Claims and Bad Faith Law Blog

ASYMMETRICAL INFORMATION OVERLOAD.

 ...  Today is the 48th year after the assassination of President John F. Kennedy.  God rest his soul.

 

    Unbalanced access to information is increasingly reported as a part of many otherwise unrelated relationships.  "Information asymmetry," for example, is a recognized stimulus for many insurance companies to initiate settlement negotiations even before First-Party Bad Faith Claims are filed against them.  It is enough for those companies that their claim handling behavior, known to them but not to their Policyholders, will likely result in First-Party Bad Faith Claims including fraud, unfair claim settlement practices, and the like.

   Whether they can defeat those claims is besides their point at the time they initiate settlement negotiations to prevent First-Party Bad Faith Claims from being filed.  Settlements of First-Party Bad Faith Claims which have not yet been made, based on so-called asymmetrical information, are less expensive in settling claims which could be made than paying settlements or judgments after First-Party Bad Faith Claims are made.  See Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 9:5, "The Question of Bad Faith--Presence or Absence of Fault" (Third Edition 2011 West Publishing Co.).

    Unbalanced access to information also pervades the dealings of financial firms, particularly their dealings in derivatives.  The counterparty paying for the presumed protection of a Credit Default Swap, for example, ordinarily does not have nearly as much knowledge about how that derivative will function in that particular situation as the intermediary has or as the issuer has.

   Counterparties may not even know the identities of the people who will issue a binding ruling on when that CDS pays off for a "credit event," meaning "payout".  See Gretchen Morgenson, "Fair Game / Scare Tactics in Greece" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, November 20, 2011).

   Unbalanced information in relationships is one of the elements of a Fiduciary relationship.  Fiduciaries are recognized by Law and by Equity in a whole range of situations.  One of their common elements is unbalanced access to information, i.e., one party to the relationship -- the Fiduciary -- has greater knowledge than the other.  See Wall, "Litigation and Prevention of Insurer Bad Faith," supra, § 3:34, "Legal Bases of Liability in Settlement--Final Elements:  Remedies for Fiduciary Bad Faith".  Fiduciaries are not allowed to abuse their Fiduciary relationships by putting their own interests above the interests of the other party.  See id., § 3:32, "Legal Bases of Liability in Settlement--First Element:  Fiduciary Relation".

   Unbalanced access to information is also a frequent element in fraud claims and causes of action.  Fraud need not be intentional.  Florida is an example of a place where the Courts recognize negligent misrepresentation.

   Asymmetrical information overload.  Fraud allegations and Breach of Fiduciary Duties claims should not frighten anyone, except perhaps the Securities and Exchange Commission and the parties engaged in the sorts of business practices that time after time lead to such allegations and claims.  What such parties do now, they and others did in the past.  Their conduct used to be called "deception," "flim-flam," and "lying."  Currently their conduct is described as proceeding from "asymmetrical" or "unbalanced access to information".

   By whatever name, it smells the same.

 

 Please Read The Disclaimer.

Amendments Proposed in Florida House to Insurance Bad Faith Law.

   Some significant amendments to Florida Insurance Bad Faith Law are in the offing if a new bill is passed by the Florida Legislature.

   Here is a link to the bill:  Download Florida H.R. Bad Faith Amendments Proposed November 2011.  Here is a summary of four key provisions:

1. It would add a Civil Remedy Notice of Insurer Violation as a condition precedent to bringing a Common Law Bad Faith Claim in Florida.  Currently, only Statutory Bad Faith Claims in Florida are required to first proceed through a Civil Remedy Notice.  However, the proposed amendments would also change what it means to have a "Civil Remedy Notice" in order to proceed with any Bad Faith Claim in Florida.

2. The "common-law duty" which the Insurance Company allegedly violated in Bad Faith would have to be spelled out in the new Notice.  What that means is entirely unclear.  There is no explanation, no requirement of the level of specificity that the Florida Courts would have to require if this change is made into a Florida Statute.
3. The current requirement of a Civil Remedy Notice is to contain a statement "with specificity" to advise the Insurance Company "of the facts and circumstances giving rise to the violation".  This has been a source of some contention in Florida Insurance Bad Faith practice.  However, the new proposal would add a requirement "if the violation includes failure to pay or tender moneys, the amount of such moneys."  This proposal is key.  See below.
4. Tender of "the amount demanded in the notice" is a major change which this proposal would make to Florida Bad Faith law.  There is no amount demanded in the notice -- not in the current Florida Bad Faith Statute, Section 624.155, and not in this proposal.  There is absolutely no requirement that any amount be demanded in the notice, even if this proposal is adopted to change the statute.  Presumably, "the amount demanded in the notice" is supposed to refer back to the new "tender amount" requirement in 3, above.  (The provision I highlighted here as a "key".)  However, the proposal only stipulates identifying an amount of what the Insurance Company allegedly "failed to pay or tender".

   The reason for existence of Bad Faith remedies is extracontractual damages, that is, damages above, beyond or separate from amounts allegedly due under Insurance Policies.  The "amounts of failure to pay or tender" are amounts allegedly due on Insurance Policies, not amounts allegedly due as the result of alleged failures to pay.

   Yet, the proposal would enshrine an absolute defense to any and all Insurer Bad Faith Claims in Florida law if the Insurance Company pays the amount allegedly due on its Policy; if it pays the Contract amount it will have an absolute defense to paying any other amounts even if it has held onto the Contract amount for so long that the returns on investment are greater than the Contract amount was in the first place.

   This is abolishing Insurer Bad Faith Claims in Florida in hiding.

   Why not come right out with a proposal to abolish Insurer Bad Faith Claims in Florida entirely?   

   There are many people who think that there may be merit in such a proposal as that, to abolish Insurer Bad Faith Claims in Florida completely.

   Why don't legislators vote up or down on that proposal?  Because they don't have the votes, that's why.

   Consumer and Policyholder perspectives on the newly filed bill are offered on Property Insurance Coverage Law Blog in a post on November 1, 2011, "New Bad Faith Bill Filed in Florida Legislature."

   The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida on November 30 and December 1, 2011.  The author will be speaking on both days.  Here is a link to the American Conference Institute Website Page which features this Conference including registration. If you or someone you know would like to attend, the ACI is offering a discount to the readers of this weblog.  If you would like to explore the ACI discount offer, contact:

Priority Code:  TM-MGN

Marc Gerstein
Delegate Coordinator
Office: 1-212-352-3220  x5432

m.gerstein@americanconference.com

 Please Read The Disclaimer.

UPDATE on Good Faith: Homeowners Betrayed, Banks Unreal: California Investigates, Refuses Pre-Immunity.

 This is an Update of posts which appeared here on October 4 and 27, 2011.

    The settlement talks between the Iowa Attorney General and other representatives of all the State Attorneys General, with the five largest Mortgage Servicers (each of which are also "banks") in the United States, may be nearing a settlement proposal each side will agree to sell to its constituents.  See Gretchen Morgenson, "Fair Game / A Deal That Wouldn't Sting" p. 1, col. 1 (New York Times, "SundayBusiness" Section, Sunday, October 30, 2011).

   Here is a reported tentative breakdown of the sums which would be paid by the Mortgage Servicers, and distributed by the Iowa and other State Attorneys General represented at the talks:

• $                         1,500.00 "to any borrower who lost his or her home to foreclosure since September 2008."
• $                 90,000,000.00 or $ 90 Million to State bank regulators.
• $              750,000,000.00 or $750 Million to the Federal Government.
• $           2,700,000,000.00 or $2.7 Billion more to "participating states".

   In addition, the Mortgage Servicers would get an estimated $20,000,000.00 or $20 Billion in "credits" if they "agree to reduce a predetermined amount of principal owed on mortgages that they own or service for private investors."

   Their cash outlay, apparently akin to the cash component of a structured settlement, is of course estimated at a much lower figure, in this case, between $3.5 Billion and $5 Billion.  Id.

   The linked report provides information only on the amounts of money that the Banks-Mortgage Servicers participating in this settlement might pay.  It does not contain any information on what Release they would require, or mention the fact that they are insisting on a Release that goes way beyond the original conditions when the parties entered into settlement talks over "robosigning" Fraud and other alleged Bad Faith, Unfair Trade practices.

   Why should there be a settlement then which would include all claims based on anything other than the original conditions of the talks?

   What reason do the Attorneys General have for even considering a Release of All Claims including claims not yet made and which they have not yet investigated -- but which clearly concern the Banks more than the "robosigning" and other Claims that have been made?

