Case: 14-60160 Document: 00513113882 Page: 1 Date Filed: 07/13/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 14-60160 July 13, 2015
Lyle W. Cayce
Clerk
United States of America, ex rel, CORI RIGSBY; KERRI RIGSBY,
Plaintiffs-Appellants - Cross-Appellees
v.
STATE FARM FIRE & CASUALTY COMPANY,
Defendant-Appellee - Cross-Appellant
Appeals from the United States District Court
for the Southern District of Mississippi
Before STEWART, Chief Judge, and SOUTHWICK and COSTA, Circuit
Judges.
CARL E. STEWART, Chief Judge:
In April 2006, Plaintiffs Cori and Kerri Rigsby (hereinafter, “the
Rigsbys” or “relators”) brought this qui tam action under the False Claims Act,
31 U.S.C. § 3729 et seq. (“FCA”), claiming that State Farm Fire and Casualty
Company (“State Farm”) submitted false claims to the United States
government for payment on flood policies arising out of damage caused by
Hurricane Katrina. 1 At trial, the Rigsbys prevailed on a single bellwether false
The FCA allows private parties, referred to as “relators,” to bring a suit (called a “qui
1
tam” suit) on behalf of the United States against anyone who has submitted false or
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claim under the FCA. The district court subsequently denied their request to
conduct further discovery, and denied State Farm’s motions for a new trial and
judgment notwithstanding the verdict. Both parties appealed. The Rigsbys
primarily challenge the district court’s discovery ruling and State Farm
principally challenges the jury verdict. We REVERSE in part and AFFIRM in
part.
I. BACKGROUND
After Katrina, Gulf Coast residents whose homes were damaged or
destroyed looked to their insurance companies for compensation. Many of these
homeowners were covered by at least two policies, often provided by the same
insurance company: a flood policy excluding wind damage, and a wind policy
excluding flood damage. A private insurance company would frequently
administer both policies, but wind policy claims were paid out of the company’s
own pocket while flood policy claims were paid with government funds. This
arrangement generates the conflict of interest that drives this case: the private
insurer has an incentive to classify hurricane damage as flood-related to limit
its economic exposure.
We relate the pertinent facts in the light most favorable to the Rigsbys,
as the jury rendered a verdict in their favor. See Wharf (Holdings) Ltd. v.
United Int’l Holdings, Inc., 532 U.S. 588, 590 (2001). The Rigsbys 2 were
certified, experienced claims adjusters employed by a State Farm contractor
that provided disaster claims management services and claims
representatives. They claimed that State Farm (other defendants have since
been dismissed or settled) sought to unlawfully shift its responsibility to pay
fraudulent claims to the government. See 31 U.S.C. § 3730(b). A prevailing relator is entitled
to a percentage of the recovery. See id. § 3730(d).
2 Whenever used in the singular, “Rigsby” signifies Kerri Rigsby. The Rigsbys are
sisters.
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wind damage claims on homeowner’s insurance policies to the government,
through the National Flood Insurance Program (“NFIP”), by classifying
damage to properties covered by both a homeowner’s policy and a flood policy
as flood damage instead of wind damage.
The NFIP, administered by the Federal Emergency Management Agency
(“FEMA”), provides flood insurance coverage “at or below actuarial rates” in
areas where it “is uneconomical for private insurance companies to provide
flood insurance.” Gowland v. Aetna, 143 F.3d 951, 953 (5th Cir. 1998). In 1983,
FEMA established the “Write Your Own” Program (“WYO”), which allows
participating private property and casualty insurance companies to issue,
under their own names, government-backed flood insurance policies with
limits of up to $250,000 for flood-based building damage and $100,000 for flood
damages to personal property. See Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d
386, 389 (9th Cir. 2000); Nat’l Flood Ins. Program, Summary of Coverage 1
(2012). The policies conformed to FEMA’s Standard Flood Insurance Policy
(“SFIP”), which generally provided coverage for flood damage but excluded
coverage for wind damage. See 44 C.F.R. pt. 61, app. A(1), arts. I, V(D)(8). WYO
insurers take a fee for administering the policy, but when claims are made,
they are paid out of the federal treasury. See Mun. Ass’n of S.C. v. USAA Gen.
Indem. Co., 709 F.3d 276, 280–81 (4th Cir. 2013).
At all relevant times, State Farm was a participating WYO insurer.
State Farm and other WYO insurers often issued, to the same customers,
homeowner’s policies that provided coverage for wind damage, but excluded
coverage for flood damage. To address the inherent incentive to classify
ambiguous damage as flood damage, regulations characterize the WYO
insurer’s relationship to the government as “one of a fiduciary nature.” 44
C.F.R. pt. 62, app. A, art. XV.
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On August 29, 2005, Hurricane Katrina struck the Gulf Coast. Shortly
thereafter, State Farm set up an office in Gulfport, Mississippi, to address
claims involving its policies. Alexis “Lecky” King (“King”) was one of two
primary Gulfport supervisors and a catastrophe coordinator with substantial
experience adjusting claims. According to Rigsby’s trial testimony, a meeting
was convened soon after Katrina during which State Farm trainers, including
King, told its adjusters that “[w]hat you will see is, you will see water damage.
The wind wasn’t that strong. You are not going to see a lot of wind damage. If
you see substantial damage, it will be from water.”
Prior to Katrina, State Farm’s general policy was to conduct line-by-line
and item-by-item estimates of home damages using a program called
Xactimate. In the wake of Katrina, and because of the immense number of
claims, FEMA authorized WYO insurers—through FEMA directive W5054—
to use an expedited procedure to pay two particular types of claims: 1) claims
in which a home “had standing water in [it] for an extended period of time” and
2) claims in which the home was “washed off its foundation by flood water.” All
other claims fell into a third category that required WYO insurers to follow
their “normal claim procedures.” The Rigsbys presented evidence at trial that
State Farm failed to comply with that directive.
After Katrina, State Farm—rather than using Xactimate to generate a
line-by-line printout of flood damages to a home—often used a program called
Xactotal, which estimates the value of a home based on square footage and
construction quality. State Farm told its adjusters that any time damage to a
home appeared to exceed the flood policy’s limits, the adjuster should use
Xactotal. There was also evidence that State Farm officials told adjusters to
“manipulate the totals” in Xactotal to ensure that policy limits were reached.
On September 20, 2005, a few weeks after Katrina, Rigsby and Cody
Perry, another State Farm adjuster, inspected the home of Thomas and
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Pamela McIntosh (“the McIntoshes”) in Biloxi, Mississippi. The McIntoshes
had two insurance policies with State Farm: a SFIP excluding wind damage,
and a homeowner’s policy excluding flood damage. Using Xactotal, and thereby
foregoing a line-by-line estimate, Rigsby and Perry presumed that flooding was
the primary cause of damage to their home. On September 29, 2005, State
Farm supervisor John Conser (“Conser”) approved a maximum payout of
$350,000 ($250,000 for the home, $100,000 for personal property) 3 under the
SFIP. Three days later, State Farm sent checks to the McIntoshes.
State Farm later retained an engineering company, Forensic Analysis
Engineering Corporation (“Forensic”), to analyze the damage. Forensic
engineer Brian Ford (“Ford”) concluded that the damage was primarily caused
by wind. His report (the “Ford Report”) was prepared on October 12, 2005. But
the Rigsbys presented evidence that after State Farm received it, the company
refused to pay Forensic and withheld the Ford Report from the McIntosh NFIP
file. A note on the Ford Report from King read: “Put in Wind [homeowner’s
policy] file – DO NOT Pay Bill DO NOT discuss.” State Farm commissioned a
second report, written by another Forensic employee, John Kelly (the “Kelly
Report”). The Kelly Report determined that while there had been wind
damage, water was the primary cause of damage to the McIntosh home. There
was evidence that King pressured Forensic to issue reports finding flood
damage at the risk of losing contracts with State Farm. Ford was subsequently
fired. These events led the Rigsbys to believe State Farm was wrongfully
seeking to maximize its policyholders’ flood claims to minimize wind claims.
