Claims and Bad Faith Law Blog

LENDER FORCE-PLACED INSURANCE PRACTICES: RESPA AND UNFAIR TRADE PRACTICES.

 

In a decision that was just published on Westlaw, a federal judge in the U.S. District Court for the District of South Carolina decided that Mary Beth Jeffords plausibly stated both a state unfair trade practice claim, and a federal RESPA or Real Estate Settlement Procedures Act claim.  Ms. Jeffords's claims arose over the forced placement of insurance.  The federal judge's decision in her case is now published in Jeffords v. U.S. Bank National Association.[1]

          Ms. Jeffords sued U.S. Bank "as servicer of her federally-related mortgage loan[.]"[2]  She alleged that U.S. Bank "failed to pay her insurance premium from her escrow account as it became due," that her insurance policy lapsed as a result, that U.S. Bank force-placed insurance on the property, that she was charged the premium for the force-placed insurance, that she also had to obtain a replacement policy for the one that had lapsed (for which she obviously had to pay another premium), and that she incurred a loss from water damage that the replacement policy did not cover.[3]

          Her amended complaint survived the bank's motion to dismiss her RESPA claim, which the bank seems to have filed on one ground:  that Ms. Jeffords "failed to allege any damages tied to U.S. Bank's actions[.]"  The District Judge disagreed:  "The court finds that Plaintiff adequately pleaded damages sufficient to survive dismissal."[4]

          More specifically, the Court listed some six allegations or groups of allegations of damages, "at least some" of which which the Court in this case held "alleged a plausible connection [with] U.S. Bank's alleged failure to pay the insurance premium when due":

1. lost insurance benefits which her prior insurance policy would have provided, "'including but not limited to the cost of repairs less her deductible';"
2. delay damages from the time it took to effectuate repairs;
3. an apparently higher premium for the replacement policy than she paid for her original policy;
4. the bank's charge for force-placing insurance;
5. "'miscellaneous costs including postage expenses and lost time';" and
6. emotional distress damages apparently including but not limited to "'worry, anxiety, frustration and lost time.'"[5]

As noted, the allegation of these damages alleged "a plausible connection between U.S. Bank's alleged failure to pay the insurance premium when due and at least some of the above-listed actual damages alleged by Plaintiff in her pleading.  U.S. Bank's motion to dismiss the RESPA claim is denied."[6]

To be continued ....  Force-placed insurance cases including the Jeffords case are discussed in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 9:33 - 9:35 (West 3d ed., 2021 Supplements in process), and in Dennis J. Wall, Lender Force-Placed Insurance Practices, published by American Bar Association Publishing.  A frequently refreshed selection of Chapters and Sections from these and other books is freely accessible at www.dennisjwall.com.

To be continued ....  Force-placed insurance cases including the Jeffords case are discussed in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 9:33 - 9:35 (West 3d ed., 2021 Supplements in process), and in Dennis J. Wall, Lender Force-Placed Insurance Practices, published by American Bar Association Publishing.  A frequently refreshed selection of Chapters and Sections from these and other books is freely accessible at www.dennisjwall.com.

 

(Photo of Litigation and Prevention of Insurer Bad Faith volumes courtesy of Thomson Reuters West Publishing.  Photo of Lender Force-Placed Insurance Practices book ©Donna M. Bruno and Dennis J. Wall.)

 

[1] Jeffords v. U.S. Bank Nat'l Ass'n, No. 3:20-cv-00393-SAL, 2020 WL 9348167 (D.S.C. Oct. 13, 2020).

[2] Jeffords, 2020 WL 9348167, at *1.

[3] Jeffords, 2020 WL 9348167, at *1.

[4] Jeffords, 2020 WL 9348167, at *2.

[5] Jeffords, 2020 WL 9348167, at *2.

[6] Jeffords, 2020 WL 9348167, at *2.

CLAIM FILE DISCOVERY AND THE WORK PRODUCT DOCTRINE

.

