Amicus Curiae Brief — State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 136 S. Ct. 872 (2016) (No. 15-513)

RECORD [aR oS

FLED

AND {

BRIEFS No. 15-513 NOV 20 205

CLE Kr

IN THE

Supreme Court of the United States

STATE FARM FIRE AND CASUALTY COMPANY,

Petitioner,

v.

UNITED STATES OF AMERICA, EX REL.

Cor! RIGSBY & KERRI RIGSBY,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

BRIEF OF WASHINGTON LEGAL FOUNDATION AND

ALLIED EDUCATIONAL FOUNDATION

AS AMICI CURIAE IN SUPPORT OF PETITIONER

Cory L. ANDREWS

Counsel of Record

MARK S. CHENOWETH

WASHINGTON LEGAL

FOUNDATION

2009 Massachusetts Ave., NW

Washington, DC 20036

(202) 588-0302

November 20, 2015 candrews@wif.org

a

QUESTIONS PRESENTED

(i) What standard governs the decision

whether to dismiss a relator’s claim for violation of

the False Claims Act’s (FCA) seal requirement under

31 U.S.C. § 3730(b)(2)?

(ii) Whether and under what standard a

corporation or other organization may be deemed to

have “knowingly” presented a false claim, or used or

made a false record, in violation of § 3729(a) of the

FCA based on the purported collective knowledge or

imputed ill intent of employees other than the

employee who made the decision to present the claim

or record found to be false, where (1) the employee

submitting the claim or record independently made

the decision to present the claim or record in good

faith after reviewing the available information and

(2) there was no causal nexus between the

submission of the false claim or record and the

purported collective knowledge or imputed intent of

those other employees?

ro

Se eee eee ae ee SS ee ee eee ee Oe Ae ee

TABLE OF AUTHORITIES

INTERESTS OF AMICI CURIAE

I.

II.

iii

TABLE OF CONTENTS

REVIEW IS WARRANTED TO CLARIFY THAT

DISMISSAL IS MANDATORY FOR A

RELATOR’S WILLFULL VIOLATION OF THE

A. The Holding Below Is

Inconsistent with the Plain

Language and Statutory

B. The Panel Improperly Ignored

the Extent of Respondents’

Violations of the FCA’s Seal

D

THE COURT SHOULD GRANT REVIEW TO

CORRECT THE £FIFTH’ CIRCUIT'S

UNPRECEDENTED RELAXATION OF THE

iv

The Decision Below Contravenes

The Panel Improperly Relied on

the Alleged “Collective

Knowledge” of a Company's

Employees to Establish Scienter

D 19

This Case Is Part of a Larger

Trend by the Government and

Relators to Pursue a “Collective”

Approach to Corporate Scienter

Vv

TABLE OF AUTHORITIES

Page(s)

CASES

Allison Engine Co. v. United States ex rel. Sanders,

r .... 1

Anderson v. Yungkau,

e 10

Davis u. Mich. Dep't of Treasury,

r ncesiutiecononesoens 11

E. A. Renfroe & Co. u. Cori Rigsby Moran et al.

No. 2:06-cv-10752 (N. D. Ala. Jan. 18, 2007) 14

Graham Cnty. Soil & Water Conservation Dist.

v. United States ex rel. Wilson,

e 1

Hallstrom v. Tillamook Cnty.,

. 11

Leocal v. Ashcroft,

e reremninuiil 23

Link v. Wabash R. Co.,

r 14

Mach Mining, LLC v. EEOC,

e 10

Nat Hockey League v. Metro. Hockey Club, Inc.,

e 11

Page(s)

Pioneer Inv. Services Co. v. Brunswick Associates

I ED vcncenesvcceesecocessceccssssecsenes 14

Powell v. Davis,

415 F.3d 722 (7th Cir. 2005) 14

Rockwell Intl Corp. v. United States,

ee ,.... 1

Smith v. Clark / Smoot / Russell,

796 F. 3d 424 (4th Cir. 2015) 9

Staub v. Proctor Hosp.

ERE eee eee Ne 20

United States ex rel. Conteh v. IKON Office

Solutions, Inc.

27 F. Supp. 3d 80 OD. D. C. 2014)................... 22, 23

United States ex rel. Dyer v. Raytheon Co.,

No. 08-10341-DPW, 2013 WL 5348571

D . 23

United States ex rel. Fox Rx, Inc. u. Omnicare,

Inc., No. 1:11-cv-962-WSD, 2014 WL 2158412

SS Ee 22

United States ex rel. Hagood v. Sonoma Cnty.

Water Agency, 929 F.2d 1416 (9th Cir. 1991)..... 16

United States ex rel. Harrison v. Westinghouse

Savannah River Co., 352 F.3d 908

D. e 19, 22

Page(s)

United States ex rel. Lujan u. Hughes Aircraft Co.,

67 F.3d 242 (Oth Cir. 1996) 5, 8

United States ex rel. Maxwell u. Kerr-McGee Oil

& Gas Corp., Nos. 101474, 10-1486, 2011 WL

1108700 (10th Cir. Mar. 11, 2011 22

United States ex rel. Pilon v. Martin Marietta Corp.,

LR 9

United States ex rel. Roby u. Boeing Co.

