PART ONE OF TWO PARTS: TO BE COMPLETED HERE ON THURSDAY, NOVEMBER 29, 2018.
The following reprint from the book, Catastrophe Claims: Insurance Coverage for Natural and Man-Made Disasters, is with the permission of Thomson Reuters West, the publisher, and Dennis J. Wall, the author of the reprinted selection. This selection, Section 2:19 (2018, Thomson Reuters), is reprinted here with permission of Thomson Reuters. Any further reproduction without the consent of the publisher is expressly prohibited.
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Cat Claims: Insurance Coverage for Natural and Man-Made Disasters § 2:19
Catastrophe Claims: Insurance Coverage for Natural and Man-Made Disasters
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November 2018 Update
Chapter 2. Claim Handling Issues
by Dennis J. Wall, Esquire
- 2:19. The infliction of stipulations on litigation of facts and on settlements
Stipulations have recently taken over much of litigation. Agreements are reached in lieu of discovery which keep the evidence secret. In some cases, secrecy stipulations even provide that documents and testimony in other cases will remain secret if filed in the current litigation.
The truthful cause of this situation has become public. At last, a Federal Judge has laid bare the catastrophe in the Federal Courts: Cases cannot be handled the way that they should be because there are not enough resources. For decades, Federal Courts have struggled with too few personnel and too little money to spend on administering what we euphemistically still call a system of justice.
This is the way that things are. Not only in Federal Courts, not only in State Courts, not only in one part of the country, but throughout the nation's judicial systems in every place, in every court.
Constitutional guarantees of access to courts are nothing but words without access to courts.
Statutes enacting new rights are hollow without the judges to declare what the statutes mean.
Procedural rules are worse than meaningless unless meaning is given to them by judicial conduct. They are misleading without judicial attention.
Judges cannot pay attention if they have so many things to do with so few capacities to do them that no judge can accomplish them in a single lifetime.
For a long time, individual judges have heroically tried to keep the judicial system performing, or on the whole at least give a convincing appearance of performing, even when a relatively small cohort of litigants game the system for advantage over the parties who oppose them.
That is where things stand in the 21st Century in the United States. It is the end of delusion. Now the veil of secrecy has been lifted, now the impossibility of administering justice using existing and even diminishing resources has been unveiled. Those who have eyes to see, let them see. And something more -- seeing, let them do something to make the judicial system better even as the judicial system is about to crash.
This is what the Federal Judge had to say. This is what the Chief Judge of the Eastern District of California had to say. His words were written in an insurance case, but they apply to all cases:
Lawrence J. O'Neill, UNITED STATES CHIEF DISTRICT JUDGE
- PRELIMINARY STATEMENT TO PARTIES AND COUNSEL
Judges in the Eastern District of California carry the heaviest caseloads in the nation, and this Court is unable to devote inordinate time and resources to individual cases and matters. Given the shortage of district judges and staff, this Court addresses only the arguments, evidence, and matters necessary to reach the decision in this order. The parties and counsel are encouraged to contact the offices of United States Senators Feinstein and Harris to address this Court's inability to accommodate the parties and this action. The parties are required to reconsider consent to conduct all further proceedings before a Magistrate Judge, whose schedules are far more realistic and accommodating to parties than that of Chief U.S. District Judge Lawrence J. O'Neill, who must prioritize criminal and older civil cases.
Civil trials set before Chief Judge O'Neill trail until he becomes available and [sic] are subject to suspension mid-trial to accommodate criminal matters. Civil trials are no longer reset to a later date if Chief Judge O'Neill is unavailable on the original date set for trial. Moreover, this Court's Fresno Division randomly and without advance notice reassigns civil actions to U.S. District Judges throughout the nation to serve as visiting judges. In the absence of Magistrate Judge consent, this action is subject to reassignment to a U.S. District Judge from inside or outside the Eastern District of California.1
Secrecy Stipulations
One decision which illustrates the point came in the non-catastrophic claims case of Cabrera v. Government Employees Insurance Co.2 That case involved an alleged class action against Government Employees Insurance Co. (“GEICO”) and Bell, LLC (“Bell”). The substantive claims consisted of alleged violations of the Telephone Consumer Protection Act.