   And one thing more, at least:  Especially when the money figures they are proposing are about the same as what the Banks would have proposed to pay, even if the Attorneys General had not shown up?

   Please Read The Disclaimer.

 

SEC Settlement Practices Continue to Face Judicial Scrutiny.

   In Securities and Exchange Commission v. Vitesse Semiconductor Corp. et al, 771 F. Supp. 2d 304 (S.D.N.Y. 2011) Download SEC v. Vitesse Semiconductor Corp. (S.D.N.Y. Case No. 10CIV9239, Opinion and Order Filed March 21, 2011), the Securities and Exchange Commission defended its recent settlement practices in cases it brings alleging fraud against directors and officers.  Its settlement practices are codified in the Code of Federal Regulations.  They include filing cases against Defendants in which the SEC alleges fraud, and which the SEC practice is to settle without requiring the Defendants to admit or deny guilt.  The SEC claimed in this case that it instituted this practice in 1972.

   That claim caused the Federal Judge in that case, Judge Jed Rakoff, to set the record straight, as it were, as to the history and effects of this SEC practice:

Long before 1972, the S.E.C. had already begun entering into consent decrees in which the defendants neither admitted nor denied the allegations. This was strongly desired by the defendants because it meant that their agreement to the S.E.C.'s settlements would not have collateral estoppel consequences for parallel private civil actions, in which the defendants frequently faced potential monetary judgments far greater than anything the S.E.C. was likely to impose. But there were benefits for the S.E.C. as well. First, the practice made it much easier for the S.E.C. to obtain settlements. And second, at a time (prior to 1972) when the S.E.C.'s enforcement powers were largely limited to obtaining injunctive relief, the S.E.C.'s focus was somewhat more centered on helping to curb future misconduct by obtaining access to the Court's contempt powers than on obtaining admissions to prior misconduct.

   But, by 1972, it had become obvious that as soon as courts had signed off on such settlements, the defendants would start public campaigns denying that they had ever done what the S.E.C. had accused them of doing and claiming, instead, that they had simply entered into the settlements to avoid protracted litigation with a powerful administrative agency. Thus, the real change effected by the S.E.C. in 1972 was the requirement that a defendant who agreed to a consent judgment “without admitting or denying the allegations of the Complaint” nevertheless agree that the defendant would not thereafter publicly deny the allegations. To this end, each of the proposed Consent Judgments now presented to this Court is accompanied by a *309 formal written “Consent” of the defendant agreeing, pursuant to 17 C.F.R § 205.5, “not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis.”

   The result is a stew of confusion and hypocrisy unworthy of such a proud agency as the S.E.C. The defendant is free to proclaim that he has never remotely admitted the terrible wrongs alleged by the S.E.C.; but, by gosh, he had better be careful not to deny them either (though, as one would expect, his supporters feel no such compunction). Only one thing is left certain: the public will never know whether the S.E.C.'s charges are true, at least not in a way that they can take as established by these proceedings.

   This might be defensible if all that were involved was a private dispute between private parties. But here an agency of the United States is saying, in effect, “Although we claim that these defendants have done terrible things, they refuse to admit it and we do not propose to prove it, but will simply resort to gagging their right to deny it.”

   The disservice to the public inherent in such a practice is palpable.

Id. at 308-09.  [Emphasis added.]  The Court announced in that case that SEC Settlements containing such provisions would receive a heightened level of scrutiny as a result.  In that unique case, however, the circumstances caused the Court to approve the settlement.  The Court was careful to conclude with the notice that approval of the settlement brokered by the SEC in this case, did not at all mean that SEC settlements in other cases would escape judicial scrutiny:

  

 No reasonable observer of these events could doubt that the company has effectively admitted the allegations of the complaint in the way that, for a company, is particularly appropriate: by letting its money do the talking. Under these unusual circumstances—but reserving for the future substantial questions of whether the Court can approve other settlements that involve the practice of “neither admitting nor denying”—the Court approves the proposed Consent Judgments.

 

Id. at 310.  [Emphasis added.]

 

   Judge Rakoff is the Federal Judge assigned to scrutinize the settlement brokered by the SEC with Citigroup in which "Citigroup had agreed to pay $285 million to settle a civil complaint that it had defrauded investors in a mortgage securities deal.  The bank [Citigroup] did so 'without admitting or denying' the government's accusations."  See Peter Lattman, "Citigroup Deal to Go to Judge Critical of S.E.C. Practices" p. B4, col. 1 (New York Times Nat'l ed., "Business Day" Section, Friday, October 21, 2011).

 

Time will tell what happens once this alleged settlement is subjected to the promised level of judicial scrutiny.

 

Please Read The Disclaimer.

 









Good Faith: Homeowners Betrayed, Banks Unreal: California Investigates, Refuses Pre-Immunity.

    The California Attorney General has pulled out of national settlement talks with the Banks over unlawful mortgage servicing and foreclosure practices.  Download California AG 093011 Mortgage Letter.  In her letter, she mentioned "Good Faith," or lack of it, three times.

   The New York Attorney General has raised concerns during the talks.  He was immediately removed from the negotiations.  

   These developments have not gone unnoticed in the popular press or in blog posts.  See, e.g., Louise Story, "California Quits States' Talks With Banks on Mortgages" p. B1, col. (New York Times Nat'l ed., "Business Day" Section, Saturday, October 1, 2011); Alejandro Lazo and Nathaniel Popper, Post on "Money & Company" Blog on Los Angeles Times Online, Friday, September 30, 2011:  "California Breaks From 50-State Probe Into Mortgage Lenders [Updated]"; Ruth Simon and Nick Timiraos, "California Pulls Out of Foreclosure Talks" (Wall Street Journal Online, Saturday, October 1, 2011); Rick Daysog, Post on "CapitolAlert" Blog on Sacramento Bee Online, on Friday, September 30, 2011:  "California Pulls Out of Nationwide Wrongful Foreclosure Settlement".

   However, not many of these reports put these developments in the context in which they occurred.  That is the intent behind this post.  It may be a long post, unless you are interested in the reasons these things happened and then the time it takes to understand the background will, I think, be well spent.

Putting it all in perspective:  The context.

   50+ State Attorneys General (counting the chief legal officers of the District and of the U.S. territorial possessions) have been in national settlement talks with the "Banks".  The subjects of their negotiations have been unlawful foreclosure practices and mortgage servicing.

   The Banks have apparently already agreed to change foreclosure practices that they pursue or that "mortgage servicers" pursue in their names.  "Good progress has been made, particularly with respect to identifying common-sense reforms to mortgage servicing and foreclosure practices."  California Attorney General 09.30.11 Letter, supra, at 1.

   But the Banks want more.

   The Banks have expanded their own demands beyond unlawful mortgage servicing and foreclosure practices.  They want immunity from mortgage securitizations.

   The Banks want the State AG's to agree to confer immunity upon the Banks if the Federal Government, any departments of State Governments, or individuals sue the Banks for damages allegedly caused by the Banks' mortgage securitizations.  See the newspaper reports and blog posts linked above.

  Some Attorneys General want these negotiations to include loan modifications to restore a flow of money and stimulate the economy.  Loan modifications by or on behalf of the Banks are apparently not on the negotiating table.  See California A.G. 09.30.11 Letter at 2:  "In return for this broad release of claims, the relief contemplated would allow far too few California homeowners to stay in their homes."

   The Banks' demand for immunity from their mortgage securitizations in contrast is on the negotiating table.  The Obama Administration position is to take the Banks' money in exchange for the Banks' immunity.  This exchange is intended to help restore the economy.

   The Obama Administration has been incessant in putting pressure on State AGs who refuse or are reluctant to talk about mortgage securitization immunity for the Banks.  The New York Attorney General as one example has been an object of attention from officials in the Obama Administration and in the Federal Reserve System in this regard.  E.g., Alan Feuer, "Top Prosecutor Stands Out by Pushing Back" p. 22, col. 1 (New York Times Nat'l ed., Sunday, October 2, 2011);  Gretchen Morgenson, "Attorney General of N.Y. is Said to Face Pressure on Bank Foreclosure Deal" (New York Times Online, August 21, 2011).

The experience of settlement negotiations.

   Experienced negotiators know that your negotiating counterparties have just told you where they perceive themselves to be most vulnerable when they make such a demand.

