On November 1, 2016, the Supreme Court heard oral arguments in State Farm and Casualty Co. v. United States ex rel. Rigsby on the question of what standard should govern the decision whether to dismiss a relator’s claim for violation of the False Claims Act’s (“FCA”) seal requirement, which mandates that any FCA action brought by a whistleblower be filed with the court under seal and not publicly disclosed until the government has had an opportunity to investigate the allegations in the complaint and determine whether to intervene. This is the third year in a row that the Court has heard a case involving the FCA and, while Rigsby is not likely to be a blockbuster ruling like last year’s implied certification decision in Escobar (description available here), the case presents an opportunity for the Court to address a three-way circuit split.
When deciding on the standard that should govern, the Court will have to weigh competing policy considerations. On the one hand, relators and their counsel should not be allowed to act with impunity by violating the seal in bad faith in order to gain a tactical advantage in settlement talks. At the same time, the Court during the argument seemed to recognize that the government only has the resources to intervene in select cases and so the government relies heavily on relators to pursue recoveries. As such, the government’s interests could be harmed if a relator is automatically dismissed from a case because of an insignificant or technical violation of the seal. Indeed, the Rigsby case illustrates the tension between these competing policy considerations. Here, relators’ counsel violated the seal in bad faith, but he then withdrew from the case, and the relators went on to win a judgment against State Farm. Should that violation have caused the relators’ action to be dismissed altogether? If not, was any type of sanction warranted? Those questions and others were before the Court at oral argument.
The Seal Violation in Rigsby
The Rigsby case arises from the aftermath of Hurricane Katrina. Sisters Kerri and Cori Rigsby, the relators, worked as claims adjusters at E.A. Renfroe, which had been hired by State Farm to inspect damage to home owners’ properties on the Mississippi coast and adjust their insurance claims. According to the Rigsby sisters, State Farm fraudulently classified many losses as flood damage rather than wind damage because water damage claims would be covered by the federal flood-insurance program administered by FEMA. The Rigsbys filed a qui tam complaint under seal, as required by 31 U.S.C. §3730(b)(2) of the FCA.
The Rigsby sisters were represented by plaintiffs’ attorney Richard Scruggs, a prominent trial...
