Breaking News – Judge Senter denies State Farm Motion to Dismiss Rigsby qui tam!

It is abundantly clear that Richard Scruggs and the SKG used formidable public relations resources, including use of The Rendon Group, in an effort to control the public perception of the issue at the heart of this qui tam action, i.e. whether State Farm deliberately mischaracterized wind damage as flood damage in assessing claims under the insurance policies it was adjusting. As far as the wind damage claims are concerned, these attorneys were acting well within their rights as advocates for their clients who had homeowners policy claims. These attorneys were not free to disclose the existence of this qui tam action, and had their improper disclosures (Items 3,7, and 12 above) led to accounts in the public media indicating that such an action was underway, the government’s ability to investigate the Relators’ allegations might well have been compromised. But that is not the case disclosed in the record before me.

State Farm’s Motion to Dismiss the Rigsbys’ qui tam case (for violations of the seal order) was among those motions argued at the recent Status Conference. Today’s uncharacteristically long Memorandum Opinion on Judge Senter’s denial – the 14 page Scribd document at the end of this post – is the first Judge Senter has issued on those motions. One of the more surprising aspects of his decision is his consideration of the partial lifting of the seal that took place on Order of Judge Walker in January 2007:

The first question I must consider is the effect of the partial lifting of the seal on January 1, 2007. At the time Magistrate Judge Walker entered his order partially lifting the seal, this action had been filed and sealed for some seven months. In partially lifting the seal, the Court authorized the Realtors to make disclosures concerning this action to judicial officers presiding in the Alabama litigation. The order partially lifting the seal does not specify that the judicial disclosures themselves be made under seal, and this order could therefore be reasonably interpreted to authorize these judicial disclosures in pleadings and other documents distributed to the litigants and their attorneys in the Alabama litigation. This type of disclosure would effectively make the original seal of the qui tam case moot. In these circumstances, I consider the relevant period of the seal to be from April 26, 2006, (the filing of the original FCA complaint) through January1, 2007 (the partial lifting of the seal).

State Farm identified a total of 48 incidents the Company claimed as violations of the seal order on the Rigsby qui tam complaint. One item alone (#48) required the Court to review a “106-page compilation of e-mails concerning media contacts”. Judge Senter’s Memorandum Opinion lists all, starting on page 1 and continuing until page 8, concluding with, “State Farm contends that the disclosures reflected in these documents constitute such egregious violations of the FCA’s seal requirement, 31 U.S.C. §3730(b)(2), that dismissal of this action is justified. Judge Senter, obviously, thought not:

Some of the public statements made by the Relators and their attorneys were widely broadcast through the new media, perhaps the best example being a segment of the ABC news magazine “20/20″ that aired on August 25, 2006. The segment was entitled “Blowing in the Wind.” The transcript of this segment (Item 5 above) contains excerpts from interviews with both Relators, and in these interviews the Relators discuss their contention that State Farm undertook to unfairly characterize wind damage as water damage and thereby avoid paying policyholders’ legitimate claims. But neither this program nor most of the other interviews and statements submitted by State Farm in support of this motion specifically discuss or disclose the existence of this FCA suit. (emphasis added)

State Farm has identified three instances when the attorneys then representing the Relators disclosed the existence of this FCA action and the underlying fact the Relators alleged in support of this action. These three instances all occurred during the time before the partial lifting of the seal. These are the disclosures of the document entitled “Relators Evidentiary Disclosures Pursuant to 31 U.S.C. §3130″ on August 7, 2006, (Item 3 above); on August 14, 2006, (Item 7 above); and on September 18, 2006, (Item 12 above).

The Congressional Record entry (Item 20 above) reflects an allegation made by United States Congressman Gene Taylor that State Farm “stole from the taxpayers” by improperly mischaracterizing wind damage as flood damage. This Congressional Record entry specifically refers to the FCA. But Congressman Taylor’s statement does not make specific reference to this FCA action, and I find no evidence in the record that Congressman Taylor reached his conclusions based on information he received from the Relators. (emphasis added)

The February 15, 2007, letter from Richard Scruggs to Senator Lott and Congressman Taylor (item 28 above) does refer to this qui tam action, and Congressman Taylor’s February 28, 2007, statement (item 21 above) could reasonably be inferred to have been based, at least in part, on information supplied in this letter. But both the letter and the statement occurred several weeks after the partial lifting of the seal. The other disclosures that indicate that a qui tam action had been filed, the disclosure of a copy of the Relators’ amended complaint on June 6, 2007 (Item 15 above) and on May 22, 2007 (Item 43 above), also occurred after the seal had been partially lifted on January 1, 2007…

I find no evidence that the early disclosures the Relators’ attorneys made to media outlets (Items 3, 7, and 12 above) led to a public disclosure in the news media that this action had been filed. Without such a public disclosure, these violations of the seal could not have impaired the government’s ability to investigate the Relators’ allegations. There would have been nothing to “tip off” State Farm that a government investigation was underway. Thus, despite the violation of the seal order by the Relator’s attorneys (Items 3, 7, and 12 above) before the seal was partially lifted on January 1, 2007, I see no evidence in the record that would support a finding that these disclosures hampered the government’s investigation or otherwise compromised the government’s ability to make its investigation…

It is also apparent to me that the Relators’ role in making these disclosures was not an active one. While a party is responsible for the actions taken by his attorney, there is nothing in the record to suggest that the disclosures in question (Items 3, 7, and 12 above) were authorized by or made at the suggestion of the Relators. Absent some
evidence that would support the inference that the Relators approved, authorized, or initiated these disclosures (Items 3, 7, and 12 above) I find no basis to conclude that
the Relators have acted willfully or in bad faith.

Two motions remain undecided.  One is State Farm’s motion seeking to disqualify Cori Rigsby as an “original source”.  The other is the Rigsbys’ motion for reconsideration that would expand the trial beyond the McIntosh claim.

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2 thoughts on “Breaking News – Judge Senter denies State Farm Motion to Dismiss Rigsby qui tam!”

  1. So the Rendon group fishing expedition by Team State Farm, highly touted on the GOP blog Yallpolitics, has gone down in flames.

    There is clear and convincing evidence in these proceedings to expand the scope of the proceedings. Cases that made the media like Mullins provides the roadmap.

    sop

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