   That appears to be one of two good reasons why the California AG is exclusively directing the time and resources of her office to investigating things like the role of mortgage securitizations in the mortgage foreclosure crisis.  She and other State Attorneys General -- in contrast to the current Federal Department of Justice -- have already been investigating that issue.  Two good reasons for removing the constraints of the current national settlement discussions therefore include, first, that investigating this area is where the Banks on the other side of the table do not want you to go, and second, this decision tends to push the Obama officials back.

   In actual context, it is clear why the California AG wrote a letter saying that the proposed settlement is "inadequate":

   However, despite your diligence and our good-faith effort to reach reasonable terms with the banking industry, there now exists a proposed settlement that is inadequate for California homeowners....

... California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated.  In return for this broad release of claims, the relief contemplated would allow too few California homeowners to stay in their homes.

California AG 09.30.11 Letter at 1-2.  Many newspaper reporters took this to mean that the contemplated "damages" were inadequate.  See the many newspaper reports and blog posts linked above.  Damages were never mentioned in this letter.  The inadequate relief contemplated in this arrangement was instead mentioned over and over.  It is not about the money.  It is about Good Faith, or lack of Good Faith, in settlement negotiations.

Once, twice, three times "Good Faith".

      I mentioned that the California AG's letter mentioned "Good Faith," or lack of it, three times.  The first time was when the AG identified a good faith effort -- by the AGs -- to reach reasonable terms with the Banks.

   The second time was to describe the fact that the AGs were negotiating in good faith with the Banks when "recently, at the same time" the Banks' foreclosure actions in California "surged again."

   Third and finally, the reforms identified in the talks apparently included enhancing "transparency" and eliminating "incentives to disregard borrowers' rights in foreclosure.  Many of these reforms have been identified in the multistate talks, and I hope that in good faith the banks will adopt those reforms immediately."  California AG 09.30.11 Letter at 1-2.

And in the end, the love you take is not equal to the deals you make.

   The Obama Administration's pressure on State AGs to confer immunity in exchange for an amount of money without investigation, has already been described above. 

   Good Faith in negotiations contemplates an exchange.  It does not mean acceptance without investigation of the counterparty's position.  It includes obtaining something of equal value in return for what the other side demands.  If the other side of a negotiation is not willing to negotiate in Good Faith, then there really are no negotiations that deserve the name.

Please Read The Disclaimer. 

Conditional Objections Are Waived Objections in Insurance (or Any) Case.

    In Download Pepperwood of Naples Condominium Ass'n v. Nationwide Mut. Fire Ins. Co. (M.D. Fla. Case No. 2.10cv753, Order of USMJ Filed Aug. 29, 2011) PUBLIC ACCESS, also published as 2011 WL 3841557 (M.D. Fla. August 29, 2011)(authorized password required to access Westlaw), a U.S. Magistrate Judge compelled production of Civil Remedy Notices, from other allegedly similar cases, in a Statutory Bad Faith Case in Florida.  This ultimate holding is not in itself very unusual.  Such holdings are fairly common in Statutory First-Party Bad Faith Actions in Florida. 

   How the Court arrived at its holding is worth noting, however.  I have discussed this holding and its reasoning with Defense and Policyholder Insurance Lawyers, and they tend to agree with it.  It reflects their practice not to raise objections, for example, unless they intend to pursue them and have the Judge resolve the issue if need be.  As one Policyholder Attorney reflected, "That's what Courthouses are for."

   The Plaintiff in the Pepperwood case is a Condominium Association.  It claims that it incurred Hurricane Damage in 2004.  The Condominium Association alleges in its Complaint that Nationwide Mutual Fire Insurance Company recognized Coverage for Property Damage under its Policy issued to Pepperwood, but did not pay all Covered Damages.  Instead, Nationwide allegedly "tendered" $30,270.20.  Pepperwood of Naples Condominium Association v. Nationwide Mutual Fire Insurance Co., 2011 WL 3841557 at *1.

   After various further developments including the Condominium Association hiring a Public Adjuster to interface with Nationwide, and an Appraisal in Pepperwood's favor for "$1,901,645.06 (Replacement Cost) and $1,535,468.28 (Actual Cash Value)," in response to which Nationwide "tendered an additional $1,391,674.64 in owed insurance benefits," Pepperwood sued Nationwide for Breach of Contract and for Statutory Bad Faith.  Id. 

   The Condominium Association then propounded Discovery.  This included a Request No. 1 in "Plaintiff's Second Request for Production," to which Nationwide duly responded.  The Request, and Nationwide's Response, were quoted together by the Court as follows:

Request No. 1: A copy of any and all civil remedy notices (“CRN”) and related correspondence, including Nationwide's responses to the CRN, regarding similarly situated policy holders as Pepperwood from January 2004 until the present.

* * *

Nationwide's Response: Objection. This request is overbroad in temporal and subject scope; this request is vague with respect to the phrase “similarly situated policy holders”; this request is burdensome and harassing; this request seeks irrelevant information that is not reasonably calculated to lead to the discovery of admissible evidence. Subject to these objections and without waiver of the same, this request seeks information that is publicly available online from the Florida Department of Financial Services [FDFS], and can be obtained from that source as easily by Plaintiff as by the Defendant.

Id. at *2.  Time to break out the Discovery issues, much as the Court did.  The focus in the Court's Opinion, and in this post, is on the Defendant's Response, for reasons which will become apparent.

   The Defendant's Response involved four (4) sets of objections, which are addressed below in the order in which the Court addressed them and which was not the order in which Nationwide listed them.  

 The first of four sets of Objections:  "Subject to these objections and without waiver of the same" is a Conditional Objection and did result in waiver of the same.

   The first thing that the Court in this case wrote about the Defendant's Conditional Objection is that "this court is reluctant to sustain the objection."  Then the Court cited case law from other Courts in support.  Id.  The fact that "this seems to be an increasingly common approach to discovery," and "[e]ven though the practice has become common here and elsewhere," it has not received favorable treatment from the Courts which sometimes have to consider them.  The Courts in Insurance Coverage and Insurance Bad Faith Cases, and in other kinds of cases as well, seem to be fairly unanimous in rejecting Conditional Objections to Discovery.

   So it was in this case.  "[I]f a party objects to a question or request but then answers, has the objection been waived despite the claimed reservation of the objection?  This court cannot logically conclude that the objection survives the answer.  Simply put, the rules do not on their face give a party that option."  Id.  [Emphasis added.] 

   Not only is there no "Rule" basis for this practice, in the eyes of this particular Magistrate Judge there is no "rational basis," either.  "There is either a sustainable objection to a question or request or there is not."  Id. at *3.

   In this as in many another case of Conditional Objections to Discovery, "the objection is deemed waived, and the answer, if responsive, stands."  Id.

 Second set of Discovery Objections here:  "Overbroad in temporal and subject scope;" vague; burdensome; and harassing.

    Like many other Courts, the Court in this case referred to objections of this kind, which were made without substantiation, as "boilerplate".  A "boilerplate objection/response ... is not well taken.  Defendant must state specific grounds for each objection."  Id.

 Third set of Discovery Objections:  Irrelevant and not reasonably calculated to lead to the discovery of admissible evidence.

    This objection, too, must by law include a specific explanation saying why.  "Thus, Defendant's objection to this Request as to relevancy was improper."  Id. at *4.

 The "equally available" Response, treated in this case as another Objection.

   The Court first pointed out that "[t]his assertion made by the Defendant is incorrect.  Only the CRN is available online, the other information contained within Plaintiff's request is solely within the control of the Defendant and unavailable to Plaintiff."  Id.

   Second, even if the Response had been accurate in this regard, "'this exact objection is insufficient to resist a discovery request.'"  Id. 

    The Court's decision in this case is not unique.  It is equally available to support Discovery Requests to Plaintiffs as well as to Defendants.  Whether Discovery will be compelled in a given Insurance Bad Faith Case, as in any case in this respect, depends largely on the Responses including Objections to the interrogating parties' Discovery Requests.

    The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or someone you know would like to attend.

Please Read The Disclaimer.

 

 

RMBS Defendants Sued For Alleged Misrepresentations.

   Residential Mortgage Backed Securities have so many problems.  Now those problems are sticking to the issuers of RMBS.

   To begin with, four lawsuits have recently been filed in Federal Courts on Claims based on alleged illegal sales of RMBS, including alleged misrepresentations to Credit Unions.  In each case, the Plaintiff is the Regulator of Credit Unions, the National Credit Union Administration Board, which "charters and regulates federal credit unions and insures their accounts," Gregory Mott and Joel Rosenblatt, "Goldman Sachs Sued by U.S. Over Securities Sold to Failed Credit Unions" (Bloomberg.com, Wednesday, August 10, 2011).  The Defendants in these cases are well-known, very large financial institutions:

   1.  Goldman Sachs, Fremont Mortgage Securities Corp., et al.  National Credit Union Admin. Bd. v. Goldman Sachs & Co., et al., Case No. 11-06521, United States District Court for the Central District of California, Complaint Filed August 9, 2011 (unavailable on PACER, the Federal Courts' electronic docket).

