Rigsby et al v. State Farm Fire and Casualty Company et al
Filing
1279
ORDER denying Relators' 1242 Motion to Dismiss and for Reconsideration. Signed by District Judge Halil S. Ozerden on May 27, 2016. (ENW)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION
UNITED STATES OF AMERICA ex rel.
CORI RIGSBY and KERRI RIGSBY
v.
STATE FARM FIRE AND
CASUALTY CO.
§
§
§
§
§
§
§
RELATORS/
COUNTER-DEFENDANTS
Civil No. 1:06CV433-HSO-RHW
DEFENDANT/
COUNTER-CLAIMANT
MEMORANDUM OPINION AND ORDER DENYING RELATORS’
[1242] MOTION TO DISMISS AND FOR RECONSIDERATION
BEFORE THE COURT is the Motion to Dismiss and for Reconsideration
[1242] filed by Relators Cori Rigsby and Kerri Rigsby. Relators ask the Court to
dismiss Defendant State Farm Fire and Casualty Company’s Third Amended
Counterclaim [1232] with prejudice. After consideration of the Motion, related
pleadings, the record in this case, and relevant legal authority, the Court finds that
Relators’ Motion [1242] should be denied. State Farm Fire and Casualty Company’s
Third Amended Counterclaim [1232] will proceed.
I. BACKGROUND
A.
Factual Background
Relators Cori Rigsby and Kerri Rigsby (“Relators” or the “Rigsbys”) worked
for E.A. Renfroe & Company, Inc. (“Renfroe”), “a company that provides claim
adjusting and related services to insurers,” including State Farm Fire and Casualty
Company (“State Farm”). 3d Am. Countercl. [1232] at 3. “In the immediate
aftermath of Hurricane Katrina, the Rigsbys worked for Renfroe which State Farm
had retained in order to adjust claims by its policyholders.” Id. According to State
Farm, “[u]nder the employment agreement the Rigsbys signed with Renfroe, they
promised not to disclose or misappropriate any confidential information of Renfroe
or State Farm for their own use or for the use of any partnership or firm unless
authorized by Renfroe.” Id. at 3-4; see also id. at 7-8 (quoting language from
Renfroe employment agreement signed by Cori Rigsby on or about August 13,
2004).
State Farm claims that Relators signed a State Farm Network Access
Agreement in which Relators “promised to maintain the strict confidentiality of any
and all State Farm information, and which precluded them from using any such
information for their own benefit or the benefit of any person other than State
Farm.” Id. at 4; see also id. at 9 (January 20, 2006, State Farm Network Access
Agreement signed by Cori Rigsby). In light of Relators’ execution of the Network
Access Agreement, State Farm issued each Relator a laptop computer and a
password which enabled them to access various State Farm databases, including
State Farm’s Claim Service Record (“CSR”). Id. at 14. According to State Farm,
the CSR “contained claim files that contained trade secrets of State Farm, and other
confidential, private or proprietary information maintained by State Farm.” Id.
State Farm asserts that its trade secrets, other confidential documents, and
electronically store information (“ESI”)
derived independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means
by, other persons who can obtain economic value from its disclosure or
use, and was the subject of efforts that were reasonable under the
circumstances to maintain its secrecy.
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Id.
State Farm alleges that
[t]he Rigsbys have admitted under oath that they surreptitiously broke
their promises by accessing State Farm’s computer system for purposes
of providing information to lawyers whom they knew to be engaged in
litigation against State Farm. The confidential information stored on
these computers included private, non-public information concerning
State Farm policyholders and policyholders’ insurance claims.
Id. at 4; see also, e.g., id. at 10, 11 (quoting Kerri Rigsby’s deposition taken on June
20, 2007, in Marion v. State Farm Fire and Cas. Co., 1:06cv969-LTS-RHW (S.D.
Miss.), and Cori Rigsby’s deposition taken on May 1, 2007, in McIntosh v. State
Farm Fire and Cas. Co., 1:06cv1080-LTS-RHW (S.D. Miss)).
According to State Farm, “[t]he Rigsbys provided Scruggs with State Farm
information and documents to use in his policyholder lawsuits against State Farm.
Scruggs eventually paid each of the Rigsbys $150,000 per year as sham
consultants.” Id. at 4; see also id. at 34.1 This scheme purportedly included a “data
dump” or data-mining operation conducted during the weekend of June 2 through 5,
2006, on behalf of attorney Richard “Dickie” Scruggs and other conspirators, “in
furtherance of the unlawful objectives of their conspiracy.” Id. at 30. State Farm
contends that “Dickie Scruggs and the other Conspirators were aware of and
1
State Farm alleges that the Rigsbys each received twice monthly payments of
$6,250.00 from no later than July 2006 through at least December 2007. 3d Am. Countercl.
[1232] at 34-35. “As part of their compensation package, Dickie Scruggs also provided the
Rigsbys with reimbursement of expenses, payment of their attorneys’ fees, costs and
expenses from at least three different law firms, and personal indemnification by Dickie
Scruggs.” Id. at 35.
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directly participated in the Rigsbys’ violations of their obligations to Renfroe and
State Farm in order to gather information relating to civil policyholder lawsuits
that were pending or under consideration, and to find bases to initiate additional
lawsuits which could generate fees for them.” Id. at 4-5.
B.
