USA files Statement of Interest – supports Branch qui tam relators’ Motion to Strike defendant’s third party claims

Although the United States has declined to intervene and is therefore not a party to this action, the United States remains the real party in interest, entitled to share in any recovery that may be obtained in the qui tam action…The United States therefore has a substantial interest in ensuring that the FCA is interpreted correctly…The United States herein takes no position on the overall merits of any of the claims or third-party claims raised in this case or Fidelity’s opposition brief.  The United States submits that Relator’s motion to strike the third-party claims for overpayment asserted by defendant Fidelity against its individual flood-insurance policyholders named in Relator’s complaint should be granted, in keeping with well-established law prohibiting third-party practice in FCA cases.

In a June,  SLABBED reported the first Statement of Interest filed by the USA in the Branch qui tam case  Support for Rigsby qui tam found hanging on the Branch qui tam docket. Background on the issue prompting the USA to file a second  Statement of Interest –  defendant Fidelity’s assertion of third party claims – can be found in the recent SLABBED post, taproot – digging out the fact of Branch qui tam.

While a striking departure from the conduct of the USA in the Rigsby qui tam, these statements of interest reflect nothing than the need for the President to fill the vacant US Attorney positions in Mississippi – preferably with individuals who understand  the prosecutor’s special duty is not to convict, but to secure justice.

As was the case with the first, the US Attorney’s office in Baton Rouge has demonstrated  the competence and commitment necessary to fulfill a “prosecutor’s special duty” in this second Statement of Interest:

Fidelity states that it has no knowledge of facts supporting its claims, but argues that its claims are nonetheless mandatory under the Federal Rules of Civil Procedure and that its due process rights will suffer if they are stricken.  These concerns are misplaced – Fidelity’s third-party claims are not compulsory under the Federal Rules, and Fidelity will lose no due process rights by not pursuing these claims at this time.

The Government also requests that the Court direct Fidelity not to serve the third-party complaint upon any of the putative third-party defendants until after this Court has resolved Relator’s motion to strike.

The Statement of the USA poses three arguments in support of the Branch plaintiffs’ motion to strike:

  • Courts Have Generally Refused To Permit Third-Party Practice In False Claims Act Cases
  • No Provision of the Federal Rules Of Civil Procedure Compels the Filing of Fidelity’s Third-Party Claims
  • This Case Cannot Expose Fidelity To Liability For Negligent Overpayment

Within the second argument, the USA specifically addresses certain of the Federal Rules Of Civil Procedure:

  • Fidelity’s Third-Party Claims Are Not Compulsory Counterclaims Under Rule 13
  • Third-Party Practice Under Rule 14 Is Not Mandatory, And Would Be Ill-Advised In this Case
  • Mandatory Joinder Under Rule 19 Is Inapplicable In This Case

Among the many interesting points in the Statement, I found this of particular interest:

Persons who are alleged to have committed fraud aainst the United States in violation of the False Claims Act can be sued as joint tortfeasors.  Because joint tortfeasors are jointly and severally liable, the Government or a relator may sue as many or as few of such wrongdoers as it chooses, and the court can order complete relief if the defendant(s) are found liable under the FCA.

It is hornbook law that joint tortfeasors need not all be named as defendants in a single lawsuit.

The Branch Consultants subsequently filed a Reply in support of their Motion to Strike Fidelity’s third party claims:

Rather than rebut the legal bases of Branch’s motion to strike, Fidelity spends 25 pages accusing Branch of “calculated acts of deception” and responding to the following straw man argument:

Plaintiff contends—without any authority whatsoever—that the legal relationship between the Government and its WYO carrier fiscal agents is such that those fiscal agents can only be sued for the purpose of efforts to obtain additional federal funds from the Program, but cannot sue to obtain monies for the Program. This is not true.

Branch is not asking this Court to hold that WYO carriers can never sue their insureds. Instead, Branch argued that Fidelity has no right to sue insureds in connection with this qui tam action. The decision to sue homeowners in connection with this case belongs solely to the Government. Fidelity’s attempt to sue homeowners, a tactic none of the other WYO-insurer defendants thought necessary, should be rejected.