   2. Royal Bank of Scotland ("RBS") and Wachovia Mortgage Loan Trust, LLC, among others in Download National Credit Union Admin. Bd. v. RBS Securities, Inc., etc., et al. (Complaint, Part 1, Filed July 18, 2011, C.D. Cal. Case No. 11.5887).  The linked document is only Part 1 of the Complaint in this case; PACER identifies three (3) other Parts of the Complaint in the Court File.  The linked Part 1 is 35 pages long and has its own Table of Contents.

   3.  The NCUA also sued RSB in the U.S. District Court, Western District of Missouri, in a Complaint reportedly filed on June 20, 2011 (Complaint unavailable on PACER).

   4.  JP Morgan Chase, reportedly in a separate lawsuit also filed in the U.S. District Court for the Western District of Missouri, Complaint reportedly filed on June 20, 2011 (Complaint also unavailable on PACER).

   As noted, each of the four above lawsuits was filed by the NCUA, a Board of the United States.  The Commonwealth of Massachusetts previously filed and recently settled its own lawsuit.  The Defendant was one Option One.  The Commonwealth alleged that Option One, a subprime lender, engaged in unfair and discriminatory lending practices.  As the Massachusetts Attorney General described the settled case:

   They [Option One, the Defendant subprime lender] employed a business model that absolutely failed to gauge the ability of borrowers to replay the loans.  In other words, they knew or should have known that those loans were going to fail.

Massachusetts Attorney General Martha Coakley, quoted in Associated Press Report published in the New York Times National Edition of Wednesday, August 10, 2011, p. B4, col. 5.   Reportedly, when the lawsuit was filed by Massachusetts in 2008, it was the first lawsuit in which a subprime lender was accused of civil rights violations in the making of subprime loans.  See id.

   Recently, American International Group ("AIG") has also sued on similar Claims.  The Defendant is Bank of America.  "The suit seeks to recover more than $10 billion in losses on $28 billion of investments, in possibly the largest mortgage-security-related action filed by a single investor."  Louise Story and Gretchen Morgenson, "A.I.G. to Sue Bank on Loss In Fiscal Crisis" p. A1, col. 5 (New York Times Nat'l ed., Monday, August 8, 2011).  Parenthetically, note that by the time this linked newspaper article was posted online, the story opener was changed to reflect the fact that AIG's lawsuit had already been filed at that time.

   The Securities and Exchange Commission, which for whatever reason has not filed many such lawsuits and no significant charges of criminal wrongdoing whatsoever in connection with RMBS, has now sued a broker, Stifel, Nicolaus & Company, for alleged misrepresentations in the sale of securities 'backed' by Synthetic Collateralized Debt Obligations or "CDOs".  Download United States Securities and Exchange Commn v. Stifel, Nicholas & Co., and David W. Noack (Complaint Filed August 10, 2011 E.D. Wis.) (44pages).  The Eastern District of Wisconsin's Case Number is 2:11-cv-00755-AEG.

   Reportedly, Credit Unions are pursuing political means to make up for lost ground or lost profits, by lobbying the U.S. Congress through their trade association to increase their lending limits by Federal Statute.  See Emily Maltby, "A Push For More Loans / Credit Unions Aim to Raise Lending Cap, Say Banks Aren't Doing Enough" p.B9, col. 1 (Wall Street Journal print edition, Thursday, August 11, 2011).

   The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  As a result, the ACI will offer you a large  discount if you choose to register for the Conference.  In order to register and receive this discount from the ACI, contact Amanda Waltmon, Esquire, Legal Analyst and Program Director at the ACI on or before September 15, 2011.  Her direct dial is 212.352.3220, ext. 5231 or send Ms. Waltmon an EMail at a.waltmon@americanconference.com.  Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or anyone you know would like to attend.

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Foreclosure Lawsuits Problems Attempt Overwhelming Courts: No. 2, With Solutions.

This is another in a continuing occasional series.  This post follows the June 8, 2011 post here, "Foreclosure Lawsuits Problems Attempt Overcoming Courts:  No. 1, With Solutions," and the post on June 6, 2011 on Insurance Claims and Issues Web Log, "Frivolous Foreclosure Fraud Attempt to Overcome Courts".  This post also adds to the many previous posts in the Category of "Foreclosures" on both Blogs.

   In Download Brooks v. Flagstar Bank, FSB (E.D. La. Case No. 11.67, Order and Reasons Filed July 12, 2011) PUBLIC ACCESS, also published as 2011 WL 2710026 (E.D. La. July 12, 2011)(authorized password required to access Westlaw), the Federal Court applied "the Rooker-Feldman doctrine" to measure whether it would exercise jurisdiction over eleven (11) asserted Claims.  That doctrine relates to collateral attacks on final State Court Judgments, in this case, a Judgment of Foreclosure.

   In basic and simple terms, under the Rooker-Feldman doctrine a Federal Court will refuse to exercise jurisdiction to hear what is essentially an appeal of a State Court Judgment.  Brooks v. Flagstar Bank, FSB, 2011 WL 2710026 at *2 - *3.

   The occasion for applying the Rooker-Feldman doctrine was in the context of a Motion to Dismiss for lack of subject-matter jurisdiction under Fed. R. Civ. P. 12(b)(1).  That Motion was filed by the Defendant Bank's law firm and by one Candace A. Coutreau.  The Federal Court applied the doctrine to dismiss two of the eleven Claims alleged against those parties:  Claims based on (1) an alleged abuse of executory process and on (2) an alleged abuse of executory process in bad faith.  Id. at *4.

   That left nine (9) Claims remaining, which the Court held were not barred by the Rooker-Feldman doctrine.  Although all remaining Claims were dismissed as against the Bank's law firm and Ms. Coutreau for failure to state a Claim under Fed. R. Civ. P. 12(b)(6), they are at least potentially available in an appropriate set of facts as against the Bank itself.  The nine such Claims alleged in this case were alleged (1) Fair Debt Collection Practices Act violations; (2) Federal Unfair Trade Practices; (3) Deceit; (4) Breach of Duty of Good Faith and Fair Dealing; (5) Justifiable Reliance; (6) Louisiana Unfair Trade Practices; (7) Negligence; (8) Fraud, and (9) Conspiracy.  See id. at *1, *4 - *10.  (According to PACER, the Online Docket of the Federal Courts, the Bank's Answer or other responsive pleading is not yet due.)

   In addition to these further possible solutions to the problems of Foreclosure Lawsuits filed in an apparent attempt to overwhelm Courts, there is also the reported potential of a Class Action Lawsuit based on alleged violations of (1) the Federal Truth-in-Lending Act and (2) State Consumer Protection Statutes.  See Kenneth R. Harney, "Litigation Gauges Banks' Ability to Cut Home-Equity Credit Lines / A Possible Giant Class-Action Lawsuit is Considered a Bellwether Test of Homeowner Rights under the Truth in Lending Act and State Consumer Protection Statutes" (Los Angeles Times Online, Sunday, July 17, 2011).

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Bad Faith per se Violation of Washington Consumer Protection Act.

This continues from the post here on Tuesday, July 12, 2011.

   In Download Tarutis v. Farmers Insurance Co. (Wash. Ct. App. Div. 1, Case No. 64477.7.I, Opinion Filed July 5, 2011) PUBLIC ACCESS,, also published as 2011 WL 2611763 (Wash. Ct. App. Div. 1, July 5, 2011)(authorized password required to access Westlaw), Division 1 of the Washington Court of Appeals was also confronted with Washington State Consumer Protection Act issues on appeal.

   The Trial Court had refused to submit the CPA claim to the Jury.  "At the conclusion of evidence in a four-week trial, the trial court granted Farmers' CR 50 motion dismissing the CPA claims on the grounds that Lipscomb's $600,000 contribution to the settlement was not an injury to business or property."  Moratti v. Farmers Insurance Co., 2011 WL 2611763 at *2, ¶ 7.

   On appeal, the Appellate Court found the narrowest possible ground for a decision, which is its job as an appellate court.  It also did more than that in this case.

