir.1993). 11 No provision of the False Claims Act explicitly authorizes dismissal as a sanction for disclosures in violation of the seal requirement. Hughes contends, and the district court seems to have decided, that the authorization for dismissal of complaints is implicit in the purpose of the seal requirement. We find that the district court's analysis of the purpose of the seal was erroneous. Consequently, its dismissal of Lujan's complaint cannot be justified by reliance on the FCA. 12 By providing for the seal provision, Congress intended to strike a balance between the purposes of qui tam actions [and] ... law enforcement needs[.] S.Rep. No. 345, 99th Cong., 2d Sess. 24, reprinted in 1986 U.S.C.C.A.N. 5266, 5289. The purpose of qui tam actions is to encourage more private false claims litigation. See id., reprinted in 1986 U.S.C.C.A.N. at 5288. The other side of the balance recognizes the need 13 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. 14 Id., reprinted in 1986 U.S.C.C.A.N. at 5289. The seal provision provides an appropriate balance between these two purposes by allowing the qui tam relator to start the judicial wheels in motion and protect his litigative rights, while allowing the government the opportunity to study and evaluate the relator's information for possible intervention in the qui tam action or in relation to an overlapping criminal investigation. Id. 15 When the seal provisions are violated, this balance cannot be disregarded. The requirements of Sec. 3730(b)(2) are not jurisdictional, and violation of those requirements does not per se require dismissal of the qui tam complaint. See United States ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995, 1000 (2d Cir.1995) (expressing reluctance to rule that the requirements of Sec. 3730(b)(2) are jurisdictional). Rather, the district court must keep in mind both sides of the balance when constructing a sanction for a violation of the seal provision. In this case, when the district court sanctioned Lujan for violating the seal provision, it failed to consider this balance and instead concluded ipso facto that once a violation was found, dismissal was appropriate. Several factors should have given the district court reason to pause before deciding dismissal was appropriate. 16 First, the district court failed to consider whether the Government was actually harmed by Lujan's disclosure. Courts that have previously addressed this issue and found dismissal appropriate have relied, at least in part, on the irreparable harm to the government caused by the complete failure to abide by any of the seal provisions, including failure to serve the government with a copy of the complaint. In Pilon, the court found that the violation incurably frustrated the statutory purposes underlying [the seal] requirements[.] Id. at 996. Similarly, in Erickson ex rel. United States v. American Inst. of Bio. Sciences, 716 F.Supp. 908 (E.D.Va.1989), the court rested its holding on its finding that Erickson's failure to comply with the filing and service provisions irreversibly frustrates the congressional goals underlying those provisions. Id. at 912 (emphasis added). 17 The mere possibility that the Government might have been harmed by disclosure is not alone enough reason to justify dismissal of the entire action. The district court should have assessed whether and to what extent the government was harmed before sanctioning Lujan with dismissal. 18 We have reason to doubt whether the Government actually suffered any harm in this case. Both parties refer in their briefs to Hughes' deposition of Lujan in her state court proceedings; the deposition took place before her qui tam case was filed and before any seal existed. The deposition transcript excerpts presented by Lujan indicate Hughes was aware of Lujan's intent to file a qui tam action and of the nature of her allegations. In light of the fact that Lujan's disclosure to the Times gave only general descriptions of her claims in contrast to the very detailed answers Lujan gave Hughes' attorney during her deposition, there is a strong inference that Hughes did not learn anything from the Times articles that it did not already know. If Hughes learned nothing from the Times articles, then the articles alone could not have prompted any action by Hughes, and the Government's investigation could not have been hampered by the articles. But see Pilon, 60 F.3d at 999 (That the government and Defendants may have been aware of the substance of the Pilons' allegations does not diminish the consequences of the Pilons' failure to comply with the statutory requirements.). 19 Although we are inclined to think that the articles did not harm the Government's investigation, we are not in a position to draw any final conclusion from this record. The district court will have to make the final determination on remand. 