The Iowa Supreme Court summarized the law in this area in the context of a first-party bad faith case, Villareal v. United Fire & Cas. Co., 873 N.W.2d 714, 727 (Iowa 2016):

This means that claim files are not covered by the work product doctrine except insofar as they contain documents that would not have been prepared but for anticipated litigation. See Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 12:5 (3rd ed. 2011) (“Where the insured's complaint states a cause of action for first-party bad faith, the claims adjuster's files can generally be discovered. Work product objections will lie in particular cases.”).

          Unlike third-party bad faith cases, a first-party bad faith case does not provide any assistance by the nature of the bad faith claim either that the discovering party cannot obtain the substantial equivalent by other means, or that the discovering party cannot do without the requested materials in the preparation of its case without undue hardship.

As the Iowa Supreme Court noted, Discovery of Claim Files in first-party cases is discussed in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 12:5 (West 3d ed. 2011; 2021 Supplements in process).  Discovery of Claim Files in third-party bad faith cases is discussed in 1 id., § 8:5.  Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

INDIANA SUPREME COURT HOLDS COMPUTER HACKING RANSOM COVERED BY INSURANCE.

Recently, the Indiana Supreme Court was called upon to interpret the phrase, "resulting directly from the use of a computer," in an insurance policy providing Commercial Crime Coverage with a Computer Fraud provision.  The policyholder, G&G Oil, paid ransom demanded by a computer hacker in that case.  G&G's claim was denied by its insurance carrier, Continental Western.

          The Supreme Court held that the ransom payment was a covered loss:

    Analyzing G&G Oil's actions in this case, its transfer of Bitcoin was nearly the immediate result—without significant deviation—from the use of a computer. Though certainly G&G Oil's transfer was voluntary, it was made only after consulting with the FBI and other computer tech services. The designated evidence indicates G&G Oil's operations were shut down, and without access to its computer files, it is reasonable to assume G&G Oil would have incurred even greater loss to its business and profitability. These payments were “voluntary” only in the sense G&G Oil consciously made the payment. To us, however, the payment more closely resembled one made under duress. Under those circumstances, the “voluntary” payment was not so remote that it broke the causal chain. Therefore, we find that G&G Oil's losses “resulted directly from the use of a computer.”

G&G Oil Co. of Ind. Inc. v. Continental W. Ins. Co., 165 N.E.3d 82 (Ind. 2021) (quotation follows Headnote 16 in the Westlaw version; pinpoint page numbers not available at this time.)

          The Indiana Supreme Court decided this issue after the trial court entered summary judgment for the insurance company and the intermediate appellate court affirmed.  The  Supreme Court reversed and remanded with instructions that neither the policyholder nor the insurance company was entitled to summary judgment on the record before it.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

THE REAL SECRET ABOUT NONDISCLOSURE AGREEMENTS.

Trying to Control the Means of Communication, books, articles, cases. computers, and cd's.  (Dennis J. Wall)

The real secret about Nondisclosure Agreements is that they don't actually keep all their secrets.  See Ifeoma Ozoma, A Nondisclosure Agreement Didn't Silence Me, New York Times, Wed., April 14, 2021, at A27, https://www.nytimes.com/2021/04/13/opinion/nda-work-discrimination.html?searchResultPosition=1.

Please read the disclaimer.  ©2021 by Dennis J. Wall.  All rights reserved.

P.S. TO "BIG LAW JOINS FIGHT TO PROTECT VOTING RIGHTS": HOW EXACTLY?

P.S.

The NYT online headline and subhead give a more accurate introduction to the story.  Kudos to the online editor who wrote the online headline and subhead; she almost makes up for the print editor in this case (almost): 

Defying Republicans, Big Companies Keep the Focus on Voting Rights / A coalition of law firms has joined business leaders in wanting to use their clout to oppose state legislation that would make it harder to vote.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

"BIG LAW JOINS FIGHT TO PROTECT VOTING RIGHTS": HOW, EXACTLY?