Procedural History
Relators filed a qui tam Complaint [2] against State Farm on April 26, 2006,
in camera and under seal, pursuant to the False Claims Act (“FCA”), 31 U.S.C. §§
3729, et seq. An Amended Complaint [16] followed on May 22, 2007. Relators
alleged that State Farm attempted to shift its responsibility for Hurricane Katrina
wind damage at residential properties covered by both a homeowner’s insurance
policy and a flood insurance policy by classifying wind damage as storm surge
damage, thereby recasting State Farm’s liability for wind losses on such properties
as flood losses which the United States Government would be responsible to pay
under the National Flood Insurance Program (“NFIP”).
On April 8, 2008, State Farm filed its Answer and Counterclaim [95] against
Relators. State Farm filed a First Amended Answer and Counterclaim [338] on
June 18, 2009, and a Second Amended Answer and Counterclaim [355] on August
24, 2009. On September 24, 2009, the Court bifurcated Relators’ claims from State
Farm’s Counterclaims and determined that a scheduling order would be entered as
to the Counterclaims after the Relators’ claims were tried on their merits. Order
[363] at 2.
A jury trial on the merits of Relators’ claims was held from March 25, 2013,
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to April 8, 2013. The jury found that State Farm had submitted a false claim and a
false record material to a false claim to the Government in connection with damage
to the home of Thomas and Pamela McIntosh located in Biloxi, Mississippi. On
February 21, 2014, the Court entered a Federal Rule of Civil Procedure 54(b) Final
Judgment [1129] on Relators’ claims. Relators and State Farm both appealed.
Notice [1131]; Notice [1143]. A panel of the Fifth Circuit entered an opinion on July
13, 2015, which reversed the Court’s decision to deny Relators additional discovery
beyond the McIntosh claim, but otherwise affirmed the Court’s decisions and
remanded the case for further proceedings. State Farm filed a petition for a writ of
certiorari in the United States Supreme Court, which remains pending.
In the meantime, Relators filed a Motion for Summary Judgment [1183] and
a Motion for Judgment on the Pleadings [1185] on State Farm’s Second Amended
Counterclaim [355]. In a Memorandum Opinion and Order [1217] entered on
August 6, 2015, the Court denied Relators’ Motion for Summary Judgment [1183]
and granted in part and denied without prejudice in part Relators’ Motion for
Judgment on the Pleadings [1185]. Order [1217] at 46. The Court dismissed
without prejudice State Farm’s Counterclaims for violations of the Computer Fraud
and Abuse Act, 18 U.S.C. § 1030, et seq. (“CFAA”), violations of the Mississippi
Uniform Trade Secrets Act, Mississippi Code §§ 75-26-1, et seq. (“MUTSA”), and for
trespass to chattels, conversion, and common law fraud. Id. State Farm’s
remaining Counterclaims were for breach of contract and civil conspiracy. Id. at 4647. However, the Court granted State Farm leave to filed a Third Amended
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Counterclaim. Id.
On October 29, 2015, State Farm filed its Third Amended Counterclaim
[1232]. The Third Amended Counterclaim advances claims for violations of the
CFAA, specifically 18 U.S.C. §§ 1030(a)(2) and 1030(a)(4); common law fraud;
violation of the MUTSA; breach of contract; breach of the duty of loyalty; and civil
conspiracy. 3d Am. Countercl. [1232] at 38-66. State Farm asserts that Relators
“are each vicariously liable for all their respective wrongful acts and omissions
alleged herein, including those of the other Conspirators, under the doctrines of:
respondeat superior; conspiracy; aiding and abetting; agency; joint venture;
co-adventure; and/or joint tortfeasor.” Id. at 66. State Farm seeks judgment from
and against Relators, jointly and severally, for:
(1)
(2)
(3)
(4)
(5)
(6)
All such damages recoverable under 18 U.S.C. § 1030, including
but not limited to the $39,376.75 paid to forensic expert A.J.
Garretson and $11,110.44 in costs incurred for equipment
necessary to investigate the extent of the Rigsbys’ malfeasance;
All such damages and other remedies, including but not limited to
disgorgement, recoverable under the Mississippi Trade Secrets Act,
Miss. Code Ann. § 75-26-1 et seq., including those authorized by
Miss. Code Ann. § 75-26-7 (1972);
All attorneys’ fees, costs and expenses State Farm has incurred
and will incur in the defense of Count V of the Rigsbys’ Complaint
and in the prosecution of State Farm’s Counterclaim;
Such other actual damages as to which State Farm may be justly
entitled;
Such punitive and exemplary damages, sanctions, penalties or
other relief as may be appropriate in the premises;
A permanent injunction ordering the Rigsbys to return all chattels
and ESI of State Farm in their possession, custody and/or control,
whether in physical and/or electronic media and prohibiting them
from further using or disclosing in any manner whatsoever, any
documents, ESI, media or information concerning State Farm
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(7)
(8)
(9)
which they garnered via wrongful acts, including prohibiting their
use in this Action;
The imposition of a constructive trust on the Rigsbys’ ill-gotten
gains, as well as an award and order of disgorgement, in an
amount not less than $2,198,000.95, which represents consulting
fees and reimbursements paid to the Rigsbys, legal fees paid on
behalf of the Rigsbys, and a non-assignment payment;
Pre and post-judgment interest as allowed by applicable law; and
Such further, supplemental or alternative relief as may be
appropriate at law or in equity.
Id. at 67.
On November 23, 2015, Relators filed the present Motion to Dismiss and for
Reconsideration [1242] on State Farm’s Third Amended Counterclaim [1232].
II. DISCUSSION
A.