The Rigsbys brought suit under the FCA on April 26, 2006. They alleged
violations of 31 U.S.C. § 3729(a)(1), (a)(2), (a)(3), and (a)(7), but only the claims
3 The $100,000 that State Farm paid the McIntoshes for flood-related personal
property damage is not at issue in this litigation.
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under § 3729(a)(1) and § 3729(a)(2)—now codified at § 3729(a)(1)(B)—are at
issue in this appeal. 4 The government declined to intervene on January 31,
2008. The district court focused discovery and the subsequent trial on the
McIntosh claim, rather than permitting the Rigsbys to seek out and attempt
to prove other claims, in order to “protect the interests of both parties.” The
district court stated that it sought to “strike a balance between the Relators’
interest in identifying . . . other allegedly false claims and the defendants’
interest in preventing a far ranging and expensive discovery process.” The
court then explained that, “[i]n the event the Relators prevail on the merits of
their allegations concerning the McIntosh claim, I will then consider whether
additional discovery and further proceedings are warranted.” After a new
district judge was assigned to this case, the Rigsbys did prevail at trial. They
were aided by expert testimony from Dr. Ralph Sinno that the McIntosh home
had been “wracked” by winds that completely destroyed it before the flood
waters came.
The jury concluded that the McIntosh residence sustained no
compensable flood damage and that the government therefore suffered
damages of $250,000 under the FCA as a result of State Farm’s submission of
false flood claims for payment on the McIntosh property. The jury also found
that State Farm submitted a false record. The district court denied State
Farm’s motions for judgment notwithstanding the verdict and for a new trial.
The Rigsbys moved after trial for additional discovery to seek out other
instances of false claims that were part of the alleged general scheme, but the
4In 2009, while the Rigsbys’ claims were pending, Congress amended the FCA. See
Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 4(a), May 20, 2009, 123
Stat. 1621. Most of these changes were not retroactive as applicable here. Thus, the 1994
version of § 3729(a)(1)—now § 3729(a)(1)(A)—governs the Rigsbys’ false claim count.
However, the 2009 version of § 3729(a)(1)(B), which was formerly § 3729(a)(2), is retroactively
applicable to the Rigsbys’ false record count.
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court denied that motion, concluding that they had failed to plead sufficient
facts about any claims unrelated to the McIntosh claim. The court, however,
awarded the Rigsbys the maximum possible share under the FCA for relators
pursuing claims without the government as a party—30 percent of $758,250
(the court trebled damages on the $250,000 false claim and added a civil
penalty of $8,250), or $227,475. See § 3730(d). The court also awarded the
Rigsbys $2,913,228.69 in attorney’s fees and expenses. Both parties appealed.
These cross-appeals present four issues: 1) whether the Rigsbys are
entitled to further discovery; 2) whether the Rigsbys’ alleged violations of the
FCA’s seal requirement independently warrant dismissal; 3) whether the
district court retained subject matter jurisdiction throughout the litigation;
and 4) whether the jury’s verdict was supported by sufficient evidence. We will
address the applicable standards of review in each section and provide
additional relevant background where necessary.
II. DISCUSSION
A. Rule 9(b) and Further Discovery
The Rigsbys seek further discovery into the same alleged scheme they
argue produced the McIntosh claim. The district court denied this request,
explaining that “[b]eyond the McIntosh claim, Relators’ conclusory allegations
in the Amended Complaint as to the existence of other specific FCA violations
do not satisfy the particularity requirements of [Federal Rule of Civil
Procedure] 9(b), and expanded discovery would lead to an inappropriate fishing
expedition for new claims.”
We review the district court’s decision barring discovery for abuse of
discretion. See Moore v. CITGO Ref. & Chems. Co., 735 F.3d 309, 315 (5th Cir.
2013). “A district court has broad discretion in all discovery matters, and such
discretion will not be disturbed ordinarily unless there are unusual
circumstances showing a clear abuse.” Id. (internal quotation marks and
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citation omitted). Even if we determine that the district court has abused its
discretion, “we will only vacate a court’s judgment if it affected the substantial
rights of the appellant.” Green v. Life Ins. Co. of N. Am., 754 F.3d 324, 329 (5th
Cir. 2014) (citation omitted). Notwithstanding “this stated discretion over
discovery, the lower court is directed to exercise carefully its authority in light
of the intent of the federal litigation process and the federal rules. It must in
discovery ‘adhere to the liberal spirit of the Rules.’” Steven A. Childress &
Martha S. Davis, Federal Standards of Review § 4.11[4] (4th ed. 2010) (quoting
Burns v. Thiokol Chem. Corp., 483 F.2d 300, 305 (5th Cir. 1973)); see also Fed.
R. Civ. P. 26(b)(1) (“Parties may obtain discovery regarding any nonprivileged
matter that is relevant to any party’s claim or defense . . . . For good cause, the
court may order discovery of any matter relevant to the subject matter involved
in the action.”).
What makes this case unique is the manner in which the district court
treated the Rigsbys’ allegations. A limited procedural background is therefore
necessary. In addressing State Farm’s 9(b) motion filed early in this litigation,
the district court recognized that the allegations in the Rigsbys’ amended
complaint went “well beyond the two specific instances of misconduct
specifically identified.” But the district court, “[i]n order to protect the interests
of both parties,” struck a “balance between the Relators’ interest in identifying
these other allegedly false claims and the defendants’ interest in preventing a
far ranging and expensive discovery process that relates only to claims that
are not, for now, specifically identified.” The district court then effectively sent
the McIntosh claim to trial, but not before explaining that, should the Rigsbys
“prevail on the merits of their allegations concerning the McIntosh claim,” it
would “then consider whether additional discovery and further proceedings
[were] warranted.”
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The parties and the district court have framed this dispute as one almost
entirely dependent on the application of Rule 9(b). True, complaints under the
FCA must comply with Rule 9(b), which provides that “[i]n alleging fraud or
mistake, a party must state with particularity the circumstances constituting
fraud or mistake.” 5 But Rule 9(b) is a pleading rule that would almost always
come into play in pre-trial proceedings (as it did in this case). The renewed
application of that rule in the post-trial posture here is highly unusual, if not
sui generis. Indeed, the parties have not directed us to any decision applying
Rule 9(b) to limit discovery after a successful trial on the merits of a “test case”
fraud claim.
We do not believe that Rule 9(b) is the appropriate analytical prism
through which to view the issues presented by this case. First, a court would
generally, in this context, have before it a pending Rule 12(b)(6) motion to
dismiss for failure to state a claim or a motion to dismiss for failure to meet
the requirements of Rule 9(b). See 5A Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1300 (3d ed. 2015) [hereinafter Wright &
Miller]. Neither were before the district court when the decision to terminate
proceedings in this case was made.
Second, even if such a motion had been pending, the posture of this case
has generated substantial confusion about precisely what evidence would be
relevant to a Rule 9(b) determination. The parties dispute the degree to which
the trial proceedings could be taken into account. The district court’s decision
at its core simply appears to rewind the case to the amended complaint, as
though years of proceedings and a two-week trial had not taken place in the
5 “Rule 9(b) supplements but does not supplant Rule 8(a)’s notice pleading,” U.S. ex
rel. Grubbs v. Kanneganti, 565 F.3d 180, 186 (5th Cir. 2009), which requires “enough facts
[taken as true] to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007).
