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The federal False Claims Act provides a potentially enormous bounty to insiders with knowledge of fraud against the government to come forward. The insider (also called the “relator” or “whistleblower”) is authorized to file a complaint on behalf of the United States and to prosecute the claim as a “private attorney general.” If the claim is successful, the relator is entitled to as much as 30% of the recovery, including treble damages. Not infrequently, qui tam cases settle or result in judgments exceeding $100 million, making the relators and their attorneys extravagantly wealthy. Qui tam cases sometimes arise when a “problem” employee of a company doing business with the government concludes, rightly or wrongly, that his employer is defrauding the government. After disclosing the alleged fraud to the government and filing a qui tam complaint against the company, the relator may remain on the job for years while the government investigates the relator’s allegations and decides whether to intervene in the case. During that period, the relator enjoys daily opportunities to investigate his or her claim by reviewing and copying confidential and even privileged company documents to which the relator may or may not be allowed access in the course of the job. The relator’s attorney may instigate and even direct these investigative efforts. At this stage of the case, the company is largely powerless to constrain the relator’s activities. Employment action against the relator will likely be characterized as retaliatory in the qui tam litigation. Is this as it should be? What if a relator’s misappropriation of records is in support of entirely baseless claims or to obtain embarrassing material with which to extort a favorable settlement? Is the relator’s attorney justified in directing or assisting the client to engage in what, under other circumstances, would be unlawful actions? The competing forces underlying these questions converged in U.S. ex rel. Rigsby v. State Farm, pending in Mississippi federal court. [See Page 1.] Relators Kerri and Cori Rigsby worked as claims adjusters for an insurance support services company called E.A. Renfroe & Co. While adjusting claims for State Farm after Hurricane Katrina, the Rigsby sisters claim to have found evidence that State Farm was improperly shifting coverage costs to the federal flood insurance program. The Rigsbys brought their allegations to a family friend, attorney Richard “Dickie” Scruggs. Scruggs is a successful plaintiffs’ attorney with powerful political connections. He is both a friend of, and a major campaign contributor to, Mississippi Attorney General Jim Hood and the brother-in-law of U.S. Senator Trent Lott, R-Miss. In April 2006, Scruggs filed a qui tam complaint on the Rigsbys’ behalf against State Farm. The complaint remained under seal while a U.S. attorney’s office in Mississippi investigated the fraud allegations. The Rigsbys remained in their jobs, where they surreptitiously accessed State Farm’s computer files and downloaded thousands of pages of documents and provided copies to both Scruggs and the government. When the owners of Renfroe learned that the Rigsby sisters were qui tam relators, they sued the Rigsbys in Alabama federal court for disclosure of confidential information in violation of their employment agreements. Although the federal courts generally disallow such claims, Renfroe’s complaint was allowed to proceed because Renfroe was not then a defendant in the qui tam case. On Dec. 8, 2006, U.S. District Judge William M. Acker Jr. entered a preliminary injunction in the Renfroe case requiring the Rigsbys and their agents to return the State Farm documents. Instead, Scruggs sent the documents to his friend Hood, the Mississippi AG. Renfroe brought civil contempt proceedings against Scruggs, claiming that he had intentionally evaded compliance with the injunction. Acker went further and found probable cause that Scruggs had committed criminal contempt. He referred the contempt case for prosecution to the U.S. attorney for the Northern District of Alabama, who declined to prosecute. Utilizing an obscure provision of the Federal Code of Criminal Procedure, Acker on July 26, 2007, appointed three private attorneys as special prosecutors to pursue criminal contempt charges against Scruggs on the court’s behalf. On Aug. 21, the special prosecutors filed the charges. On Sept. 21, Scruggs moved to dismiss the allegations or appoint new private counsel. Scruggs contends that the three are his longtime legal adversaries whose firm opposes Scruggs in ongoing litigation; hence, they are not “disinterested” or “dispassionate” as the law requires. On Oct. 12, the private prosecutors requested an arraignment. And so Scruggs now finds himself investigated by private parties acting as government prosecutors who allegedly have a personal axe to grind with him. The irony of this turnabout has not been lost on the qui tam defense bar, whose clients often find themselves in comparable circumstances. More importantly, the case illustrates the ambiguous line in qui tam cases between blowing the whistle and potentially committing wrongdoing in the interest of blowing the whistle. As “private attorneys general,” relators operate in a quasi-law enforcement capacity, enforcing the government’s rights against private parties. But traditional law enforcement agents do plenty of things � e.g., searches, seizures, detentions and arrests � that are unlawful when conducted by private parties. The basis and scope of a relator’s authority to overstep the otherwise applicable bounds of civil or criminal law in pursuing his or her private attorney general role are largely undefined. Relators wielding that ill-defined authority are, by definition, not disinterested and are seldom dispassionate. Qui tam defendants have mostly borne the brunt of that ambiguity. But as Dickie Scruggs has likely realized, ambiguity can cut both ways. Carolyn Kubota is a partner, and Angela Machala is a counsel, in the Los Angeles office of O’Melveny & Myers.

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