   In Washington State, Insurer Bad Faith is a per se violation of the Consumer Protection Act.  Id. at *8, ¶ 27.  Since the Jury in this case already found that the Defendant Insurance Company acted in Bad Faith, the Washington Appellate Court remanded with directions to enter Judgment in favor of the Plaintiff on the Plaintiff's CPA Claim.  Id. at *8, ¶ 28.

   The Washington Appellate Court also did more in this case.  It held that in this case the claimed loss was "clearly" covered damage:  "The $600,000 is clearly a business loss.  The insured was a landlord and the liability stemmed from his rental of property in the course of his business."  Id. at *7, ¶ 26.

   Insurance Companies have a hard time dealing with Washington State Consumer Protection Act Claims in general.  Although the issue was obviously not involved in this case, CPA claims may lie even when the Insurance Companies have  not acted in Bad Faith and even when they do not have Coverage for the claimed loss or occurrence.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith"  §§ 3:105, 9:25 (Third Edition West Publishing Company scheduled for publication in July, 2011).

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No Jury Trial Rights in Massachusetts for Chapter 93A Claims.

   In Bryksa v. B&B Protector Plans, Inc., Download Bryksa v. B&B Protector Plans, Inc. (D. Mass. Case No. 10.11319, Memorandum & Order Filed December 1, 2010) PUBLIC ACCESS, also published as 2010 WL 4939954 *1 (D. Mass. December 1, 2010)(authorized password required to access Westlaw), Mr. and Mrs. Bryksa sued B&B and Greenwich Insurance Company for alleged "unfair settlement practices, a violation of the Massachusetts Consumer Protection Act (Mass. Gen. Laws ch. 93A and ch. 176D) and intentional infliction of emotional distress."  The Defendants filed a Motion to Strike the Plaintiffs' Jury Trial Demand on the Chapter 93A Count and the Federal Court granted the Motion.

   First, the Federal Court noted that Massachusetts State Courts did not provide Jury Trials for Chapter 93A Claims "because such claims are considered equitable in nature."  Second and more importantly, although there was some contrary authority, the Federal Courts applying Massachusetts Law also generally held that Chapter 93A Claims are equitable in nature or at least "not suits at common law."  Bryksa v. B&B Protector Plans, Inc., 2010 WL 4939954 at *2.

   "For that reason, the Court concludes that there is no Seventh Amendment right to a jury trial with respect to a Chapter 93A claim."  Id.

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"Comparison Test" Eliminates Duty to Defend, Duty to Indemnify ...

... Will It Now Eliminate Also a Pending Claim Under the North Carolina Unfair and Deceptive Trade Practices Act, and a Pending Claim for Bad Faith?

   In ISS Research, LLC v. Federal Insurance Co., Download ISS Research, LLC v. Federal Insurance Co. (W.D.N.C. Case No. 3.10.CV.41, Order Filed November 18, 2010) PUBLIC ACCESS, also published as 2010 WL 4791891 (W.D.N.C. November 18, 2010)(authorized password required to access Westlaw), a Plaintiff Corporation alleged various Claims concerning a Commercial General Liability Insurance Policy and a Commercial Excess and Umbrella Insurance Policy issued to it by the Defendant.  The Policyholder-Plaintiff sought a Declaratory Judgment of Breach of Contract for alleged Wrongful Failure to Defend or Indemnify.  It also alleged "claims under the North Carolina Unfair and Deceptive Trade Practices Act and for Bad Faith."  ISS Research, LLC v. Federal Insurance Co., 2010 WL 4791893 at *1.  Both parties filed Motions for Summary Judgment based on the Plaintiff's request for a Declaratory Judgment.  Id.

   The Federal Court applied a test used by the North Carolina State Courts to determine whether a Liability Insurance Company has a Duty to Defend, known as "a 'comparison test'."  "Applying this test, a Court compares the allegations of the Complaint with the provisions of the insurance policy to determine whether the facts as alleged are covered or excluded."  Id. at *2.  Parenthetically, other jurisdictions employ the same test but some call it "a four corners test" or an "eight corners test".  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:48 (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement).

   Applying North Carolina's comparison test in this case, the Federal Court determined that there was no Duty to Defend or Indemnify concerning the Underlying Case, and granted Federal Insurance Company's Motion for Summary Judgment.  See id. at *2-*5.

   The Claims for alleged violations of the North Carolina Unfair and Deceptive Trade Practices Act, and for Bad Faith, remain pending in that case at this time.  In some jurisdictions, Coverage is not required in order to state a claim upon which relief can be granted, or in order to state a cause of action, either for alleged Bad Faith or for an alleged violation of an Unfair and Deceptive Practices Act.  See generally Dennis J. Wall, supra, § 3:100, and some Courts are following the same rule in First-Party Cases as well.  Id., § 9:25.

 Dennis Wall has handled many Insurance Coverage and Bad Faith Cases and Catastrophe Claims.  The author of this post, his next speaking engagement is on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010.  The author has also been advised by the American Conference Institute that the ACI is continuing to offer its discount to readers of this Blog:  Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.

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Class Action Settlement Binds Plaintiff Doctors: Released Claims Not Relitigated.

 

   A settlement binds the Plaintiffs as much as it binds the Defendants.  That includes a settlement and Release in a Class Action filed by Doctors against Health Insurance Companies.  One of the Plaintiff Doctors was not done filing lawsuits.  He filed similar Claims including regarding Claims Handling and alleged Bad Faith in the New York State Supreme Court.  The United States District Court for the Southern District of Florida held in that case that the Plaintiff was bound by his Class Action Settlement and Release.

 

As the United States Magistrate Judge found:

 

Now turning to the specific allegations asserted by Plaintiff under each count, it is clear that Counts II-IV and VI-X all pertain to Empire's allegedly improper claims handling:

   • Count II (Declaratory Judgment)-Arising out of Empire's alleged failure to reimburse Plaintiffs “per a consistent fee-for-service formula for services rendered to patients subscribed to Empire.” Id. ¶ 57.

• Count III (Declaratory Judgment)-Requiring that Empire “disclose the formula, scheme or payment allowance guidelines for each subscriber's policy and procedure code, such that Empire must explicitly reveal and clear: a) the CPA code used for each subscriber; b) the explicit basis for allowance; c) the explicit basis for rejecting procedures; and d) the explicit basis for rejecting reimbursements.” Id. ¶ 63.

 

• Count IV (Unjust Enrichment)-Arising out of Empire's improper underpayment for professional services rendered to its subscribers. Id. ¶ 68.

 

• Count VI (Fraud)-Arising out of Empire's alleged “repeated false statements in its explanations of benefit sent to Dr. Artandi as justifications for payments made” to him. Id. ¶ 74. The FAAC further alleges that “Empire has intentionally and repeatedly made false and dishonest calculations in justifying its reimbursement amounts to Dr. Artandi.” Id. ¶ 75.

 

• Count VII-VIII (Monetary and Punitive Damages)-As previously stated, these counts do not recite cognizable causes of action. Instead, they merely recite the types of legal remedies that Plaintiff is seeking as a result of Empire's alleged “long pattern of intentional, bad-faith, oppressive, malicious and outrageous misconduct in failing to pay and underpaying Dr. Artandi for services rendered to patients subscribed to Empire, according to an erratic, inconsistent and arbitrary scheme.” Id. ¶ 84.

 

*6 • Count IX (Unfair and Deceptive Business Practices Under N.Y. Gen. Bus. L. § 349)-Arising out of Empire's alleged “false, misleading and deceptive statements of fact” intended to mislead a reasonable consumer. Id. ¶¶ 88-90.

 

• Count X (Breach of Contract)-Arising out of Empire's alleged failure “to reimburse Dr. Artandi as a non-participating physician for medically necessary services rendered, in a fair, reasonable, statutorily timely, consistent and legally acceptable manner, based on a fee-for-service formula calculated under the UCR, RC or prevailing fee standard.” Id. ¶ 97.

 

Clearly, a careful analysis of the allegations raised in the FAAC suggests that Counts II-IV and VI-X clearly fall under the scope of Released Claims under the Final Approval Order because they all relate to the denial, delay, and diminishment of physicians' fee for service claims. In other words, “but for” Empire's alleged improper claims processing schemes, Counts II-IV and VI-X would simply not survive on their own. Allowing these claims to go forward will require litigating the merits of the alleged improper claims handling practices, clearly an issue addressed and settled by the Final Approval Order. Indeed, the Eleventh Circuit has recently emphasized the broad language of the Love Settlement and instructed us that the release “extends to any and all causes of action of whatever kind, source, or character that are related to matters addressed in the class action.” Thomas v. Blue Cross and Blue Shield Ass'n, 594 F.3d 814, 822 (11th Cir.2010) (finding Plaintiff Kolbusz's claims of tortious interference and defamation released under the Love Settlement regardless of the fact that these claims might “depend on a different legal theory than the claims asserted in the class action or require [plaintiff] to prove matters in addition to or different from the claims asserted in the class action”). Thus, Claims II-IV and VI-X are Released Claims and Plaintiff should be enjoined from pursuing them in the New York Supreme Court.