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interim. But that same amended complaint was already the subject of State
Farm’s futile Rule 9(b) motion discussed above. Both of these decisions look to
the adequacy of the same complaint to determine if the case should move
forward. See Frederico v. Home Depot, 507 F.3d 188, 201 (3d Cir. 2007) (“[W]e
do not consider after-the-fact allegations in determining the sufficiency of her
complaint under Rule[] 9(b) . . . .”); Estate of Axelrod v. Flannery, 476 F. Supp.
2d 188, 198 n.1 (D. Conn. 2007) (“Indeed, the impetus for filing a Rule 9(b)
motion to dismiss is to challenge a complaint on its face.”). But the decision
about whether this case should move forward after the trial cannot be based
solely on the way matters stood before trial. Applying Rule 9(b) here presents
a square peg/round hole problem.
Third, the central purposes of Rule 9(b)—“to provide defendant with fair
notice of claim, to safeguard defendant’s reputation, and to protect defendant
against the institution of strike suits,” Shushany v. Allwaste, Inc., 992 F.2d
517, 521 (5th Cir. 1993)—appear inapplicable in this context. State Farm in
this case is all too aware of the nature of the Rigsbys’ allegations. It has
litigated this case for nearly a decade. To the extent that the rule is designed
to safeguard the defendant’s reputation, that purpose is not served here: a jury
already determined that State Farm committed fraud at least with respect to
the McIntosh claim. Finally, there is no indication that this is a strike suit—
one “based on no valid claim.” ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291
F.3d 336, 354 n.84 (5th Cir. 2002) (quoting Black’s Law Dictionary 1448 (7th
ed. 1999)). “In cases of fraud, Rule 9(b) has long played that screening function,
standing as a gatekeeper to discovery, a tool to weed out meritless fraud claims
sooner than later.” U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 185 (5th
Cir. 2009); see also Richard L. Marcus et al., Civil Procedure: A Modern
Approach 187 (6th ed. 2013) (“[O]ne cannot forget that Rule 9(b) is not meant
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to supplant discovery.” (citation omitted)). Here, the Rigsbys’ claims were quite
obviously not entirely “meritless.” 6
Finally, we note that we “have power not only to correct error in the
judgment under review but to make such disposition on the case as justice
requires.” Patterson v. Alabama, 294 U.S. 600, 607 (1935); see also Wiwa v.
Royal Dutch Petroleum Co., 392 F.3d 812, 819 (5th Cir. 2004). Consequently,
we review the decision below not as a dismissal under Rule 9(b), but instead
as a decision limiting discovery after a trial on the merits resulted in a jury
verdict in favor of the plaintiffs on two counts of fraud.
Turning, then, to the rules applicable to requests for discovery, we start
from the background principle that “the scope of discovery is broad and permits
the discovery of ‘any nonprivileged matter that is relevant to any party’s claim
or defense.’” Crosby v. La. Health Serv. & Indem. Co., 647 F.3d 258, 262 (5th
Cir. 2011) (quoting Fed. R. Civ. P. 26(b)(1)). This principle is also to be
understood in light of Rule 1, which directs that the rules “should be construed
and administered to secure the just, speedy, and inexpensive determination of
every action.” Fed. R. Civ. P. 1. We have explained that there “probably is no
provision in the federal rules that is more important than this mandate.”
Trevino v. Celanese Corp., 701 F.2d 397, 405 (5th Cir. 1983) (internal quotation
marks and citation omitted). We also are cognizant that the “FCA is remedial
in nature and thus we construe its provisions broadly to effectuate its purpose.”
6 We hasten to add here that we have recently suggested, in the post-Grubbs FCA
context, that additional discovery might be employed to permit plaintiffs to cure certain
defects in a complaint. See U.S. v. Bollinger Shipyards Inc., 775 F.3d 255, 264 n.29 (5th Cir.
2014). Additionally, at least one other circuit permits discovery on “the entire fraudulent
scheme” where a relator “pleads a complex and far-reaching fraudulent scheme with
particularity, and provides examples of specific false claims submitted to the government
pursuant to that scheme.” U.S. ex rel. Bledsoe v. Cmty. Health Sys. Inc., 501 F.3d 493, 510
(6th Cir. 2007); see also In re Lupron Mktg. & Sales Practices Litig., 295 F. Supp. 2d 148, 171
(D. Mass. 2003) (permitting plaintiffs in fraud action to remedy deficiencies in amended
complaint after completion of discovery).
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Townsend v. Bayer Corp., 774 F.3d 446, 459 (8th Cir. 2014) (citing Tcherepnin
v. Knight, 389 U.S. 332, 336 (1967)).
While it is indeed rare for an appellate court to reverse a denial of a
request for further discovery, it is far from unprecedented. See 8 Wright &
Miller § 2006 (“Reversal is more likely, although still unusual, when the trial
court has erroneously denied or limited discovery.”). And, indeed, we have
reversed in circumstances where a district court inappropriately denied a party
adequate discovery. See, e.g., Brown v. Miss. Valley State Univ., 311 F.3d 328,
333–34 (5th Cir. 2002) (“The district court did not rule on Brown’s request for
discovery but granted summary judgment on the grounds that there was
insufficient evidence of Abraham’s involvement in a conspiracy, precisely the
type of evidence sought by Brown.”); Murphy v. Kellar, 950 F.2d 290, 293 (5th
Cir. 1992) (requiring that district court permit additional discovery where it
may result in identification of unidentified defendants).
The Rigsbys’ allegations and trial evidence—which extend far beyond the
realm of the McIntosh claim—entitle them to at least some additional
discovery. In their final pretrial order, 7 the Rigsbys first describe a State Farm-
planned adjuster meeting they attended shortly after Katrina during which
“State Farm trainers told the adjusters that Hurricane Katrina was a ‘water
storm’ and that all major damage to homes was caused by flooding.” They
explain that State Farm directed its adjusters to pay policy limits under NFIP
policies, and allege that “State Farm, through Alexis King and [State Farm
principal FEMA contact] Juan Guevara, pushed the NFIP to relax its rules and
requirements for adjusting flood claims.” Using the Xactotal shortcut software
7In evaluating the Rigsbys’ allegations, we look to the final pretrial order, rather than
their amended complaint, because the pleadings were amended to conform to that order. See
Rockwell Int’l Corp. v. United States, 549 U.S. 457, 474 (2007); Fed. R. Civ. P. 16(d) & advisory
committee note to 1983 amendment.
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(rather than the Xactimate software, which would have provided a line-by-line,
item-by-item adjustment), the Rigsbys allege that “State Farm adjusted
multitudes of flood claims under NFIP policies in knowing and direct violation
of one of the core NFIP adjusting requirements.” The Rigsbys assert that “[f]or
the first time in adjusting a major hurricane, State Farm ordered engineers [to
examine properties] for virtually all claims that involved flooding.” Finally,
they allege, “King appropriated the McIntosh engineering reports and all of
the other engineering reports coming into the Gulfport office and made sure
that they all conformed with State Farm’s scheme to categorize all losses as
caused by flooding rather than wind.” These allegations touch on matters well
beyond the McIntosh claim.
But our analysis does not cease with those allegations. We cannot blind
ourselves to the verdict in this case and the associated record developed at
trial, at least in this distinctive setting. This case presents something
exceptional that most (if not all) plaintiffs in FCA cases are unable to show
when seeking discovery: a jury’s finding of a false claim and a false record.
Coupled with the allegations in the final pretrial order, this “amounts to more
than probable, nigh likely, circumstantial evidence” that additional false
claims might have been submitted. Grubbs, 565 F.3d at 192. At a minimum,
the trial record supports a high probability that State Farm submitted more
than one false claim.
