State Farm Fire & Cas. Co. v. United States ex rel. Rigsby

• Decision Date: 06 December 2016
• Docket Number: No. 15–513.,15–513.
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, Petitioner v. UNITED STATES, ex rel. Cori RIGSBY, et al.
• Court: U.S. Supreme Court

137 S.Ct. 436

196 L.Ed.2d 340

STATE FARM FIRE AND CASUALTY COMPANY, Petitioner

v.UNITED STATES, ex rel. Cori RIGSBY, et al.

No. 15–513.

Supreme Court of the United States

Argued Nov. 1, 2016.

Decided Dec. 6, 2016.

Kathleen M. Sullivan, New York, NY, for Petitioner.

Tejinder Singh, Bethesda, MD, for Respondents.

John F. Bash for the United States as amicus curiae, by special leave of the Court, supporting the Respondents.

Jeffrey B. Wall, Sullivan & Cromwell LLP, Washington, DC, Sheila L. Birnbaum, Kathleen M. Sullivan, Douglas W. Dunham, Ellen P. Quackenbos, Bert L. Wolff, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, for Petitioner.

Tejinder Singh, Goldstein & Russell, P.C., Bethesda, MD, Maison Heidelberg, Watson Heidelberg, Jones PLLC, Flowood, MS, William E. Copley, August J. Matteis, Jr., Derek Y. Sugimura, Pamira Shah Matteis, Matthew S. Krauss, Timothy M. Belknap, Weisbrod Matteis & Copley PLLC, Washington, DC, for Respondents.

Justice KENNEDY

delivered the opinion of the Court.

This case addresses the question of the proper remedy when there is a violation of the False Claims Act (FCA) requirement that certain complaints must be sealed for a limited time period. See 31 U.S.C. § 3730(b)(2)

. There are two questions presented before this Court. First, do any and all violations of the seal requirement mandate dismissal of a private party's complaint with prejudice? Second, if dismissal is not mandatory, did the District Court here abuse its discretion by declining to dismiss respondents' complaint?

I

A

The FCA imposes civil liability on an individual who, inter alia, “knowingly presents ... a false or fraudulent claim for payment or approval” to the Federal Government. § 3729(a)(1)(A)

. Almost unique to the FCA are its qui tam enforcement provisions, which allow a private party known as a “relator” to bring an FCA action on behalf of the Government. § 3730(b)(1) ; Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 768, n. 1, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000) (listing three other qui tam statutes). The Attorney General retains the authority to intervene in a relator's ongoing action or to bring an FCA suit in the first instance. §§ 3730(a) –(b).

This system is designed to benefit both the relator and the Government. A relator who initiates a meritorious qui tam suit receives a percentage of the ultimate damages award, plus attorney's fees and costs. § 3730(d)

. In turn, “ ‘encourag[ing] more private enforcement suits' ” serves “ ‘to strengthen the Government's hand in fighting false claims.’ ” Graham County Soil and Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 298, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010).

The FCA places a number of restrictions on suits by relators. For example, under the provision known as the “first-to-file bar,” a relator may not “ ‘bring a related action based on the facts underlying [a] pending action.’ ” Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 575 U.S. ––––, ––––, 135 S.Ct. 1970, 1978, 191 L.Ed.2d 899 (2015)

(quoting § 3730(b)(5) ; emphasis deleted). Other FCA provisions require compliance with statutory requirements as express conditions on the relators' ability to bring suit. The paragraph known as the “public disclosure bar,” for instance, provided at the time this suit was filed that “ ‘[n]o court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions ... unless the action is brought by the Attorney General or ... an original source of the information.’ ” Graham County Soil and Water Conservation Dist. v. United States ex rel. Wilson, supra, at 283, n. 1, 285–286, 130 S.Ct. 1396 (quoting 31 U.S.C. § 3730(e)(4)(A) (2006 ed.) ; footnote omitted).

The FCA also establishes specific procedures for the relator to follow when filing the complaint. Among other things, the relator must serve on the Government “[a] copy of the complaint and written disclosure of substantially all material evidence and information the [relator] possesses.” § 3730(b)(2)

. Most relevant here, the FCA provides: “The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders.” Ibid.