302 F.3d 637 (6th Cir. 2002) 15

United States ex rel. Siegel v. Thoman,

r : —— 10

United States ex rel. Summers v. LHC Grp., Inc.,

623 F.3d 287 (6th Cir. 2010) H 8,9

United States u. Fadul, No. DKC 11-0385,

2013 WL781614 (D. Md. Feb. 28, 2013)............... 22

United States v. Monsanto,

r 10

United States u. SAIC,

626 F.3d 1257 (D.C. Cir. 2010) 17, 19, 21

United States v. SAIC,

958 F. Supp. 2d 53 OD. D. C. 2013).............0.0000...... 21

United States u. Thompson / Ctr. Arms Co.,

r 23, 24

Page(s)

Urquilla- Diaz u. Kaplan Univ.,

780 F.3d 1039 (11th Cir. 2015) — 17

Vt. Agency of Natural Res. v. United States ex rel.

Stevens, 529 U.S. 765 (2000 15

RULES

rn 1

— 1

STATUTES

— 1 — 23

11 —... 1. 23

J . 18

L. 3. 15

L 3

0 —ð—— 18

e ——————— 15

I — 3

BB CBI, — — 12

9 10, 11

Page(s)

EY ret ae 10

31 UBC. 0 2. 7,9, 10

e 10

OTHER SOURCES

132 CONG. REC. 20,536 (Aug. 11, 1986) (statement

. 16

152 ConG. Rxc. H 6903-02 (Sept. 21, 2006)

(statement of Rep. Taylor)) 13, 14

ABC News 20/20: Blowing in the Wind

(ABC television broadcast, Aug. 25, 2006)

available at https://vimeo.com/40482028 ....... 12. 13

1 JOHN T. BOgSE, CIVIL FALSE CLAIMS AND QUI

TAM ACTIONS (3d ed. 2009-2 Supp.) ...................... 20

Michael Kunzelman, Sisters Blew Whistle on

Katrina Claims, The Associated Press

D 16, 17, 23

INTERESTS OF AMICI CURIAE'

Washington Legal Foundation (WLF) is a

nonprofit, public-interest law firm and policy center

with supporters in all 50 states. WLF devotes a

substantial portion of its resources to promoting free

enterprise, individual rights, a limited and

accountable government, and the rule of law. To that

end, WLF has frequently appeared in this and other

federal courts in cases concerning the appropriate

scope and application of the False Claims Act (FCA),

31 U.S.C. § 3729 et seq. See, e.g., Graham Cnty. Soil

& Water Conservation Dist. v. United States ex rel.

Wilson, 559 U.S. 280 (2010); Allison Engine Co. v.

United States ex rel. Sanders, 128 U.S. 2123 (2008);

Rockwell Intl Corp. u. United States, 549 U.S. 457

(2007).

Allied Educational Foundation (AEF) is a

nonprofit charitable foundation based in Tenafly,

New Jersey. Founded in 1964, AEF is dedicated to

promoting education in diverse areas of study, such

as law and public policy, and has appeared as

amicus curiae in this Court on a number of

occasions.

' Pursuant to Supreme Court Rule 37.6, amici state

that no counsel for a party authored this brief in whole or in

part; and that no person or entity, other than amici and their

counsel, made a monetary contribution intended to fund the

preparation and submission of this brief. Pursuant to Supreme

Court Rule 37.2(a), more than 10 days prior to the due date for

this brief, counsel for WLF notified counsel of record for all

parties of WLF’s intention to file. All parties to this dispute

have consented to the filing of this brief, and letters of consent

have been lodged with the Court.

2

In recent decades, excessive FCA liability has

spawned abusive litigation against businesses, both

large and small, to the detriment of free enterprise,

employees, shareholders, and consumers. Amici fear

that the decision below, by not requiring dismissal of

FCA claims where deliberate qui tam seal violations

occur, further incentivizes such abuses by relators

who seek to damage a defendant’s public reputation

in an effort to improperly pressure the defendant to

settle. Amici are also concerned that the panel's

“collective knowledge” approach to establishing

scienter will, if allowed to stand, make it nearly

impossible for those defendants to defend against

FCA claims, thereby creating the potential for wide-

ranging, expansive liability for claims submitted to

the Government in good faith.

STATEMENT OF THE CASE

The FCA’s qui tam provisions allow private

individuals with knowledge of fraud perpetrated

against the United States Treasury to come forward

and sue on behalf of the United States. To

incentivize qui tam relators to come forward and

expose such fraud, the Government pays a bounty of

up to 30% on all recoveries. In authorizing that

private right of action, the FCA requires that a

relator’s complaint, including a written evidentiary

disclosure, “shall be filed in camera, shall remain

under seal for at least 60 days, and shall not be

served on the defendant until the court so orders.” 31

U.S.C. § 3730(b)(2).

The FCA also imposes a strict scienter

requirement whereby liability is limited to those who

“knowingly” present, or cause to be presented, a false

3

claim, or who “knowingly” make, or cause to be

made, a false statement to get a false claim paid. See

31 U.S.C. § 3729(a)(1)(A) & GG). The FCA defines

“knowingly” to mean that “a person, with respect to

information—{i) has actual knowledge of the

information; (ii) acts in deliberate ignorance of the

truth or falsity of the information; or (iii) acts in

reckless disregard of the truth or falsity of the

information.” 31 U.S.C. § 3729(b)(1)(A).

