motion for protective order - PowerPoint Presentation

Slide1

motion for protective order filed by State Farm in rigsby qui tam

Branch Qui Tam Defendant’s discovery plan filed

In the original Complaint and in the First Amended Complaint, Relators …(“the Rigsbys”) made a variety of allegations of misconduct by numerous firms and individuals; however, discovery is open only on the issue set for trial, “one specific instance of misconduct: the McIntosh claim,” August 10, 2009 Memorandum Opinion i.e., the claim of Thomas C. and Pamela McIntosh for flood damage to their residence at 2558 South Shore Drive, Biloxi, Mississippi that State Farm paid and for which State Farm was reimbursed by the NFIP.

The

Rigsby

complaint identifies a

Single specific

property at which

fraud allegedly occurred

, the

“

McIntosh Claim

.”

Judge

Senter

appropriately

limited

the scope of

discovery

and trial in

Rigsby

to the

McIntosh

Claim

because

the

Supreme Court

held in

Rockwell

that

the

False Claims

Act

“does not

permit

jurisdiction in

Gross just

because

a

relator

is

an original

source with

respect to some

claim

.”

Applying

the rule here as Judge

Senter

did

in

Rigsby

,

this Court

should

limit discovery

and

trial to the properties identified by

address

in the first

amended complaint

.Slide2

Judge Senter Judge vanceSlide3

The False Claims Act, 31 U.S.C. §§ 3729 - 3733 (FCA or the Act), provides that a federal court has no jurisdiction to hear an FCA action brought by a private citizen and based on publicly disclosed information unless the individual bringing the action, the relator, is the original source of the information on which the claim is based

. 31 U.S.C. §3730(e)(4) states: (B) For purposes of this paragraph,“original source” means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided this information to the Government before filing an action under this section which is based upon the information.

“Original Source” Slide4

Judge Senter: “original source”

The “information” referred to in paragraph (B) is the information in the Relators’ amended complaint [16]. Rockwell International Corp. v. United States, 549 U.S. 457, 167 L.Ed.2d 190, 127 S.Ct. 1397 (2007) (

Rockwell). I will assume, without deciding, these statutory provisions are applicable to Kerri Rigsby, the relator who has taken the lead in this action. I take this provisional approach because I am by no means certain this action is “based upon” the allegations made public by the Relators in the wake of Hurricane Katrina. While these public disclosures undoubtedly involved the same basic allegations made in the Amended Complaint, it is the Realtors who made the public disclosures. Thus the public disclosures are based upon the Relators’ allegations and not the other way around.Opinion Order August 10, 2009Slide5

Judge Vance: “Original Source”The Court will not delve into Branch’s many, specificobjections to each of defendants’ proffered documents, some ofwhich focus exclusively on the merits of whether the document isin fact a public disclosure. Nor will it sift individuallythrough more than five hundred pages that defendants have

presented in support of their claim, many of which are notrelevant to the direct question of whether there has been apublic disclosure. See de la O v. Housing Auth. of City of ElPaso, Tex., 417 F.3d 495, 501 (5th Cir. 2005) (“Judges are notlike pigs, hunting for truffles buried in briefs.”) (quotingUnited States v.

Dunkel, 927 F.2d 955, 956 (7th Cir. 1991)).Instead, the Court, cognizant that it is hearing a challenge toits subject matter jurisdiction, will take judicial notice ofdefendants’ exhibits to the extent that particular disclosuresare identified in the body of the Motion to Dismiss, and it willdo so only for the purpose of determining whether there has beena public disclosure, not for the truth of the assertions madewithin the disclosures themselves.Slide6

When analyzing whether a suit is barred under this section,the Court engages in a three-part inquiry. First, it must askwhether there has been a “public disclosure” of the allegationsor transactions. Second, it finds whether the qui tam action is“based upon” the publicly disclosed allegations. Third and

finally, it inquires into whether the relator is an “originalsource” of the information. Fed. Recovery Servs., Inc. v. UnitedStates, 72 F.3d 447, 450 (5th Cir. 1995).Slide7

The cases that discuss similar investigations with similarresults provide support for the determination that Branch is anoriginal source of the information. Furthermore, they refutedefendants’ contention that Branch is not an original sourcebecause it is not an “insider” that worked with or for any of thedefendants. Because these claims were compiled through extensive

examination of Katrina-affected properties, Branch’s actions areakin to those discussed in Cooper v. Blue Cross & Blue Shield ofFlorida. There, the court held that the relator, who was abeneficiary of the defendant Blue Cross & Blue Shield of Florida,Slide8

The Court also rejects defendants’ argument that Branch’sstatements of flood damage are mere opinion and thus notindependent knowledge. Defendants’ argument is nothing more thana self-serving characterization of plaintiff’s allegations. Onceagain, the FCA requires “independent knowledge of the informationon which the allegations are based.” 31 U.S.C. § 3730(e)(4)(B).