Relevant legal standards
Relators seek dismissal under Federal Rule of Civil 12(b)(6) and for
reconsideration pursuant to Rule 54(b). Mot. [1242] at 1-3. To the extent Relators
seek reconsideration of the Court’s prior Order [1217], the Fifth Circuit has held
that “[a] trial court [is] free to reconsider and reverse [interlocutory orders] for any
reason it deems sufficient, even in the absence of new evidence or an intervening
change or in clarification of the new law.” Stoffels ex rel. SBC Tel. Concession Plan
v. SBC Commc’ns, Inc., 677 F.3d 720, 727-78 (5th Cir. 2012) (quoting Zarnow v.
City of Wichita Falls, Tex., 614 F.3d 161, 171 (5th Cir. 2010)).
“In order to survive a Rule 12(b)(6) motion to dismiss, the plaintiff must
plead ‘enough facts to state a claim to relief that is plausible on its face.’” New
Orleans City v. Ambac Assur. Corp., 815 F.3d 196, 200 (5th Cir. 2016) (quoting Bell
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Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “‘Factual allegations must be
enough to raise a right to relief above the speculative level on the assumption that
all the allegations in the complaint are true (even if doubtful in fact).’” Id. (quoting
Twombly, 550 U.S. at 555). “While we accept all well-pleaded factual allegations as
true and interpret the complaint in the light most favorable to the plaintiff,
‘[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements,’ do not establish facial plausibility.” United States ex rel.
Spicer v. Westbrook, 751 F.3d 354, 365 (5th Cir. 2014) (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009)).
“If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings
are presented to and not excluded by the court, the motion must be treated as one
for summary judgment under Rule 56. All parties must be given a reasonable
opportunity to present all the material that is pertinent to the motion.” Fed. R. Civ.
P. 12(d). When considering a Rule 12(b)(6) motion to dismiss, the Court may take
judicial notice of public records under Federal Rule of Evidence 201, without
converting the motion to one for summary judgment. Funk v. Stryker Corp., 631
F.3d 777, 783 (5th Cir. 2011).
In support of their Motion [1242], Relators have submitted a document
entitled a “Statement of Interest of the United States in Response to Impact Science
& Technology’s Revised Memorandum in Support of Its Omnibus Motion for
Sanctions” [1242-1], which was apparently filed on April 27, 2010, in an FCA case
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in the United States District Court for the District of Maryland. Relators have also
attached the “United States’ Motion to Strike Affirmative Defense and to Dismiss
Defendants’ Counterclaims” and supporting Memorandum [1242-2] filed in another
FCA case in the United States District Court for the District of Columbia. These
documents are apparently contained in public court records of which this Court can
take judicial notice. See Funk, 631 F.3d at 783; see also Fed. R. Evid. 201. Based on
the foregoing, the Court sees no reason to exclude these exhibits or to treat Relators’
Motion as one for summary judgment under Rule 56. See Fed. R. Civ. P. 12(d).
B.
Analysis
1.
State Farm’s counterclaims for violations of the CFAA contained in
Counts I and II should not be dismissed pursuant to Rule 12(b)(6).
Relators argue that the FCA conflicts with the CFAA, such that dismissal of
State Farm’s CFAA claims is warranted. Mot. [1242] at 1; Mem. [1243] at 2, 18-19.
Relators raised this same argument in their earlier Motion for Summary Judgment
[1183], see Mem. [1184] at 19, which this Court rejected, see Order [1217] at 15-17.
The Court sees no reason to revisit that decision. For the same reasons stated in its
prior Order [1217], the Court is not persuaded that the FCA and the CFAA conflict
in this particular case. See Order [1217] at 15-17.
Relators further assert that “State Farm’s damages under the CFAA should
be limited to less than $50,486.79, the amount it claims it incurred to investigate
all of the documents the Rigsbys’ [sic] downloaded and copied, including those
documents related to their FCA case.” Mem. [1243] at 2. Relators state that “[i]n
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its most recent CFAA claims, though its claim for damages is vague, State Farm
appears to be seeking a total of $50,486.79 in compensatory damages.” Id. at 18.
“To the extent that State Farm claims additional damages, the Rigsbys reserve
their right to respond.” Id. at 19.
It does not appear that Relators are seeking dismissal of State Farm’s CFAA
Counterclaims based upon the amount of damages sought by State Farm. The
Third Amended Counterclaim alleges losses in excess of $5,000.00. See 3d Am.
Countercl. [1232] at 42-44, 50-52; see also, e.g., 18 U.S.C. § 1030(c)(4)(A)(i).
To the extent Relators suggest that the Court should limit State Farm’s
CFAA damages based upon the sums listed in the Third Amended Counterclaim,
the Court is not persuaded that this issue is properly before the Court at this
juncture of the proceedings, as more factual development of the record seems
needed. Even if this issue were ripe, the Court does not necessarily read State
Farm’s Third Amended Counterclaim as purporting to limit State Farm’s damages
under the CFAA. See, e.g., 3d Am. Countercl. [1232] at 44 (providing “a partial list
reflecting the cost of some of the equipment and software that State Farm acquired
in order to conduct the forensic evaluation” of the Rigsbys’ laptop computers.).
Relators also contend, in a footnote, that the CFAA is unconstitutionally
vague to the extent it “imputes criminal liability to any employee who is authorized
to use her employee’s computer, but accesses the computer in a manner that
exceeds her employer’s computer use restrictions . . . .” Mem. [1243] at 19 n.9
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(citing Kolender v. Lawson, 461 U.S. 352, 357 (1983); United States v. Nosal, 676
F.3d 854, 859-63 (9th Cir. 2012)). According to Relators, “[t]he CFAA is also
unconstitutional to the extent it criminalizes employee behavior that exceeds
employer use restrictions because it impermissibly delegates a governmental
function to a private entity in violation of the private non-delegation doctrine.” Id.
