U.S. Attorney declines to intervene in Rigsby ‘whistleblower’ lawsuit (at this time)

How long has it been since Katrina came ashore? More than two years and five months.  You would think that would be enough time for the government to make up its mind whether it has reason to believe the allegations of the Ex rel. Rigsby False Claims Act lawsuit, or whether it has reason to believe the allegations are pure bunk. 

The government is ready to do neither.  In response to Magistrate Judge Robert Walker’s order of last year that the government must elect by January 31 whether to intervene in the case or let it slide, the U.S. Attorney’s office dropped back 15 yards and punted. 

By Order dated August 7, 2007, the Court indicated that the Government must make its election regarding intervention on or before January 31, 2008, and it has indicated to the United States that no further extensions of time would be permitted. The Government’s investigation has not been completed, as certain potentially relevant information has not become available. As such, the United States is not able to decide, as of the Court’s deadline, whether to proceed with the action. Accordingly, the United States hereby notifies the Court that it is not intervening at this time.

However, under 31 U.S.C. § 3730(c)(3), the United States retains the right to intervene in this case at any time “upon a showing of good cause,” and the Government’s investigation of and attention to this case will continue.

Here’s a copy of the government’s response. Before this response, I predicted privately that the government would not intervene in this lawsuit for several reasons.  What U.S. Attorney in his right mind wants to deal with the implications of this lawsuit? It alleges fraud on the part of insurers, in part because they allegedly paid out federally backed flood insurance for homes that were damaged or destroyed by wind, thereby minimizing or eliminating their own wind payments while ripping off the U.S. Treasury.

Great story, until you realize all the places it leads. Even if it is true, what do you do with the fact that it was the government itself that waived proof of loss after Katrina, to speed flood payments and get money in the hands of homeowners as quickly as possible?  Who’s defrauding who? What do you do with the fact that policyholders applied for and accepted the flood payments? If the flood payments were wrongful, so was the acceptance of them, and there is no way around that fact.  Either the money was legit to compensate legit flood damage, or insurers paid it knowing it was a charade and policyholders took the money under false pretenses.  So if you’re going to accuse insurers of a rip-off, you had better be ready to go around and start demanding money back from the policyholders.  Is that going to happen? Only if the government has taken leave of its senses, only if they’ve said adios to reality — the public would rise with pitchforks and torches. 

I myself have seen no convincing or persuasive evidence that the allegations of Ex rel. Rigsby are correct.  I know many of you disagree with me.  Let us set ideology aside for a moment and remember that the scenario depicted — overpayment of flood money and underpayment of wind money — could occur only in limited circumstances.  Areas where flood was without dispute the main or only agent of damage to homes, such as in New Orleans, would be ineligible for potential inclusion — no wind damage, no potential overpayment of flood money.  Also, where flood damage to homes was in fact equal to or greater than the amount paid out (the maximum flood policy limit was $250,000), the potential issue with underpayment of wind damage is not a rip-off of federal money, but rather legit payment of flood money and wrongful failure to pay wind damage.

So the universe of potential instances of the alleged fraudulent conduct is confined to homes where it can be proven there was (1) wind damage but no flood damage, yet flood payments still occurred: (2) flood damage that was smaller than the amount of flood insurance paid, and where wind payments were either not made or were less than was warranted by the credible proof of wind damage.  Do you see what I’m saying? The number of cases where these potential facts apply is a relatively small percentage of the total number of Katrina claims.  And when you look within this universe, you are faced with the issue of how do you prove the flood payment was excessive in relation to the damage?  This can be a very difficult determination, and it would have to be done by the government hundreds if not thousands of times to prove its case.  Let’s remember another thing — whose name is on this lawsuit? That’s right, Kerri Rigsby.  Who approved the federal flood payment to Thomas McIntosh that has become so famous in the McIntosh v. State Farm case? That’s right, Kerri Rigsby.  Before setting out on the trail, think where it leads. 

Question: with the U.S. Attorney trying to occupy some gray zone where it is not formally repudiating this case but also not endorsing it, where does the case sit with the main lawyer behind Ex rel. Rigsby, Dickie Scruggs, otherwise occupied?  Remember this story from December, where AP reporter Mike Kunzelman said that another firm Scruggs hired was hard at work on the case? I wonder whether this case is really active or is ready to be stuck in the litigation wax museum.