Petitioner State Farm Fire and Casualty

Company (State Farm) is a leading provider of

property insurance to homeowners throughout the

United States. Respondents Cori and Kerri Rigsby

are former independent claims adjusters who

provided third-party adjustment services to State

Farm’s policy holders in the wake of Hurricane

Katrina in 2005. In April 2006, respondents filed

suit against State Farm under the FCA, alleging

that the company defrauded the federal government

by instructing claims adjusters to mischaracterize

wind damage caused by Hurricane Katrina (and

covered under State Farm’s homeowner policies) as

flood damage (covered by the federal government

under the National Flood Insurance Program). Pet.

App. 113a-114a.

After filing their FCA complaint under seal

with the U.S. District Court for the Southern

District of Mississippi, respondents and their then-

counsel, Dickie Scruggs, repeatedly violated the seal

provision by notifying news organizations and others

about the existence and nature of the qui tam suit.

Before the lifting of the seal, respondents and

Scruggs hired a prominent public relations firm and

disclosed the details of their suit to national media

4

outlets, including ABC, CBS, the Associated Press,

and the New York Times, resulting in nationwide

print and television coverage. Pet. App. 465a-50a. In

September 2006, respondents also provided sealed

information to U.S. Congressman Gene Taylor of

Mississippi, who publicly excoriated State Farm

from the well of the House of Representatives for

violatſingl the False Claims Act by manipulating

damage assessments to bill the federal government

instead of the companies.” Jd. at 49a-50a.

The district court lifted the seal on August 1,

2007. Id. at 62a. The district court denied State

Farm’s motions to dismiss and for judgment as a

matter of law based on respondents’ violations of the

FCA seal requirement. Pet. App. 44a-69a; 72a-77a.

The district court concluded that State Farm had

failed to show that respondents’ “disclosures

hampered the government's investigation or

otherwise compromised the government's ability to

make its investigation.” Jd. at 67a.

Although the operative complaint alleged a

“wholesale scheme to shift wind claims to water

claims,” respondents proceeded to trial based on a

single flood claim for damage to Thomas and Pamela

Melntosh's waterfront home in Biloxi, Mississippi.

Pet. App. 7a. Respondents contended that the

McIntosh claim was false not because there was no

flood damage, but because there was no covered flood

damage as the house was purportedly rendered a

“total loss” by wind before the floodwaters arrived.

At trial, however, State Farm introduced

overwhelming video, photographic, and testimonial

evidence showing that the McIntosh house was

overrun with water from Hurricane Katrina, which

5

produced the largest storm surge ever recorded in

the United States. That evidence revealed extensive

structural damage to the house below the five-foot

flood line, whereas above the flood line, chandeliers

hung undisturbed, windows remained intact, and

items stayed in place in cabinets and on shelves.

It was undisputed at trial that supervisor

John Conser was the only State Farm employee

involved with the payment of the McIntosh flood

claim. State Farm presented unrefuted evidence that

Conser made a reasonable, good-faith decision—

based on the recommendations of two FEMA-

certified claims adjusters (including Kerri Rigsby)

and his own independent review of the claim file and

the available evidence—that the McIntosh house

suffered significant flood damage well in excess of

policy limits. Pet. App. 37a. The jury ultimately

ignored this evidence, finding that the McIntosh

house sustained no flood damage and that State

Farm’s submission of a claim for the $250,000 flood

policy limits was fraudulent. Jd. at 7a. Contending

that respondents had failed to proffer sufficient

evidence that State Farm paid the McIntosh flood

claim with the requisite scienter, State Farm moved

post-verdict for judgment as a matter of law, which

was denied. Id. at 8a.

On appeal, the Fifth Circuit affirmed.

Expressly acknowledging the existence of a circuit

split on the question of the seal violation, the panel

adopted and applied the balancing test articulated

by the Ninth Circuit in United States ex rel. Lujan v.

Hughes Aircraft Co., 67 F.3d 242 (9th Cir. 1995). Pet.

App. 19a-21la. Although conceding that respondents

violated the seal requirement, the Fifth Circuit

6

nonetheless concluded that such violations did not

warrant dismissal of respondents’ FCA suit. Id. at

22a-23a. Even presuming bad faith on the part of the

respondents, the Fifth Circuit concluded that the

Government was not likely harmed and that “a

fundamental purpose of the seal requirement” was

therefore “not imperiled.” Jd. at 22a.

Affirming the jury’s finding of liability, the

Fifth Circuit also held that the FCA’s scienter

requirement was satisfied. Pet. App. 36a-40a. Rather

than require a showing that any State Farm

employee actually knew that the McIntosh flood

claim was false when it was submitted to the

Government, the Fifth Circuit improperly relied on

the post-hoc actions and statements of Lecky King, a

mid-level State Farm employee who took no part in

the flood coverage decision for the McIntosh house.

Id. at 38a. Unable to identify any evidence

suggesting that King or any other State Farm

employee knew (or should have known) that the

McIntosh house was rendered a “total loss” by wind

before any flood damage occurred, the appeals court

nonetheless upheld State Farm’s FCA liability on

the purportedly collective knowledge of various

employees who were said to have engaged in an

alleged scheme to submit false flood claims for

damage that actually resulted from hurricane-force

winds. Id. at 38a-40a. Yet nothing in the panel

opinion or the record even remotely suggests that

Conser—the only State Farm employee to authorize

payment of the McIntosh flood claim—ever took part

in any alleged scheme.

State Farm’s petitions for rehearing and

rehearing en banc were denied. Pet. App. 42a.