(citing Dep’t of Transp. v. Ass’n of Am. Railroads, 135 S. Ct. 1225, 1252 (2015)
(Thomas, J., Concurring); Sante Fe Nat. Tobacco Co. v. Judge, 963 F. Supp. 437, 440
(M.D. Pa. 1997)). In another footnote in their Reply [1254], Relators again suggest
that “the broad interpretation of the CFAA advanced is unconstitutionally vague.”
Reply [1254] at 4 n.5.
The Court is not persuaded that Relators’ passing references in footnotes
attacking the constitutionality of the CFAA are sufficient for the Court to render an
opinion on this issue. Moreover, Relators have not filed a notice of the
constitutional question, and the Court has not certified to the Attorney General that
the CFAA has been questioned. See 28 U.S.C. § 2403(a); Fed. R. Civ. P. 5.1; see
also, e.g., In re Carter, 553 F.3d 979, 983 (6th Cir. 2009) (noting that the district
court had notified the U.S. Department of Housing and Urban Development and the
Attorney General that the case involved an as-applied constitutional challenge to a
federal statute, and that the government had intervened and filed a brief); PleasantEl v. Oil Recovery Co., 148 F.3d 1300, 1302 (11th Cir. 1998) (remanding for district
court to give proper notice to Attorney General and to rule on the constitutional
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challenges).2
To the extent it is Relators’ position that the CFAA is unconstitutional, this
portion of their Motion will be denied without prejudice. If it is their intention to
challenge the constitutionality of the CFAA in this case, Relators shall reurge their
constitutionality argument in an early motion for summary judgment and
simultaneously file and properly serve a separate notice of the constitutional
question pursuant to Rule 5.1(a). Relators shall file any such motion for partial
summary judgment as to the CFAA claims, based only upon constitutional grounds,
within 30 days of entry of this Order. At that time, Relators shall file and properly
serve the appropriate notice in accordance with Rule 5.1(a).
In all other respects, Relators’ Motion will be denied as to Counts I and II.
2
Section 2403(a) and Rule 5.1 apply only to actions in which the United States is
not a party. 28 U.S.C. § 2403(a); Fed. R. Civ. P. 5.1(a)(1)(A). While the United States is a
real party in interest in this FCA case, it declined to intervene and is not a party to the
Counterclaim. There does not appear to be any controlling authority addressing whether
notice is required after the United States declines to intervene in an FCA case and the
constitutionality of a federal statute is later questioned in that same action, albeit with
respect to a non-FCA counterclaim. In a different context, the Supreme Court has held
that “[a]lthough the United States is aware of and minimally involved in every FCA action,
we hold that it is not a ‘party’ to an FCA action for purposes of the appellate filing deadline
unless it has exercised its right to intervene in the case.” United States ex rel. Eisentein v.
City of New York, New York, 556 U.S. 928, 931 (2009); see also United States ex rel. Stevens
v. State of Vt. Agency of Natural Resources, 162 F.3d 195, 199 (2d Cir. 1998), rev’d on other
grounds 529 U.S. 765 (2000) (noting that the United States had declined to intervene in
FCA action, but intervened in the appeal pursuant to 28 U.S.C. §§ 517 and 2403(a)). Based
upon these authorities, it is at least arguable that the United States is not a “party” to this
action, such that notice under § 2403(a) and Rule 5.1 would be required if Relators are in
fact challenging the constitutionality of the CFAA.
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2.
State Farm has sufficiently pleaded fraud in Count III.
Relators argue that State Farm’s fraud Counterclaim is “inextricably based
on [their] failure to admit they were leaking documents to their attorney in
contemplation of an FCA case and should, therefore, be dismissed.” Mem. [1243] at
20. According to Relators, State Farm has identified no harm it has suffered and is
not entitled to punitive damages because it “alleges no facts that would evidence
that the Rigsbys [sic] actions were malicious or grossly negligent.” Id. at 21. State
Farm counters that Relators do not enjoy blanket immunity under the FCA for
independent acts of fraud and are liable for compensatory and punitive damages.
Mem. [1252] at 9-11.3
Under Mississippi law, the elements of fraud are:
(1) a representation, (2) its falsity, (3) its materiality, (4) the speaker’s
knowledge of its falsity or ignorance of its truth, (5) his intent that it
should be acted on by the hearer and in the manner reasonably
contemplated, (6) the hearer’s ignorance of its falsity, (7) his reliance on
its truth, (8) his right to rely thereon, and (9) his consequent and
proximate injury.
Robinson v. Trustmark Nat. Bank, 179 So. 3d 1146, 1150 (Miss. Ct. App. 2015)
(quotation omitted).
“State law fraud claims are subject to the heightened pleading requirements
of Rule 9(b).” Sullivan v. Leor Energy, LLC, 600 F.3d 542, 550-51 (5th Cir. 2010)
3
State Farm also maintains that Relators are “collaterally estopped from
relitigating whether the FCA immunizes their wrongdoing.” Mem. [1252] at 10. Because
the Court finds dismissal of the fraud claim is not warranted under Rule 12(b)(6), the
Court need not address the collateral estoppel argument at this time.
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(citation omitted). Federal Rule of Civil Procedure 9(b) provides that “[i]n alleging
fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). “To plead fraud adequately, the
plaintiff must ‘specify the statements contended to be fraudulent, identify the
speaker, state when and where the statements were made, and explain why the
statements were fraudulent.’” Sullivan, 600 F.3d at 551 (quoting ABC Arbitrage v.