 

Georgia Recount, November, 2020 (John Amis / Atlanta Journal-Constitution)

It may be a story with substance to it yet:  Big Law Joins Fight to Protect Voting Rights, by David Gelles and Andrew Ross Sorkin, The New York Times, Tuesday, April 13, 2021, at B1.  As published, however, this NYT story was a bust.  This particular reporting did not fulfill the headline that someone besides the reporters wrote for it.  (Reporters rarely write the headlines for their own stories.  However, they almost always know what the headline is going to be on their story.) 

          I would like to say at the beginning that this is no criticism of the people whose bylines are on this story.  They are two of the more respected journalists at The New York Times.  They have earned that respect.  However, everyone has a bad day and this was just one of theirs.    If you want to be impressed with the knowledge that no-one is perfect, you can ask anyone who is a parent.

         The NYT reporters on this story did not feel the need to beef up their reporting to match the headline.  They mentioned once or twice that law firms have "formed a coalition" to challenge voter suppression laws, but that was all.  No details, no specifics, no facts.  Perhaps there was really nothing yet to report when this story was reported in the NYT.

         News stories are breaking slowly on other outlets.  For example, NBC News reports that 65 law firms are signing a letter to tell government officials to respect voting rights.  A much smaller number of law firms, apparently something on the order of 16 law firms, are 'committing' in some way to defend voting rights.  The NBC News story is here: https://www.nbcnews.com/politics/elections/top-private-law-firms-plan-swat-teams-fight-voting-laws-n1263891.

          I confess to a healthy skepticism of how far this story goes.  Let me explain.

          My skepticism comes from experience.  I have known lawyers for all of my professional life.  I am a lawyer.  It is hard to imagine lawyers working together on the same side amicably, suppressing their individual egos for the greater good, unless they are all paid by the same person or corporation.  But I have constantly been surprised in my life, and I am open to surprise now -- in fact, in this case, I am hoping for it.  These could be the people we have been waiting for, as the saying goes, and in the end they could be the ones who end up doing things that need to be done.

          So far, there's lots of noise frankly, and little action.  It's probably too soon to see the end of this or where it may go.  Time will tell ....

          But let's please get some facts in the meantime.  Or to borrow a phrase, this is a tale full of sound and fury, signifying nothing.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

"TOO SMART BY HALF": THE TRUE STORY OF FORBIDDEN CONVERSATIONS.

Judge's Gavel.  (Sun Sentinel)

We have been looking lately at four cases of Stipulated Protective Orders, each one decided on the same day two weeks ago as these words are written.

          The lesson to be learned here is that these four SPOs are not simply typical of each other; they are typical of SPOs in thousands of cases in all types of litigation in the 21st Century.

          One of the more chilling provisions that lawyers have written into their SPOs concerns what they call "SCOPE."  This is the provision in which they say how far they intend their order to reach.  In that paragraph, the lawyers have all agreed that the Protective Order they are proposing will cover any "conversations" that they may have "that reveal Protected Material."

         In some cases, such as Premier Valley Bank in the Eastern District of California, the lawyers have agreed that "Protected Material" is what they say it is; when they have written "CONFIDENTIAL--ATTORNEYS' EYES ONLY" on disclosure or discovery material, then it is protected from public view.  Premier Valley Bank, 2021 WL 1164684, ¶ 2.11, at *2.  In other cases, including in the Central District of California, recent provisions have lowered the bar for recognizing "Protected Material" to material on which the lawyers have written, simply, "CONFIDENTIAL."  E.g., Diarian, 2021 WL 1163962, ¶ 2.13, at *3; Ramos, 2021 WL 1163575, ¶ 2.14, at *2; Orellana, 2021 WL 1163234, ¶ 2.14, at *3.  In all these cases as in most SPOs if not every SPO, the lawyers prevent material from being disclosed because they say it should not be disclosed.

         This may prove to be "too clever by half," as they say.   If "conversations" about confidential material disclosed or discovered in one case are prohibited in other cases, then the lawyers who wrote these agreements seem to have prohibited themselves  from representing the same clients on the same issues in future cases.  This can have real and not simply theoretical consequences, of course.