Another question: what do you make of the amazingly ambiguous statement in the government response quoted above? "The Government’s investigation of and attention to this case will continue."  Is this just typical blah blah blah in a legal filing, some kind of word pillow so the paragraph doesn’t fall down and go boom? Or is there a hidden message here about the federal grand jury’s investigation? Inquiring minds want to know. 

I had more to write on other subjects for today, but downstairs I heard my wife watching a PBS documentary on Judy Garland and I had to break away and catch that.  The way she could sing, the way she threw herself into every song and totally believed in it, well, she was almost as good as Frank Sinatra.  Not much will pull me away from blogging, but dang, Judy Garland? All that talent, it’s like she is the figure of Adam in that painting in the Sistine Chapel, like she was personally touched by the hand of the Creator himself.  You can’t miss something like that.  I’ll get back to the other stuff when I can. 



Filed under Industry Developments

14 Responses to U.S. Attorney declines to intervene in Rigsby ‘whistleblower’ lawsuit (at this time)

  1. Not At All Surprised

    I’ve been involved in 2 qui tam cases and the government chose not participate. In both instances, the same “not at this time” language was used. It leaves the door open for them to join in should the case become “interesting”.

  2. observer

    State Farm should get down on their knees and pray every night to God, thanking him that Jim Hood and Dickie Scruggs got ahold of the Rigby sisters, and ruined their credibility, before the FBI could talk to them.
    Seeing what they did to Scruggs and Company, can you imagine what they would have done to State Farm if they had found these women and done the same type investigation?
    Rather than being hated, Hood and Scruggs ought to be getting free drinks in any bar they find themselves in with State Farm executives.

  3. an anonymous adjuster

    I’m sorry. Ruined the credibility of the 2 sisters who were stealing documents, lying to their boss, lying to their insureds, having affairs with co-employees? I think they had credibility/honesty issues before Scruggs offered them positions as “consultants”. Assuming, of course, that their involvement with Scruggs didn’t predate the other activity.

  4. Mississippian

    Thanks, David, for this post. I never could really understand this one and you brought it down to my level so I could understand. Don’t care on which side anyone is sitting, this one is incredibly complex.
    “…some kind of word pillow so the paragraph doesn’t fall down and go boom”–HAHAHAHAHAHAHAHA bless you for the levity because it took all of my 12 brain cells just to get a grasp on this case.

  5. Mississippian

    If you can find time (hahahahahaha), can you add this one to your list to talk about–“Keker filed the request for an evidentiary hearing Friday, arguing that there was a ‘defect in instituting the prosecution’ against Scruggs in Alabama federal court.” It’s on http://www.legalnewsline.com under “Scruggs: Probe relationship between judge and prosecutors”

  6. Boogiewoogieman

    Observer: State Farm doesn’t need to thank anyone for Dickie and The Hood getting hold of the Rigsby sisters. They just need for the courts of Mississippi to interpret their homeowners policy language as written in the contract.
    In this excerpt the Chicago Tribune sums it up pretty well:
    …This war of words is all about wind, water and responsibility 18 months after Hurricane Katrina devastated the state. Hundreds of millions of dollars are at stake.
    Mississippi wants insurance companies to cover homeowners’ damage from Katrina’s surging floodwaters. There’s just one problem with that. Private insurance companies don’t cover damage caused by floods or storm surge. That’s been the sole purview of the federal government’s National Flood Insurance Program for nearly 40 years. Private insurers such as State Farm write homeowner’s policies that cover wind damage in hurricanes. Those policies specifically exclude water damage, but that hasn’t stopped Mississippi from trying to rewrite the rules after the fact.
    Hood began going after insurers even as Katrina’s flood waters were receding. The insurance companies insisted they were only responsible for wind damage and wouldn’t pay for flood damage–as per the policies they had written. Hood insisted they pay out for flood damage too, because the storm surge was driven by the wind. State Farm became the biggest target because it’s the largest homeowners’ insurance company in the nation–and in Mississippi, where it had more than a 30 percent market share.


    Good interview by Paul Gallo with new State Auditor Stacey Pickering. Pickering is working closely with the govenor’s office and former auditor Phil Bryant to recover the $14 million attorney fees awarded by the bankruptcy judge in the Worldcom/MCI tax evasion case. Gallo asked Pickering if there was anything illegal with the Hood/Scruggs team collusive efforts against State Farm and its top notch attorney Sheila Birnbaum and Pickering said no. Then Gallo asked if there was anything unethical in that transaction and Pickering replied no ethics charge has been filed, but it would have to go through Hood’s brother and would probably a waste of time. A lot of attorney have remarked that when State Farm’s Birnbaum was on Mississippi soil, she was the best attorney in the state.

