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Supreme Court Arguments on Seal Seem to Favor Relators

by | Nov 3, 2016 | Whistleblowers

Oral arguments were held before the Supreme Court this week in the case of State Farm Fire & Casualty Co. v. U.S. ex rel. Rigsby.  The decade-old case originates from claims made by Cori and Kerrie Rigsby, sisters from Alabama, who filed a False Claims Act case alleging that State Farm defrauded the government in the wake of Hurricane Katrina.

As background, State Farm was responsible for covering damages caused by windstorms while the United States had a program to pay for damages caused by flooding. The Rigsby sisters allege that State Farm intentionally misclassified windstorm damages as flooding to hoist the burden of payment on the United States.  In 2013, a jury in Mississippi found in favor of the Rigsbys, and determined that the United States had been damaged to the tune of $250,000.  Pursuant to the trebling and penalties provisions of the False Claims Act, the jury awarded the United States $758,000 in damages.

During the course of litigation, State Farm learned that the Rigsbys’ original attorney, Dickie Scruggs, had violated the seal provisions of the False Claims Act by providing information about the lawsuit to three media outlets.  Scruggs provided the information as background to explain the fraud allegations, and the news outlets never disclosed the existence of a False Claims Act case while the seal was in place.  Regardless, State Farm moved to dismiss the case based on the alleged seal violation, but the district court denied the motion.  After the jury verdict in the relator’s favor, State Farm unsuccessfully appealed to the Fifth Circuit, and then to the Supreme Court.

State Farm put before the Court the narrow issue of the appropriate standard for the decision to dismiss a relator’s claims for violations of the False Claims Acts seal requirement.  During the one-hour of oral arguments from counsel for State Farm, the Rigsbys, and the United States of America (in support of the relators), the eight Supreme Court justices appeared unlikely to reverse the Fifth Circuit’s holding and grant State Farm’s request for mandatory dismissal of a case following a seal breach.

All of the justices appeared to be skeptical of State Farm’s drastic approach, particularly given that the seal requirement was put into place to protect the government and the United States has sided with the Rigsbys in this dispute.  Chief Justice Roberts noted to State Farm’s counsel that, “[Y]ou’re arguing the government’s interests, but it rings a little hollow when we see that the government is on the other side.”

John Bash, Assistant to the Solicitor General arguing for the United States, reaffirmed that focus, stating, “[W]e think that the overall focus should be courts should remedy protective orders and seal orders with a healthy dose of discretion, but in light of the purpose of this provision, to protect the government.”  Some justices, including Justice Ginsburg, appeared to suggest that the government’s preference should be the guiding, if not only, consideration as to whether a case should be dismissed following a seal breach.

Several justices asked for suggestions as to how to properly frame a workable standard which would discourage future violations while also allowing for the flexibility for district courts to conduct case-specific evaluations.  The justices also seemed to focus on whether the evaluation should consider the potential for harm versus the actual harm resulting from the breach.  (In the Rigsbys’ case, the newspapers did not print anything about the lawsuit itself, thus mitigating any actual harm from the seal breach.)

This is a very important case for relators because a State Farm victory could put another fatal arrow in the quiver of defendants and their counsel.  If defendants could guarantee a dismissal for even a minor, unintentional seal breach, they would be incentivized to engage in intense, scorched-earth discovery of relators and their counsel to try to find any mention of the lawsuit to a third party.  Fortunately, the Supreme Court seems reluctant to accept such a fatalist position and instead appears poised to set standards for a discretionary test which evaluates the circumstances of each case with an ultimate focus on protecting the government’s interest.

An opinion is due by the end of June 2017, so we’ll post an update as soon as the order is handed down.

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