20 In making its determination, the district court will have to consider the Statement of the United States Regarding Defendant's Motion to Dismiss the Complaint, which stated: 21 [W]hile the United States has not claimed in this case that it was prejudiced by the public disclosure of the qui tam allegations prior to the lifting of the seal, it is not in a position to state[,] as a factual matter, that it was not prejudiced by such disclosure. It is difficult, if not impossible, to determine what actions may have been taken by the defendant based upon its knowledge of the investigation. 22 As this Statement indicates, it would be impossible to determine what actions Hughes might have taken when it originally learned of Lujan's qui tam action. However, if Hughes' knowledge of the investigation pre-dated Lujan's breach of the seal, and was in no way enhanced by Lujan's disclosure to the Times, then it would be illogical to assume that Hughes took any actions based on the Times articles. The district court will have to evaluate the Government's Statement in light of Hughes' pre-filing knowledge of the claim. 23 A second factor the district court must weigh against congressional intent to promote litigation through qui tam claims is the nature of the violation. Lujan violated Sec. 3730(b)(2) by disclosing the existence and nature of her qui tam complaint in very general terms to the Los Angeles Times. Lujan complied with all the other requirements of Sec. 3730(b)(2) by filing her complaint in camera and serving it on the Government along with a written disclosure of information. The violation of the seal provision in this case is qualitatively different than the violations in cases that have found dismissal was an appropriate sanction. For example, in Erickson, the relator completely failed to comply with any of the requirements of Sec. 3730(b)(2). Erickson, 716 F.Supp. at 911. Similarly, in Pilon, counsel failed to file the complaint in camera, failed to serve the United States with a copy of the complaint and a written disclosure of the underlying evidence, and, several hours after filing, arranged for an extensive interview with a reporter. Pilon, 60 F.3d at 997. When evaluating the appropriate sanctions, the district court cannot disregard the relative severity of the violation. 24 A third factor to be weighed in determining whether dismissal is appropriate is the presence or absence of bad faith or willfulness. In this case there is no finding that Lujan's disclosure was made in bad faith. In fact, nothing in the record indicates whether the disclosures occurred. The only evidence we find are the articles themselves, which merely indicate Lujan and her attorney said certain things. It may be logical in this case to infer that Lujan willfully breached the seal provisions, especially in the absence of any representation to the contrary. However, in other cases, when the presence or absence of bad faith or willfulness cannot be inferred, district courts must inquire into those matters in order to make an informed determination of whether dismissal is warranted, or whether some lesser sanction is sufficient. See Pilon, 60 F.3d at 999 (The record reveals ... a considerable lack of good faith.). 25 Before concluding, we address one factor relied on by the district court that is not one of the statutory purposes of the seal provision, and therefore is not relevant in determining whether a particular seal violation warrants dismissal under the FCA. The district court based its decision in part on its inference that Congress enacted the seal provision to protect[ ] defendants from damaging attacks to which they are unable to respond. This analysis is erroneous. 26 The Committee's only documented concern regarding defendants' interests was that it avoid the pre-amendment possibility that defendants might be required to answer a complaint two days after service, without knowing whether its opponent would be the Government or a private litigant. 3 S.Rep. No. 345, 99th Cong., 2d Sess. 24, reprinted in 1986 U.S.C.C.A.N. 5266, 5289. This was the only interest to which the Committee referred when it commented that sealing the initial private civil false claims complaint protects both the Government and the defendant's interests without harming those of the private relator. Id. Never did the Committee discuss, let alone imply that it sought to protect, the types of potential unfairness relied on by Hughes and the district court. To the contrary, the Committee explicitly stated that [b]y providing for sealed complaints, the Committee does not intend to affect defendants' rights in any way. Id. For these reasons, protecting the rights of defendants is not an appropriate consideration when evaluating the appropriate sanction for a violation of the seal provision. 4 27 Our holding today will require district courts to explore the facts underlying violations of the seal requirements before concluding that the extreme sanction of dismissal is warranted. However, the findings we require district courts to make are no more onerous than those required when district courts dismiss under their inherent powers. More importantly, those findings are necessary to give full effect to the balance Congress sought to strike when it enacted the seal provisions. 28