Pinocchio’s nose – State Farm Protective Orders

There are more SLABBED posts and comments on State Farm Protective Orders that I care to count on a weekend; but, it should go without saying there has been no “good cause” for any to be favorable.

Good cause simply can’t be because I said so unless it’s said by your mother – and Judge Walker is not anyone’s mother.

The Court, being duly advised in the premises, finds that good causes exists for the issuance of a Protective Order, it is therefore…

06 2 letter to Walker

Since the Rules require good cause to be established, there had to be a case that Judge Walker was “duly advised” of the “premise” before he started routinely granting protective orders – or so I naively thought until I read the letter from Hickman Goza Spragins to Judge Walker a second time before closing the Pontius file of exhibits to Stephan Hinkle’s deposition testimony.

State Farm operational guides and training materials have been consistently found to be protected trade secrets by other courts. Hamilton v State Farm Mutual Auto Ins.,Co 204 F.R.D. 420, 423-25 (S.D.lnd. 2001)

At the time the letter was written to Judge Walker, there must have been only two cases with Protective Orders to list: Loehn v State Farm and Cooney v State Farm.  Plaintiffs in both cases were represented by Charles A. Boggs of the Metairie, Louisiana firm of Boggs Loehn Rodrique.

The partners, Charles A. Boggs, Thomas E. Loehn and Edward A. Rodrigue, Jr., after many years of association with a large defense law firm, established the firm in 1981. The firm is limited to defense practice both for insurance companies and major self-insured corporations, and is composed of three trial lawyers.

The protective orders in both cases were Consent Orders – suggesting Pontius v State Farm could have been the first case with a motion for protective order in Katrina litigation.  In Pontius, however, State Farm faced the Scruggs Katrina Group, not an insurance defense firm with one of the partners as a plaintiff.

State Farm’s letter to Judge Walker was transmitted the day before the 30(b)(6) deposition of Stephan Hinkle.  Scot Spragins filed the motion for a protective order on November 2, 2006, the day following the last day of Hinkle’s testimony:

Courts have consistently held that an insurance company’s claim manuals and training materials (including State Farm’s claim manuals and training materials) constitute a trade secret or confidential information within Fed. R. Civ. P. 26(c)(7). See Republic Services, Inc. v. Liberty Mutual Ins. Co., 2006 WL 1635655 (E.D. Ky.); Hamilton v. State Farm Mut. Auto. Ins. Co., 204 F.R.D. 420 (S.D. Ind. 2001). In Hamilton, the court held in regard to State Farm claim materials: State Farm present[ed] sufficient evidence that its claims handling materials constitute trade secrets.
* * *
State Farm [made] a sufficient showing of good cause for the Court to enter a protective order by demonstrating a clear danger if its trade secrets are discovered by its competitors
* * *
The Court holds the documents in question fall within the meaning of Rule 26(c)(7), and that the potential dangers State Farm faces if a competitor gains access to its trade secrets and confidential information outweigh any legitimate interest one may possess in obtaining these documents. As a result, the Court finds that State Farm set forth good cause for the entry of a protective order. Hamilton, 204 F.R.D. at 423-25.

Although Hamilton, the case cited in the firm’s letter to Judge Walker, was quoted extensively in the motion, Spragins misrepresents the Indiana court’s opinion.Nose-Job-21281 2

After reviewing the proposed protective order, the Court finds that it gives State Farm carte blanche to designate document, files, or other information as either confidential or trade secrets, and is not in compliance with the Seventh Circuit directions in Citizens First National Bank v. Cincinnati Insurance Co., 178 F.3d 943 (7th Cir. 1999).

For the reasons set forth below, the Court DENIES State Farm’s motion for entry of its proposed protective order. However, the Court finds that good cause exists for the entry of a modified protective order. Therefore, the Court sets forth in this Order parameters for a protective order which shall govern the proceedings in this case.