Tchuruk, 291 F.3d 336, 350 (5th Cir. 2002)). “Rule 9(b) requires, at a minimum,
that a plaintiff set forth the who, what, when, where, and how of the alleged fraud.”
United States ex rel. Shupe v. Cisco Sys., Inc., 759 F.3d 379, 382 (5th Cir. 2014)
(quotation omitted).
The Third Amended Counterclaim contains allegations of fraud committed by
Relators which are arguably independent of the FCA action. For example, State
Farm alleges that its Network Access Agreement contained a clause which stated
that signature on the Agreement confirmed the signer’s intended compliance with
the Agreement’s terms and conditions. 3d Am. Countercl. [1232] at 54. By signing
this Agreement after Relators had “already begun [their] unauthorized and illegal
activities to access and search State Farm’s computer system,” State Farm asserts
that Relators made a knowing misrepresentation to State Farm, upon which they
knew State Farm intended to rely. Id.
The Third Amended Counterclaim also asserts that on or about April 1, 2006,
Relator Cori Rigsby told a State Farm Catastrophe Services Claim Representative
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that she thought that the individual “leaking information to Dickie Scruggs and
others” could be another State Farm employee, Lecky King. Id. at 55. In April
2006, Relator Kerri Rigsby allegedly told a State Farm Catastrophe Flood Trainer
that she thought that the insider who was providing State Farm’s confidential and
proprietary information to Dickie Scruggs and other conspirators “must be a
disgruntled State Farm staffer,” even though she knew this statement was false.
Id. at 55-56. Assuming all well-pleaded facts are true, as the Court must when
faced with a motion pursuant to Rule 12(b)(6), the Third Amended Counterclaim
contains sufficient factual allegations to state a plausible fraud claim against
Relators. See New Orleans City, 815 F.3d at 200. To the extent Relators seek
dismissal of State Farm’s fraud claim in Count III, their Motion will be denied.
3.
State Farm’s counterclaim for violation of the MUTSA contained in
Count IV should not be dismissed.
Relators take the position that “[t]his is not a trade secrets case,” and that
State Farm has failed to sufficiently plead the existence of protected trade secrets.
Mem. [1243] at 13. “Any misappropriation of State Farm’s alleged trade secrets
was . . . incidental and inconsequential” to Relators’ alleged access and copying of
State Farm’s documents. Id. According to Relators, “State Farm alleges no
damages proximately caused by the Rigsbys’ alleged misappropriation of trade
secrets.” Id. State Farm responds that it “has detailed numerous examples of trade
secrets misappropriated by the Rigsbys,” including State Farm’s customer lists,
engineering firm rosters, catastrophe induction manuals, component fee schedules
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for adjuster services, and claim files containing policyholders’ names and coverage
information. Mem. [1252] at 11-12.
The MUTSA provides for the recovery of damages for the misappropriation of
a trade secret. Miss. Code § 75-26-7. The MUTSA defines “trade secret” as
information, including a formula, pattern, compilation, program, device,
method, technique or process, that:
(i)
Derives independent economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use, and
(ii)
Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
Miss. Code § 75-26-3(d). The Mississippi Supreme Court has recognized that a
protected customer list can qualify as a trade secret under the MUTSA. Fred’s
Stores of Miss., Inc. v. M & H Drugs, Inc., 725 So. 2d 902, 911 (Miss. 1998).
The Third Amended Counterclaim contains sufficient allegations to state a
claim under the MUTSA. State Farm has identified at least one protected trade
secret which Relators allegedly misappropriated. State Farm’s allegations are
sufficient to state a plausible cause of action under the MUTSA. This portion of
Relators’ Motion will be denied.
4.
State Farm has adequately stated a claim for breach of contract in
Count V.
Relators request that the Court reconsider its earlier denial of their Motion
for Summary Judgment as to State Farm’s breach of contract claim. Mem. [1243] at
22. Relators appear to reference their conflict preemption argument from their
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previous Motion for Summary Judgment [1183]. Relators argued that the FCA
preempts State Farm’s state law claims because they “obstruct the federal law’s
express purpose.” Mot. for Summ. J. [1183] at 2. “State Farm seeks to hold
Relators liable under state law for doing exactly what the FCA requires, and its
state law Counterclaims clearly would frustrate the FCA’s purpose.” Mem. in Supp.
of Mot. for Summ. J. [1184] at 24.
In its earlier Order [1217], the Court thoroughly considered and analyzed
Relators’ arguments on the question of conflict preemption and rejected them. As
the Court stated, “nothing in the FCA necessarily requires a relator to engage in
some of the types of activities alleged in the Counterclaim.” Order [1217] at 15.
While only the McIntosh claim was before the Court at the time, the Court is not
persuaded that the Fifth Circuit’s Opinion allowing Relators to conduct “additional
limited discovery,” changes this result. See United States ex rel. Rigsby v. State
Farm Fire & Cas. Co., 794 F.3d 457, 469 (5th Cir. 2015) (“stress[ing] that we make
no judgments about the actual existence of other potential false claims or records”).
At the present time, it is unclear what, if any, additional FCA claims may be
identified or proceed to trial. Nor is it clear whether any unauthorized use of the
State Farm network or breach of the Network Access Agreements resulted in the
Relators’ obtaining any information they will use, or have used, to pursue any false
claims against State Farm in this case. Relators’ request for reconsideration on this
issue is not well taken and will be denied.