 

 Love v. Blue Cross & Blue Shield Ass'n, Download Love v. Blue Cross and Blue Shield Assn (S.D. Fla. Case No. 03.21296.CIV, May 24, 2010 Report and Recco of USMJ Torres) PUBLIC ACCESS, also published as 2010 WL 3781602 *5-*6  (S.D. Fla. May 24, 2010)(Report and Recommendation of U.S. Magistrate Judge Torres), aff'd & adopted by United States District Judge, 2010 WL 3744094 (S.D. Fla. September 21, 2010)(Westlaw subscription required to access Westlaw).

In his Order Adopting Magistrates Report and Recommendation and Granting Motion to Enforce Injunction, the District Judge provided the Plaintiff with a time limit within which to withdraw the offending Claims, or face the possibility of sanctions if he did not do so:

    Plaintiff shall have twenty (20) days from the date of this Order to withdraw the Counts II-IV and VI-X from the First Amended Answer and Counterclaim.  If Plaintiff fails to voluntarily withdraw these claims, Empire's contempt motion shall be revisited by this Court.

Love v. Blue Cross & Blue Shield Ass'n, 2010 WL 3744094 at *1.

Postscript From Pacer (Following a Review of the Online Docket of This Case):  One of the other Plaintiff Doctors who was ordered to withdraw Claims filed in other Courts, has already notified the Court in this Case that he has complied with the Court's Order to withdraw them.

 

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Washington Administrative Code Claims Dismissed: Good Faith in Federal Case.

   Washington Administrative Code Claims are a thorn in the side of many Insurance Companies.  There is often a question whether they are subject to the law of Good Faith and Fair Dealing, in general terms, including requirements of causation and harm.

   Two such Claims, among others, were dealt with in instructive ways in the Federal Case of American Capital Homes, Inc. v. Greenwich Insurance Co.,Download American Capital Homes, Inc. v. Greenwich Insurance Co. (W.D. Wash. Case No. C09.622, Order Filed August 30, 2010) PUBLIC ACCESS also published as 2010 WL 3430495 (W.D. Wash. August 30, 2010)(Westlaw subscription required to access Westlaw).  One Claim contained allegations of a violation of a prohibition against misrepresenting policy provisions under WAC 284-30-330(1).  The Plaintiffs-Insureds alleged that their e-discovery expenses were covered and that the Defendant Insurance Company's Coverage position that e-discovery expenses were "uncovered 'corporate expenses'" was a violation of the Washington Administrative Code.

   The Federal Judge wrote in brief response to this Claim, as follows:

Plaintiffs' misreading of the Policy is exasperating.  Section II(E) of the Policy clearly states that "Defense Expenses will not include the Company's overhead expenses."...  Defendant did not misrepresent policy provisions.

American Capital Homes, Inc. v. Greenwich Insurance Co., 2010 WL 3430495 at *7.

   The second such Claim was premised on allegations that the Defendant had compelled the Plaintiffs "to initiate litigation to recover amounts due by offering substantially less than the amounts ultimately recovered," in violation of WAC 284-30-337(7).  Id. at *7.  The Federal Court rejected this Claim, too.  The Federal Court in this Case had previously dismissed Plaintiffs' Bad Faith Claims, which the Court held was determinative of the outcome of this Washington Administrative Code Claim as well:

Rather, Defendant was engaged in a claims adjustment process, which the Court has found to be reasonable and in good faith, when Plaintiffs walked away from the negotiation table and filed suit.  Plaintiffs have offered no evidence that these tactics were necessary to recover their expenses....  [T]he fact that Defendant increased their offering to Plaintiffs after the commencement of litigation does not prove that such litigation was necessary ....

Id.  In short, the holding of Good Faith Claims Handling defeated this Washington Administrative Code Claim as well.  The Washington Administrative Code Claims addressed in this post, above, are similar to statutory provisions addressed by the Court across the nation in Liability Insurance Cases, see Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:25 "Legal Bases of Liability in Settlement--Statutory" (Shepard's/McGraw-Hill Second Edition; West Publishing Co. 2010 Supplement), and in First-Party Cases, see id. § 9:14 "Judicially Recognized Bases of Liability:  Express Statutory Causes of Action".

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Bankruptcy and the Debtor's Insurance in a Bad Faith Claim.

   In a recent case with a complex overlay of Bankruptcy procedures, a U.S. District Judge denied American International Group's and National Union Fire Insurance Company's Motion to Transfer and/or Reassign a Bad Faith Case to the Federal Judge who presided over a Jury Trial in a previous Case resulting in a $4 Million Verdict against the Policyholder:  Tucker v. American Int'l Grp., Inc., Download Tucker v. AIG (D. Conn. Case No. 3.09CV1499, Memorandum and Order Filed August 4, 2010) PUBLIC ACCESS also published as 2010 WL 3058687 (D. Conn. August 4, 2010)(Westlaw subscription required to access Westlaw).

   In the first case, the Plaintiff, Ms. Teri Tucker, brought a Claim in Federal Court "for unlawful termination" in violation of Federal and Connecticut State Law.  "More specifically, Tucker contended that she was terminated for opposing sexually harassing behavior by a subordinate employee and for refusing to testify falsely in her employer's defense to a sexual harassment complaint regarding the subordinate's behavior."  Tucker, 2010 WL 3058687  at *1.  Ms. Tucker received a Jury Verdict for $4 Million:  "$1 million in compensatory damages and $3 million in punitive damages."  Id.  The Federal Judge entered Judgment on the Jury Verdict in the first case.

   The Employer-Policyholder, Journal Register East, thereafter filed for Bankruptcy under Chapter 11.  An automatic stay was immediately effective.  Tucker sought relief from the Bankruptcy Court as against the Employer-Policyholder's Insurance Coverage under an Employment Practices Liability Insurance Policy issued to Journal Register East's parent company by the Defendants.  Id. at *2 & n.8.  She "made a motion in bankruptcy court for relief from the automatic stay for the purpose of pursuing recovery of the $4 million judgment ... from Journal Register East's insurer ... up to the limits of Journal Register East's employment practices liability insurance policy ('EPL Policy')."  Id.  Journal Register East stipulated to the relief requested and the Bankruptcy Judge approved the Stipulation.

   Tucker then filed her present Federal Case No. 2, in which she alleged Claims for Breach of the Implied Covenant of Good Faith and Fair Dealing, and for Unfair Trade Practices, and for the Tort of Bad Faith Claims Handling, among other Claims.  Id. at *3.  The Defendants, National Union and its parent AIG, countered with a Motion to Transfer Case No. 2 or Reassign it to the Federal Judge who presided over the earlier sexual harassment Case which Tucker filed against Journal Register East.

   The Motion was Denied in the subject Memorandum and Order.  In that Bad Faith and Unfair Trade Practices Acts Case, "the central issue is whether defendants' EPL Policy with the Journal Register Company covers the damages resulting from plaintiff's allegedly wrongful termination," which was never an issue in the first case.  Id. at *6.  Since Case No. 2 did not involve "identical" issues but instead an Insurance Coverage Issue which was critical to all the Plaintiff's Bad Faith and Unfair Practices Claims, as well as all her other Claims, the Motion to Transfer and/or Reassign was accordingly denied in this Case.

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'And a Little Unknown Agency Shall Lead Them': ...

  ... The Federal Housing Finance Agency Leads The Way on the Road to Recoupment.

   The Federal Housing Finance Agency is investigating Trustees for pools of Mortgages and Servicers of the pooled Mortgages.  The FHFA has subpoenaed unidentified records from 64 different entities.  Subpoenas became necessary when polite requests were ignored.

   "Among the bigger trustees in the business are Deutsche Bank and the Bank of New York, while loan servicers include Bank of America and many more.  None of the banks would confirm if they had received subpoenas."  Gretchen Morgenson, "Fair Game/Holding Bankers' Feet to the Fire" p. 1, col. 1 (New York Times, "SundayBusiness" Section, Sunday, July 18, 2010).