         For example, the defendant in the Orellana case is Target.  It is reasonably foreseeable that Target will be accused in other cases -- including in future cases -- of many of the same things that Target is accused of in the pending Orellana case.  If that ever happens, then the same lawyers may be prohibited from having "conversations" necessary to defend their client, Target, in any of those cases.

         This provision has echoes of the record in a recent Nondisclosure Agreement or NDA case in the Southern District of New York.  The record in that case reflects that the political campaign that wrote the NDA in that case, also attempted to enforce it in an earlier proceeding by alleging that a former campaign employee violated the NDA "'when she and her attorneys made statements about her lawsuit ....'"  Denson v. Donald J. Trump For President, Inc., No. 20 Civ. 4737 (PGG), 2021 WL 1198666, at *6 (S.D.N.Y. March 30, 2021) (emphasis added).  The Court ruled that the threatened enforcement of this sort of contract that restricts speech, 2021 WL 1198666, at *10, was invalid and unenforceable.

         The SDNY Court's reasoning concerning a Campaign's NDA is instructive concerning SPOs which have similar secrecy provisions.  "As to the scope of the [nondisclosure] provision" in that case, "it is -- as a practical matter -- unlimited."  It was unlimited in its vagueness, 2021 WL 1198666, at *14, just as the SPOs are equally unlimited in their own vagueness.

         Further, the New York Federal Court ruled, "[w]hether the scope of the restrictions in the non-disclosure provision is reasonable must be considered in light of what the Campaign contends are the 'legitimate interests' protected by this provision."  2021 WL 1198666, at *15.  "But even with respect to those categories the terms are not defined," and people purportedly bound by the secrecy provision are left with no idea how to comply with it. 

         "The non-disclosure provision's vague, overbroad, and undefined terms also render it unduly burdensome."  In short, because the effect of these burdens "is to chill the speech" of Campaign workers "about matters of public interest, the non-disclosure provision is harmful not only to them but also to the general public."  2021 WL 1198666, at *15.

         The same could be said of the Stipulated Protective Orders' "vague, overbroad, and undefined" terms such as "Protected Material" marked as 'Confidential' or 'Confidential-Attorney's Eyes Only' by the pens of lawyers, and such as undefined "conversations" that somehow "reveal Protected Material."

         One further thought, which the Federal Judge expressed in the case in the Southern District of New York.  Even if the Court were to set aside other standards of analysis in that case, "the non-disclosure provision is unenforceable under basic principles of contract law."  2021 WL 1198666, at *16.  It is impossible for a person "to know what speech she has agreed to forego" under such provisions, so that the supposed contract simply does not exist, there being "no possibility of mutual assent."  2021 WL 1198666, at *16.

         It seems equally impossible for a person to know what kind of speech she or he has agreed to forego in the stipulations quoted in the series of articles under discussion here.  If it is impossible for a person to know what "conversations" or speech she or he has agreed to forego under such provisions, the supposed stipulation is similarly void for vagueness, ineffective as a contract and unenforceable.  Submitting such provisions to a Federal Judge or Magistrate should not turn them into gold by some judicial alchemy; unenforceable provisions do not become enforceable simply because they have been signed by a judge.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.   

TO WHOM IT MAY CONCERN: QUESTIONS ABOUT YOUR SECRECY AGREEMENTS.

There is just enough time for a few questions in this special Thursday edition of Insurance Claims and Bad Faith Blog.                                                                                                                                                                                                                                                         

1. How did it happen that so many lawyers in so many cases used the same language for their Stipulated Protective Orders?  The lawyers in these and other cases used much the same language when they drew up their Stipulated Protective Orders.  Some of that language has already been quoted in past articles posted here.

          At the moment, I have been addressing three unrelated cases from the Central District of California because they were all decided on the same day.  The lawyers in these cases all used the same or substantially similar language when they wrote and signed the proposed orders they sent to the Courts in their separate cases.