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5.
State Farm’s claim for breach of the duty of loyalty in Count VI should
not be dismissed.
Relators assert that State Farm’s claim for breach of the duty of loyalty
should be dismissed because it was not pleaded in State Farm’s prior
Counterclaims. Mem. [1243] at 7. According to Relators, “State Farm was not
granted leave to add new causes of action.” Id. Alternatively, Relators contend that
the claim should be dismissed because “it is not evident from State Farm’s
allegations that the Rigsbys owed State Farm a fiduciary duty.” Id. at 8.4
“[P]enalizing the Rigsbys in this case would conflict with the purpose of the FCA to
encourage, protect, and require whistleblowers to come forward and disclose inside
evidence of fraud to the government.” Id. (citations omitted). Relators maintain
that, to the extent this claim relates to confidential information, it is preempted by
MUTSA. Id. at 8-9.
State Farm responds that there is no prohibition on it pleading a breach of
4
Relators cite a previous decision of this Court for the proposition that “as a matter
of Mississippi law, a company that acted as an adjuster to State Farm (like Renfroe) did
not owe State Farm a fiduciary duty.” Mem. [1243] at 8 (citing Fowler v. State Farm Fire
& Cas. Co., No. 1:06CV489-HSO-RHW, 2008 WL 783759, at *3 (S.D. Miss. Mar. 20, 2008)).
This is not an accurate characterization of the Court’s holding. The overarching question
presented in Fowler was whether the adjuster defendant Haag Engineering owed a
fiduciary duty to State Farm’s insureds, the plaintiffs in that case, as opposed to State
Farm. Fowler, 2008 WL 783759, at *3. To the extent that the plaintiffs argued that they
had some ownership interest in State Farm which created a different relationship with
Haag, the Court found that “there [was] insufficient evidence to support the conclusion
that the commercial transaction between Haag and State Farm would rise to the level
sufficient to impose a fiduciary relationship between Haag and State Farm.” Id.
Fowler was decided at the summary judgment stage based upon competent summary
judgment evidence before the Court in that case. The Motion presently before the Court is
one to dismiss pursuant to Rule 12(b)(6).
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the duty of loyalty claim. Mem. [1252] at 29. State Farm argues that it has
pleaded sufficient factual detail to state a claim for breach of the duty of loyalty,
and that neither the FCA nor the MUTSA preempts this claim. Id. at 18-27. State
Farm maintains that Relators cannot invoke the doctrine of unclean hands to defeat
this claim because any wrongdoing by State Farm with respect to the McIntosh
FCA claim does not directly relate to the subject matter of the breach of the duty of
loyalty claim. Id. at 27-28.
The Court is not persuaded that State Farm’s claim for breach of the duty of
loyalty should be dismissed on the basis that the Court did not explicitly give State
Farm permission to file a new claim when it granted State Farm leave to amend its
Counterclaim. According to the Fifth Circuit, Rule 15 “evinces a bias in favor of
granting leave to amend.” Mayeaux v. La. Health Serv. and Indem. Co., 376 F.3d
420, 425 (5th Cir. 2004) (quotation omitted). “A court must have a substantial
reason to deny a party’s request for leave to amend.” Stem v. Gomez, 813 F.3d 205,
215 (5th Cir. 2016) (quotation omitted). In light of Rule 15’s liberal approach to
amendments, Relators’ request to dismiss State Farm’s breach of the duty of loyalty
claim will be denied.
As for Relators’ arguments about State Farm’s failure to state a claim, the
parties have cited no controlling authority detailing the elements of a breach of the
duty of loyalty claim under Mississippi law.5 According to State Farm,
5
Most Mississippi cases offering a substantive discussion of breach of the duty of
loyalty claims appear in the context of legal-malpractice claims. See, e.g., Estate of St.
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[a]s a general matter, all agents owe their principals a duty “not to use
or to communicate information confidentially given him by the principal
or acquired by him during the course of or on account of his agency or in
violation of his duties as agent . . . on his own account or on behalf of
another.”
Mem. [1252] at 18 (quoting Restatement (Second) of Agency § 395) (alteration in
original). “Agents in fiduciary and confidential relationships also owe to their
principals a duty of loyalty, which requires the agent to protect the principal’s
property.” Id. (citing Omnibank of Mantee v. United S, Bank, 607 So. 2d 76, 90-91
(Miss. 1992)). State Farm alleges that Relators were its agents and owed a duty of
loyalty and fidelity to State Farm, as their principal. 3d Am. Countercl. [1232] at
61.
The Mississippi Supreme Court has recognized that there are “three types of
situations in which a party principal may seek to have someone else perform some
service for him: (1) principal and agent, (2) master and servant, and (3) independent
contractor.” Richardson v. APAC-Mississippi, Inc., 631 So. 2d 143, 147 (Miss. 1994).
“A principal-agent relationship is the fiduciary relation which results from the
manifestation of consent by one person to another that the other shall act on his
behalf and subject to his control, and consent by the other so to act.” O.W.O. Invs.,
Inc. v. Stone Inv. Co., 32 So. 3d 439, 447 (Miss. 2010).
In general, “[a] party can be both an independent contractor and an agent as
the two roles are not mutually exclusive.” Aladdin Constr. Co. v. John Hancock Life
Martin v. Hixson, 145 So. 3d 1124, 1129 (Miss. 2014).
