February 09, 2017
On December 6, 2016, the Supreme Court decided State Farm Fire and Casualty Co. v. U.S. ex rel. Rigsby. State Farm Fire and Casualty Co. (State Farm) administered separate wind and flood damage policies in the Gulf Coast area at the time of Hurricane Katrina. In general, State Farm was responsible for paying wind damage from its own assets, while federal funds would pay for flood damage. The Rigsby sisters were State Farm claims adjusters who allegedly discovered in the aftermath of Hurricane Katrina that, with respect to properties covered under both wind and flood policies, State Farm was unlawfully classifying wind damage as flood damage in order to offload the cost of payment onto the federal government. Rigsby sued on behalf of the United States under the provisions of the federal False Claims Act (FCA), and continued to litigate the case after the United States declined to intervene. The district court focused discovery and trial on a single bellwether claim, and the jury found an FCA violation and awarded damages.
Both sides appealed, with the Rigsbys (classified under the FCA as “relators”) seeking additional discovery to uncover and pursue other similar FCA violations by State Farm--and State Farm arguing, among other things, that the case should be dismissed because the Rigsbys’ counsel had violated the FCA’s seal requirement, by disclosing the existence of the FCA lawsuit to various news outlets. The U.S. Court of Appeals for the Fifth Circuit acknowledged the seal violation but concluded (as the district court had)--after applying a multi-factor test--that the breach did not warrant dismissal here.
The question before the Supreme Court was what standard governs the decision whether to dismiss a relator's claim for violation of the False Claims Act's seal requirement, an issue on which the federal circuit courts of appeals have split three ways.
By a vote of 8-0, the Supreme Court affirmed the judgment of the Fifth Circuit. In an opinion by Justice Kennedy, the Court unanimously held that a seal violation does not mandate dismissal of a relator's complaint under the False Claims Act and that whether to dismiss is a matter left to the discretion of the district court. In this case, the Supreme Court added, the district court did not abuse its discretion in declining to dismiss the relator’s complaint.
To discuss the case, we have Lawrence Ebner, who is the Founder of Capital Appellate Advocacy.