  8. observer

    I know I’m coming into hostile territory here when I don’t take State Farm’s side, but there is a reason State Farm is in all of this legal trouble, and most of the other insurance companies that operated down on the coast aren’t.
    State Farm can say all they want to about what happened on the coast to people who weren’t there. But, when they try that with us down here, it’s pissing down our backs, and trying to tell us it’s raining.

  9. talking about takin’ sides….isn’t this sorta like the current race for the presidency…none of the sides are too clean and inviting. My bet is the insurance companies would freely admit mistakes were made in reacting to the greatest natural disaster our country has ever known. My bet is many of the attorneys and generals -large and small- would admit they made mistakes in the way they handled their situations (some already have). The main reasons no one will confess their shortcomings is the potential for criminal prosecution and the almighty dollar. Sadly, all of the players will probably get worked over by the 50 ton sledge hammer before all is said and done. Folks who went into this as rich men may well come out (if they ever do) as middle class. Seems to me the folks who confessed their sins may well get out with the least punishment and the most money. What do I know? I know I am glad not to be certain of the players in this tawdry mess.


    Reading lots of opinions elsewhere on Dickie having to miss the SuperBowl tomorrow to study with Keker for his upcoming deposition testimony. Get real. How long does it take to learn “On the advice of my attorney . . .” Repeat as needed.

  11. also a lawyer

    Speak for yourself, Observer. I was and still am a homeowner in Pass Christian, MS and I was and still am a State Farm insured who has nothing but glowing remarks for State Farm even though I had 14 feet of storm surge through my home and State Farm insured automobiles. I have never once bought into the vilification of State Farm by the bottom dwelling plaintiffs bar. Sure, some folks may have had problems, but I didn’t and know many others who didn’t, so don’t paint with such a broad brush. I have thought many times of writing letters to the eiditor in defense of SF, but at the time, there was so much public animosity built up against them (and I say built up–this was obviously a carefully orchestrated plan by SKG and the media)that I would have been labeled some kind of a moron. Well, it looks like the BS is coming out in the wash, and everyone can start to see the dirty underbelly of the beast that created the monster and it’s more frighful than the monster itself.
    State Farm may be far from perfect, but I’ve had reason to be suspect of the allegations all along. They were MORE than fair to me with flood, homeowner’s and automobile coverage and I appreciate them very much!

  12. Boogiewoogieman

    Observer: per your post “there is a reason State Farm is in all of this legal trouble, and most of the other insurance companies that operated down on the coast aren’t…”
    Read the last sentence of the Chicago Tribune article I posted above: “State Farm became the biggest target because it’s the largest homeowners’ insurance company in the nation–and in Mississippi, where it had more than a 30 percent market share.”
    Three comments:
    1. Most all ins companies doing business on the coast have been subjected to lawsuits and complaints but – doesn’t it stand to reason that the big guy who has 30% of the market (more than the next 2-3 insurers combined) will get more complaints and more press than the others?
    2. If you were Hood, Scruggs, & Co – trying to grab headlines and/or attorneys fees, would you go after State Farm or “Fly-By-Night Mutual?” With 30% of the market in Mississippi and an even larger share on the coast, they must be doing something right, or people would have long ago gone elsewhere for insurance. Right?
    3. And in the “for what its worth department,” I was there, too… for many, many years!

  13. See editorial today in Timespicayune. ” For months reports from government investigators as well as whistleblower lawsuits have exposed how FEMA’s lax management of the program is likely wasting billions in taxpayers’ money.”
    ” The suit cited eye-popping examples, such as State Farm allegedly paying more than $88,000 for flood damage in a Metairie home with no flooding and AllState counting flood damage twice in an eastern New Orleans home.” http://www.nola.com/timespic/stories/index.ssf?/base/news-4/1201933385201010.xml&coll=1

  14. ifa

    I had a friend hired as a flood adjuster for Snake farm. His training two day course. What he was told, If you see any evidence of water pay them policy limits. He did as he was told. He and about 12 others are ready to tesify if anyone ever seriouly investigates these matters in next administration. Many of us are follwing the wisdom of the late great Edwin Edwards and are waiting by the river…….stay tuned …