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Ins. Co., 914 So. 2d 169, 172 (Miss. 2005). However,
not all independent contractors are agents. Thus, one who contracts for
a stipulated price to build a house for another who reserves no direction
over the conduct of the work is an independent contractor; but he is not
an agent since he is not a fiduciary, has no power to make the one
employing him a party to a transaction, and is subject to no control as to
his conduct.
Id. at 172 n.7 (quoting Comment to the Restatement (Second) of Agency § 2 (1958)).
“[A] person may be an independent contractor as to certain work and a mere agent
as to other work for the same employer.” Id. at 177 (quotation omitted).
“[T]he line between an agent and an independent contractor . . . inevitably
revolv[es] around the idea of control.” Id. at 175 (quotation omitted). “[W]hether an
agency has in fact been created is to be determined by the relations of the parties as
they exist under their agreements or acts, with the question being ultimately one of
intention.” Id. at 176-77 (quotation omitted).
“An agent has a fiduciary duty to act loyally for the principal’s benefit in all
matters connected with the agency relationship.” Restatement (Third) of Agency §
8.01 (Am. Law Inst. 2006). “An agent has a duty not to acquire a material benefit
from a third party in connection with transactions conducted or other actions taken
on behalf of the principal or otherwise through the agent’s use of the agent’s
position.” Id. at § 8.02.
The primary obligation imposed on an agent by the fiduciary duty of
loyalty is to avoid self-dealing with regard to the business of the
principal. Accordingly, an agent may not take part in any transaction
adverse to the interests of the principal without obtaining the principal’s
permission, after full disclosure of all facts that might affect the
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principal’s decision. An agent is not permitted to occupy a position that
would allow him or her to profit personally as a result of that agency
relationship. The fiduciary duty of loyalty is not limited to cases of
blatant self-dealing, but also requires a fiduciary to avoid any position
where his or her own interests or those of any other person whom he or
she has undertaken to represent may conflict with interests of the
principal.
19 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 54:28
(4th ed. 2001) (citations omitted).
Taking the allegations contained in the Third Amended Counterclaim as
true, State Farm has pleaded enough facts to state a plausible claim to relief for
breach of the duty of loyalty.6 See New Orleans City, 815 F.3d at 200. Nor is the
Court persuaded that Relators’ other arguments warrant dismissal of this claim.
Relators’ Motion to Dismiss will be denied as to State Farm’s breach of the duty of
loyalty claim.
6.
State Farm’s claim for civil conspiracy contained in Count VII should
not be dismissed.
Relators maintain that “[s]ince the tort claims should be dismissed, the
conspiracy claims must fail as well” because they must be predicated on an
6
Whether State Farm exhibited sufficient control over Relators such that Relators
were in fact agents of State Farm and owed a duty of loyalty appears to be a fact-intensive
inquiry. The Third Amended Counterclaim asserts that Relators were agents of State
Farm and that they owed a duty of loyalty and fidelity to State Farm as “their principal
under their contract and at common law.” 3d Am. Countercl. [1232] at 61. State Farm did
not attach a copy of any contract to the Third Amended Counterclaim. The Court
recognizes that whether State Farm has alleged enough facts to state a claim for breach of
the duty of loyalty is a close question, but at this stage of the proceedings, the Court finds
that the Third Amended Counterclaim contains sufficient factual detail to survive a Rule
12(b)(6) challenge. If raised at summary judgment stage, the Court will have to address
this question based upon the competent summary judgment evidence before it at that time.
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underlying tort. Mem. [23] at 23 (citations omitted). Relators further assert that
“an employee cannot conspire with her own employer, and a client cannot conspire
with her lawyer,” such that to the extent State Farm is alleging Relators conspired
with members of The Scruggs Law Firm, P.A., this claim should be dismissed. Id.
(citations omitted).
State Farm responds that it “has not limited its civil conspiracy allegations to
its ‘tort claims,’ as mistakenly argued by the Rigsbys.” Mem. [1252] at 30. “[T]he
Rigsbys’ invocation of the intracorporate conspiracy doctrine fails” because the
Third Amended Counterclaim asserts that the conspiracy “began when the Rigsbys
were still employed by Renfroe, not Scruggs.” Id. (emphasis in original). According
to State Farm, even after Relators left Renfroe, “they only acted as consultants –
not employees – of Scruggs, and were never ‘employed’ by the other members of the
conspiracy.” Id. at 31.
State Farm also argues that Relators have pointed to “no Mississippi case
that supports extending the intracorporate conspiracy doctrine to relations between
an attorney and his or her flesh-and-blood client.” Id. (citation omitted).
Alternatively, State Farm takes the position that such immunity applies only where
the lawyer and client act within the scope of their lawyer-client relationship. Id. “If
the lawyer or client acts outside of their respective roles, then ‘the attorney and the
client, as individuals, could form a conspiracy.’” Id. (quoting Heffernan v. Hunter,
189 F.3d 405, 413 (3d Cir. 1999)).
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“Under Mississippi law, ‘[a] conspiracy is a combination of persons for the
purpose of accomplishing an unlawful purpose or a lawful purpose unlawfully.’”
Gallagher Bassett Servs., Inc. v. Jeffcoat, 887 So. 2d 777, 786 (Miss. 2004) (quoting
Levens v. Campbell, 733 So. 2d 753, 761 (Miss. 1999)). The elements of a civil
conspiracy are: “(1) an agreement between two or more persons, (2) to accomplish an
unlawful purpose or a lawful purpose unlawfully, (3) an overt act in furtherance of
the conspiracy, (4) and damages to the plaintiff as a proximate result.” Bradley v.