The defendant Bell objected to certain discovery with this trade secrets objection:
Defendant's processes are proprietary processes that have independent commercial value and are not generally known. They are trade secrets.3
The Court overruled these “summary statements.” These objections were held insufficient both to establish confidentiality and to demonstrate that disclosure would be harmful, which are the twin burdens of proof in successfully establishing a trade secrets objection.4
Even though this ruling is squarely in the mainstream of discovery law which requires trade secrets and other objections to be stated with particularity,5 and when necessary to be established by proof such as the trade secrets objection, this is not the norm of legal rulings followed by courts in cases with secrecy stipulations filed by the parties.
This set of cases is illustrated by the decision of a Federal Court in North Carolina in a case in which the Federal Deposit Insurance Corporation sued former executives of one Cooperative Bank for making bad loans. In that case, the Court sealed the evidence against the executives. This prompted much commentary on the Court's actions in that case, including this observation:
The F.D.I.C. complaint made accusations that certainly sounded as if there were some bad faith. It said officers of the bank regularly ignored the bank's own lending rules and ignored repeated warnings from state and federal bank examiners. It said the board made no effort to force the bank officers to abide by the bank's own rules, let alone comply with the examiner's recommendations.
So what facts indicated there was no bad faith? That is hard to tell. The judge sealed many documents, including the F.D.I.C.'s arguments against the summary judgment.6
The Court in this case based its secrecy order, first, on the fact that the several motions under consideration filed by the parties requesting that the records be sealed, were each and all unopposed in that case and, second, on “the May 21, 2013 Amended Stipulated Protective Order and Non-Waiver Agreement [DE 71].”7Remarkably, the order does not refer to Federal Rule of Civil Procedure 26 which governs requests for a protective order including requests to seal things on file from disclosure to non-parties.
Although the amended stipulation referenced in the order does refer to Rule 26,8 the Rule contains no provision for parties to a lawsuit to alter its requirements. The record of this case reveals that the procedures of Rule 26 were simply not followed in this case when it came time to seal the evidence. The available record does not reflect “good cause” shown by any party “to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.”9 Rule 26 does not provide that a party or person who might be annoyed, embarrassed, oppressed, or burdened by discovery or disclosure in Federal civil litigation is entitled to a protective order sealing the proceedings just because the party or person says so. They have to prove it. That is their burden.10
Except in cases involving secrecy stipulations, it appears.
Settlement Stipulations
In other cases, parties try to provide by agreement what they could not obtain by litigation. The most glaring example is in the recent attempts by defendants to write and propose settlement stipulations for class actions that attempt to dispense with the requirements of class actions, and which will stand as res judicata determinations of those requirements if the same allegations are raised in other cases against the defendants.
Class action settlement stipulations of this kind are often found, for example, in lender force-placed insurance cases. These are a class of catastrophic claims unto themselves, more or less, or so it appears to defendants confronted by these alleged class actions.
In one such case in 2014, the defendants in Fladell, et al., Plaintiffs v. Wells Fargo Bank, N.A., et al., Defendants11 argued against class certification before they were in favor of it.
Within two months after the defendants filed their objections to class certification, the defendants settled the Fladell case. The defendants successfully urged the Federal Judge in that case to approve the settlement agreement and thereby approve, ostensibly for “settlement purposes” but in reality for res judicata purposes, more claims classes than the plaintiffs themselves asked the Court in that case to certify.
The fact of settlement negotiations was used in defense in other cases by the Fladell defendants before their settlement stipulation was executed and approved in that case. The defendants argued in these other cases that the plaintiffs in those other lender force-placed insurance cases should have to prove that their cases are not included in the settlement in Florida.