   The FHFA is the Conservator of Fannie Mae and Freddie Mac.  It is charged with recouping the Federal Taxpayers' payments and losses on failed Mortgages where the circumstances warrant recoupment.  That clearly seems to be the focus of the FHFA investigation:  "Once that question has been answered, Fannie and Freddie can force the institutions that sold the securities to repurchase the improper loans, allowing taxpayers to recover some of the losses they've swallowed on Fannie's and Freddie's federal bailout."  Id.

   Reports of the demise of recoupment and restitution following the Great Collapse are premature.

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Insurance Coverage Claims Discovery Affects Pending Bad Faith Claims, Too.

   Insurance Coverage Claims affected the disposition of other issues in a recent pending Bad Faith Case:  Cleveland Construction Inc. v. Fireman's Fund Insurance Co., Download Cleveland Construction Inc. v. Fireman's Fund Insurance Co. (W.D.N.C. Case No. 3.09.cv.200, Order of Senior District Judge Mullen Filed July 19, 2010) FREE ACCESS also published as 2010 WL 2836105 (W.D.N.C. July 19, 2010)(Westlaw subscription required to access Westlaw).

   First, the Federal Court granted the Plaintiff's Motion to Compel production regarding "Claim No. 80.  "Plaintiff's Amended Complaint alleges bad faith and unfair or deceptive trade practices.  Defendant's evidence as to Claim 80 would reveal patterns and practices of investigating and settling claims under the 'All Risk' insurance policy."  Accordingly, the Federal Court granted the Motion to Compel in this regard.  Cleveland Construction, 2010 WL 28326105 at *2.

   Then, the Federal Court also granted the Plaintiff's Motion for Leave to File a Supplemental Expert Report, id., because of the additional discovery allowed in granting the Plaintiff's Motion to Compel.

Counsel and their clients in Bad Faith Cases will always want to keep their Insurance Coverage Issues in mind, even as they prosecute or defend the Bad Faith Claims in those Cases.

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Statutory Unfair Claims Allegation Guidance: What Deemed Adequate, What Not.

  **Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.**     

   In Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d 1273 (M.D. Fla. 2009) (subscription required), a Federal Court was confronted with several allegations of Unfair Claims Practices under Florida Statutes.  Right or wrong on the merits, this decision provides guidance as to what this Federal Court deemed adequately alleged, and what not, among these alleged Claims of Statutory Unfair Claims Practices.

   The Plaintiff, Ronnie Hogan, was an Insured under a Long Term Disability Insurance Policy issued by Provident.  The Federal Court disposed of four (4) Statutory Unfair Claims Practices in Mr. Hogan's Amended Complaint, which will be addressed here.  First, Mr. Hogan alleged that Provident failed to adopt and implement standards for the proper investigation of claims.  This Claim was adequately alleged in the eyes of the Federal Court, i.e., the alleged Claim was sufficient to withstand a Motion to Dismiss under Federal Procedure:

However, Provident's alleged failure to adopt and implement standards for the proper investigation of claims is plausibly established by allegations that it failed to evaluate the totality of Hogan's medical condition, set goals for claims termination to obtain financial gain without respect to the merit of Hogan's claim, and terminated Hogan's benefits solely for financial reasons.

Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), attached Official Slipsheet Opinion at 9-10; Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d 1273, 1283 (M.D. Fla. 2009).

   Second, he alleged that Provident "misrepresented" certain pertinent facts or insurance policy provisions relating to Coverages at issue in the case, an alleged Statutory Unfair Claim Settlement Practice.  The Federal Court granted Provident's Motion to Dismiss because the allegations were legally insufficient to support a Claim pled with particularlity as required of any Claim, in the eyes of the Court, which involved alleged Fraud.  Fraud is required to be alleged with particularity under Fed. R. Civ. P. 9(b).  Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), at 10; Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d 1273, 1283 (M.D. Fla. 2009).

   Third, Mr. Hogan alleged that Provident denied claims without conducting reasonable investigations, which is also an alleged Statutory Unfair Claim Settlement Practice.  The Federal Court denied Provident's Motion to Dismiss this alleged Claim.  The Court held that this Claim "is plausibly established by allegations that Provident set targets and goals for claims termination without regard to the merits of Hogan's claim and terminated Hogan's benefits solely for financial reasons."  Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), at 10; Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d 1273, 1283 (M.D. Fla. 2009).

   Fourth and finally, Mr. Hogan alleged another Statutory Unfair Claim Settlement Practice against Provident, alleging that Provident failed to promptly provide a reasonable explanation in writing to him of the basis in his Long Term Disability Insurance Policy, in relation to the facts or applicable law, for denial of his Disability Claim.  This Claim, too, withstood a Motion to Dismiss in this case under the Federal Rules of Civil Procedure:  "Provident's failure to provide Hogan a reasonable explanation for the denial of benefits is plausibly established by the assertion that Provident told Hogan he was not entitled to further benefits under his policy because he was no longer disabled, during which time Provident was allegedly engaging n a scheme to deny claims without respect to the merit of such claims solely for financial gain."  Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), at 10; Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d  1273, 1283-84 (M.D. Fla. 2009).

   The Online Docket of this Case reflects that the Mediator filed a Report on January 5, 2010 that the Case was completely settled.  The Online Docket further reflects that an Order of Dismissal With Prejudice was entered upon the parties' Stipulation, on February 4, 2010.

Statutory Claims in Third-Party Bad Faith Cases are discussed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:25 (Second Edition Shepard's/McGraw-Hill; 2009 Supplement West Publishing Company), and Statutory Claims in First-Party Bad Faith Cases like the Hogan Case, are discussed in id. § 9:8.

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UPDATE: City of Baltimore Subprime Lending Lawsuit.

  The Mayor and City Council of Baltimore filed a Complaint in January, 2008 against Wells Fargo Bank, N.A. and Wells Fargo Financial Leasing, Inc.  The basis of the City's lawsuit was that Wells Fargo's subprime lending and alleged "predatory and discriminatory lending practices have led to foreclosures that harm the City."  Download Mayor and City Council of Baltimore v. Wells Fargo Bank, N.A. (D. Md. Opinion Filed January 6, 2010), attached Official Slipsheet Opinion at 1.  In basic terms, the harm alleged by the City consisted of increased City costs associated with increased Foreclosures.

   The City filed an Amended Complaint.  The Defendants filed a Motion to Dismiss.  "The Motion to Dismiss will be granted, with leave for the City to file a Second Amended Complaint asserting narrower claims if it chooses to do so."  Download Mayor and City Council of Baltimore v. Wells Fargo Bank, N.A. (D. Md. Opinion Filed January 6, 2010), at 1.  The Federal Trial Court applied a "plausibility" standard to the face of the Amended Complaint, which in 2009 replaced the previous Federal standard for measuring the sufficiency of a Complaint to withstand a Motion to Dismiss.  "In the present case, the City's allegations in the Amended Complaint of a causal connection between Wells Fargo's alleged misconduct and the damages the City claims is not plausible."  Download Mayor and City Council of Baltimore v. Wells Fargo Bank, N.A. (D. Md. Opinion Filed January 6, 2010), at 4.

   If and when the City files a Second Amended Complaint, the facts will be followed here.  In the meantime, it appears that City officials in Tennessee, and the State Attorney General of Illinois, are pursuing their own lawsuits seeking to recover Damages allegedly resulting from subprime lending practices.  Michael Powell, "Federal Judge Rejects Suit by Baltimore Against Bank" p. A11, col. 6 (New York Times Nat'l ed., Saturday, January 9, 2010).

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Banks Issued Obligations, Paid by Investors; Then Took Default Insurance, ...

   ... Paid Again as Policyholders.

   At the beginning of this post, Happy Holidays to All, and to All a Happy New Year!  This is the joyous season of the year.

   Do not be angry.  But ask questions.

   It is reported on this Christmas Eve Day by two indisputably knowledgeable and experienced financial reporters in this country, that Goldman Sachs and other Banks sold synthetic Collateralized Obligations of their own making to their clients.  Mortgages were not actually contained in the CDO's, but these securities were "linked to" mortgages.  Gretchen Morgenson and Louise Story, "Banks Bundled Debt, Bet Against It and Won" p. A1, col. 2 (New York Times Nat'l ed., Thursday, December 24, 2009).  The CDO's did contain a form of Credit Insurance known to readers of this space:  Credit Default Swaps, which were originally intended to pay off "when a borrower defaults.  These swaps made it much easier to place large bets on mortgage failures."  Id.

