Better grab a cup of coffee – the Rigsbys qui tam counsel were locked and loaded when they fired this Response to the second set of dispositive motions on target with Judge Senter’s scheduling order and it’s going to take a while to cover all the points.
In truth, it’s impossible to cover all the points in a single post – that’s why we link readers to the actual documents.
The legal basis State Farm cited for the motions in this set are Rules 12(b)(6) failure to state a claim upon which relief can be granted; and 9(b): In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally. However, the lack of a legal basis is no barrier to State Farm making a claim which should be a Rule 11 violation IMO – or grounds for divorce! Ohmygod, are they not ever the nagging spouse reciting history before stating the current complaint.
The qui tam counsel for the Rigsby sisters seems to have their number and disposed of both the questions of law and the nags AKA “specious arguments” – given the purpose of these motions is to establish the Rigsbys have a case, not try the case before it goes to trial as State Farm is just itching to do.
The response to 12(b)(6) and 9(b) is something you just need to read as it’s going to take the rest of this post to cover three points – the recent McIntosh dismissal; State Farms allegations about the “broken” seal; and the Rigsbys voluntary dismissal of certain counts and four defendants – and provide a summary of what you’ll find detailed in the Response. btw, I’ve omitted citations and all emphasis below is mine.
Relators allege that the flood claim filed by Pamela and Thomas McIntosh (the “McIntosh Claim”) is a “specific instance[] where Defendant State Farm has engaged in reallocation of claims from wind damage to flood damage.”… Accordingly, State Farm’s contention that “nowhere is it alleged that a false claim for payment under the NFIP was submitted to the government” is simply incorrect.
State Farm’s remaining argument, that the allegations in the McIntosh Claim are “deficient on their face” for the reasons provided in State Farm’s 12(b)(1) motion, amounts to nothing more than asking this court to reject the truth of the allegations in the complaint, which is improper under Rule 12(b)(6)…But whether the flood claims submitted by State Farm were actually fraudulent is one of the ultimate disputed questions of fact in this case, and should be decided by a jury at trial…Even if these contested facts create doubt as to the McIntosh Claim, in a 12(b)(6) motion, the plaintiff is entitled to have “every doubt resolved in his behalf.”
State Farm also may attempt to argue that the McIntoshes’ recent motion to dismiss voluntarily all extra-contractual and punitive damage claims is relevant to whether the McIntosh case demonstrates fraud on the federal government. Indeed, the suspicious timing and content of the motion strongly suggest that State Farm intends to use the motion in this case.
Upon information and belief, the McIntosh case was settled in its entirety late in the evening on Saturday, September 6, 2008. The next day, Sunday, September 7th, the plaintiff filed a motion to dismiss that was laden with gratuitous praise with respect not only to the wind claims at issue in that case, but also to the McIntoshes’ flood claim. The motion reads like a document written by (or for) State Farm for use in this case, and the timing alone raises enormous issues of credibility. The motion also fails to provide any basis for its conclusory statements. As a result, any attempt to use the McIntosh motion to dismiss in this case will only raise more material issues of disputed facts.
In any event, while the parties should be allowed to take discovery into the circumstances surrounding the motion in McIntosh before it could be used as evidence at trial, there is no need to consider these issues at this stage of the litigation.
The “coincidence” of today’s settlement announcement falling on the date the Rigsbys second Response was due was not lost on those of us following the case. State Farm also argues that Relators’ complaint should be dismissed for violations of the FCA’s seal provision – an argument I find laughable and can only think State Farm lawyers don’t know how to google or they’d be ashamed to make such a claim.
…as the Ninth Circuit noted in a case cited by State Farm…A court must consider three factors in deciding whether dismissal is warranted under section 3730(b)(2): (1) whether the government actually was harmed; (2) the nature of the violation; and (3) the presence or absence of bad faith or willfulness. Each of these factors weighs against dismissal of Relators’ action.
…State Farm argues that any violation of the seal order warrants dismissal, but that argument fundamentally misstates the law…Indeed, a case cited by State Farm notes that “a substantial body of federal case law” has “uniformly rejected” that blanket argument…
Courts properly are reluctant to dismiss an FCA claim unless a relator completely failed to meet any of the sealing requirements; in both of the cases cited by State Farm where a court dismissed an FCA action, the relator either failed to file the complaint under seal or immediately served the defendant with a copy…
State Farm asserts that Relators’ former counsel, the Scruggs Law Firm, violated the seal
provision on several occasions. There is no allegation that Relators themselves had any knowledge of any violation or any malice or bad faith in connection therewith. Accordingly, because any violations (1) did not harm the government; (2) were immaterial; and (3) do not reflect bad faith on the part of Relators, the appropriate sanction for the violations, if any, was the disqualification of the Scruggs Law Firm. Accordingly, the Court should not dismiss this action.State Farm argues, without citing a single case, that consulting fees paid to Relators by the Scruggs Law Firm somehow require dismissal of this action. According to State Farm, those payments supposedly conflict with the Relators’ right to receive a portion of the government’s eventual recovery in this case. Notably lacking, however, is any logical or precedential support for that argument, which appears to be predicated on wishful thinking rather than any basis in the law.