7

SUMMARY OF ARGUMENT

Although it is undisputed that respondents in

this case repeatedly and flagrantly violated the

FCA’s seal provision by informing news

organizations and others about the existence and

nature of their qui tam suit, the Fifth Circuit panel

affirmed the district court's refusal to dismiss

respondents’ suit for those egregious violations. That

holding not only exacerbates a widening split among

the federal appeals courts, as the petition makes

clear, but it is also inconsistent with the plain

language and structure of the FCA.

As the Sixth Circuit has rightly held, 31

U.S.C. § 3730(b)(2)’s seal requirement is not merely

a discretionary procedural formality—it is a

mandatory prerequisite to filing and maintaining a

qui tam suit. That understanding flows from

Congress's repeated and unambiguous use of the

word “shall” in F 3730(b)(2)’s seal provision. It also

follows from the fact that Congress enacted the qui

tam seal requirement as part of the private right of

action, thereby making the seal a “mandatory, not

optional condition precedent” to the private right of

action. Accordingly, this Court’s review is warranted

to clarify that a relator’s failure to comply with the

FCA’s seal requirement is a fatal deficiency that

warrants dismissal with prejudice of a qui tam suit.

Review is also warranted because the Fifth

Circuit panel imposed corporate FCA liability in the

absence of any evidence that a single State Farm

employee knew (or had reason to know) the relevant

claim was false when it was submitted to the

Government. Instead, the panel below improperly

8

relied on the post-hoc actions and statements of a

mid-leve] employee who took no part in the coverage

decision for, or the submission of, the claim in

question. In doing so, the appeals court allowed the

respondents to establish scienter on the basis of the

“collective knowledge” and actions of State Farm’s

employees. That novel shortcut to proving FCA

liability lacks any basis in the law. By allowing for

corporate liability (including treble damages and

civil penalties) based on the supposed cumulative

knowledge of a company’s employees, the decision

below constitutes a dramatic relaxation of the FCA’s

scienter requirement warranting this Court’s review.

REASONS FOR GRANTING THE PETITION

I. REVIEW IS WARRANTED TO CLARIFY THAT

DISMISSAL IS MANDATORY FOR A RELATOR’S

WILLFULL VIOLATION OF THE FCA’s SEAL

REQUIREMENT

As the petition ably demonstrates, the Fifth

Circuit’s affirmance of the district court’s refusal to

dismiss respondents’ FCA suit for willfully violating

the FCA’s seal provision exacerbates an

acknowledged split among the circuits regarding the

consequence for relators who willfully violate the

FCA’s seal requirement for qui tam actions.? As a

2 In affirming the district court, the Fifth Circuit panel

adopted the Ninth Circuit's balancing test for determining

when an FCA lawsuit should be dismissed following a seal

violation. See Lujan, 67 F. zd at 246. The Sixth Circuit, on the

other hand, has adopted a bright-line rule requiring dismissal

for any violation of the FCA’s seal provision. See United States

ex rel. Summers v. LHC Grp., Inc., 623 F.3d 287, 296 (6th Cir.

9

result, only this Court's review can provide a single,

national, and uniform rule for remedying FCA seal

violations.

But review is also warranted because the

holding below is contrary to the plain language and

structure of the FCA itself. Congress’s unambiguous

requirement that a qui tam relator's complaint and

evidentiary disclosure “shall” remain under seal

underscores the mandatory nature of the seal as a

precondition for filing and maintaining the suit. And

the fact that Congress enacted the qui tam seal

requirement in the very same subsection of the

statute in which it created the private right of action

reinforces the understanding that a relator's full

compliance with the seal requirement is an absolute

prerequisite for maintaining suit.

A. The Holding Below Is Inconsistent

with the Plain Language and

Statutory Structure of the FCA

The FCA’s qui tam provision requires that a

relator’s complaint, including a written evidentiary

disclosure, “shall be filed in camera” and “shall

remain under seal for at least 60 days.” 31 U.S.C.

§ 3730(b)(2) (emphasis added). Congress’s choice of

words is unmistakable and dispositive. Through its

2010). Meanwhile, the Second and Fourth Circuits have held

that dismissal is required only when a relator’s seal violation

incurably frustrates the statutory purposes of the seal

provision. See United States ex rel. Pilon v. Martin Marietta

Corp., 60 F.3d 995, 999 (2d Cir. 1996); Smith v.

Clark / Smoot / Russell, 796 F.3d 424 (4th Cir. 2015).

_—

10

repeated and unambiguous use of the word “shall,”

Congress enacted § 3730(b)(2)’s seal provision as a

“mandatory, not precatory” requirement. Mach

Mining, LLC v. EEOC, 135 S. Ct. 1645 (2015); see

United States v. Monsanto, 491 U.S. 600, 607 (1989)

(“Congress could not have chosen [a] stronger word

[than ‘shall’] to express its intent that forfeiture be

mandatory.”). The Fifth Circuit therefore is not free

to rewrite the statutory language enacted by

Congress.

By contrast, a specific provision is optional or

conditional where the statute states that the parties

“may” take such action. Indeed, the juxtaposition of

“shall” and “may” in § 3730(b) only reinforces the

ordinary meaning of “shall.” See, e.g., § 3730(b)(1)

(A person may bring a civil action for a violation

„„ ) § 3730()(2) (‘The Government may elect to

intervene ...”); § 3730(b)(3) (“The Government may,

for good cause shown, move the court for extensions

of time during which the complaint remains under

seal ..) (emphases added). As this Court has

recognized, “when the same [statutory provision}

uses both ‘may’ and ‘shall,’ the normal inference is

that each is used in its usual sense—the one being

permissive, the other mandatory.” Anderson v.