Kelley Bros. Contractors, Inc., 117 So. 3d 331, 339 (Miss. 2013) (citations and
footnote omitted). The agreement “need not extend to all details of the scheme and
may be express, implied, or based on evidence of a course of conduct.” Id. (citation
omitted).
Having considered the allegations in the Third Amended Counterclaim, the
Court finds that State Farm has pleaded enough factual detail to survive a Rule
12(b)(6) motion on its claim for civil conspiracy. This portion of Relators’ Motion
will be denied.
7.
State Farm’s allegations of vicarious liability survive Relators’ Rule
12(b)(6) challenge.
The Third Amended Counterclaim alleges that
[t]he Rigsbys are each vicariously liable for all of their respective
wrongful acts and omissions alleged herein, including those of the other
Conspirators, under the doctrines of: respondeat superior; conspiracy;
aiding and abetting; agency; joint venture; co-adventure; and/or joint
tortfeasor.
3d Am. Countercl. [1232] at 66.
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Relators argue that these “doctrines that State Farm lists as bases for its
vicarious liability claim are inapplicable to the Rigsbys.” Mem. [1243] at 23.
Relators assert that respondeat superior has no application because it applies only
to an employer-employee relationship. Id. at 23-24. According to Relators, only two
employer-employee relationships are alleged in the Third Amended Counterclaim,
and “the Rigsbys were the employees, not the employers.” Id. Relators further
contend that the doctrines of joint venture and co-adventure are inapplicable
because the Third Amended Counterclaim
allege[s] no facts by which the Court could reasonably infer that the
Rigsbys (1) were engaged in a business enterprise; (2) had an agreement
to share in the profits or losses of the enterprise, [sic] and (2) [sic] had an
agreement to have a voice in the management of the enterprise.
Id. at 24.
State Farm responds that Relators have only “attack[ed] two of the six other
bases for vicarious liability pled by State Farm in its counterclaim . . . .” Mem.
[1252] at 32. As for its respondeat superior allegations, State Farm maintains that
such liability “arises in principal-agent relationships, regardless of whether the
principal was the agent’s ‘employer.’” Id. at 33. Here, Relators allegedly enlisted
the service of third parties as their agents during the “data dump” weekend “to
assist them with their unlawful pilferage of State Farm files.” Id. (citing Turner v.
Williams, 257 So. 2d 525, 527 (Miss. 1972)). For this reason, State Farm posits that
the Third Amended Counterclaim includes sufficient factual detail to state a claim
for vicarious liability under a joint adventure or co-adventure theory. Id. at 34.
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Alternatively, State Farm argues that, even if respondeat superior and joint
venture liability are inapplicable, “the Rigsbys would still face vicarious liability
under the doctrines of joint tortfeasor and civil conspiracy.” Id.
The Court is persuaded that State Farm has set forth sufficient factual
allegations, if taken as true, to establish at least one plausible basis for asserting
vicarious liability against Relators, specifically through its civil conspiracy claim.
See, e.g., Blades v. Countrywide Home Loans, Inc., No. 1:06CV1000-LG-JMR, 2007
WL 2746678, at *3 n.2 (S.D. Miss. Sept. 18, 2007) (recognizing that “co-conspirators
are held liable for the acts of other co-conspirators under Mississippi law”) (citing S.
Bus Lines, Inc. v. Amalgamated Ass’n of Street, Elec. Ry. & Motor Coach Emps. of
Am., 38 So. 2d 765, 769 (Miss. 1949)). Relators’ Motion to Dismiss will be denied in
this respect.
III. CONCLUSION
To the extent the Court has not addressed any of the parties’ arguments, it
has considered them and determined that they would not alter the result. Relators’
Motion to Dismiss and for Reconsideration [1242] will be denied, and Relators shall
file their responsive pleading to State Farm’s Third Amended Counterclaim within
14 days of entry of this Order, in accordance with Federal Rule of Civil Procedure
12(a)(4)(A). Relators shall file any motion for partial summary judgment raising
any constitutional challenge they may be asserting as to State Farm’s claims for
violations of the CFAA within 30 days of entry of this Order. At that time, Relators
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shall also file and properly serve the appropriate notice in accordance with Federal
Rule of Civil Procedure 5.1(a).
IT IS, THEREFORE, ORDERED AND ADJUDGED that, the Motion to
Dismiss and for Reconsideration [1242] filed by Relators Cori Rigsby and Kerri
Rigsby is DENIED WITHOUT PREJUDICE, as to any constitutional challenge to
the CFAA, and is DENIED in all other respects.
IT IS, FURTHER, ORDERED AND ADJUDGED that, Relators Cori
Rigsby and Kerri Rigsby shall file their responsive pleading to State Farm’s Third
Amended Counterclaim within 14 days of entry of this Order, in accordance with
Federal Rule of Civil Procedure 12(a)(4)(A).
IT IS, FURTHER, ORDERED AND ADJUDGED that, if Relators Cori
Rigsby and Kerri Rigsby intend to challenge the constitutionality of the CFAA in
this case, they shall file any motion for partial summary judgment challenging
State Farm’s claims for violations of the Computer Fraud and Abuse Act, 18 U.S.C.
§ 1030, et seq., on such constitutional grounds within 30 days of entry of this Order.
At that time, Relators shall also file and properly serve the appropriate notice in
accordance with Federal Rule of Civil Procedure 5.1(a).
SO ORDERED AND ADJUDGED this the 27th day of May, 2016.
s/ Halil Suleyman Ozerden
HALIL SULEYMAN OZERDEN
UNITED STATES DISTRICT JUDGE
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