Tangling over Branch – a Rigsby qui tam update

In late January, SLABBED reported Double Vision – Rigsbys and State Farm each file Notices citing Branch as “Intervening Authority”. Not content to let the two positions stand, a week later State Farm filed a Motion for Leave to Submit Supplemental Memorandum on three motions – the Rigsbys’ Motion for Reconsideration of Scope of Proceedings, State Farm’s Motion for Summary Judgment, and State Farm’s Motion for Summary Judgment on the Claims of Cori Rigsby.

In light of the significance of the Branch Opinion – a significance acknowledged by both sides to this litigation – State Farm believes it would assist the Court to have a response from State Farm to the matters briefed by the Rigsbys in their Notice.

Judge Senter quickly followed with a text-only Order granting State Farm’s Motion and setting the date for the Rigsbys’ Response.  Time will tell if State Farm’s motion “assisted the court” but it definitely assisted the Rigsbys.

The Rigsbys’ Response is a comparative analysis of their case to deficiencies in Branch as noted by Judge Vance:

State Farm’s continued attempt to rely on Branch as helpful precedent is remarkable. Branch was dismissed because the relator in that case had no direct and independent knowledge of a fraudulent scheme. Rather, the relator based its entire case on a number of exemplar properties where insurers allegedly shifted losses from homeowner policies to flood policies.

From those examples of allegedly overpaid flood claims, the Branch relator asserted that there should be an inference of a fraudulent scheme. The problem was that the relator did not identify a single example of a property for which the same insurer issued both the flood and the wind policies…Judge Vance apparently learned for the first time at the summary judgment stage that there were no examples of a property where one insurer adjusted both the flood claim and the wind claim. Accordingly, since the Branch relator’s only basis for fraud was an inference to be drawn from a number of overpaid flood claims, its entire case evaporated once Judge Vance learned that none of the insurers had any incentive to shift losses on any of the properties at issue.

Moreover, the Branch decision affirmatively helps the Rigsbys’ position because the decision emphasizes that a relator need not allege specific examples of false claims, but rather must have direct and independent knowledge of the fraudulent scheme. Judge Vance explained that “a relator need not be an original source of the actual false claims made by the defendant to the government;” rather, a relator “must be an original source of the core information underlying its complaint . . . at a minimum, that information must include who committed the fraud and the basic mechanisms involved.”

The Rigsbys easily satisfy that standard. They have alleged from the earliest stages of this case that State Farm engaged in a fraudulent scheme. They have direct and independent knowledge of the precise mechanisms that State Farm used to carry out the fraud. Specifically,the Rigsbys have direct and independent knowledge of State Farm:

 Instructing adjusters that because Hurricane Katrina was a “water storm” adjusters should presume that the major damage they witnessed was caused by flooding;

 Instructing adjusters to use Xact Total rather than prepare a line item estimate for any homes whose damage appeared to exceed the policy limits;

 Instructing adjusters to rerun their Xact Total estimates until they “hit the limits” of the flood policy;

 Instructing adjusters to only pay for obvious and discernible wind damage under the homeowners policy and to rely on engineering reports to assess and pay wind damage claims;

 Forcing engineers to change the conclusions in their reports when the conclusions did not support State Farm’s position that wind damage in Hurricane Katrina was relatively minor; and

 Cancelling all pending orders for engineering reports when it became apparent that engineers did not agree with State Farm’s incorrect belief that Hurricane Katrina was a water storm.

Thus, McIntosh is not merely an exemplar case from which the Rigsbys seek to raise an inference of fraud by the fact that State Farm overcharged the government for flood damage. Rather, McIntosh is a quintessential example of a fraudulent adjustment for which each and every aspect of the fraudulent scheme was implemented.

What a “good neighbor”!  State Farm opened the door when the Company claimed:

Contrary to the Rigsbys’ inexplicable reading of Judge Vance’s decision in Branch, this Court’s jurisdiction cannot be predicated on the Rigsbys’ supposed “insider” knowledge of a flood fraud scheme. Because the McIntosh flood claimis the threshold issue in this litigation, the Rigsbys’ motion to expand and restart discovery should be denied…

The Rigsbys countered in the conclusion to their Response:

The Relators did not suspect that State Farm may have defrauded the government, they know that State Farm defrauded the government because they were instructed to adjust flood claims following Hurricane Katrina in a way that shifted losses to the federal government. As to McIntosh, every aspect of this scheme was implemented in the way the McIntosh claim was adjusted. The Relators’ direct and independent knowledge makes State Farm’s scheme the threshold issue in this litigation.

Will Judge Senter let State Farm quote him into a box?

This Court has recognized that “[t]he McIntosh claim is the only instance of State Farm’s having submitted an allegedly false claim of which the Relator Kerri Rigsby has first hand knowledge . . . sufficient to support the Court’s subject matter jurisdiction.” ([343] at 10 (emphasis added).) The Rigsbys cannot retroactively recast themselves as original sources based on anything they could possibly reel in during their sought-after fishing expedition.

I tend to think not – not when the quote is without needed context:

“…none of the documents the Relators are alleged to have misappropriated will be admissible at the trial of the Relators’ claim in this case (unless they are produced in the ordinary course of discovery). (Source: September 24, 2009 Order of Judge L. T. Senter)

and not when it’s obvious that State Farm is the only party fishing at this point – fishing to see what else the Rigsby might have.