Here, the “information” upon which the allegations are based isinformation plaintiff allegedly gathered and gleaned fromobservations of damaged properties.Lastly, defendants claim that Branch has not pleaded factsestablishing that, before filing suit, it voluntarily providedthe information upon which the suit is based to the government,which is required by 31 U.S.C. § 3730(e)(4)(B). In support,Slide9

Defendants’ primary argument is this: the Supreme Court, inRockwell International Corp. v. United States, 549 U.S. 457, 470-71 (2007), abrogated the Fifth Circuit’s “original source”decision in United States ex rel. Laird v. Lockheed Martin Eng’g

& Sci. Servs. Co., 336 F.3d 346, 356 (5th Cir. 2003). Sincethen, the Fifth Circuit has issued only one published opinioninterpreting the original source clause, United States ex rel.Fried v. West Ind. Sch. Dist., 527 F.3d 439 (5th Cir. 2008),which involved a

relator who engaged in an after-the-factinvestigation of fraud. There, the court found that the relatorwas not an original source. Defendants contend that the Court’sOrder “diverges from Fried based on pre-Rockwell, out-of-circuitdecisions,” R. Doc. 237 at 1, and that there is substantialground for difference of opinion as to whether a relator whoinitiates an investigation after an alleged fraud can beconsidered an original source.Slide10

The phrasing of defendants’ contentions suggests that theyare alleging error, which, as noted, is not a proper ground forinterlocutory appeal. To the extent that they are not, theirInitially, although defendants make repeated use of the term

“pre-Rockwell,” they point to nothing in Rockwell itself thatmakes it a watershed decision as to the specific issue theyidentify. Rockwell abrogated the Fifth Circuit’s ruling that thephrase “information upon which the allegations are based” in 31U.S.C. § 3130(e)(4)(A) refers to the publicly disclosedinformation, and instead held that it refers to the information

in a relator’s complaint. 549 U.S. at 470-71. The case alsoheld that the phrase “direct and independent knowledge” in 31U.S.C. § 3130(e)(4)(B) does not encompass a failed prediction orsuspicion that something will happen. 549 U.S. at 475-76. ThisCourt’s decision runs afoul of neither of these rulings. IfRockwell indeed unsettled any relevant issue of law in the FifthCircuit, defendants have failed to show how it is presented bythe Court’s Order.Slide11

neither discusses nor applies a legal principle does not “raise aserious question” about whether that principle exists. Ifanything, the Fried court was presented with the opportunity toapply such a principle and instead abided by the Fifth Circuit’sinstructions to conduct fact-specific, case-by-case

determinations.Slide12

Taking the allegations inBranch’s complaint as true, its information did not derive frompublic records or secondhand information. Id. at 35. Rather, it“directly investigated . . . the specific subjects of theallegedly fraudulent claims,” id., and uncovered “a host of

additional compelling facts about the alleged fraud that werenowhere previously available. Id. at 39-40 (quotation marksomitted); see also id. at 32-33.In short, Fried does not stand for or approach the rule oflaw that defendants appear to seek from the court of appeals:

that a relator is categorically barred from original-sourcestatus because he was not involved in the fraudulent activity andhe obtained his information through after-the-fact investigation.Such a rule is not found in the plain language of the statute.Furthermore, in suggesting that there is substantial ground fordifference of opinion on this point, defendants have failed topoint to a single case in which such a rule was applied.Slide13

First, the Fifth Circuit holds that the determination ofwhether a relator is an original source is a highly fact-specificinquiry. It instructs courts to “look at the factual subtletiesof the case before it and attempt to strike a balance betweenthose individuals who, with no details regarding its whereabouts,

simply stumble on a seemingly lucrative nugget and those actuallyinvolved in the process of unearthing important information abouta false or fraudulent claim.” United States ex rel. Lam v. TenetHealthcare Corp., 287 Fed. App’x 396, 400 (5th Cir. 2008)(quoting

Laird, 336 F.3d at 356).Slide14

Second, Fried makes no statement, implied or otherwise, tosuggest that relators who gain knowledge of fraud throughinvestigation are categorically prohibited from being originalsources. Defendants are therefore incorrect to assert that

“Fried raised serious questions about when, if ever, a relator’sindependent investigation of a publicly disclosed allegation ofpotential fraud could yield direct and independent knowledgesufficient to qualify the relator as an original source.” R

.Doc. 237 at 7. In fact, the decision in Fried is based upon “thefactual subtleties of the case before it,” in accordance with howthe Fifth Circuit analyzes original-source determinations. Lam,287 Fed. App’x at 400. It makes no mention of categoricalexemptions for relators who investigate fraud. A case thatSlide15

Judge Senter: “Discovery”…this Court believes that its restriction on the scope of inquiry should be eased

somewhat. To a certain extent, Relators are correct that the flood claim can not be totally separated

from the wind claim on the same insured property, and the Court believes that Defendants should not be in control of limiting the areas of inquiry. Relators should have a full and fair opportunity to examine King, Ford, and Kelly under oath about the investigation and adjustment of the flood claim, the explanation for its payment, or any other associated legitimate areas of inquiry.Order April 20, 2009Slide16

In ruling on defendants’ motion to dismiss, Judge Vance decided that, basedsolely on the allegations in the first amended complaint, Branch is an original source. Discoveryshould proceed, as it did in Rigsby

, to test those allegations to determine whether, in fact, Branchis an original source with direct and independent knowledge of allegations of fraud asserted in itscomplaint, and whether those allegations hold any water with respect to the properties at which itallegedly has direct and independent knowledge of fraud. Defendants believe the evidence willunequivocally demonstrate that Branch is not an original source and there is no fraud as allegedin the first amended complaint.Slide17

Judge Senter: In the event the Relators prevail on the merits of their allegations concerningthe McIntosh claim, I will then consider whether additional discovery and further proceedings arewarranted

.In the meanwhile, so I may know the outer limits of the potential claims involved in thisaction, I will require State Farm to submit, in camera, a list containing the name of the insured,the address of the property, and the amount of flood insurance paid, for all SFIP claims that meetthe

following criteria:A) The insured property did not fall within any of the three categories of stormdamage for which FEMA approved payment of SFIP limits, i.e. insured dwellingsthat were not left as slabs, pilings, or empty shells; andB) For which SFIP limits were paid on the grounds the property was a constructivetotal loss; andC) For which no “stick built” or Exactimate estimation of the flood damage was madebefore the SFIP limits were paid.Slide18
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