The Supreme Court plans to review a decision that allowed relators to maintain their False Claims Act lawsuit even after a series of disclosures that may have violated the law’s requirement that lawsuits be “sealed” and hidden from defendants and the public for 60 days after they are initially filed.

In U.S. ex rel. Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457 (5th Cir. 2015), cert. granted in part sub nom. State Farm Fire & Cas. Co. v. U.S. ex rel. Rigsby, 136 S. Ct. 2386 (2016), two Relators, Cori and Kerri Rigsby, brought a qui tam action in 2006 against State Farm alleging that the insurer submitted false claims for homeowners’ property damage stemming from Hurricane Katrina.  

According to the Realtors, State Farm administered two types of policies for many affected homeowners. First, it offered private policies that covered wind damage but excluded flood damage.  Any payout comes from State Farm’s coffers.  Second, it administered government-backed “write your own” flood policies that excluded wind damage.  The government pays a fee to insurers to manage these policies, though payment to insureds comes from government funds.

The Relators were adjusters handling claims under State Farm policies.  They claimed that State Farm fraudulently assessed some damage as flood damage rather than wind damage to avoid paying claims out of its own pocket.

The Relators complied—at least initially—with the False Claims Act’s 60-day seal requirement by filing their complaint under seal.  But then things got interesting.  Before the 60-day period was up, the Relators’ then-attorney began disclosing the facts underlying the FCA claims—and the existence of the suit itself—to journalists and others.  (The Relators replaced their attorney after he was indicted in a separate matter.)

The Fifth Circuit found that these disclosures indeed violated the seal requirement, but held that the violation did not mandate automatic dismissal of the suit.  Instead, the Fifth Circuit adopted a three-factor analysis previously applied by the Ninth Circuit in U.S. ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242 (9th Cir. 1995).  Under this analysis, a court weighs whether to dismiss a suit due to seal violations based on:  1) the harm to the government from the violations; 2) the nature of the violations; and 3) whether the violations were made willfully or in bad faith.  The Second Circuit applies similar factors.  See U.S. ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995 (2d Cir. 1995).

The Fifth Circuit observed that the FCA imposes the 60-day seal requirement to provide the government an opportunity to evaluate whether to join the suit without the defendant learning about the suit first.  The Court determined that none of the Relators’ attorney’s disclosures led news sources to publish anything about the existence of the suit before the seal was lifted, that the government was not harmed by the disclosures, and that there was no evidence that the attorney’s disclosures were made with the Relators’ authorization or encouragement.  The Court declined to dismiss the complaint.

Predictably, State Farm sought further review by the Supreme Court.  It points to a Sixth Circuit decision dismissing a qui tam complaint for failure to comply with the seal requirement.  U.S. ex rel. Summers v. LHC Group, Inc., 623 F.3d 287 (6th Cir. 2010).  State Farm wants the Supreme Court to hold that the seal requirement is a condition precedent to the government’s partial assignment of its claim to a relator.  Failure to comply would mandate automatic dismissal because it prevents a putative relator from obtaining the right to sue in the government’s name.

The Supreme Court is scheduled to hear oral argument on November 1, 2016.  We’ll recap the arguments here at the Whistleblower Wire.

The Fifth Circuit’s opinion is available here.

The briefs filed with the Supreme Court are available here.