Employment Law Daily In November argument calendar, SCOTUS to mull FCA seal requirement, Lafe Solomon’s appointment
Thursday, September 8, 2016

In November argument calendar, SCOTUS to mull FCA seal requirement, Lafe Solomon’s appointment

By Pamela Wolf, J.D. As the summer comes to an end, even for Supreme Court Justices, the Court has released its oral argument schedules for the first sessions of its new term. There are no cases of particular interest to labor and employment practitioners on the calendar for the session beginning October 3, 2016. However, there are two cases on the calendar for the session beginning October 31 that have been on the L&E radar: One raises a question under the False Claims Act’s seal requirement; the other queries whether acting NLRB General Counsel Lafe Solomon served in violation of the Federal Vacancies Reform Act (FVRA). FCA seal requirement. State Farm Fire and Casualty Co. v. U.S. ex rel. Rigsby (No. 15-513), set for oral argument on November 1, poses the question of what standard governs the decision to dismiss a relator’s claim for violation of the FCA’s seal requirement 30(b)(2). The answer to the question is expected to resolve a three-way circuit split. Below, the Fifth Circuit refused to dismiss an FCA suit alleging that State Farm submitted false flood claims to the federal government in the wake of Hurricane Katrina. Two certified experienced claims adjusters employed by a State Farm contractor that provided disaster claims management services and representatives inspected a home in Biloxi, Mississippi, in the aftermath of Katrina. The homeowners had two insurance policies with State Farm: (1) a Standard Flood Insurance Policy (SFIP) excluding wind damage, and (2) a homeowners’ policy excluding flood damage. A State Farm supervisor approved a maximum payout of $350,000 ($250,000 for the home and $100,000 for personal property) under the SFIP. State Farm subsequently sent checks to the homeowners. Adjusters blow the whistle. The claims adjusters later filed suit under the FCA alleging that State Farm wrongfully sought to maximize its policyholders’ flood claims (which are paid with government funds) in order to minimize wind claims (which are paid by the insurer). The jury found that the homeowner’s residence sustained no compensable flood damage; that the government therefore suffered damages of $250,000 under the FCA as a result of State Farm’s submission of false flood claims for payment on their property; and that State Farm had submitted a false record. The district court denied State Farm’s motions for a new trial and judgment notwithstanding the verdict. Seal requirement violation. On appeal, the Fifth Circuit found that the claims adjusters had violated the FCA’s seal requirement, which requires that a relator’s 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." But none of the disclosures appeared to have resulted in the publication of the existence of this suit before the seal was partially lifted. Thus, the court reasoned, the government likely was not harmed. The violations also did not involve a complete failure to file under seal or serve the government. Accordingly, the court held that the claims adjusters’ breaches did not merit dismissal. Acting NLRB General Counsel’s nomination. In NLRB v. SW General, Inc., dba Southwest Ambulance (No. 15-1251), set for argument November 7, the D.C. Circuit held that because Solomon was never a "first assistant" and the president nominated him to be general counsel when he was six months into his temporary appointment as acting GC, the FVRA prohibited him from serving as acting general counsel from that date forward. Therefore, an unfair labor practice complaint issued by the agency under the General Counsel was unauthorized, the appeals court held, vacating the Board’s order. FVRA violation. The pivotal question was whether the prohibition in 5 U.S.C. Sec. 3345 (b)(1) applies to all acting officers, or just first assistants who become acting officers by virtue of subsection (a)(1), as the NLRB contended. The D.C. Circuit concluded that the employer had the better argument. The plain language of subsection (b)(1) is that no person can serve as both the acting officer and the permanent nominee (unless one of the exceptions in subsections (b)(1)(A) or (b)(2) applies). The text of subsection (b)(1) squarely supported the employer’s interpretation, and neither the legislative history nor the purported goal of the FVRA helped the Board. Therefore, the appeals court held that the prohibition in subsection (b)(1) applies to all acting officers, no matter whether they serve pursuant to subsection (a)(1), (a)(2), or (a)(3). Because Solomon was never a first assistant and the president nominated him to be general counsel on January 5, 2011, the FVRA prohibited him from serving as acting general counsel from that date forward. Consequences of violation. Next, the D.C. Circuit had to determine the consequences of the FVRA violation. This was not a typical case, however. Section 3348(e)(1) exempts "the General Counsel of the National Labor Relations Board" from the provisions of "section [3348]," including the void-ab-initio and no-ratification rules. The Board contended that Section 3348(e)(1) allowed it to raise arguments like harmless error and the de facto officer doctrine. Therefore, the appeals court assumed that Section 3348(e)(1) rendered the actions of an improperly serving acting general counsel voidable, not void. The court pointed out that the NLRB general counsel is statutorily independent from the Board, and has "final authority" over the issuance of UPL complaints. He essentially exercises prosecutorial discretion. Moreover, the general counsel sets the enforcement priorities for the NLRB and generally supervises its lawyers. A different general counsel might have imposed different requirements and procedures during his tenure. Accordingly, notwithstanding the final Board order, the court lacked confidence that the complaint against the employer would have issued under an acting general counsel other than Solomon. That uncertainty was sufficient to conclude that the employer had carried its burden of demonstrating that the FVRA violation was not harmless under the Administrative Procedures Act. Thus, the court concluded that the NLRB order did not ratify or otherwise render harmless the FVRA defect in the ULP complaint against the employer. Question for review. The Board has asked the Court to answer the question "whether the precondition in 5 U.S.C. Sec. 3345 (b)(1) on service in an acting capacity by a person nominated by the President to fill the office on a permanent basis applies only to first assistants who take office under Subsection (a)(1) of 5 U.S.C. 3345, or whether it also limits acting service by officials who assume acting responsibilities under Subsections (a)(2) and (a)(3)."

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