         I cannot find a Model Protective Order in the Local Rules of the Central District of California and these stipulations did not reference any.  So where did this same language come from, to which each of these lawyers had the same access?  If any readers know the answer to this question, or if any reader knows of a Model Protective Order, please let me know.  I gratefully appreciate the information in advance.

2. Who drew up these stipulations for protective orders in these cases?  In many cases it is impossible to tell who drew up the Stipulated Protective Orders that somehow find their way to Judges and Magistrates, who sign them.  In most cases, the dockets just do not reveal how these proposed orders got to there in the first place.

          In at least one of these three cases, on the other hand, the docket reveals who filed the proposed order.  Clearly, the party that files the proposed order is the party that wants it the most.  It is reasonable to assume of course that the party that wants it the most is also the party that wrote it.  In the Orellana case, it was Target, the main defendant, that filed the proposed Stipulated Protective Order.   Orellana v. Target Corp., DE 30, proposed Stipulated Protective Order (C.D. Cal. Case No. 2:20-cv-06665 SVW (KSx)). 

3. What do they mean when they say "return or destroy" any material in "any format reproducing or capturing any of the Protected Material"?  In basic terms, a "return or destroy" provision requires that a person bound by the Protective Order shall either return what all the lawyers call "Protected Material" in all these cases, or destroy it.  The Premier Valley Bank stipulation in a fourth case is typical.  The Premier Valley Bank case was also decided on March 26, 2021, but in the Eastern and not the Central District of California.  It is typical in this regard not only among the subset of what has now become four cases, but it is also typical of the SPO case law at large.

         The Premier Valley Bank stipulation contains the requirement in its "return or destroy" provision that "'all Protected Material' includes all copies, abstracts, compilations, summaries, and any other format reproducing or capturing any of the Protected Material."  Premier Valley Bank v. Nguyen, No. 1:20-CV-00900-NONE-EPG, 2021 WL 1164684, ¶ 13,  at *7 (E.D. Cal. March 26, 2021) (emphasis added).  What does this mean?  Each of the three Central District cases contains the identical language that has been quoted here.  However, none of these cases offers much if any insight into what this language means.

         In particular, the reach of this provision to "any other format" "capturing any of the Protected Material" is vague.  It is also overly broad.  A Nondisclosure Agreement purporting to keep matters from being disclosed was recently held void for vagueness and overbreadth in Denton v. Donald J. Trump for President, Inc., No. 20 Civ. 4737 (PGG), 2021 WL 1198666 (S.D.N.Y. March 30, 2021).  If the same reasoning is applied to the language quoted here, it too should be held "invalid and unenforceable" for the same reasons.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

(Image = Editing,  LexisNexis.)

THREE FROM THE C.D.: "GOOD CAUSE STATEMENT" IN ALL OF THEM.

(Editing.  Lexis/Nexis)

Continuing our look at the three cases decided by Magistrates in the Central District of California on the same day (March 26, 2021), each of the three contained orders with this same language in the lawyers' "Good Cause Statement":

This action is likely to involve ... private information for which special protection from public disclosure and from use for any purpose other than prosecution of this action is warranted.

(Italics and boldface added.)¹

          In each case, this is the opening statement of the lawyers' Good Cause Statement, their lede if these were journalists writing a report for a newspaper, presenting their Statement of Good Cause to the Judge so that she or he will enter this protective order.

          The first question that arises from this single sentence is what exactly is the "private information" the lawyers had in mind?  Presumably, the rest of their Good Cause Statement will tell you, their reader, all they want you to know.  You be the judge.  Whether what the lawyers tell you is enough for you to know what they are talking about when they say, "private information," is up to you just as it will be up to their judge.

          A second question concerns when and whether "special protection from public disclosure" is "warranted."  In the past, Courts in the Ninth Circuit where these orders were entered have struck down so-called "confidentiality" provisions based on a statement that the lawyers would only designate things as "confidential" when they had a "good faith belief" that the things were in fact confidential.

