In US ex rel Rigsby v. State Farm Fire and Casualty Co., 2015 WL 4231645 (5th Cir. July 13, 2015), the 5th Circuit recently addressed the limits of Rule 9(b), which requires that fraud be pled with particularity, and whether it applied to limit discovery after trial. The Court held that the district court abused its discretion when it refused on the basis of Rule 9(b) to permit relators to pursue "at least some additional discovery" after they had prevailed at trial. Though at first glance the Rigsby decision may appear to be favorable to relators, the case is, in fact, quite favorable to False Claims Act defendants.
I originally wrote about the district court's decision in Rigsby in "Limiting Discovery and Preventing Claim Smuggling in False Claims Act Cases." Relying in part on Rule 9(b) and scope of the relators' knowledge as an "original source," the district court prevented relators from seeking additional discovery and searching for new claims after they had prevailed at trial. Prior to trial, the district court found that although relators had alleged a broad scheme, the relators only had first hand knowledge of a single claim. As a result, the district court only permitted the relators to obtain discovery about and proceed to trial on that single claim. The district court reserved ruling on whether to permit the relators to expand their suit and obtain additional discovery until after the trial of that single claim. Having prevailed at trial and shown that the defendant, State Farm, violated the False Claims Act, relators asked the district court after trial to "initiate expanded discovery" for other potential claims. The district court refused to permit the relators additional discovery in order to expand their claims into areas where they did not have knowledge and when it was unclear whether other claims really existed. The district court noted that satisfying Rule 9(b) with "sufficient detail" and defeating a motion to dismiss permits a relator access to the discovery process, but discovery should be "targeted" only to "the claims alleged, avoiding a search for new claims."
In overturning the district court's decision, the 5th Circuit
- Observed that the district court "focused discovery and the subsequent trial on a [single] claim rather than permitting [relators] to seek out and attempt to prove other claims in order to 'protect the interests of the parties.'" The district court structured discovery and trial in this manner in order to "strike a balance between the relators' interest in identifying . . . other allegedly false claims and the defendant's interest in preventing a far ranging and expensive discovery process." The Court approved of the district court's decision to limit discovery and initially confine the case to what it referred to as a "bellwether false claim" and to leave till after the trial the decision as to "whether additional discovery and further proceedings were warranted."
- Whereas the parties and the district court had framed much of the dispute on whether Rule 9(b) permitted the prevailing relators to conduct post-trial discovery, the Court found that Rule 9(b) was "inapplicable" to the decision "about whether this case should move forward after trial."
- As Rule 9(b) did not apply, the Court found that the district court abused its discretion by refusing to permit "at least some additional" post-trial discovery given that the "scope of discovery is broad" and the relators had both alleged and offered proof at trial of a scheme "far beyond the realm" of the single claim that was tried.
- Yet, though it permitted discovery, the Court stressed that Rigsby"presents something exceptional that most (if not all) plaintiffs in FCA cases are unable to show when seeking discovery: a jury's finding of a false claim and a false record" together with allegations in the "final pretrial order." These two factors, the Court observed, made it "more than probable, nigh likely . . . that additional false claims might have been submitted" and as a result the relators had "at least edged the door ajar for some additional, if superintended, discovery."
- Far from declaring that relators have free rein in discovery to search for FCA claims, the Court "emphasize[d] that our decision hinges in large part on the idiosyncratic nature of this case--seldom will a realtor in an FCA case present an already-rendered jury verdict in her favor while seeking further discovery."
- "[T]he typical case," the Court observed, "might warrant shutting the door to more discovery."
Overall, the lessons of Rigsby are very favorable to the defense. Courts in False Claim Act cases may "balance" the interests of the relator and the defendant in determining the scope of discovery and may limit discovery and trial to bellwether or representative claims. In turn, far from being confined to a motion to dismiss, the only identified limit of Rule 9(b) and its corresponding application to discovery is after a jury verdict in favor of relators. While the relators may have "edged the door ajar" for some limited post-trial discovery for new claims, the Rigsby case is "exceptional" and "idiosyncratic." In the "typical case," a court appropriately acts within its discretion to limit relators from trying to search out new claims beyond what they have pled with specificity.