U.S. Supreme Court

Lawyer's disclosure of sealed filing didn't require dismissal of whistleblower suit, SCOTUS rules

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Mississippi trial lawyer Richard “Dickie” Scruggs’ disclosure of Hurricane Katrina fraud allegations against State Farm didn’t require dismissal of a whistleblower complaint against the insurer, even though the revelation violated a seal requirement, the U.S. Supreme Court has ruled.

The court ruled against State Farm on Tuesday in a unanimous opinion (PDF) by Justice Anthony M. Kennedy.

Qui tam cases claiming violations of the False Claims Act are required to be filed under seal, but a violation of the requirement does not require automatic dismissal of a qui tam case, the Supreme Court found. “The FCA does not enact so harsh a rule,” Kennedy wrote.

State Farm had also argued a federal trial court had abused its discretion by refusing to dismiss the case. Kennedy disagreed. Generally, such questions “should be left to the sound discretion of the district court,” he wrote.

Scruggs had represented claims adjusters Cori and Kerri Rigsby, who claimed State Farm was improperly attributing home damage sustained from the winds of Hurricane Katrina to flooding, which would be covered by the federal government’s flood insurance. Wind damage would have to be covered by State Farm.

Before the seal was partly lifted in January 2007, Scruggs emailed a sealed evidentiary filing to journalists at ABC, the Associated Press and the New York Times, all of which published stories discussing the fraud allegations. They did not reveal existence of the complaint.

Scruggs later withdrew from the case after he was indicted for trying to bribe a state court judge. Other lawyers affiliated with Scruggs later withdrew based on alleged involvement in improper consulting payments made by Scruggs to the Rigsby sisters. The district court did not punish the sisters because they were not aware of the ethical implications, according to Kennedy’s opinion.

Kennedy said dismissal may be warranted in some cases for seal violations, and other “remedial tools” can be used as sanctions, including monetary penalties and attorney discipline.

Though the trial court decision against dismissal was within its discretion, Kennedy said, it may also have been within the court’s decision to rule the other way “in light of the questionable conduct” of the lawyer. “That possibility, however, need not be considered here,” Kennedy said.

Kennedy noted that State Farm didn’t request any sanction other than dismissal. “Had petitioner sought some lesser sanctions, the district court might have taken a different course,” Kennedy said.

The case is State Farm Fire & Casualty v. United States ex. rel. Rigsby.

Scruggs pleaded guilty in 2008 to conspiring to bribe a judge in a dispute over Hurricane Katrina attorney fees, and pleaded guilty in 2009 in a second judicial bribery case.

Related article:

ABAJournal.com: “Did lawyer’s revelations about State Farm suit require its dismissal? Supreme Court to decide”

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