Yungkau, 329 U.S. 482, 485 (1947); see United States

ex rel. Siegel v. Thoman, 156 U.S. 353, 359-60 (1895)

(explaining that when Congress uses the “special

contradistinction” of “shall” and “may,” no “liberty

can be taken with the plain words of the —

which indicateſl command in the one and permission

in the other”).

Further, it is “a fundamental canon of

statutory construction ... that the words of a statute

1]

must be read ... with a view to their place in the

overall statutory scheme.” Davis u. Mich. Dep't of

Treasury, 489 U.S. 803, 809 (1989). Here, the

“overall statutory scheme” reinforces what the plain

text makes clear: a relator’s compliance with the seal

requirement is a mandatory prerequisite to suit.

Indeed, Congress inserted both the grant of a private

right of action and the seal requirement into

§ 3730(b), entitled “Actions by private persons.”

As this Court has held, when Congress enacts

a procedural requirement at the same time it creates

a private right of action, it is a “mandatory, not

optional condition precedent” to the private right of

action. Hallstrom v. Tillamook Cnty., 493 U.S. 20, 26

(1989) (holding that because the Resource

Conservation and Recovery Act’s 60-day notice was

“expressly incorporated by reference” into the

statute’s rights of action, “it acts as a specific

limitation on a citizen’s right to bring suit”).

Accordingly, mandatory dismissal is the only

remedy for qui tam seal violations that is faithful to

the statute’s plain language and overall structure.

Here, as in other areas of the law, “the most severe

in the spectrum of sanctions provided by statute or

rule must be available ... not merely to penalize

those whose conduct may be deemed to warrant such

a sanction, but to deter those who might be tempted

to such conduct in the absence of such detriment.”

Nat I Hockey League v. Metro. Hockey Club, Inc., 427

U.S. 639, 643 (1976).

12

B. The Panel Improperly Ignored the

Extent of Respondents’ Violations

of the FCA’s Seal Provision

In affirming the district court’s decision not to

dismiss respondents as qui tam relators for violating

the FCA seal provision, the panel below concluded

that “there is no indication that the Rigsbys

themselves communicated the existence of the suit

in the relevant interviews” and that any resulting

leaks were “in the context of allegations about State

Farm misleading policyholders, not the federal

government.” Pet. App. 23a. The appeals court is

wrong on both counts.

After their counsel, Dickie Scruggs, e-mailed a

copy of the FCA complaint’s sealed evidentiary

disclosure’ to ABC News for use as background,

respondents agreed to be interviewed on camera for

“Blowing in the Wind,” a 20/20 investigative report

that aired on August 25, 2006. Along with Scruggs,

respondents “spoke publicly for the very first time”

by levelling on-air allegations against State Farm

virtually identical to those contained in the sealed

FCA complaint and evidentiary disclosure. Among

other things, viewers learned that “Dickie Scruggs,

the lawyer who took on the big tobacco companies, is

now taking on State Farm. And the Rigsby sisters’

allegations are a big part of his lawsuit.” See ABC

3 The sealed evidentiary disclosure Scruggs provided to

news outlets expressly stated that it was made pursuant to 31

U.S.C. § 3730 and alleged that State Farm was “engaging in

wholesale fraud both on policy holders and on the federal

government’ in “[t}his False Claims Act case” (emphasis added).

13

News 20/20: Blowing in the Wind (ABC television

broadcast, Aug. 25, 2006) available at https://vimeo.

com/40482028.

Scruggs also e-mailed a copy of the sealed

evidentiary disclosure to the Associated Press (AP).

Respondents later invited an AP correspondent to

their home to conduct an on-the-record interview. On

August 26, 2006, the AP published an article entitled

“Sisters Blew Whistle on Katrina Claims,” which

contained quotations from both Cori and Kerri

Rigsby (but none from Scruggs) alleging misconduct

on the part of State Farm identical to that alleged in

the sealed evidentiary disclosure. The article stated

that “the first of Scruggs’ cases against State Farm

is scheduled to be tried early next year” and that

“the Rigsbys’ cooperation has been invaluuble in

building [that] case.” Michael Kunzelman, Sisters

Blew Whistle on Katrina Claims, The Associated

Press (Aug. 26, 2006).

On September 16, 2006, respondents met with

Congressman Gene Taylor. Only five days later, in

remarks published in the Congressional Record,

Congressman Taylor recalled his meeting with

respondents and announced—on the floor of the

House of Representatives—that State Farm had not

only misled policy holders, but had “stole[n] from the

taxpayers” because flood insurance is paid through

you, the taxpayers.” 152 Cod. REC. H6903-02 (Sept.