Apparently the parties in Fladell began talking about a national class action settlement as early as February, 2014. “On February 3, 2014 the parties in Fladell reached a settlement in principle,” anticipating a motion for preliminary approval of their class action settlement in March. A little over two weeks later, a Federal Court stayed an alleged LFPI class action involving California homeowners. The ground for the California Court's Order was that a settlement in Florida in Fladell might preclude the LFPI class action alleged in the complaint which was filed in California in October, 2013.12
To date, this is the third of three known cases involving a defense that lender force-placed insurance claims are precluded by a class action settlement of LFPI practices in Florida in Fladell. The proceedings in the Ursomano case in California paralleled the developments in both of these other cases. Ursomano contained both a request for a stay and, later, a dismissal.
The proceedings are instructive. First, as noted, the California Court granted the defendants' motion to stay because the Court was informed that the issues and allegations may be the same in Ursomano as in Fladell.(They arguably were not the same at all, but the Court was informed that they were. “It appears undisputed that the issues and putative classes are effectively the same in Fladell and Ursomano.”13)
Even though the Court was under the impression that the issues were the same in both cases, the Court nonetheless stated that it recognized its duty, if and when a settlement agreement was actually written in Fladell, to “determine whether the terms release Defendants from liability from claims asserted herein and whether Plaintiffs and the putative classes are covered by the Fladell class.”14
That review does not appear to have happened.
The Fladell case was settled, but a close review of the Ursomano Court File on PACER (“Public Access to Court Electronic Records”) does not show that anyone reviewed the terms of the Florida settlement agreement to see whether the terms release the same defendants from liability from claims asserted in California and whether the California plaintiffs and the Ursomano putative classes are covered by the Fladell case.
The District Judge who wrote the February opinion in Ursomano was reassigned and another District Judge took his place. The new Judge ordered all parties to notify him if and when the Fladell case was settled. On October 29, 2014—the same date on which the Florida Court gave its final approval to the Fladell settlement15—the parties in California filed their joint “Statement Regarding Settlement” informing the Federal Court in California that the parties in Florida “have drafted a settlement agreement” and were then having it signed.
The parties in Ursomano filed something other than a certification concerning the Florida settlement, however. Within two weeks, they filed their joint Stipulation of Voluntary Dismissal on November 12, 2014. They did not address whether the claims or classes alleged in California were the same or similar as those alleged in Florida. However, they did point out to the Federal Court that their alleged classes were never certified in Ursomano. The plaintiffs were careful to obtain the defendants' agreement that “the parties have reached a settlement of Plaintiffs' individual claims against Defendants in which the Plaintiffs' individual claims will be dismissed with prejudice and the members of any putative class will be dismissed without prejudice,” and, moreover, that while all of the individual claims were settled and should be dismissed with prejudice, under this stipulation “[a]ll claims and allegations of any putative class members are hereby dismissed without prejudice.” [Emphases added.]16
The Ursomano Court approved this Stipulation in a text-only entry on November 13, 2014, available only on PACER:
Order by Hon. James Donato granting 74 Stipulation of Voluntary Dismissal. Pursuant to the parties' stipulation, the Court dismisses this action with prejudice as to Mr. Canonico, Ms. Canonico and Mr. Ursomano and without prejudice as to the putative class. The putative class members retain all claims and causes of action, if any, against defendants. (This is a text-only entry. There is no document associated with this entry.) (jdlc1S, COURT STAFF) (Filed on 11/13/2014) (Entered: 11/13/2014)
To be continued on Thursday, November 29, 2018. All the footnote citations will be reprinted in that final installment.
The above reprint from the book, Catastrophe Claims: Insurance Coverage for Natural and Man-Made Disasters, is with the permission of Thomson Reuters West, the publisher, and Dennis J. Wall, the author of this selection. This selection, Section 2:19 (2018, Thomson Reuters), is reprinted here in its entirety with permission of Thomson Reuters. Any further reproduction without the consent of the publisher is expressly prohibited.
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