The only issues before the Court are whether State Farm’s claims handling materials constitute protectable trade secrets, and whether they are subject to a protective order.

The parameters were much narrower than those in the orders Judge Walker is granting.  More importantly, the good cause cited by the Indiana Court in 2001 is no longer viable almost a decade later – if, indeed it was viable then.

State Farm makes a sufficient showing of good cause for the Court to enter a protective order by demonstrating a clear danger if its trade secrets are discovered by its competitors. The discovery of State Farm’s policy manuals by a competitor would permit them to appropriate State Farm’s trade secrets by duplicating or reconstructing its claims handling procedures. This information is of particular value to small insurance companies, which lack the resources to adopt their own procedures.

FireShot capture #041 - 'ISO - Overview of ISO Products and Services' - www_iso_com_Products_Overview-of-ISO-Products-and-Services_Overview-of-ISO-Products-and-Services_htmlAs Bam Bam pointed out, no company of any size has needed to develop its own procedures since the insurance industry established ISO for that purpose among others.

Hamilton, significantly, was litigating an automobile policy dispute and Florida put an end to any secrets about claims handling in that industry when the state force Allstate to reveal the McKenzie documents.

After the Watkins decision in Oklahome, it would be difficult to find a viable insurance company anywhere that wanted to adopt State Farm’s claims handling procedures.  The Company’s handling of Katrina claims would make the idea of State Farm protecting the company’s procedures laughable if the impact on policyholders were not so tragic.

After the discovery dispute in Pontius became so contentious, Judge Senter entered a text only order extending the discovery deadline for twenty-one days from the date the Magistrate Judge ruled on the defendant’s motion for a protective order.

However, Pontius and State Farm reached a resolution before the Magistrate Judge entered an order.  There has been an ongoing dispute over these orders for almost three years since.

What makes Spragins the fair-haired child of the southern district federal court? Plaintiffs’ opposition points out conduct one would think would subject Spragins to a swift reprimand:

The Motion for Protective Order filed by State Farm is untimely and should be dismissed by the Court summarily. State Farm filed its Motion one (1) day before the close of discovery, and after a Court-approved 30(b)(6) deposition of State Farn was commenced.

State Farm held Plaintiffs’ document request in its hands for thirty-seven (37) days without pursuing a motion to obtain a ruling on its argument that the disputed documents are trade secrets, confidential and/or privileged.

Without Court authority, or even a pending motion to stand on, State Farm interrupted and blocked the completion of the Court-approved 30(b)(6) deposition of State Farm by unilaterally declaring that it would not designate any deponent for twelve (12) categories in the Re-Notice of30(b)(6) deposition, because the Defendant contended that the subject matter ofcertain 30(b)(6)categories was objectionable to it.

Despite Plaintiffs’ counsels’ agreement in writing to hold select documents confidential and not disseminate them until State Farm filed a motion and the Court made an infonned and fully briefed detennination ofwhether State Farm could sustain the burden of showing any of the disputed documents were trade secrets, confidential and/or privileged, State Farm ignored the agreement and unilaterally stonewalled the production of documents requested over thirty-seven (37) days ago.

If the Honorable Bernard A. Friedman had been filling in for Judge Walker, there would have been no need to wait.  Friedman, a Chief United States District Judge Sitting by Special Designation, issued a March 22, 2007 Order in Roper v State Farm that got the job done.

Defendant’s delay in filing this motion is nothing less than unconscionable. The court has been assigned to this matter since November 1, 2006, and it has conducted several telephone hearings on a variety of issues, including those raised in several written motions, since that time.

On January 16, 2007, the court traveled from Detroit to Gulfport and spent several hours conducting an in-person settlement conference with all counsel and their clients. When no settlement was reached, the court heard argument on several pending motions, discussed scheduling, and set a firm trial date that was convenient to all parties and all counsel.