And the jury’s verdict—though it referenced only the McIntosh claim—
cannot be so easily limited. The jury determined that State Farm “knowingly
present[ed], or cause[d] to be presented,” a false claim and that the insurer
“knowingly ma[de], use[d], or cause[d] to be made or used” a false record
material to a false claim. 31 U.S.C. § 3729(a)(1), (a)(1)(B). State Farm contends
the jury could have made this determination without finding wrongdoing
beyond the McIntosh claim. But that takes too narrow a view of the Rigsbys’
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evidence. Even in closing argument, as he walked the jury through the verdict
form, the Rigsbys’ counsel explained that they should render a verdict for
Relators on the § 3729(a)(1) claim because of “all the scheme type evidence that
we’ve been putting on” and on the § 3729(a)(1)(B) claim because of the Xactotal
form.
With respect to the § 3729(a)(1) claim, the Rigbys presented evidence at
trial that State Farm told its adjusters that the post-Katrina damage they
would see would be flood damage, that they should “hit the limits” on flood
policies, and that they should use Xactotal in these circumstances rather than
FEMA directive W5054’s required line-by-line estimate. These general
allegations, extending beyond the McIntosh claim, were fervently litigated
during the trial.
The verdict on the § 3729(a)(1)(B) claim is perhaps even more suggestive
of additional claims. State Farm did not quarrel with whether the Xactotal
printout had in fact been placed in the McIntosh NFIP file; witnesses testified
to widespread use of Xactotal in adjusting Katrina claims. Its argument was
that the document was not a false record within the meaning of § 3729(a)(1)(B)
because State Farm had generalized permission to deviate from FEMA
directive W5054 if the loss appeared to exceed the coverage limit. The jury’s
verdict necessarily entailed a finding that this was not so.
“In pursuing traditional or test case trials, the judge may conduct a
unitary trial, bifurcate liability and damages, or create other helpful trial
structures.” Manual for Complex Litigation § 22.93 (4th ed. 2015). But a “court
must identify and minimize any risk of unfairness in requiring litigants to
present claims or defenses in a piecemeal fashion.” Id. The district court
appropriately employed its discretion to isolate the McIntosh claim for trial.
But in denying the Rigsbys any additional discovery after a verdict in their
favor, the district court abused its discretion in a manner that affected their
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substantial rights. See Green, 754 F.3d at 329; see also Burns, 483 F.2d at 305
(requiring that administration of discovery remain consistent with “the liberal
spirit of the Rules”). The Rigsbys’ allegations in the final pretrial order and the
verdict on the McIntosh claim provide sufficient justification to permit
additional limited discovery. While the typical case might warrant shutting the
door to more discovery, the Rigsbys have at least edged the door ajar for some
additional, if superintended, discovery.
We emphasize that our decision hinges in large part on the idiosyncratic
nature of this case—seldom will a relator in an FCA case present an already-
rendered jury verdict in her favor while seeking further discovery. We
therefore remand to the district court for further proceedings not inconsistent
with this opinion, but stress that we make no judgments about the actual
existence of other potential false claims or records. 8
B. Seal Violations
Turning to the cross-appeal, State Farm argues that the Rigsbys’
violations of the FCA’s seal requirement independently warrant dismissal. The
FCA requires that a “copy of the complaint and written disclosure of
substantially all material evidence and information the person possesses shall
be served on the government.” 31 U.S.C. § 3730(b)(2). The complaint must be
filed in camera and remain under seal until the court orders it served on the
defendant. Id. Whether a violation of this requirement compels dismissal
presents a statutory interpretation question reviewed de novo. See U.S. ex rel.
Summers v. LHC Grp. Inc., 623 F.3d 287, 291 (6th Cir. 2010). The
requirements of § 3730(b)(2) are procedural, not jurisdictional. See Claire M.
8 We are sympathetic to the district court’s fear of unconstrained discovery. To that
end, a reasonable place to begin would be to allow the Rigsbys access to a list that State Farm
already prepared in response to the district court’s request to review in camera certain
materials in its August 10, 2009, order.
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Sylvia, The False Claims Act: Fraud Against the Government § 11:14 (2d. ed.
2010) [hereinafter Sylvia, Fraud Against the Government] (collecting cases).
Although this is an issue of first impression in this court, three circuits
have addressed the consequences of an FCA seal violation and come to
divergent conclusions. In U.S. ex rel. Lujan v. Hughes Aircraft Co., the plaintiff
filed her FCA suit under seal but subsequently disclosed, to a national
newspaper, the existence of the suit and the nature of her allegations about a
government contractor mischarging for its work on a plane’s radar system. 67
F.3d 242, 243–44 (9th Cir. 1995). Two articles were subsequently published
revealing that the suit had been filed and relaying the substance of the claims.
Id. at 244. The district court dismissed the suit because of the seal violations.
Id. at 243.
The Ninth Circuit reversed. Id. at 243, 247. The court determined that
no provision in the FCA explicitly authorizes dismissal as a sanction for a seal
violation. Id. at 245. The court then looked to the legislative history
surrounding the passage of the 1986 amendments to the FCA that added the
seal provision, and determined that Congress sought to strike a balance
between encouraging private FCA actions and allowing the government an
adequate opportunity to evaluate whether to join the suit. Id. (citing S. Rep.
No. 99-345, at 23–25 (1986)). The Lujan court concluded that the plaintiff had
violated the seal requirement, but remanded with instructions for the district
court to evaluate three factors in determining whether dismissal was
warranted: 1) the harm to the government from the violations; 2) the nature of
the violations; and 3) whether the violations were made willfully or in bad
faith. Id. at 245–47. The Second Circuit adopted a similar analysis in U.S. ex
rel. Pilon v. Martin Marietta Corp., 60 F.3d 995, 997, 999–1000 (2d Cir. 1995).
By contrast, the Sixth Circuit held that any violation of the seal
requirement, no matter how trivial, requires dismissal. See Summers, 623 F.3d
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at 299. The Summers court determined that Congress’s choice of a 60-day seal
period already reflected legislative balancing of the interests identified by the
Lujan court. See id. at 296. The Summers court also feared that a balancing
test would encourage “plaintiffs to comply with the FCA’s under-seal
requirement only to the point the costs of compliance are outweighed by the
risk” of dismissal. Id. at 298.
While cognizant of the justification for and the merits of a per se rule, we
conclude that a seal violation does not automatically mandate dismissal. As
the Lujan court recognized and the government stated as amicus in this case,
nothing in the text of § 3730(b)(2) “explicitly authorizes dismissal as a sanction
for disclosures in violation of the seal requirement.” 67 F.3d at 245. Perhaps
more essentially, though, the 1986 amendments to the FCA were intended to
encourage more, not fewer, private FCA actions. See S. Rep. No. 99-345, at 1–
8, 23–25. Holding that any violation of the seal requirement mandates
dismissal would frustrate that purpose, particularly when the government
suffers minimal or no harm from the violation. We therefore embrace the Lujan
test for addressing violations of § 3730(b)(2) and turn to the relevant facts here.
We review the district court’s application of the Lujan factors, and its election
of a remedy for a seal violation, for abuse of discretion. See Lujan, 67 F.3d at
247 (“Imposition of dismissal as a sanction is reviewed for abuse of
discretion.”); Pilon, 60 F.3d at 1000.
The Rigsbys filed their initial complaint under seal on April 26, 2006,
and served a copy to the government. State Farm alleges that the Rigsbys’ prior
counsel then disclosed the existence of the lawsuit to several news outlets by
emailing copies of the evidentiary disclosures and engineering reports,
sometimes including the case caption. State Farm also alleges that the Rigsbys
themselves sat for interviews that culminated in the publication of multiple
news stories—including one interview that was the subject of a national
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broadcast on ABC’s 20/20 program—and notified a Mississippi congressman of
their FCA action. Most of these events occurred before the seal was partially
lifted on January 10, 2007, to allow the Rigsbys to address related litigation in
Alabama. The seal was fully lifted on August 1, 2007.
