Whistleblower Protection Blog : Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

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.

At issue in the lawsuit is whether 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.

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 is a vitally important feature of FCA cases because it 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 

Corporate wrongdoers despise this 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 law requires that FCA claims be filed under "seal" for sixty days. But a court can extend the seal for "good cause," if such an extension serves the public interest. As a practical matter the seal is often extended to afford the government the ability to gather evidence to corroborate the whistleblower’s allegations. These fraud schemes are often complex and usually require more than 60 days to investigate them.

The constitutional challenge was initially filed by three "public interest" groups in the U.S. District Court for the Eastern District of Virginia on November 19, 2009. The district court rejected the lawsuit.  However, the "public interest" groups filed an appeal to the Fourth Circuit, and the case was orally argued on September 20, 2010.   The Fourth Circuit generally rules on such cases within four to six months.

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, the safeguard for all whistleblowers. 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 three "public interest" groups, the American Civil Liberties Union, OMB-Watch and the Government Accountability Project.   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 investigators. Because FCA claims are judicially monitored, and the "seal" will expire in all cases and any extension of the seal must be monitored by a judge, 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.

In fact, if this lawsuit is successful in striking the seal period it will cause 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 will have a tremendous “chilling effect” on whistleblowers and will strengthen the hand of already powerful corporate criminals to both cover-up the wrongdoing and to 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 his "public interest" clients 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 whistleblower allegations without having 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 outrageous attack on the FCA will undermine 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. 

We hope that the three "public interest" groups whose names were used in the litigation will immediately withdraw from the case and urge the court to reject this challenge. 

However, short of a voluntary dismissal of this dangerous challenge to whistleblower rights, we can expect the Fourth Circuit to issue its ruling any day now – a decision which could very well end up destroying the most effective whistleblower law in the United States.

Links:

Decision of District Court
Brief in Chief filed by attorney Sahl in Fourth Circuit
DOJ opposition brief
Opposition brief filed by amicus curie Taxpayers Against Fraud

Prior blog posting by my colleague Richard Renner: "ACLU loses challenge to FCA seals"

Under the False Claims Act (FCA), which starts at 31 U.S.C. Section 3729, whistleblowers with non-public information about a fraud against the government can file a lawsuit to recover the money wrongfully received.  Such lawsuits are called "qui tam" claims because the government will share the recovery with the whistleblower.  However, the FCA requires that the court and the whistleblower keep the lawsuit "sealed" until the government makes its decision about whether to intervene.  The FCA gives the government sixty (60) days to investigate the claim and make this decision, but the government typically asks for and receives an extension of the seal that can last for years.  During this time, government investigators can decide whether criminal charges should be filed against the alleged perpetrators of the fraud.  The government may choose to execute warrants to search for evidence or make arrests before the lawsuit is made public.  Meanwhile, if the whistleblower is an employee of a company engaged in the fraud, the seal permits the whistleblower to keep working, and collecting evidence, while the employer remains unaware of the lawsuit. The court would not make any adjudications about the merits of the lawsuit until after the government makes its decision on whether to intervene, the lawsuit is unsealed and served on the other side, and all parties have an opportunity to review the claims and make their cases to the court.

The plaintiffs, the ACLU, OMB Watch and GAP, raised three claims against the constitutionality of the seal provision. First, the claim that the public has a right under the First Amendment to know what claims are pending in court.  Judge O'Grady rejected this claim, citing Los Angeles Police Department v. United Reporting, 528 U.S. 32 (1999), and Fisher v. King, 232 F.3d 391 (4th Cir. 2000). These cases hold that local laws restricting access to public records do not violate the First Amendment since everyone remains free to communicate the information they already have. While the public normally enjoys a First Amendment right of access to court documents, this right does not extend to all documents.  For example, the public has a right to documents filed in connection with a motion for summary judgment since these documents serve to adjudicate substantive rights and serve as a substitute for trial.  However, this right does not yet extend to motions to dismiss. Judge O'Grady concluded that qui tam complaints are analogous to even earlier stages of the case that are not traditionally public.  For example, a government's criminal investigation, and even grand jury proceedings are normally secret. Judge O'Grady also noted that Congress created the seal provision in 1986, "in response to Justice Department concerns that qui tam complaints filed in open court might tip off targets of ongoing criminal investigations." S. Rep. 99-345, 1986 U.S.C.C.A.N. 5266, 5281. Judge O'Grady determined that the public interests are served when the government finishes its investigation and lifts the seal so the case can be adjudicated openly.  Until then, the public interest is not served by tipping off the subjects of that investigation so they might have an opportunity to hamper it by destroying evidence.

The plaintiffs' second argument was that the seal infringes on the free speech rights of the whistleblowers who file qui tam lawsuits.  Judge O'Grady cited TAF's amicus in holding that the plaintiff organizations did not have any close relationship with such persons, and they lacked standing to raise this claim on their behalf.  More specifically, the injunction that the plaintiffs sought against the FCA's seal provision would be against the interests of those whistleblowers who want to keep their whistleblowing confidential.  Moreover, the seal only applies to those whistleblowers who choose to file a qui tam and become subject to its seal.  Any such whistleblower could choose not to file the lawsuit and to speak publicly about their claims of a fraud against the government. Judge O'Grady also noted that even if the plaintiff organizations did have standing, there is nothing in the FCA that prevents the whistleblower from speaking about the facts that support the fraud claim, as long as the existence of the lawsuit is not disclosed prematurely. Judge O'Grady noted that this was TAF's position, and TAF is a group that represents the interests of qui tam whistleblowers.

The plaintiff's third argument was that the FCA's seal upsets the balance of power under the Constitution by interfering in the court's decision about whether to seal or unseal any particular case.  Judge O'Grady rejected this claim noting that judges do enjoy discretion as to whether to extend the seal beyond the initial sixty (60) day period. The initial seal is merely a ministerial function that does not interfere with judicial independence.

Now that Judge O'Grady has dismissed the ACLU lawsuit, the plaintiffs will have sixty (60) days to decide whether to appeal.  Here is one voice urging them not to do so. An appeal will not further the public interest in access to information, but would rather discourage whistleblowers from coming forward if there is a risk that their identities would become known before their were ready.  It is in the public interest to protect the confidentiality of qui tam lawsuits for those whistleblowers who want it, or who need it to keep their jobs while the case is pending.  It is also in the public interest to encourage whistleblowers to come forward if they have information about a fraud against taxpayer money.  We want the government to have every opportunity to investigate such frauds and catch the crooks to commit them. That is why TAF's Jeb White calls Judge O'Grady's decision, "a huge victory for the good guys."

Judge O'Grady's decision is available, on-line and free for those who have PACER accounts.  The U.S. District Court for the Eastern District of Virginia provides directions on how to create a PACER account. Then you can read the Court's directions for accessing its opinions. Search for the August 21, 2009, decision in ACLU v. Holder, Case No. 1:09-cv-42. Or, follow this link to the full decision.

UPDATE:

Regrettably, the ACLU and GAP did appeal.  You can read the briefs of the parties here:

ACLU/GAP principal brief

USDOJ response brief

TAFEF amicus brief

ACLU reply brief

We are waiting for the Fourth Circuit's decision which could be announced any day now.