A unanimous U.S. Supreme Court minutes ago refused to dismiss a whistleblower suit filed under the False Claims Act despite an apparent intentional seal breach by the whistleblower’s lawyer. Instead, the court ruled that trial courts should decide what penalties, if any, should be imposed. The decision is important because it lets the whistleblowers’ lawsuit to proceed and not be automatically dismissed.
Cori and Kerri Rigsby worked as claims adjusters for a company called E.A. Renfroe. That company performed adjusting services for State Farm Insurance. When a homeowner suffers a loss, most insurance companies send out an adjuster to view the damage and determine if the loss is covered under the policy.
The Rigsbys claimed that State Farm was deliberately telling adjusters to shift wind damage claims caused by Hurricane Katrina to flood claims. State Farm provided its policy holders with wind damage coverage but flood insurance is provided by the National Flood Insurance Program (NFIP), part of the Federal Emergency Management Agency. That means flood insurance is a government program.
According to their whistleblower suit, the Rigsbys say that by trying to shift claims from its own policies to the NFIP, State Farm hoped to profit at taxpayers’ expense.
Under the federal False Claims Act, people with inside information about fraud involving government programs or funds can receive awards for providing information. The awards are earned by filing a whistleblower suit in federal court. If the government collects money as a result of the lawsuit or information, the whistleblower can receive up to 30% of the money collected.
Because the Rigsbys alleged that State Farm’s actions were hurting the National Flood Insurance Program, their information could earn them a sizeable award.
Whistleblower lawsuits are filed under seal meaning they are secret. The sealing order gives the government time to investigate the matter without outside interference and the knowledge of the alleged wrongdoers.
In the State Farm case, the government ultimately decided not to intervene in the case meaning it could still be prosecuted by the Rigsbys’ own lawyers. Under the Act, whistleblowers get a larger percentage award if their lawyers have to prosecute and a lower percentage award if the government takes over the work.
After the government decided not to intervene, State Farm asked the court to dismiss the case. The company argued that the Rigbys’ “former attorney had disclosed the complaint’s existence to several news outlets, which issued stories about the fraud allegations, but did not mention the existence of the FCA complaint.” In other words, the company said that the whistleblowers’ own lawyer had commited a seal violation.
Looking at three factors, the trial court decided not to dismiss the case despite the seal violation. A federal appeals court later agreed. Today, the U.S. Supreme Court affirmed those decisions and said violations of the sealing order should be handled by trial courts.
The court ruled that although the law says that the complaint “shall” be kept under seal (secret), there is no requirement that violation of that seal means automatic dismissal. Had Congress intended that result, it could have said so in drafting the statute.
Instead, the court let stand the trial court’s three part test for deciding whether or not to dismiss or impose sanctions for a seal violation. That test includes three factors—”actual harm to the Government, severity of the violations, and evidence of bad faith.”
The case is a major win for the Rigsbys and all whistleblowers. Corporate wrongdoers and their lobbying groups had rallied around State Farm and argued that any violation of a sealing order should result in automatic dismissal of the case. That result, however, would hurt taxpayers and the government. In fact, the Court said much the same thing, “Because the seal requirement was intended in main to protect the Government’s interests, it would make little sense to adopt a rigid interpretation of the seal provision that prejudices the Government by depriving it of needed assistance from private parties.” Those “private parties,” of course, are whistleblowers.
A copy of the Supreme Court opinion can be found here.
Possible Sanctions for Seal Violation
As noted above, the Supreme Court did not mandate a lesser sanction and instead left the matter to trial judges. Typical sanctions in breaches of sealing orders include fines and awarding the whistleblower a lower percentage award. We agree with the Supreme Court that trial court judges are in the best position to make these decisions based on the facts of each case.
If you have information about loss or fraud involving tax dollars or government programs, call us. Our whistleblower lawyers have helped whistleblowers collect over $100 million in awards. For more information on breaches of sealing orders visit our False Claims Act FAQ page. For information about claiming your own award, contact attorney Brian Mahany at or by phone at (direct). All inquiries protected by the attorney – client privilege.
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