First, we limit the scope of our inquiry to the period between the filing of
the complaint and the partial seal lift. Indeed, while neither party appears to
have scrutinized the docket in the related litigation, the existence of this qui
tam litigation was revealed there in another party’s public filings within days
of the partial seal lift. See E.A. Renfroe & Co. v. Cori Rigsby Moran et al., No.
2:06-cv-01752 (N.D. Ala. Jan. 18, 2007), ECF No. 85. This effectively mooted
the original seal. We also confine our analysis to disclosures of the existence of
the suit itself, and do not consider disclosures of the underlying allegations.
See Am. Civil Liberties Union v. Holder, 673 F.3d 245, 254 (4th Cir. 2011)
(“[T]he seal provisions limit the relator only from publicly discussing the filing
of the qui tam complaint. Nothing in the FCA prevents the qui tam relator
from disclosing the existence of the fraud.”).
Having closely reviewed each of the disclosures offered by State Farm
that fall into the aforementioned time period and relate to the existence of the
FCA suit, 9 we first conclude that the Rigsbys violated § 3730(b)(2). They
conceded as much at oral argument. But we agree with the district court’s
determination that none of the disclosures appear to have resulted in the
publication of the existence of this suit before the seal was partially lifted.
Applying the Lujan factors, then, we conclude first that the government was
not likely harmed. If State Farm was not tipped off about the existence of the
suit from the Rigsbys’ disclosures, a fundamental purpose of the seal
9 We assume, without deciding, that: 1) disclosures by the Rigsbys’ prior counsel, who
were later disqualified, can be imputed to them; 2) disclosures to a sitting congressman can
violate § 3730(b)(2); and 3) State Farm has standing to seek dismissal under § 3730(b)(2).
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requirement—allowing the government to determine whether to join the suit
without tipping off a defendant—was not imperiled. See Lujan, 67 F.3d at 245–
46; U.S. ex rel. Le Blanc v. ITT Indus., Inc., 492 F. Supp. 2d 303, 307–08
(S.D.N.Y. 2007); S. Rep. No. 99-345, at 24.
Second, the violations here—unlike those in many other cases that
resulted in dismissal, see e.g., Taitz v. Obama, 707 F. Supp. 2d 1, 4 (D.D.C.
2010); Erickson ex rel. U.S. v. Am. Inst. of Biological Scis., 716 F. Supp. 908,
911–12 (E.D. Va. 1989)—did not involve a complete failure to file under seal or
serve the government, and were therefore considerably less severe. See Lujan,
67 F.3d at 246. We acknowledge that some of the above-mentioned publications
revealed that the Rigsbys turned over material to federal and state
prosecutors. But each reference to those disclosures is in the context of
allegations about State Farm misleading policyholders, not the federal
government. The distinction is significant because the revelation of possible
private or public enforcement to protect policyholders would not alert State
Farm to a pending FCA suit.
With respect to bad faith, the district court determined that “there is
nothing in the record to suggest that the disclosures in question . . . were
authorized by or made at the suggestion of the Relators,” and held that a
finding of bad faith or willfulness was unwarranted. There is no indication that
the Rigsbys themselves communicated the existence of the suit in the relevant
interviews. Were we to impute their former attorneys’ disclosures to them,
however, we would conclude that they acted in bad faith. Even presuming bad
faith, the Lujan factors favor the Rigsbys. Although they violated the seal
requirement, the Rigsbys’ breaches do not merit dismissal.
C. Subject Matter Jurisdiction
State Farm next challenges the district court’s determination that it had
subject matter jurisdiction over this action. Where the underlying allegations
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of a suit have been the subject of a “public disclosure,” a court lacks subject
matter jurisdiction to hear the suit unless the relator is an “original source” of
the information. See 31 U.S.C. § 3730(e)(4). 10 Whether § 3730(e)(4) bars a
complaint is a question of subject matter jurisdiction. See Rockwell Int’l Corp.
v. United States, 549 U.S. 457, 467 (2007). Assuming arguendo that a public
disclosure occurred, as the district court did, we conclude that the district court
properly retained jurisdiction because the Rigsbys are original sources.
A “challenge under the FCA jurisdictional bar is necessarily intertwined
with the merits and is, therefore, properly treated as a motion for summary
judgment.” U.S. ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384
F.3d 168, 173 (5th Cir. 2004) (internal quotation marks and citation omitted).
“Summary judgment will be granted if, viewing the evidence in the light most
favorable to the non-moving party, there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” U.S.
ex rel. Jamison v. McKesson Corp., 649 F.3d 322, 326 (5th Cir. 2011) (citations
omitted).
In relevant part, § 3730(e)(4)(A) reads: “No court shall have jurisdiction
over an action under this section based upon the public disclosure of allegations
or transactions” in a civil hearing or in the news media “unless . . . the person
bringing the action is an original source of the information.” An “original
source” is “an individual who has direct and independent knowledge of the
information on which the allegations are based and has voluntarily provided
the information to the Government before filing an action under this section
which is based on the information.” § 3730(e)(4)(B). “Direct” knowledge is
“derived from the source without interruption or gained by the relator’s own
10 This section was substantively amended in 2010, but the new version does not apply
to cases, like this one, that were already pending at the time of its enactment. See Graham
Cnty. Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 559 U.S. 280, 283 n.1 (2010).
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efforts rather than learned second-hand through the efforts of others.” U.S. ex
rel. Laird v. Lockheed Martin Eng’g & Sci. Servs. Co., 336 F.3d 346, 355 (5th
Cir. 2003) (citation omitted) abrogated on other grounds by Rockwell, 549 U.S.
at 472. Knowledge is “independent” when “it is not derived from the public
disclosure.” Reagan, 384 F.3d at 177 (citations omitted).
In evaluating whether a relator has “direct and independent knowledge,”
we “must look to the factual subtleties of the case before [us] and attempt to
strike a balance between those individuals who, with no details regarding its
whereabouts, simply stumble upon a seemingly lucrative nugget and those
actually involved in the process of unearthing important information about a
false or fraudulent claim.” Laird, 336 F.3d at 356. The relator’s contribution
must “translate into some additional compelling fact, or must demonstrate a
new and undisclosed relationship between disclosed facts, that puts a
government agency ‘on the trail’ of fraud, where that fraud might otherwise go
unnoticed.” Reagan, 384 F.3d at 179 (citations omitted). Significantly here, the
court must retain subject matter jurisdiction at all times throughout the
litigation. “The court can lose jurisdiction over an otherwise sound action if the
relator amends his complaint to remove the basis of the jurisdiction.” See
Jamison, 649 F.3d at 327–28 (citing Rockwell, 549 U.S. at 473–74). Conversely,
the “amendment process cannot be used to create jurisdiction retroactively
where it did not previously exist.” See id. at 328 (internal quotation marks and
citation omitted).
Turning to the facts, two relevant clusters of disclosures occurred before
the Rigsbys filed their initial complaint in April 2006. First, in September
2005, a different set of plaintiffs filed a class action complaint (the “Cox/Comer
Complaint”) against 100 unnamed insurance companies and seven named
ones, including State Farm. That suit alleged that insurers were engaged “in
an effort to save money and pass on the costs of the loss to the federal flood
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insurance program” by misclassifying “storm related activity other than
flooding”—including wind damage—as flood-related. The suit focused on the
Mississippi Coast. In January 2006, the Cox/Comer plaintiffs filed a second
amended complaint, alleging that damages were “caused by the hurricane
winds . . . that preceded the arrival of water by a sufficient amount of time that
the destruction had already occurred prior to the arrival of floodwaters.”