B

Petitioner State Farm is an insurance company. In the years before Hurricane Katrina, petitioner issued two types of homeowner-insurance policies that are relevant in this case: (1) Federal Government-backed flood insurance policies and (2) petitioner's own general homeowner insurance policies. The practical effect for homeowners who were affected by Hurricane Katrina and who purchased both policies was that petitioner would be responsible for paying for wind damage, while the Government would pay for flood damage. As the Court of Appeals noted, this arrangement created a potential conflict of interest: Petitioner had “an incentive to classify hurricane damage as flood-related to limit its economic exposure.” 794 F.3d 457, 462 (C.A.5 2015)

.

Respondents Cori and Kerri Rigsby are former claims adjusters for one of petitioner's contractors, E.A. Renfroe & Co. Together with other adjusters, they were responsible for visiting the damaged homes of petitioner's customers to determine the extent to which a homeowner was entitled to an insurance payout. According to respondents, petitioner instructed them and other adjusters to misclassify wind damage as flood damage in order to shift petitioner's insurance liability to the Government. See id., at 463–464

(summarizing trial evidence).

In April 2006, respondents filed their qui tam complaint under seal. At the Government's request, the District Court extended the length of the seal a number of times. In January 2007, the court lifted the seal in part, allowing disclosure of the qui tam action to another District Court hearing a suit by E.A. Renfroe against respondents for purported misappropriation of documents related to petitioner's alleged fraud. See E.A. Renfroe & Co. v. Moran, No. 2:06–cv–1752 (ND Ala.). In August 2007, the District Court lifted the seal in full. In January 2008, the Government declined to intervene.

In January 2011, petitioner moved to dismiss respondents' suit on the grounds that they had violated the seal requirement. The parties do not dispute the essential background. In the months before the seal was lifted in part, respondents' then-attorney, one Dickie Scruggs, e-mailed a sealed evidentiary filing that disclosed the complaint's existence to journalists at ABC, the Associated Press, and the New York Times. All three outlets issued stories discussing the fraud allegations, but none revealed the existence of the FCA complaint. Respondents themselves met with Mississippi Congressman Gene Taylor, who later spoke out in public against petitioner's purported fraud, although he did not mention the existence of the FCA suit at that time. After the seal was lifted in part, Scruggs disclosed the existence of the suit to various others, including a public relations firm and CBS News.

At the time of the motion to dismiss in 2011, respondents were represented neither by Scruggs nor by any of the attorneys who had worked with him. In March 2008, Scruggs withdrew from respondents' case after he was indicted for attempting to bribe a state-court judge. Two months later, the District Court removed the remaining Scruggs-affiliated attorneys from the case, based on their alleged involvement in improper payments made from Scruggs to respondents. The District Court did not punish respondents themselves for the payments because they were not made “aware of the ethical implications” and, as laypersons, “are not bound by the rules of professional conduct that apply to” attorneys. App. 21.

In deciding petitioner's motion the District Court considered only the seal violations that occurred before the seal was lifted in part, reasoning the partial lifting in effect had mooted the seal. Applying the test for dismissal set out in United States ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242, 245–247 (C.A.9 1995)

, the District Court balanced three factors: (1) the actual harm to the Government, (2) the severity of the violations, and (3) the evidence of bad faith. The court decided against dismissal. Petitioner did not request some lesser sanction. The case went to trial, resulting in a victory for respondents on what the Court of Appeals referred to as a “bellwether” claim regarding a single damaged home. 794 F.3d, at 462

.

The Court of Appeals for the Fifth Circuit affirmed the denial of petitioner's motion to dismiss. The court recognized that the case presented two related issues of the first impression under its case law: (1) whether a seal violation requires mandatory dismissal of a relator's complaint and, if not, (2) what standard governs a district court's decision to dismiss. The court noted that the Courts of Appeals for the Second and Ninth Circuits had held that the FCA does not require automatic dismissal for a seal violation, while the Court of Appeals for the Sixth Circuit had held that dismissal is mandatory. See United States ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995, 998 (C.A.2 1995)

; United States ex rel. Lujan v. Hughes Aircraft Co., supra, at 245; United States ex rel. Summers v. LHC Group Inc., 623 F.3d 287, 296 (C.A.6 2010) ; see also United States ex rel.

Smith v. Clark/Smoot/Russell, 796 F.3d 424, 430 (C.A.4 2015) (following Pilon ).

After a careful analysis, the Court of Appeals for the Fifth Circuit held automatic dismissal is not required by the FCA. 794 F.3d, at 470–471

. It then considered the same factors the District Court had weighed and came to a similar conclusion. Id., at 471–472. First, the Court of Appeals held the Government was in all likelihood not harmed by the disclosures because none of them led to the publication of the pendency of the suit before the seal was lifted in part. Second, the Court of...