Nothing in the FCA says, or even suggests, that its compensation provisions were designed for the protection of companies like State Farm that defrauded the government. Moreover, although this Court found that the Scruggs Law Firm committed ethical violations, it also noted that Relators are not subject to, or even aware of, the Rules of Professional Responsibility that govern attorneys. Accordingly, nothing in the FCA would support a dismissal of this action.
As noted in section III.D.3 above, this Court already executed the proper response to the Scruggs Law Firm’s conduct; it disqualified the Scruggs Law Firm. State Farm’s attempt to evade responsibility for its fraud as a result of that conduct should be rejected out of hand.
Finally, the Rigsbys response notes Relators oppose dismissal of the following counts of their Amended Complaints as to the following Defendants:
State Farm
- Count I Submitting false claims
- Count II Making or using false records in support of false claims
- Count III Conspiracy to submit false claims
- Count V Retaliatory discharge
Haag
- Count III Conspiracy to submit false claims
Renfroe & Company
- Count III Conspiracy to submit false claims
- Count V Retaliatory discharge
Accordingly, Relators do not oppose the motions to dismiss Count IV against State Farm, Counts I, II, and IV against Haag, and Counts I, II, and IV against Renfroe.
Four additional Defendants, Exponent Engineering Company, Jade Engineering Company and Gene and Jana Renfroe, filed motions to dismiss the Amended Complaint.
Relators do not oppose those motions, and intend to file voluntary motions to dismiss all of their claims against those four Defendants.
Finally, here’s what I call “the summary” and Rigsby counsel calls “Preliminary Statement”.
The Rigsbys are true whistleblowers whose allegations are based on their eyewitness observations and direct knowledge obtained as insiders at State Farm. Their Amended Complaint is a detailed account of how State Farm defrauded the United States during the aftermath of Hurricane Katrina through a complex scheme that resulted in over-billing the National Flood Insurance Program (“NFIP”).
Nontheless, State Farm argues that Counts I and II of the Amended Complaint should be dismissed because Relators fail to state a claim upon which relief can be granted and fail to plead with adequate particularity that State Farm committed fraud. Under the Federal Rules of Civil Procedure (the “Rules”), however, Relators’ complaint need only contain only a “short and plain statement” of general allegations, which must include the “who, what, when, where, and how” of State Farm’s massive intentional fraud…
Moreover, even though Rule 9(b) does not require Relators to identify any specific false claim that was submitted, the Amended Complaint does in fact contain very specific examples, such as the McIntosh claim, that illustrate exactly how State Farm executed the fraud. State Farm attempts to discredit the false claim examples provided by Relators, but State Farm does nothing more than raise disputed issues of fact that should be resolved by a jury at trial.
Next, State Farm (joined by Haag Engineering) and Renfroe argue that Count III of the Amended Complaint should be dismissed because it fails to state a claim for conspiracy under the FCA. The conspiracy claim should not be dismissed because the underlying elements of the FCA violations are stated with particularity and Relators sufficiently alleged that the Defendants conspired to perpetrate the fraud at issue.
Renfroe also argues that Count V of the Amended Complaint should be dismissed against Renfroe because Relators have not sufficiently stated a claim for retaliatory discharge under the FCA.1 Renfroe’s argument fails because (1) Renfroe and State Farm do not contest that Relators engaged in a protected activity; (2) State Farm and Renfroe knew Relators provided information to the government; and (3) State Farm and Renfroe clearly discriminated against Relators when they locked them out of their jobs shortly after the employers discovered that they were engaging in protected activity.
Finally, State Farm offers a number of additional specious arguments in an attempt to dismiss the Amended Complaint in its entirety. First, State Farm argues that violations of the FCA seal provision mandate dismissal. The case law, however, provides that an action should not be dismissed unless, among other things, the government is harmed by a seal violation.
Here, the government was not harmed because before Relators even filed their initial complaint, State Farm knew that it was being investigated and was actively destroying evidence and concealing its fraud. Second, State Farm argues that the Rigbys’ consulting arrangement with their former counsel somehow requires dismissal, but State Farm offers neither a reasoned basis nor logical support for that argument. Third, State Farm argues that the false engineering reports cannot be relied upon to assert a FCA violation because “differences in professional judgment . .. cannot support an FCA claim.”
In addition to misstating the law, State Farm misstates the facts. Indeed, the engineers at issue did not exercise professional judgment, but rather obeyed State Farm’s direct orders to attribute the property damage at issue to flood rather than wind.
Accordingly, the Motions to Dismiss filed by State Farm, Renfroe and Haag should be denied except to the extent that Relators have consented to the dismissal of certain claims, as set forth above. Even if the Court grants any portion of the Defendants’ motions, which it should not, any dismissals should be without prejudice.
I’ve read every word in the Response; and, although it may look otherwise, there is much of substance that I simply could not include. Please read in full yourself and form your own opinion.