Second, on October 18, 2005, and February 2, 2006, former NFIP
administrator J. Robert Hunter testified before a U.S. Senate committee about,
among other topics, the conflict of interest WYO insurers adjusting Katrina
claims faced in determining whether property damage was caused by wind or
water. Hunter explained that “even though a property may have been washed
away by the storm surge, it was likely first hit by heavy winds, so that by the
time the water wiped out the property, some percentage of the property was
already destroyed by wind and rain.” Hunter called for the Government
Accountability Office to audit the allocations “so that any tendency of the
insurers to diminish their wind losses for their own benefit is stopped quickly.”
He did not name State Farm.
Assuming arguendo that these were public disclosures within the
meaning of § 3730(e)(4)(A), we look first to whether the Rigsbys were original
sources with direct and independent knowledge of the information in their
original complaint. See Jamison, 649 F.3d at 327, 332. Although the
Cox/Comer Complaint and the Hunter testimony did reveal some of the
information coloring the background of this litigation, the Rigsbys’ personal,
first-hand experiences filled in much of the detail, particularly as it related to
the McIntosh claim, and certainly amounted to more than a “seemingly
lucrative nugget” that they “simply stumble[d] upon.” Laird, 336 F.3d at 356.
The Rigsbys allege in their original complaint that: 1) they were told to use the
“shortcut” Xactotal software even on claims that “sustained moderate flood
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damage”; 2) they were told to manipulate the information entered into Xactotal
if the initial analysis did not result in a full payout under the flood policy; and
3) Rigsby discovered the wind-focused Ford Report as well as King’s “DO NOT
Pay Bill DO NOT discuss” note attached to that document and the subsequent
flood-focused Kelly Report. These allegations were sufficient to confer original
source status upon the Rigsbys at the outset of the case.
We next look to whether the Rigsbys’ status as original sources was
divested by the pursuit of a different theory at trial, as State Farm argues.
This is precisely what happened in Rockwell. In that case, a relator brought an
FCA suit against his former employer, a government contractor operating a
nuclear weapons plant, after a toxic waste leak. 549 U.S. at 460–64. His
original complaint alleged the leak was rooted in a process for mixing the waste
that he had predicted during his employment would fail because of a piping
defect. Id. at 461. However, the theory the government developed after it
intervened in the case (and upon which it was successful at trial) was that—
after the relator himself had already left the company—a foreman caused the
leak by using an improper waste mixture. Id. at 461–65. The Court determined
that because the only false claims found by the jury related to the period after
the relator had left the company, and were rooted not in the relator’s predicted
piping failure but instead in a foreman’s improper mixture, he had no direct
and independent knowledge of the defect. Id. at 475–76. The district court
therefore lacked jurisdiction to enter judgment in the relator’s favor. Id. at 479.
But the facts here differ substantially from those in Rockwell. The
Rockwell Court looked to the final pretrial order to evaluate jurisdiction and
observed that it had become unmoored from the original allegations underlying
the complaint. See id. at 474–76. But the final pretrial order in this case is
replete with allegations about which the Rigsbys had direct and independent
knowledge. The Rigsbys allege in the final pretrial order, for example, that: 1)
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State Farm told adjusters to use Xactotal to “hit the limits” of flood policies; 2)
adjuster Cody Perry handed Kerri Rigsby the Ford Report, which contained
King’s note; and 3) the Rigsbys attended an adjuster meeting convened by
State Farm during which the company’s trainers told the adjusters that
Katrina was a “‘water storm’ and that all major damage to homes was caused
by flooding.” These allegations formed the basis of much of the trial and they
do not significantly diverge from the Rigsbys’ original allegations.
State Farm is correct that the Rigsbys relied on Dr. Ralph Sinno’s
“wracking” theory at trial, but wracking is not a “theory of fraud” about which
the Rigsbys could have been whistleblowers. As detailed above, the Rigsbys
alleged that State Farm fraudulently misclassified wind damage as flood
damage through a variety of means. State Farm sought to refute the Rigsbys’
allegations of fraud by arguing that water was in fact the cause of the damage
to the McIntosh home. Dr. Sinno’s wracking theory countered that defense by
explaining how wind actually would have caused the damage first. The
wracking theory was part of the proof by which the Rigsbys convinced the jury
of the predicate fact that wind caused the damage to the McIntosh home. See
Rockwell, 549 U.S. at 475 (“[A] qui tam relator’s misunderstanding of why a
concealed defect occurred would normally be immaterial . . . .”); Sylvia, Fraud
Against the Government § 11:63. In any event, the wracking theory was
consistent with the allegations of fraud the Rigsbys presented in their
complaint and final pretrial order. Indeed, when asked to summarize his
theory of how the McIntosh home was destroyed, Dr. Sinno stated: “I agree
fully with the first conclusion of the first inspector from State Farm,” that is,
Ford.
The Rigsbys are the “paradigmatic . . . whistleblowing insider[s].” U.S.
ex rel. Lam v. Tenet Healthcare Corp., 287 F. App’x 396, 401 (5th Cir. 2008)
(internal quotation marks and citation omitted); see also Sylvia, Fraud Against
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the Government § 11:62; John T. Boese, Civil False Claims and Qui Tam
Actions § 4.02[D][3][a] (4th ed. 2014) (“[K]knowledge acquired and witnessed
during the course of employment or professional work is direct knowledge.”). 11
Their direct knowledge surpasses that presented by other would-be relators in
our original source case law. Compare Jamison, 649 F.3d at 331–32 (holding
that relator who “describe[d] a general scheme of fraud and then list[ed]
arbitrarily a large group of possible perpetrators” was not an original source);
U.S. ex rel. Fried v. West Indep. Sch. Dist., 527 F.3d 439, 440, 443 (5th Cir.
2008) (holding that relator was not an original source where he was a
government-waste opponent who sought to infiltrate a school district to root
out retiring teachers’ alleged social security fraud); Fed. Recovery Servs., Inc.
v. United States, 72 F.3d 447, 448–49, 451–52 (5th Cir. 1995) (holding that
relators who brought suit against a competitor and other defendants were not
original sources). The Rigsbys’ knowledge was also independent because their
contributions put the government “on the trail of fraud” that “might otherwise
[have gone] unnoticed.” Reagan, 384 F.3d at 179. Even the most zealous
government investigator would not likely have been able to pinpoint the
McIntosh claim—which was the basis of the trial—from the Cox/Comer
Complaint and the Hunter testimony. Thus, the Rigsbys are original sources.
It is plausible that § 3730(e)(4) might come into play again as the district
court proceeds with this litigation. See Rockwell, 549 U.S. at 473, 476
(recognizing that subject matter jurisdiction can be questioned at any time and
11 Cori Rigsby’s status as an original source in this case is more tenuous because she
lacked direct and independent knowledge of the specifics of the McIntosh claim. However, we
are satisfied that her contributions to the action permit the court to retain subject matter
jurisdiction over her claims. Like her sister, Cori Rigsby was an experienced adjuster working
for a State Farm contractor. She was instructed by State Farm that Katrina was a “water
storm”; she was told to use Xactotal rather than Xactimate; and she knew about engineers
altering their reports. Cori Rigsby, too, was a “paradigmatic . . . whistleblowing insider.”
Tenet Healthcare Corp., 287 F. App’x at 401 (internal quotation marks and citation omitted).
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with respect to any claim). We emphasize that there has been no finding of a
public disclosure in this case under § 3730(e)(4)(A). However, even if the
district court on remand should find a public disclosure touching on any
possible claims, the Rigsbys would not necessarily be barred from pursuing
those claims if they remain qualified as original sources under § 3730(e)(4)(B).
