We blogged in September about State Farm Fire & Cas. Co. v. U.S. ex rel. Rigsby, 136 S. Ct. 2386 (2016), a case that is pending before the United States Supreme Court. On Tuesday, November 1, the Supreme Court heard oral arguments in Rigsby—here is a recap.

Rigsby is premised on allegations that State Farm had violated the False Claims Act in its handling of flood and wind damage policies in the wake of Hurricane Katrina. As we explained in our earlier post, the attorney representing the two relators had disclosed the existence of the lawsuit to journalists “on background” even though the lawsuit was still under seal. State Farm asked the courts below to dismiss the relators as a sanction, though the courts declined to do so. The Fifth Circuit had applied a three-factor analysis based on: 1) the harm to the government from the violations; 2) the nature of the violations; and 3) whether the violations were made willfully or in bad faith.  U.S. ex rel. Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457 (5th Cir. 2015).

By our reckoning, there was no clear winner on Tuesday, with the Court pressing counsel for State Farm, for the relators, and for the government on what the appropriate standard should be for deciding when and whether relators should be dismissed from a qui tam case as a sanction for violating the seal requirement.

State Farm advocated for a mandatory dismissal rule, though it accepted that some de minimis violations would not call for automatic dismissal.

Justice Kagan asked why the Court should not defer to the government’s determination of whether the relators’ violation warranted dismissal.  State Farm argued there was no need to defer to the government in a case like this, focused purely on statutory construction.

State Farm asserted that the seal requirement served the statute’s purpose, and Congress used it to provide the government with three options:  to intervene and conduct the qui tam case; to decline to intervene; or to settle the case with the defendants before the seal is lifted. Waiving the seal requirement would frustrate the statutory scheme because it would prevent potentially lucrative settlements from reaching the public treasury. The incentive to settle diminishes once the existence of the suit becomes public.

If the Court would not adopt a mandatory dismissal rule, State Farm asked that it remand for application of a discretionary standard that would make bad faith the primary factor.  In State Farm’s estimation, the relators’ attorney acted in bad faith and his actions were imputable to the relators themselves.  State Farm also asked that the Court consider the severity of the seal violation from an ex-ante perspective, rather than ex-post, downplaying the importance of whether the government was actually harmed. Justice Kagan pushed back, suggesting that the False Claims Act regards the seriousness of a violation from both perspectives.

The relators argued against a mandatory dismissal requirement, and asked the Court to find that the trial court had not abused its discretion by declining to dismiss the lawsuit as a sanction.

The relators described the “consummate bad faith” contemplated by the statute, which involves tipping off the defendant about the existence of the complaint.  But here, no one tipped off State Farm, and the disclosure to the media was “on background,” meaning journalistic ethics would prevent printing the information explicitly. While bad faith may be an element of the appropriate standard, its nature matters.

Timing also matters, according to the relators.  While the government cannot waive the 60-day seal requirement, it can choose whether to request an extension of the seal period. For seal violations after the initial 60 days, the relators argued, courts should afford weight to the government’s determination of whether dismissal is appropriate.

The United States also argued as amicus curiae. It suggested that the Fifth Circuit’s standard was the right one, which considers bad faith, actual harm to the government ex-post, and the nature and severity of the violation, which bears a direct relationship to the potential harm viewed ex-ante.  The government asked that “substantial weight” attach to the government’s determination of what actual harm it suffered from a seal violation. That harm might stem from a tipped off defendant declining to cooperate, destroying evidence, or otherwise thwarting an investigation.

The government also argued that the trial court could have, in its discretion, used dismissal as a sanction. But on an abuse of discretion standard, it asked the Court not to overturn the trial court’s determination here. The government theorized that appellate courts should defer to the trial court’s discretion where the government may maintain the suit and rely on the relators for key evidence.

The argument transcript is available here.