21, 2006) (statement of Rep. Taylor). Accusing State

Farm of commitlingl fraud against the United

States Government,” Congressman Taylor explained

that State Farm’s conduct in attributing wind

damage to flood waters “broke the law, because

under the False Claims Act, when you ask your

14

Nation to pay a bill that it should not pay, you are

liable for triple damages and a $10,000-per-incident

fine.” Ibid.*

Even if respondents had no personal

involvement in violating the seal—and they clearly

did—the actions of respondents’ attorney are

imputed to them. See, e.g., Pioneer Inv. Services Co.

v. Brunswick Associates Lid., 507 U.S. 380, 397

(1993) (“Petitioner voluntarily chose this attorney as

his representative in the action and he cannot now

avoid the consequences of the acts ... of this freely

selected agent.”) (citing Link v. Wabash R. Co., 370

U.S. 626, 633-34 (1962)); Powell v. Davis, 415 F.3d

722, 727 (7th Cir. 2005) (“[A]ttorney misconduct,

whether labeled negligent, grossly negligent, or

willful, is attributable to the client.”). As this Court

has consistently recognized, “any other notion would

be wholly inconsistent with our system of

representative litigation, in which each party is

deemed bound by the acts of his lawyer agent.”

Pioneer Inv. Services, 507 U.S. at 397 (citing Link,

370 U.S. at 633-34).

Contrary to the Fifth Circuit’s opinion below,

respondents’ seal violations patently were not

limited to “the context of allegations about State

Farm misleading policyholders, not the federal

government.” Pet. App. 23a. As Congressman

Taylor's comments make clear, respondents revealed

Each of these seal violations occurred before January

18, 2007, the date the panel held that the original seal was

“effectively mooted” by a public filing in E.A. Renfroe & Co. v.

Cori Rigsby Moran et al., No. 2:06-cv-10752 (N. D. Ala. Jan. 18,

2007).

15

that they were alleging fraud “against the United

States Government.” These uncontroverted facts

underscore the egregious nature of the seal

violations committed in this case, which cry out for

this Court’s plenary review.

II. THe Court SHOULD GRANT REVIEW TO

CORRECT THE FIFTH CIRCUIT'S

UNPRECEDENTED RELAXATION OF THE FCA’S

SCIENTER REQUIREMENT

A. The Decision Below Contravenes

the Plain Language and Clear

Purpose of the FCA

“(T]he motivating purpose of the FCA is to

combat and to deter fraud.” United States ex rel.

Roby v. Boeing Co., 302 F.3d 637, 645 (6th Cir.

2002). In enacting the FCA as an “essentially

punitive” statute, Vi. Agency of Natural Res. v.

United States ex rel. Stevens, 529 U.S. 765, 784-85

(2000), Congress deliberately chose not to impose

strict liability on these who file (or cause to be filed)

false claims for payment with the Government.

Rather, the FCA limits liability to only those who act

“knowingly.” 31 U.S.C. § 3729(a)(1)(A). Under the

FCA, a person acts knowingly “with respect to

information” when he (1) has “actual knowledge of

the information,” (2) “acts in deliberate ignorance of

the truth or falsity of the information,” or (3) “acts in

reckless disregard of the truth or falsity of the

information.” 31 U.S.C. § 3729(b)(1).

As the statute’s plain language demonstrates,

mere inadvertence, mistake, or negligence—even if

sufficient to support a reasonable inference that the

16

claim was false—is insufficient to support a claim for

a knowing violation of the FCA. In adopting the

FCA's scienter requirements, Congress sought to

ensure that “individuals and contractors receiving

public funds have some duty to make a limited

inquiry so as to be reasonably certain they are

entitled to the money they seek.” S. Rep. No. 99-3465,

at 20, 99th Cong. 2nd Sess. (Aug. 11, 1986)

(emphasis added). At the same time, Congress

sought to “assure that mere negligence, mistake, and

inadvertence are not actionable under the False

Claims Act.” 132 CONG. REC. 20,536 (1986)

(statement of Sen. Grassley) (emphasis added); see

United States ex rel. Hagood u. Sonoma Cnty. Water

Agency, 929 F.2d 1416, 1421 (9th Cir. 1991)

(“Innocent mistake is a defense to the criminal

charge or civil complaint. So is mere negligence.”).

Given the record evidence in this case, State

Farm as a matter of law cannot possibly be said to

have acted with the requisite scienter. The jury

heard no evidence that any State Farm employee

knew (or should have known) at the time of the

claim that the McIntosh house was rendered a “total

loss” by wind before any flood damage occurred. To

the contrary, it was undisputed at trial that

supervisor John Conser, the only State Farm

employee involved with the submission of the

McIntosh flood claim, made a reasonable, good-faith

decision—based on the recommendations of two

FEMA-certified claims adjusters (including

respondent Kerri Rigsby) and his own independent,

thorough review of the claim file—that the McIntosh

house suffered significant flood damage. This

included overwhelming video, photographic, and

testimonial evidence showing that the McIntosh

17

house was overrun with water and revealing

extensive structural damage to the house below the

five-foot flood line, but very little (if any) above the

flood line.

The very most that can be said for

respondents’ evidence regarding State Farm’s claim

on the McIntosh house is that the reimbursability of

that claim is a matter over which reasonable people

acting in good faith at the time could disagree.

Under such circumstances, the respondents’ burden

to prove that State Farm “knowingly” filed a false

claim fails as a matter of law. See, e.g., Urquilla-

Diaz v. Kaplan Univ., 780 F.3d 1039, 1058 (11th Cir.