D. Jury Verdict
State Farm’s cross-appeal in this case lastly aims to unravel the jury’s
verdict in favor of the Rigsbys on the McIntosh claim. The jury found that State
Farm was liable under § 3729(a)(1) (false claim liability) and § 3729(a)(1)(B)
(false record liability), and the district court denied State Farm’s motions for
judgment as a matter of law. We conclude that a reasonable jury could have
rendered these verdicts.
“Although we review denial of a motion for judgment as a matter of law
de novo . . . our standard of review with respect to a jury verdict is especially
deferential.” Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d 867, 874 (5th Cir.
2013) (internal quotation marks and citation omitted). The district court only
errs where “the evidence at trial points so strongly and overwhelmingly in the
movant’s favor that reasonable jurors could not reach a contrary conclusion.”
Omnitech Int’l, Inc. v. Clorox Co., 11 F.3d 1316, 1323 (5th Cir. 1994). While
“the court should review all of the evidence in the record,” it “must draw all
reasonable inferences in favor of the nonmoving party, and it may not make
credibility determinations or weigh the evidence.” Reeves v. Sanderson
Plumbing Prods., Inc., 530 U.S. 133, 150 (2000).
The Rigsbys’ first count is for a violation of § 3729(a)(1), the applicable
version of which premises liability on “knowingly present[ing], or caus[ing] to
be presented, to an officer or employee of the United States Government . . . a
false or fraudulent claim for payment or approval.” § 3729(a)(1). To succeed on
their false record claim, the Rigsbys had to prove that State Farm “knowingly
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ma[de], use[d], or cause[d] to be made or used, a false record or statement
material to a false or fraudulent claim.” § 3729(a)(1)(B).
State Farm argues that no reasonable jury could find: 1) that the
McIntosh claim was false; 2) that State Farm had the requisite guilty
knowledge; or 3) that there was evidence of a false record or statement. State
Farm’s first two challenges affect both counts, while its third affects only the
false record count. We take each challenge in turn.
i. Falsity of the McIntosh Claims
To prove a violation of both § 3729(a)(1) and § 3729(a)(1)(B), the Rigsbys
had to show that the claim presented for payment on the McIntosh’s flood
policy was false. A claim includes “any request or demand, whether under a
contract or otherwise, for money or property.” § 3729(c). 12 And this court has
explained that a claim “for money or property to which a defendant is not
entitled [is] ‘false’ for purposes of the False Claims Act,” and “whether a claim
is valid depends on the contract, regulation, or statute that supposedly
warrants it.” United States v. Southland Mgmt. Corp., 326 F.3d 669, 674–75
(5th Cir. 2003) (en banc). Here, the issue is whether State Farm appropriately
determined that the flood insurance contract—derived word-for-word from a
federal regulation, and containing an exclusion for wind damage—permitted
the full $250,000 payout for flood damage to the McIntosh home.
State Farm primarily contends that evidence of flood damage permeated
the case, and that the Rigsbys failed to adequately support their trial theory
that the home was rendered a total loss by wind before the flood waters arrived.
We conclude a reasonable jury could find that the McIntosh claim was false,
and, more specifically, could have believed that the home was destroyed by
Katrina’s winds before the water arrived.
12 The definition has since been amended, but this language is unchanged.
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At the outset, we disagree with State Farm that the Rigsbys were
required to present expert valuation evidence. We have already held that
evidence of valuation can include—besides expert evidence—adjusters’ reports
and a plaintiff-insured’s deposition testimony. See Bayle v. Allstate Ins. Co.,
615 F.3d 350, 360, 363 (5th Cir. 2010); see also 17A Couch on Insurance
§ 255:52 (3d ed. 2014) (“The question of value, for purposes of estimating the
loss under [a] policy, is more or less one of expert opinion, but witnesses
testifying as to the value of property are not required to be expert or skilled in
the strict sense of the term in order to express an opinion on value.”).
The Rigsbys’ most significant valuation evidence came from Dr. Ralph
Sinno, a professor of structural civil engineering. 13 Dr. Sinno, after personally
inspecting the property, testified that:
[T]he McIntosh house was damaged by the hurricane wind way
before even the water got into the threshold of the house. The
water did not get into the threshold of the house until two hours
after the peak wind. After two hours, after all of the damage has
been done, the water got to the house.
Dr. Sinno testified in detail about how winds “demolished, twisted, and
wracked” the McIntosh home, and he defined wracking as “deform[ing] and
mov[ing] [the structure] horizontally due to horizontal forces.” Dr. Sinno’s
testimony aligned with that of Brian Ford (the Forensic employee who
concluded in a report shortly after the storm that the primary cause of damage
to the McIntosh home was wind), and it was corroborated by additional expert
13 State Farm alleges that the district court abused its discretion by permitting Dr.
Sinno to testify under Daubert v. Merrell Dow Pharm. Inc., 509 U.S. 579 (1993). “District
courts enjoy wide latitude in determining the admissibility of expert testimony, and the
discretion of the trial judge and his or her decision will not be disturbed on appeal unless
manifestly erroneous.” Hodges v. Mack Trucks Inc., 474 F.3d 188, 194 (5th Cir. 2006)
(internal quotation marks and citation omitted). The district court cogently and thoroughly
evaluated Dr. Sinno’s qualifications, expertise, and opinions in ruling on State Farm’s motion
in limine. There was no abuse of discretion in permitting the jury to hear his testimony.
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and witness testimony. While Dr. Sinno is not a valuation expert, as State
Farm forcefully argues and Dr. Sinno himself conceded, his expertise in
structural engineering qualified him to opine on whether the home was
structurally destroyed. See 17A Couch on Insurance § 255:52.
State Farm argues that many witnesses—including some of the Rigsbys’
own—testified that there had been flood damage to the home. That is certainly
true (though much of that damage could have occurred after the wind rendered
the home a total loss, or it could relate to the contents of the home, for which
the McIntoshes were reimbursed an unchallenged $100,000). But, as the
district court correctly recognized, “it is the function of the jury as the
traditional finder of the facts, and not for the Court, to weigh conflicting
evidence and inferences, and determine the credibility of witnesses.” Roman v.
W. Mfg., Inc., 691 F.3d 686, 692 (5th Cir. 2012) (internal quotation marks and
citation omitted). A reasonable jury could have concluded that the house was
a total loss before the flood waters arrived. Certainly the evidence does not
point “so strongly and overwhelmingly in [State Farm’s] favor that reasonable
jurors could not reach a contrary conclusion.” Omnitech, 11 F.3d at 1323. 14
14 The parties dispute whether State Farm’s alleged violation of FEMA directive
W5054 can independently support the jury’s verdict. State Farm contends that compliance
with W5054 was not an express condition or prerequisite for payment of the claim. See U.S.
ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 268 (5th Cir. 2010) (“Not every breach
of a federal contract is an FCA problem. We have thus repeatedly upheld the dismissal of
false-certification claims (implied or express) when a contractor’s compliance with federal
statutes, regulations, or contract provisions was not a ‘condition’ or ‘prerequisite’ for payment
under a contract.”). The Rigsbys contend that this is not a false certification case that would
require concluding that compliance with W5054 was a prerequisite for payment of a claim.
Even were we to agree with State Farm that compliance with W5054 must be a prerequisite
for payment in this context, FEMA regulations emphasize that WYO insurers “shall comply
with written standards, procedures, and guidance issued by FEMA.” 44 C.F.R. pt. 62, app. A,
art. II(G)(1); see also 44 C.F.R. pt. 62, app. A, art. II(A)(2) (“Companies will also be required
to comply with . . . guidance authorized by . . . [FEMA].”). Additionally, directive W5054 itself
states that the “NFIP’s general adjusters will be involved in closely monitoring the
performance and procedures of the WYO carriers utilizing this process,” signifying that
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ii. Scienter
State Farm next argues that the Rigsbys failed to prove the requisite
degree of scienter. Violations of both § 3729(a)(1) and § 3729(a)(1)(B) require
intent, or scienter. A person must have actual knowledge of the truth or falsity
of information, act in deliberate ignorance of the truth or falsity of information,
or act in reckless disregard of the truth or falsity of information. See § 3729(b).
