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State Farm, whistleblowers facing off at U.S. Supreme Court

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  • Posted on: Nov 15 2016

On November 1, 2016, the U.S. Supreme Court heard oral argument on an appeal that State Farm Fire & Casualty Co. brought in a case filed by two whistleblowers back in 2006. (This Blog wrote about the case here.) The whistleblowers, Cori and Kerri Rigsby, brought a lawsuit against State Farm for defrauding the National Flood Insurance program on claims after Hurricane Katrina in 2005. The federal government declined to intervene.

According to the Rigsby’s, State Farm charged policy limits of $250,000 to the federal flood program, but shorted claimants Thomas and Pamela McIntosh. The court ordered State Farm to pay treble damages in the amount of $750,000 for false claims against the government, with 15% set to compensate the whistleblowers.

The Supreme Court granted cert. to consider a single question in the case – whether the attorneys for the Rigsby’s violated the False Claims Act (the “FCA”) by leaking details of the lawsuit to the media while it was still under seal. The FCA is silent about the consequences of breaking the seal.

Why are federal whistleblower cases placed under seal?

Whistleblowers who file a lawsuit under the FCA, also known as a “qui tam” action, are required to file their complaint under seal. This means that the case is not made public and no one may talk about the case, except prosecutors and agents, for at least 60 days — the government often requests additional time, which the courts usually grant upon a showing of “good cause”.  Once the seal is in place, whistleblowers cannot even discuss the fact that they filed a case.  

The purpose of the seal is twofold. Sealing the case provides protection for whistleblowers, who remain anonymous until the seal is lifted. This can be beneficial in instances when the whistleblower is seeking new employment or is concerned about retaliation from his/her current employer, who may be a defendant in the qui tam action. 

Sealing the case also allows prosecutors to investigate the claims without alerting the potential defendants to the case.  Under normal circumstances, lawsuits are matters of public record, so the media (or anyone for that matter) can access the pleadings and potentially wreak havoc on the government’s investigation.

What happens if you violate the seal?

As noted, the FCA does not state what happens if the whistleblower violates the seal. The argument did not add any clarity to this issue. The bulk of the argument, focused on the proper standard to apply when determining if dismissal is required for a violation of the seal requirement. See Ronald Mann, Argument analysis: Justices dubious about mandating dismissal for “seal” violations in False Claims Act cases, SCOTUSblog (Nov. 2, 2016, 6:49 AM). The Court did, however, express skepticism about a mandatory rule requiring dismissal of the action.  As noted by Mann, the justices who did weigh in on the subject indicated that there were myriad violations that would render a mandatory dismissal rule inappropriate.

A decision is expected next year.

Thinking About Filing a Whistleblower Suit?

If you are thinking about filing a whistleblower lawsuit, you need experienced representation. Freiberger Haber LLP regularly provides whistleblower representation in False Claims Act, IRS, SEC and CFTC actions. Contact us or call today at 212-209-1005.

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