2015) (“[T]he statute makes plain that liability does

not attach to innocent mistakes or simple

negligence.”); United States v. SAIC, 626 F.3d 1257,

1274 (D.C. Cir. 2010) (“Congress clearly had no

intention to turn the FCA, a law designed to punish

and deter fraud, into a vehicle for either punishlingl

honest mistakes or incorrect claims submitted

through mere negligence’ or imposing ‘a burdensome

obligation’ on government contractors rather than a

‘limited duty to inquire.”) (quoting S. Rep. No. 99-

345, at 6, 19 (1986)).

Nonetheless, the Fifth Circuit held that State

Farm could be found liable for knowingly submitting

a false claim even if no State Farm employee had

knowledge of underlying facts rendering the claim

false, and even if no State Farm employee was aware

that a false claim was being submitted. In justifying

that holding, the appeals court speculated that the

jury “could have” concluded that one of State Farm’s

flood team managers, Lecky King, had reason to

believe that the McIntosh flood claim was false. But

18

the record is clear that King had no knowledge of—

much less any involvement in—the McIntosh flood

claim until several days after the McIntosh claim

was paid. Imposing punitive FCA liability under

such circumstances is flatly inconsistent with the

statutory scheme established by Congress under

§ 3729(b).

Moreover, the FCA requires the respondents

to establish a causal nexus between the allegedly

false claim submitted to the government and the

“knowing” or “reckless” intent to defraud. See 31

U.S.C. § 3729(a)(1). Even if King were actſingl in

reckless disregard of the truth” as the panel opinion

hypothesizess, Pet. App. 39a, she had no causal

connection to the submission of the McIntosh flood

claim. To the contrary, every FEMA-certified

adjuster who reviewed the McIntosh flood file,

including relator Kerri Rigsby, testified that the

evidence given to Conser justified State Farm's

payment of the flood claim. As a result, Conser's

independent exercise of his good-faith, professional

judgment precludes any causal nexus between

King’s actions and the submission of the McIntosh

flood claim, thus negating the possibility that State

Farm acted with the requisite scienter.

Without even a minimal showing that at least

one State Farm employee had knowledge of

underlying facts that rendered the McIntosh claim

false at the time it was submitted, the FCA's

requirement that respondents prove that State Farm

“knowingly” submitted a false claim cannot possibly

be satisfied. Simply put, the FCA does not provide

for liability—in the form of treble damages, no less—

for accidental, mistaken, or inadvertent acts or

19

omissions. Yet the use of collective scienter by the

relators in this case would, if allowed to stand,

effectively impose a negligence standard on all

corporate FCA defendants in the Fifth Circuit. Such

an approach to establishing scienter runs contrary to

the FCA’s unmistakable insistence on “knowing”

fraud that goes well beyond mere negligence.

B. The Panel Improperly Relied on

the Alleged “Collective Knowledge”

of a Company's Employees to

Establish Scienter Under the FCA

Relying on the legal fiction of State Farm's

alleged, collective knowledge of a generalized scheme

to falsely attribute wind damage to flood damage,

the panel below imposed FCA liability on State Farm

in the absence of any evidence that a single State

Farm employee actually knew that the claim was

false when it was submitted to the Government.

Despite Congress’s clear desire to hold defendants

liable for only knowing falsity, deliberate ignorance,

or reckless disregard, the Fifth Circuit allowed the

respondents to establish scienter for a corporate

defendant on the lesser basis of the combined

knowledge and actions of its employees.

As the petition in makes clear, the Fifth

Circuit's expansive theory of scienter has been

rejected by every other circuit to have considered the

question. See, e.g., SAIC, 626 F.3d at 1274 (holding

that “collective knowledge” is an “inappropriate basis

for proof of scienter” under the FCA); United States

ex rel. Harrison v. Westinghouse Savannah River

Co., 352 F.3d 908, 918 n.9 (4th Cir. 2003) (declining

to adopt the “collective knowledge’ doctrine,” which

20

would impermissibly “allow a plaintiff to prove

scienter by piecing together scraps of ‘innocent’

knowledge held by various corporate officials, even if

those officials never had contact with each other or

knew what others were doing in connection with a

claim seeking government funds”).

By premising treble-damage liability on the

supposed cumulative knowledge of a company’s

employees, the decision below constitutes a dramatic

relaxation of the FCA’s scienter requirement. As this

Court has noted in another context, “the malicious

mental state of one agent cannot generally be

combined with the harmful action of another to hold

the principal liable for a tort that requires both.”

Staub v. Proctor Hosp., 562 U.S. 411, 418 (2011)

(citing RESTATEMENT (SECOND) AGENCY § 275

(1958)). In sum, “the ‘collective knowledge’ theory ...

is both unsupported and unsupportable.” 1 JOHN T.

BOESE, CIVIL FALSE CLAIMS AND QUI TAM ACTIONS

§ 2.08[B] at 2-248.1 (3d ed. 2009-2 Supp.).

C. This Case Is Part of a Larger Trend

by the Government and Relators to

Pursue a “Collective” Approach to

Corporate Scienter Under the FCA

The petition raises an important, recurring

question of federal law—whether a corporation may

be deemed to have “knowingly” presented a false

claim under the FCA based on the purported

collective knowledge of employees other than the

employee who made the decision to present that

claim. That question is particularly salient in light of

the aggressive stance both the Government and

relators have taken in urging a “collective” approach

21

to corporate scienter under the FCA—even in the

face of two adverse rulings on the question by federal

appeals courts.

