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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2016

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0627%3A10. Public record. Not legal advice.