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February 9, 2015 Mortgage Fraud

Court’s Analysis Spells Victory for Bibby Relators Following Contested False Claims Act Reward

Over the last few posts, we have engaged in an in-depth look at a relatively rare issue involving confidentiality during the investigative stage of a False Claims Act whistleblower case. The case, known as United States ex rel. Bibby v. Wells Fargo, N.A., has garnered some national attention as the Eleventh Circuit recently upheld the relators’ $43 million reward, while imposing a relatively minor sanction.

According to the defendant, Wells Fargo, the relators had engaged in egregious misconduct by speaking to a TV reporter via email about the facts of the case and the ongoing investigation. However, the Eleventh Circuit maintained that the relators, while incorrect in divulging the facts of the case prematurely, should not lose their reward as no party in the case actually suffered any harm as a result of the blunder.

The following details the court’s analysis as to why a sanction is an appropriate measure to address the breach in confidentiality.

Eleventh Circuit’s analysis in favor of the relators

There are generally two ways in which courts determine if a qui tam relator should lose the opportunity to further participate in the litigation. Since the Eleventh Circuit had not yet dealt with this specific issue in its own court, thereby establishing a precedent, it turned to analyses utilized by other circuit courts.

The first such method has been entered by the Sixth Circuit and is considered a “strict enforcement” approach. This approach essentially mandates a dismissal of the relator for any seal violations under the reasoning that this was the intent set by Congress when drafting the seal requirements in the first place. As stated by the Sixth Circuit in a 2010 seal violation case:

We … find unpersuasive the argument that 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 mere possibility that the Government might be harmed by disclosure is, in fact, the point of the in camera requirement.

– United States ex rel. Summers v. LHC Group Inc., 623 F.3d 287 (6th Cir. 2010).

On the other hand, several other circuits have adopted a more balanced approach, which was ultimately followed by the Eleventh Circuit in Bibby. This approach requires a careful analysis of all the facts at hand to determine if the government was actually harmed by the breach of confidentiality. It also considers the extent of the alleged breach, the severity of the violation, and whether the relator acted in bad faith in any way.

Court adopts a balanced approach

Rejecting the Sixth Circuit’s strict enforcement model, the Eleventh Circuit opted to adopt a balanced approach, holding that the relators should not be dismissed. In fact, the court actually reduced the proposed $2.7 million sanction suggested by the Department of Justice to a sanction of just $1.6 million, which reverts to the U.S. Treasury.

In adopting the balanced approach, the Court found that the severity of the relators’ actions did not warrant an outright dismissal from the case. Further, the Court recognized the relators’ pivotal role in recovering hundreds of millions of dollars from banks committing fraud against some of the most revered members of society: U.S. veterans and their families.

Probably one of the most important facts in the Court’s analysis pertained to the extent to which the confidential information was disseminated while under seal: not at all. The facts of the case revealed that the news media outlets with information relating to the case did not actually reveal the details under after the seal was removed. Accordingly, the Court remarked, “Wells Fargo and the Government admit that Relators’ seal violations resulted in no actual harm to the Government’s investigation of this case while the case was sealed.”

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