Corporate defendants have long fought efforts

by the Government and relators to impute the

purported guilty knowledge of management to the

innocent actions of employees who submit to the

Government what they believe in good faith are true

and correct claims. In many such cases, the plaintiff

seeks to impute the “scienter” of managers to those

employees who actually approve and submit the

claims at issue, even where no nexus exists between

the managers’ purportedly guilty intent and the

company’s submission of claims. The petition thus

offers the Court an excellent opportunity to forestall

further abuses by providing much needed clarity on

the issue.

In SAIC, 626 F.3d at 1274, the D.C. Circuit

squarely held that “collective knowledge” is an

inappropriate basis for proof of scienter” under the

FCA. Nonetheless, on remand to the district court

from that very holding, the Government continued to

press an expansive theory of scienter that “would

allow it to prove that SAIC knowingly submitted

false claims and made false statements by piecing

together ‘innocent’ knowledge.” United States v.

SAIC, 958 F. Supp. 2d 53, 64-65 (D.D.C. 2013)

(rejecting the Government’s contention that, to

establish scienter, it “would not have to show that

the employees ever spoke to each other, were aware

of what each other knew, or recklessly disregarded

the truth or falsity of their claims or statements“).

Similarly, despite the Fourth Circuit's

22

categorical rejection of a collective theory of scienter

in Harrison, 352 F.3d at 918 n.9, the Government

went on to pursue FCA liability in that circuit

against a company providing imaging services

reimbursed by Medicare or Medicaid by relying on

nothing more than the alleged collective knowledge

of the defendant company’s agents. See, e.g., United

States v. Fadul, No. DKC 11-0385, 2013 WL 781614,

at 9 OD. Md. Feb. 28, 2013) (denying the

Government’s summary judgment motion, which

“seeks to pool together the collective knowledge of

[the company’s] employees ... to establish that [the

company] acted with actual knowledge or reckless

disregard”).

In other circuits, as well, the Government has

persisted in arguing that “a factfinder may consider

the collective knowledge of corporate employees in

determining whether the corporation had the

requisite mens rea to violate the [FCA].” Br. of the

United States as Amicus Curiae, United States ex

rel. Maxwell v. Kerr-McGee Oil & Gas Corp., Nos.

101474, 10-1486, 2011 WL 1108700, at *19 (10th Cir.

Mar. 11, 2011); see also United States ex rel. Fox Rx,

Inc. v. Omnicare, Inc., No. 1:11-cv-962-WSD, 2014

WL 2158412, at * (N.D. Ga. May 23, 2014) (granting

summary judgment in defendant's favor because

“even if the record supported that the dispensing

pharmacists had access to, and knowledge of, patient

diagnoses, there is no evidence that any dispensing

pharmacist had knowledge that any prescription was

off-label”).

Nor have relators hesitated to follow the

Government's example. See, e.g., United States ex

rel. Conteh v. IKON Office Solutions, Inc., 27 F.

23

Supp. 3d 80, 89 (D.D.C. 2014) (“Not only does the

complaint fail to identify a single individual

responsible for submitting false claims, it also fails

to identify a single false claim or statement that

IKON submitted to the federal government, a

deficiency that is particularly problematic due to the

lack of other evidence to support the plaintiff/

relator’s claim.”); United States ex rel. Dyer v.

Raytheon Co., No. 08-10341-DPW, 2013 WL

5348571, at *26 (D. Mass. 2013) (granting summary

judgment in [defendant]’s favor because “the

‘collective knowledge’ doctrine does not apply to FCA

claims” and relator “must show that a single

individual, acting on behalf of [defendant] had the

requisite knowledge and approved the false claims”).

The Government's relentless pursuit of

collective scienter in the FCA context is especially

troubling given the implications such a rule would

have in a criminal context.“ This Court has

recognized that statutory language should generally

receive the same interpretation in a criminal

prosecution as it does in a civil context. See, e. g.,

Leocal v. Ashcroft, 543 U.S. 1, 11 n.8 (2004); United

The U.S. Criminal Code uses virtually the same

language to criminalize the same behavior at issue in qui tam

civil actions. Compare 31 U.S.C. § 3728 (‘Any person who

knowingly presents. a false or fraudulent claim is liable

to the United States Government for a civil penalty.”) with 18

U.S.C. § 287 (‘Whoever ... presents... any claim knowing

such claim to be false, fictitious or fraudulent, shall be

imprisoned not more than five years and shall be] subject to a

fine): see also False Claims Amendment Act of 1986, S. Rep.

No. 99-345 at 24-25 (1986) (acknowledging that the facts

supporting a relator’s civil claim will also support a

corresponding criminal charge by the Government).

24

States u. Thompson/Ctr. Arms Co., 504 U.S. 505,

518 n.10 (1992). Consequently, the Fifth Circuit's

“fraudulent scheme” theory of scienter would apply

with equal force in criminal proceedings. Imputing

such an elastic standard of scienter into a criminal

context—where a defendant’s liberty is at stake—

would inevitably result in punishing innocent

mistakes with criminal penalties or even

imprisonment.

CONCLUSION

For the foregoing reasons, amici curiae

Washington Legal Foundation and Allied

Educational Foundation respectfully request that

the Court grant the petition.

Respectfully submitted,

Cory L. ANDREWS

Counsel of Record

MARK S. CHENOWETH

WASHINGTON LEGAL

FOUNDATION

2009 Massachusetts Ave. NW

Washington, D.C. 20036

(202) 599-0302

candrews@wilf.org

November 20, 2015