No Secret Here: Supreme Court Set to Hear Yet Another FCA Case Next Term

by McGuireWoods LLP

In May 2016, the United States Supreme Court granted the petition for a writ of certiorari in State Farm Fire & Casualty Co. v. United States, ex rel. Rigsby, et al.  During the next term, the Supreme Court will hear oral arguments and issue a ruling for the Rigsby case which is limited to one issue: “What standard governs the decision to dismiss a relator’s claim for violation of the [False Claims Act’s] seal requirement, 31 U.S.C. § 3730(b)(2).”

After Hurricane Katrina hit the Gulf Coast in 2005, residents typically received compensation for damaged or destroyed homes under either a flood policy, paid for by the federal government under the National Flood Insurance Program, or a wind policy, paid solely by the insurers. The relators in Rigsby, former State Farm Fire and Casualty Co. (“State Farm”) claims adjusters, alleged that State Farm falsely submitted claims for damage claimed to be flood-related, rather than its actual wind cause, in an attempt to compensate policyholders under the National Flood Insurance Program rather than their own pocket books.

The jury found for the relators and issued a verdict for $227,475 plus $2.9 million in attorneys’ fees and expenses. The relators appealed alleging that they were not entitled to a sufficient amount of discovery and State Farm appealed on several counts.  The Fifth Circuit Court of Appeals upheld the jury verdict.

Regardless of the accuracy of the allegations present in the suit, State Farm argued that the lawsuit should have been automatically dismissed because the relators’ former lawyer distributed information about the lawsuit to members of the media during the time in which the complaint should have been secret and under seal pursuant to the FCA’s seal requirements.

Under the FCA, a FCA complaint is to be kept secret or “under seal” for at least sixty (60) days while the federal government reviews and decides whether it will intervene in the case. 31 U.S.C. § 3730(b)(2).  But when the seal is lifted prematurely, debate ensues as to how grave the mistake is in relation to dismissal decisions.  The Supreme Court is set to resolve a three-way circuit split regarding the standard that governs the decision whether to dismiss a relator’s entire claim for violation of the FCA’s seal requirement, 31 U.S.C. § 3730(b)(2). The Fifth and Ninth Circuits have held that the violation of the FCA’s seal requirement does not warrant a complete dismissal, provided that the federal government was not “harmed.”  The Sixth Circuit has stated that any violation of the seal requirement subsequently warrants an automatic dismissal.

The United States Supreme Court’s recent decision to review a case involving a distinctive provision in the FCA proves that even the apparently-minor provisions can have major implications and the Supreme Court is willing to hear it.  Although the Supreme Court recently handed down its must-anticipated opinion in Universal Health Services, Inc. v. United States ex rel. Escobar, discussed in a previous article, the Supreme Court’s recent election to review Rigsby is further evidence that FCA lawsuits, and the succeeding debates revolving around the FCA, will not cease with the Court’s determination of the survivability of the “implied false certification” theory in Escobar.

The author acknowledges and thanks Erin Dine, a rising 3rd year law student at Loyola University Chicago School of Law, for her help and support in the preparation of this post.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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