At no time prior to the filing of the instant motion (on March 9, 2007, the exact motion cutoff date) did defense counsel breathe a word about the possibility that it may seek dismissal of the complaint on the grounds that plaintiffs are not the real parties in interest or that they have failed to join a necessary party. The delay is all the more inexcusable given that State Farm Fire filed a similar motion, seeking dismissal for plaintiffs’ failure to join its mortgage lender, in a similar Katrina case in June 2006. See Gaspard v. State Farm Fire and Casualty Co., No. 1:06-CV-610 (S.D. Miss.) (docket entry 8, filed 6-23-06).

This demonstrates that State Farm Fire was aware of this issue many months ago, even before the instant action was commenced. For defendant to sit on the issue for months, and not raise it until the motion cutoff date and just one month before trial, is gamesmanship at its worst, and shows a cavalier lack of respect and consideration for opposing counsel (who at this late hour should be devoting their resources to trial preparation, not responding to an untimely motion to dismiss) and the court (which, as defendant knows, has made special arrangements to travel from Detroit to Gulfport specifically to try this case beginning on a date certain that was selected in mid-January 2007 with all counsel’s agreement).

The court urges defense counsel to review the Mississippi Rules of Professional Conduct, particularly the provisions regarding a lawyer’s duty to “be competent, prompt and diligent”; to “demonstrate respect for the legal system and for those who serve it, including judges [and] other lawyers”; and “to expedite litigation consistent with the interests of the client.”

Defendant’s motion is denied. This motion could and should have been filed months ago, not on the eve of trial. The aspect of the motion seeking dismissal for failure to join a party had to be raised either “before pleading,” Fed. R. Civ. P. 12(b), or by filing a timely motion for judgment on the pleadings, see Fed. R. Civ. P. 12(h)(2), neither of which defendant did in this case. This issue can therefore now be raised only at trial. See id.

The aspect of the motion seeking dismissal on the grounds that plaintiffs are not the real parties in interest has been waived by the extreme delay in raising the issue…In the present case, it would be a gross understatement to say that defendant failed to raise this issue “with reasonable promptness.” By filing its motion on the motion cutoff date, just one month before trial, and after having been aware of the SBA assignment since June 2006,1 it would certainly appear that defendant filed the motion as a deliberate delaying tactic, not as a good faith effort to assert a legitimate defense in a timely manner.

Accordingly, IT IS ORDERED that defendant State Farm Fire’s motion to dismiss [docket entry 102] is denied with the following understanding: the issue regarding the alleged failure to join a party may be raised again at trial, whereas the challenge regarding plaintiffs’ status as the real parties in interest is waived and may not be raised again. (emphasis added)

Defendant State Farm was represented by – you guessed – Scot Spragins.

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He’s still filing motions as deliberate delaying tactics and, if he reviewed the Rules of Professional Conduct at all, promptly forgot.  Perhaps, Judge Friedman could order him to have a copy with him at all times.

(I’m thinking tatoo on his backside so those kissing his a$$ can read it,  too – and, then again, there’s always his nose)

4 thoughts on “Pinocchio’s nose – State Farm Protective Orders”

  1. It’s ashamed we have to have justice rendered in the instant case ONLY BECAUSE JUDGE FRIEDMAN is from out of state (i.e., Detroit) and not part of the apparent “network” of whatever you want to call it.

    SHIRLEY HEFLIN

  2. A motion should be filed at the earliest practical opportunity. No Court should make it permissible to hold this right to relief in reserve in order to assert the right at a tactically advantageous time and thereby put an opponent at an unfair disadvantage.

  3. That’s the way it’s supposed to be isn’t it, Steve? I mean, the Rules are written and they are BLATANTLY CLEAR and not open to AMBIGUITY in any way, shape or form….yet, time after time, they are not followed and are ignored (thereby putting a party in an unfair position).

    It’s not fair and the people that are in charge of making it fair are not doing their jobs!
    SHIRLEY

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