         In each of these cases decided on March 26th, "good cause" was mentioned exactly once after the title.  Lawyers who practice in Federal Court know that they can only obtain a protective order for "good cause shown" to the Federal Court.  After the title of their Good Faith Statement in these three cases, the lawyers wrote a long paragraph without ever referring to "good cause," until they reached the end.  Then they declared that they would designate information "confidential" only when they had a "good faith belief" that the information they designate "confidential" is, in fact, confidential and that there is "good cause" to seal it from public view.  The reason that the old language was rejected by the Courts in the Ninth Circuit (and by many Courts in other Circuits) is because it gave too much power to the vague "good faith beliefs" of lawyers.

          Unfortunately, this present language is not an improvement over the past.  It is nondisclosure in a new shroud.  The new suffers from the same illness as the old.

          Last but far from least is the most important thought of all behind the Stipulated Protective Order.  The lawyers declare that they all seek special protection from public disclosure in their unique cases -- so unique that the same exact words are used by every lawyer in three separate cases -- "from use for any purpose other than prosecution of this action."

          I have been involved in trials since the 1970s.  I know enough  about trials to wonder what information is EVER used exclusively for "prosecution of this action," such that you would want to bar its use "for any purpose other than prosecution of this action."  I can't think of any.  Do you think otherwise?

          The real purpose comes clear now.  The real purpose is to prevent the use of information concealed by the lawyers in one case ever to be used in any other case "other than prosecution of this action."

To be continued ....

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

¹I do not like ellipses much.  Those are the three periods (...) that indicate that what we are reading is not the full quote.  As noted, the opening words of the Good Cause Statement are substantively identical in each of the "three cases from C.D.," with a few variations on the words chosen by the different lawyers in the different cases.  Here then is the statement in full:

This action is likely to involve commercial, financial, proprietary, and/or other private information for which special protection from public disclosure and from use for any purpose other than prosecution of this action is warranted.

This or very similar language is found in Diarian, 2021 WL 1163962, at *1; Orellana, 2021 WL 1163234, at *1 (which adds the words that this action is likely to involve "trade secrets, pricing lists and other valuable research, development" and "technical"), and Ramos, 2021 WL 1163575, at *1 (which substitutes the word, "confidential," for "commercial" in the above-quoted provision).

CAN THERE BE BAD FAITH OFF-SHORING TAX LIABILITY?

 

(Photograph courtesy of NASA)

Jesse Drucker has written an informative investigative report about off-shoring activities designed to reduce tax liabilities.  Apparently, if a corporation large enough to move certain financial activities off-shore -- such as Bristol Myers in this article -- and if that corporation retains its own accountants and lawyers to give it opinions that the off-shoring activity is "legitimate," "that can protect the company from accusations that it deliberately broke the law."  (Apparently, we only know about this particular activity because reporters were able to pierce the redactions in a report which the I.R.S. posted a year ago in April, 2020 about the Bristol Myers activity which actually took place in 2012-2013.)   Jesse Drucker, Slip-up Bared Tax Trick Used by Drug Giant / Bristol Myers Disputes $1 Billion I.R.S. Bill, New York Times, Friday, April 2, 2021, at A1.

          This possibility of legalized chicanery, if you will, raised some questions about Bad Faith in my mind that went beyond what was reported here.  Is there immunity "from accusations that it deliberately broke the law" if, hypothetically, a company deliberately hires accountants and lawyers for the purpose of giving it bogus opinions so that the company can shield itself from liability?

           If there is a "bad faith" exception to this kind of immunity, what would it look like?  Barring authorities on point, resort to general principles of good faith law like the principles governing insurance companies might well provide the answers.

           In the interim, if anyone knows what provisions of statutes or regulations confer the kind of immunity at issue in the Tax Trick article, supra, please leave a Comment below or send me an EMail via my website and let me know.  I have researched them myself, including via Westlaw, and I have come up empty so far.  Thank you for any help you can give.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.