   The CDS's or Credit Default Swaps were always written to pay out if there was a "credit event," much as a Commercial General Liability Insurance Policy is written to pay out if there is a "covered Occurrence".  The rules governing a "credit event" changed, however.  The Banks were reportedly responsible for the change in rules.  Id.  A "credit event" which would cause a payout under the CDS's was expanded to include more "triggers," including a very lucrative trigger for the Banks "like a ratings downgrade on a bond."  Id.

   A spokesperson for Goldman Sachs is cited in the linked newspaper report as saying "that clients knew Goldman might be betting against mortgages linked to the securities," although it is also reported in the linked article that worries about a housing bubble led "top Goldman executives" in December, 2006 "to change the firm's overall stance on the mortgage market, from positive to negative, though it did not disclose that publicly."  Id.

   It bears repeating perhaps that "[o]ther Wall Street firms also created risky mortgage-related securities that they bet against."  Id.

   Questions arise for all such Wall Street firms based on this information.  Was there a Fiduciary Duty in operation here, flowing from the "Wall Street firms" to their investor-clients?  One of the first duties of a Fiduciary is loyalty.  The duty of loyalty includes the duty of disclosure, notice, keeping the other party informed.

   What evidence is there that this was done?

   What exactly did these "Wall Street firms" report to their clients, such that "clients knew" the firms were betting against mortgages linked to the securities which were issued by the very firms betting against them?

   Aside from the question of what information was provided to their clients, was there a waivable conflict in favor of the very firms which made a lot of money by issuing both the securities and the CDS's in which the firms bet against the mortgages linked to those securities?  Were conflict waivers ever requested by the "Wall Street firms" in question?

   Was full disclosure made by these firms to their clients, first?

   Questions abound as a result of the linked newspaper report.  To say again, this is not a time for anger.  It is in fact the joyous season of the year by common consent, as Dickens observed.  

   But ask questions. 

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Duke Sues D&O Carrier for Alleged Bad Faith, Unfair Practices.

   As posted yesterday on Insurance Claims and Issues Web Log, last November Duke University and one of its related subsidiaries sued its D&O Carrier, National Union Fire, for alleged Bad Faith.

   The alleged Bad Faith was in handling Duke's Coverage Claims for settlement costs and defense expenses which Duke claimed under its Directors and Officers Liability Insurance Coverage with National Union.  Duke alleged that it paid these unreimbursed costs and expenses, including attorney's fees, in connection with unfounded criminal charges against three Duke lacrosse players.  The charges included sexual assault.

   In addition, Duke sued National Union for alleged Unfair and Deceptive Trade (Claim Settlement) Practices under North Carolina's version of the model Unfair Claim Handling Practices Act.   Here is a copy of Duke's Complaint:  Download Complaint.Filed112408.DukevNationalUnion (MDNC).

   National Union Fire's 44 page Answer was filed in 2 parts, with 30 alleged Affirmative Defenses, a Counterclaim in 5 Counts, and a Third-Party Complaint against United Educators Insurance.  Here are copies of the first 22 pages:  DownloadFirst22Pages.AnswerADsCCofNationalUnion.Filed01.16.09 (MDNC) .

And here are the last 22 pages, without attached Exhibits:  Download Last22PagesAnswerADsCCandTPCofNationalUnionFire.Filed 01.16.09 (MDNC). 

   On Tuesday, October 20, 2009 the Magistrate Judge assigned to the case as of that date, recused himself.  Another Magistrate Judge has just been assigned.

 Please Read The Disclaimer.

Boards, Bonuses, and Bailouts: Fiduciary and Insurance Claims Have Begun.

    Ms. Nell Minow is Chair of the Corporate Library.  The Corporate Library, by its own admisssion, is "[t]he leading independent source for corporate governance and executive compensation information and analysis."  Those words are displayed at the top of the Corporate Library web site, here.

    Ms. Minow, "an expert on boards of directors, noted [recently] that boards approve all bonuses.  All too often, she said, they were not rigorous enough in their review or smart enough to understand their company."  Frank Ahrens, "Admiration Turns to Anger as Wall St. Bosses Feather Nests" (Washington Post.com, Saturday, January 31, 2009).

    Phew.  Directors of publicly traded corporations would do well to immediately find out the extent of their Director's and Officer's Insurance Coverage and of any other Insurance Coverage under any other Insurance Policy that might be available to them, for their actions and conduct while serving as Board members.  It sure looks like the Insurance Claims are coming, if they have not already arrived.

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Fiduciary Duties, Denials, and Universal Disputes.

    An excellent laying bare of the major implications of the allegations against Mr. Bernie Madoff including the possibility of Breaches of Fiduciary Duties was written by Rabbi Wesley Gardenswartz, "The Perfect Response to the Madoff Debacle/Bernard Madoff's Confessed Ponzi Scheme Assaults Four Core Jewish Values" (Boston Globe Online, Sunday, December 28, 2008)..

    With due respect, Rabbi, the implications and in particular the Fiduciary Duties are universal.  See generally Tom Petruno, "Betrayal of Trust a Wall St. Tradition" (Los Angeles Times.com, Saturday, December 20, 2008).

    Many Claims have been made against many persons, see, e.g., McNelly Torres, "Investors' Complaints Against Financial Brokers Soar" (South Florida Sun-Sentinel.com, Saturday, December 20, 2008), archived online as of Friday, December 19, 2008, and many of the accused are denying any Duties let alone their Breaches.  See, e.g., James Mackintosh, Peggy Hollinger and Haig Simonian, "UBS Seeks to Deny Duty Over Madoff Funds" (Financial Times.com, Friday, December 19, 2008), updated and archived as of Saturday, December 20, 2008 under the new headline, "UBS Seeks to Absolve Itself From Madoff Fund Safeguarding Needs".

    Time and the Courts will tell.

HAPPY HOLIDAYS and A HAPPY NEW YEAR to ALL!

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Credit Ratings Agencies and Civil Rights Claims.

    Two Credit Rating Corporations, Moody's Investors Service (a subsidiary of Berkshire Hathaway) and Fitch Ratings, allegedly "enriched themselves by assigning high ratings to bonds backed by mortgages," according to a recently filed complaint.  The junk mortgages allegedly imposed unfair payment terms and were disproportionately sold to African Americans and Latinos who purchased homes across the nation.

    The administrative complaint is a precondition or first step to the filing of a Federal Civil Rights lawsuit.  It is a first-of-its-kind complaint filed by the National Community Reinvestment Coalition with the Federal Department of Housing and Urban Development, it is reported by Kenneth R. Harney, "Civil Rights Complaint Targets Wall Street Rating Firms" (Los Angeles Times Online, Sunday, November 30, 2008).

    There is a related post on www.insuranceclaimsissues.typepad.com. 

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Expert Witnesses Testifying on Reasonable Conduct, Other Financial/Law Issues.

    Do you pay your Expert Witnesses $1,000 an hour?  Summaries in the newspapers of recent studies reflect that Expert Witnesses often charge that much.  Here is a handy link here.  This report uses many of the studies as resources.

    It is interesting that in 1 out of 3 lawsuits, Expert Witnesses testify at Trial in Federal Court about the "reasonableness of a party's actions" and other "business/law/financial" issues, as reported by studies of Federal Civil Trials and surveys of Federal Trial Judges across the nation.  More such issues are likely to be presented as the financial crisis deepens.

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Federal Regulatory Rules Out for Comment.

     The Office of Thrift Supervision issued proposed rules curbing some "deceptive and unfair practices" on some credit card fees and practices.  See for example Kathy M. Kristof, "Proposed Rules Seek to Bar Some Rate Hikes by Credit Card Firms" (Los Angeles Times Online, Friday, May 2, 2008).  Reportedly, the same rule changes will also be proposed by the Federal Reserve Board and by something called the National Credit Union Administration.

     One of the proposed rules would bar some retroactive interest rate hikes.  One person testified before Congress that she had never made a late payment and had never gone over her limit -- sound familiar to anyone? -- yet her credit card company charged her 24.99% interest because, she testified, the credit card company thought that her credit card balance was  "too high".

     Another proposed rule would impose limits on when a credit card company that mails out its statements late, and then charges a late fee to the consumer because the payment is late  -- how about this sounding familiar to anyone?   Under a newly proposed rule, credit card companies would have not less than 21 days to mail or deliver their statements to their credit card holders before the due date.

     It is reported that there will be a public comment period of 75 days.  It is "anticipated" that the proposed rules will be adopted before 2009.

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