Proof of specific intent is not required, though negligence or gross negligence
is insufficient. See id.; U.S. ex rel. Longhi v. Lithium Power Techs., Inc., 575
F.3d 458, 468 (5th Cir. 2009).
State Farm first argues that that the evidence of knowledge was
insufficient because the three adjusters assigned to the claim—Rigsby, Cody
Perry, and John Conser (the State Farm supervisor and team leader who
ultimately made the decision to pay the McIntosh flood claim on October 2,
2005)—all shared a good faith belief at the time the claim was submitted that
the McIntosh home suffered $250,000 in flood damage. Further, State Farm
argues, there is no indication that anyone besides these individuals knew the
details of the McIntosh claim before it was paid.
But State Farm’s constricted theory of FCA liability would enable
managers at an organization to concoct a fraudulent scheme—leaving it to
their unsuspecting subordinates to carry it out on the ground—without fear of
reprisal. The FCA is not so limited. First, the statute provides for liability
where a defendant knowingly “causes to be presented” a false claim or
knowingly “cause[s]” a false record to be made or used. § 3729(a)(1), (a)(1)(B).
That is, the statute by its plain text permits liability without a direct falsity.
Second, courts have rejected “ignorant certifier” defenses like this one. A
FEMA took compliance seriously. Finally, FEMA officials testified that line-by-line estimates
were in fact a prerequisite to payment under the NFIP.
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textbook example comes from Grand Union Co. v. United States, 696 F.2d 888
(11th Cir. 1983). In that case, cashiers at a grocery store allegedly assisted
customers in defrauding the federal food stamp program, but the head cashier
who actually submitted the false claims knew nothing of the scheme. Id. at
889–90. The court reversed a grant of summary judgment for the defendant
grocery store on an FCA claim, holding that liability could attach to a
corporation under the FCA despite the certifier’s good faith belief in the
validity of the certification. Id. at 891; see also U.S. ex rel. Harrison v.
Westinghouse Savannah River Co., 352 F.3d 908, 920 n.12 (4th Cir. 2003) (“[A]
corporation can be held liable under the FCA even if the certifying employee
was unaware of the wrongful conduct of other employees.”).
State Farm contends, however, that Grand Union and Harrison still
require that at least one State Farm employee have knowledge that a claim is
false. Because there is no indication that the alleged perpetrators of the scheme
knew the details of the McIntosh claim before its submission, 15 State Farm
argues, it cannot be held liable. The Rigsbys counter that they identified
perpetrators of the scheme: Lecky King (the “architect and enforcer”); Juan
Guevara (who confirmed in an email that State Farm knew FEMA directive
W5054 required line-by-line estimates in circumstances like this one); and
15 Lecky King’s alleged manipulation of the McIntosh engineering reports occurred
after the McIntosh claim was paid. The Rigsbys have abandoned their reverse false claim
allegation under § 3729(a)(7), which would sanction recovery for certain actions taken to
“conceal, avoid, or decrease an obligation” to the government. § 3729(a)(7). Consequently,
State Farm cannot be liable in this suit for any failure to reimburse the government for
improperly transmitted funds. However, simply because an action took place after the fraud
does not render it wholly irrelevant in determining whether there was sufficient knowledge,
before the claim or record was submitted, to impose liability under § 3729(a)(1) or
§ 3729(a)(1)(B). Circumstantial evidence is appropriate in determining scienter in an FCA
case, see United States v. Aerodex, Inc., 469 F.2d 1003, 1007–08 (5th Cir. 1972), and the jury
was entitled to use post-payment evidence to evaluate State Farm’s pre-payment knowledge.
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Jody Prince (a State Farm trainer who wrote in an email that State Farm
adjusters should “manipulate the totals” and “write Policy limits”).
In this case, there was evidence that adjusters were effectively told to
presume flood damage instead of wind damage. There was also evidence that
State Farm knowingly violated W5054, concealed evidence of wind damage,
and strong-armed an engineering firm to change its reports. Even if we were
to agree with State Farm that one individual must have knowledge that a
claim is false, the jury could have reasonably believed that King alone, “act[ing]
in reckless disregard of the truth or falsity” of the information, 1) caused a false
claim to be presented for payment, and 2) caused a false record material to a
false claim to be made or used. § 3729(a)(1), (a)(1)(B), (b). State Farm’s
liability—premised on this knowledge—does not make the company
“answerable for anything beyond the natural, ordinary and reasonable
consequences of [its] conduct.” Allison Engine Co. v. U.S. ex rel. Sanders, 553
U.S. 662, 672 (2008) (internal quotation marks and citation omitted).
State Farm’s final allegation with respect to scienter is that the
government’s knowledge and approval of its actions—through FEMA and
NFIP witnesses who testified to a desire to streamline the flood claim process—
precludes a finding of guilty knowledge. Where the government “knows and
approves of the particulars of a claim for payment before that claim is
presented, the presenter cannot be said to have knowingly presented a
fraudulent or false claim.” U.S. ex rel. Laird v. Lockheed Martin Eng’g & Sci.
Servs. Co., 491 F.3d 254, 263 (5th Cir. 2007) (emphasis added) (internal
quotation marks and citation omitted). State Farm nowhere alleges that any
FEMA official had particularized knowledge of the McIntosh claim. There are
only general allegations that FEMA was behind State Farm’s effort to pay flood
claims quickly. But FEMA’s desire to have valid claims paid out quickly does
not translate into a license to pay invalid claims. We conclude that a reasonable
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jury could believe that State Farm had the requisite scienter to support
violations of § 3729(a)(1) and § 3729(a)(1)(B).
iii. False Record or Statement
The second relevant count in this case is for a violation of § 3729(a)(1)(B),
which requires the knowing submission of a “false record or statement material
to a false or fraudulent claim.” The term “material” is defined broadly to mean
“having a natural tendency to influence, or be capable of influencing, the
payment or receipt of money or property.” § 3729(b)(4). The Rigsbys argue that
the Xactotal printout in the McIntosh flood claim file met this standard
because it appeared deceptively to be a line-by-line estimate, when in fact it
only estimated the value of the McIntosh home based on its square footage and
construction quality. State Farm responds that the Xactotal printout cannot
be a false record because it was a true and correct document that was properly
a part of the McIntosh file and was not intended to deceive the government. 16
We agree with the district court that evidence adduced at trial could lead
a reasonable jury to believe that State Farm deliberately or recklessly did not
comply with FEMA directive W5054. To cite just one example, State Farm’s
principal FEMA contact, Juan Guevara, wrote in an email shortly after W5054
was circulated that the directive required a line-by-line estimate for a building
like the McIntosh home. And the Xactotal printout for the McIntosh claim so
closely resembled a line-by-line estimate that former FEMA adjuster Gerald
Waytowich—who testified on behalf of State Farm—confused it for one. The
jury could reasonably have believed that the printout was material, and was
placed in the file to mislead FEMA in violation of § 3729(a)(1)(B).
16 The Rigsbys also argue that the omission of the Ford Report from the NFIP file
triggered liability under § 3729(a)(1)(B). Because we conclude that the submission of the
Xactotal printout supports a violation of § 3729(a)(1)(B), we do not reach this issue.
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III. CONCLUSION
We therefore REVERSE the district court’s decision to deny the Rigsbys
additional discovery, but AFFIRM that court’s decisions with respect to the
seal violations, subject matter jurisdiction, and State Farm’s motion for
judgment as a matter of law. The case is REMANDED for further proceedings
not inconsistent with this opinion.
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