Given the contrary practice in the Southern District Mississippi Federal Court, one final point made in the Rely is particularly worthy of note:

Furthermore, Fidelity has offered no authority that suggests that a WYO carrier who negligently adjusted a claim has the right to recover the overpayment from the insured. Fidelity relies on an affidavit by its Vice President Ms. Deborah Price, but Price states only the following in relevant part:

I personally know that federal officials at the NFIP do specifically authorize WYO carriers to file lawsuits acting in the role of fiscal agent and fiduciary of the United States to seek recovery of United States Treasury funds.  Price does not say that the NFIP has ever authorized suits against homeowners where the WYO carrier negligently adjusted the claim. Nor does she say that the NFIP authorized Fidelity to file its Third Party Complaint, or explain why Fidelity failed to get that authorization in this case.

In a June 2000 memorandum FEMA indicated that its understanding is that the WYO carrier, not the homeowner, is responsible for paying for negligent overpayments:

Write Your Own (WYO) companies are held accountable for claims. The companies sign an agreement with FIA, stating that if they overpay a claim and the overpayment is discovered, the company is responsible to refund the overpayment to the fund.

The sworn deposition testimony which Price gave as Fidelity’s 30(b)(6) witness in January 2007 in Dwyer v. Fidelity National Property & Casualty Insurance Co., Civil Action No. 06-04793 (E.D. La.), is consistent with FEMA’s understanding:

Q: Has Fidelity ever had to pay FEMA back for funds that were wrongly
A: We have had occasions where they’ve notified us of a claim error after a reinspection
they’ve determined something wasn’t covered or wasn’t flood
damaged and required us to pay it back.
Q: What do you mean “pay it back”? Out of your own pocket?
A: Yes, we have to pay the actual damages back out of our own pocket.
* * *
Q: Any mistakes that the independent adjuster makes is going to be borne by
Fidelity, correct?
A: If we haven’t caught it and corrected it beforehand, yes.
Q: And so Fidelity will be liable for anything that the adjuster does—or any
mistake that the adjuster makes that Fidelity hadn’t corrected?
A: We would be liable to FEMA and we would probably go back against the
adjuster to see if we can recover.

Finally, Fidelity argues that Branch’s assertion that public records indicate FEMA has made a policy decision not to pursue refunds from insureds was an “attempt to deceive the Court.” According to Fidelity, the Times-Picayune article cited by Branch “does nothing but bolster Fidelity’s contention that it is expected by the Government to recover money if indeed overpayments did occur.”

Fidelity’s reading of the article is misplaced. In the article cited by Branch, FEMA official Ed Pasterick stated that FEMA would not pursue refunds from insureds who were overpaid on flood but who “had more wind damage than was actually accounted for.”  Fidelity does not dispute this policy, but it interprets this statement to mean that the insured had to both (1) have had more wind damage than was actually accounted for and (2) must have had a homeowner’s policy that was issued by the WYO carrier who adjusted the flood claim.

In other words, Fidelity assumes that insureds who were underpaid on wind receive the benefit of FEMA’s policy only if their homeowner’s carrier and their WYO carrier were one and the same. Fidelity does not cite any basis to support this narrow interpretation, which excludes the thousands of insureds who were underpaid on wind because their homeowner’s carrier relied on inflated flood adjustments by different WYO carriers.

Branch cites the source of the FEMA position on responsibility for overpayment as the document enclosed as Exhibit I and concludes the Reply stating:

Fidelity’s repeated accusations against Branch and its desperate attempt to sue homeowners are precisely the type of effort to “shift the focus of the litigation” away from the relevant issues that the court condemned in Public Integrity. There is no basis for Fidelity to assert claims on behalf of the United States against nonparty insureds in this qui tam action. The Third Party Complaint should be struck.

As always, a full reading of the linked documents from the docket is advised.  Believe me, it’s interesting reading. (citations omitted from the quoted text and emphasis added)

2 thoughts on “USA files Statement of Interest – supports Branch qui tam relators’ Motion to Strike defendant’s third party claims”

  1. Those folks in the USA office in Baton Rouge that handle civil cases are a fine group of lawyers Nowdy. It is heartening to see them keeping an eye out for the taxpayer’s interest in Branch. Meantime in Jackson at the USA office in Jackson on the criminal side they are still trying to figure out if Lecky King is a man or a woman.

    Is it any wonder the talk of coastal succession from last place pops up from time to time?


  2. When I have time to “stock the library”, you’ll see the correspondence between the office of the USA (southern district) and the Court regarding the Rigsby’s motion to begin discovery in 08 along with Judge Walker’s denial…will give you a “heads up” so you’ll have time to pick up a bottle of Pepto as it’s all a real stomach turner.

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