Common Challenges With the Qui Tam Seal Requirement: What Whistleblowers Can Expect

One of the various procedural requirements imposed on whistleblowers is that they file their cases “under seal.”  Not much is explained in the False Claims Act (“FCA”) as to what that means, other than the general understanding that no notification of the filing to the defendant takes place, what is commonly referred to as “service” of the complaint.  The seal stays in place automatically for 60 days, and the Government has the ability to seek extensions of the seal from the court.  Typically, the government seeks multiple extensions, generally for six months at a time, resulting in a case remaining under seal for more than a year and often up to three or four years.

What happens during that time period?  What can the relators or their lawyers say about the cases?  What does it mean to “breach” the seal? What happens if the seal is breached?  Although the False Claims Act statute says very little about the seal (other than requiring a case to be filed that way and not served upon the defendant), there is a whole body of case law that has developed about what it means to preserve the seal.

Seal Requirement Challenges

In many instances, though, there can be real challenges to relators to maintain the confidentiality that the seal requires.  For example, in various types of unrelated legal proceedings, parties can be required to divulge contingent assets – which is what a filed, but unresolved, lawsuit can be.  This frequently occurs in bankruptcy cases, in divorce proceedings, in partnership dissolutions and sometimes in other instances.  How do relators satisfy those disclosure obligations while maintaining the secrecy that the FCA seal requires?

This problem also arises in other types of litigation or legal proceedings, most frequently in unemployment compensation hearings if the whistleblower was fired and the employer is contesting entitlement to unemployment benefits, or in retaliation lawsuits (if retaliation claims are not limited to those filed as part of an FCA case).

Outside of the litigation context, issues can arise with a former defendant-employer at an exit interview or in connection with signing for severance benefits. Employees departing from a company are sometimes asked to certify that they did not observe any practices that they thought were illegal, for example.

Challenges for Whistleblowers Who Remain Employed at the Defendant Company

For whistleblowers who continue to work for the defendant company, the challenges can be even harder to predict, such as meetings at which “some government investigation” is discussed or memos are circulated to employees directing them to collect or preserve documents pertaining to the subject of the qui tam suit.  Although the case itself may remain under seal for several years, the government often begins to investigate during the time period, frequently including the issuance of a Civil Investigative Demand (similar to a subpoena) on the company.

Although the company is not officially notified that there was a whistleblower suit filed, many companies recognize what is happening and have immense concerns about whether a whistleblowing employee is still employed within the company and still has access to additional documents or ongoing internal discussions.

Tensions can become high among employees or management and speculation and accusations may lead to awkward situations for continuing employees. When it appears that certain employees’ conduct is the subject of a government investigation, there can be discussions of cover-ups or document destruction.  The emotional toll of continuing to work for a company while being a whistleblower can be quite pressing, and may require the whistleblower to conceal or actively deceive fellow employees about that whistleblower’s role in the case.

Although it is probably illegal for a company to directly ask a group of employees whether anyone reported anything to government regulators or prosecutors, we have seen instances where that happened and, of course, it would be difficult for even a responsible employer to be able to control all of the water cooler talk that occurs.

Challenges for Whistleblowers Who Have Left the Defendant Company

Even for someone who has left the defendant company’s employ – whether voluntarily or not – concerns can arise about subsequent employment. It can be difficult to explain either a voluntary or not-so-voluntary departure from a prior job if the whistleblower cannot explain what happened.  We’ve had clients express real reluctance to accept a new job in the same industry, wondering what will happen once it becomes known that the person filed a lawsuit against his prior employer.

Even if the person wanted to get that out on the table ahead of time – before relocating cross-country, for example – the seal provisions would bar or hamper such discussions.  Employees wonder if they would be protected against retaliation from a subsequent employer who learns of the person’s past whistleblowing activity and decides to discharge the employee.

And what about a situation where the whistleblower is seriously worried about public harm during the seal period — whether due to questionable financial practices or safety issues relating to continuing off-label marketing of drugs or medical devices or continued distribution of faulty products?  Although one would hope the government would act quickly in those circumstances, that does not always happen.

Often the government needs to conduct an in-depth investigation of the whistleblower’s allegations, but the whistleblower is firmly convinced that there is ongoing bad conduct occurring.  In a recent case involving questionable mortgage loans being made to veterans, the relators ended up knowingly violating the seal by going public with their allegations because they were so frustrated that the fraud was ongoing even four years after they filed their case under seal.

Conclusion

We believe that our job in representing whistleblowers includes counseling about these different challenges that might arise.  We discuss with our clients the types of situations that might occur and the ways to navigate through the problems.

Perhaps most importantly, we discuss these possible concerns with potential clients even before they file a case, to help them evaluate and understand what might be involved as a result of their filing.  There can be many rewards to being a whistleblower – both moral and financial – and our goal is to help our clients make well-informed decisions about whether and how to proceed.