Judge Vance denies Defendants Motion for Interlocutory Appeal and Branch qui tam rings in the new with Motion to amend complaint adding Allstate and Pilot Catastrophe Service

Defendants contend that a specific question of law controls this matter: “whether a ‘sleuth’ like Branch, without first-hand involvement in an alleged fraud, can qualify as an ‘original source’ by providing additional examples of a publicly disclosed, alleged fraudulent scheme.”

…The Court need not resolve this question because district courts do not certify “questions” for the court of appeals upon the grant of a § 1292(b) motion.

The eleven-page Order and Reasons s is classic Vance – another pick ’em up, put ’em down tutorial on qui tam law!

Defendants’ primary argument is this: the Supreme Court, in Rockwell International Corp. v. United States, 549 U.S. 457, 470- 71 (2007), abrogated the Fifth Circuit’s “original source”decision in United States ex rel. Laird v. Lockheed Martin Eng’g & Sci. Servs. Co., 336 F.3d 346, 356 (5th Cir. 2003)…Defendants contend that the Court’s Order “diverges from Fried based on pre-Rockwell, out-of-circuit decisions,” R. Doc. 237 at 1, and that there is substantial ground for difference of opinion as to whether a relator who initiates an investigation after an alleged fraud can be considered an original source…

Initially, although defendants make repeated use of the term “pre-Rockwell,” they point to nothing in Rockwell itself that makes it a watershed decision as to the specific issue they identify. Rockwell abrogated the Fifth Circuit’s ruling that the phrase “information upon which the allegations are based” in 31 U.S.C. § 3130(e)(4)(A) refers to the publicly disclosed information, and instead held that it refers to the information in a relator’s complaint. 549 U.S. at 470-71. The case also held that the phrase “direct and independent knowledge” in 31 U.S.C. § 3130(e)(4)(B) does not encompass a failed prediction or  suspicion that something will happen. 549 U.S. at 475-76. This Court’s decision runs afoul of neither of these rulings. If Rockwell indeed unsettled any relevant issue of law in the Fifth Circuit, defendants have failed to show how it is presented by the Court’s Order.

They also suggest that the Order “reli[ed] on pre-Rockwell, out-of-circuit precedent rather than Fried.” R. Doc. 237 at 7. Again assuming that this is a claim for grounds of difference of opinion and not a claim of error, defendants have not shown a “substantial ground for difference of opinion” as to whether Fried dictates the outcome of the original-source determination. There are three reasons why this is the case.

First, the Fifth Circuit holds that the determination of whether a relator is an original source is a highly fact-specific inquiry…

Second, Fried makes no statement, implied or otherwise, to suggest that relators who gain knowledge of fraud through investigation are categorically prohibited from being original sources… A case that neither discusses nor applies a legal principle does not “raise a serious question” about whether that principle exists. If anything, the Fried court was presented with the opportunity to apply such a principle and instead abided by the Fifth Circuit’s instructions to conduct fact-specific, case-by-case determinations…

Finally, as the Court pointed out in its Order, Fried is plainly distinguishable on its facts…Taking the allegations in Branch’s complaint as true, its information did not derive from public records or secondhand information. Id. at 35. Rather, it “directly investigated . . . the specific subjects of the allegedly fraudulent claims,” id., and uncovered “a host of additional compelling facts about the alleged fraud that were nowhere previously available. Id. at 39-40 (quotation marks omitted); see also id. at 32-33.

In short, Fried does not stand for or approach the rule of law that defendants appear to seek from the court of appeals: that a relator is categorically barred from original-source status because he was not involved in the fraudulent activity and he obtained his information through after-the-fact investigation. Such a rule is not found in the plain language of the statute. Furthermore, in suggesting that there is substantial ground for difference of opinion on this point, defendants have failed to point to a single case in which such a rule was applied. Defendants have therefore not met the standard for a substantial ground for a difference of opinion…

Defendants argue that an interlocutory appeal would materially advance the ultimate termination of the litigation because a finding that Branch is not an “original source” would terminate the litigation. It is true that every non-final order issued by a federal district court — if reviewed by the court of appeals, reversed, and made subject to a mandate ordering the dismissal of the entire suit — would materially advance the ultimate termination of the litigation. This, however, does not entitle a litigant to interlocutory appeal of every non-final order. Here, defendants have done little more than suggest that, if the Fifth Circuit were to decide every issue in their favor, the case would be over. The Court cannot disagree with this statement. It also, however, cannot disagree with the statement that defendants’ motion presents a substantial opportunity for “fragmented, piecemeal appeals” that complicate and delay litigation and are disfavored in federal courts. See Kelly v. Lee’s Old Fashioned Hamburgers, Inc., 908 F.2d 1218, 1225 (5th Cir. 1990).

This action was filed in August of 2006. It is now December of 2009, and the case has only recently progressed beyond the motion-to-dismiss stage. The Fifth Circuit has already reviewed this case once. There, the court explicitly declined to address this very question “[b]ecause the district court should have the opportunity to address the facts underpinning the claim of public disclosure and original source and make any necessary findings in the first instance.” United States ex rel. Branch Consultants v.Allstate Ins. Co., 560 F.3d 371, 381 (5th Cir. 2009). The district court has now done so, and it has determined that the litigation should move forward without further delay.

As the docket indicates, Judge Vance is indeed moving the litigation forward without further delay.  A hearing on the Branch motion to strike the Defendant’s third-party claims was reset for 1/20/2010 10:00 AM before Chief Judge Sarah S. Vance with oral argument. Counsel for the Government is hereby informed that their appearance at this oral argument is required by the Court.  Another docket entry notes that

By Friday, January 8, 2010, the parties shall submit proposed discovery plans. By Friday, January 15, 2010, the parties shall submit responses to the proposed discovery plans. A Discovery Status Conference is set for 1/20/2010 immediately following the hearing before District Judge Vance on the motion of the plaintiff to strike Fidelity’s answer and third party demand.

The 20th will be a busy day as it is also the date set for a hearing on the Branch motion to file a second amended complaint:

Because this motion will be decided by the magistrate judge, Clerk took corrective action to set the hearing before Magistrate Judge Sally Shushan on 1/20/2010 09:00 AM.

A hearing at 9:00am, followed by another at 10:00am that will be followed by a Status Conference leaves no doubt  Judge Vance is moving the litigation forward  without further delay!  If Santa didn’t gift Allstate and Pilot Cat Services with running shoes, the two companies will have big trouble keeping up – make than even bigger trouble than the amended complaint alone as the supporting memorandum suggests:

…After the appellate record and briefing was completed but before the Fifth Circuit issued its opinion, Allstate was voluntarily dismissed without prejudice from the Rigsby case…That dismissal constitutes an implicit if not explicit recognition that the skeletal allegations did not provide any factual basis for proceeding against Allstate, thereby raising what the Fifth Circuit called an “as-yet unpresented” issue in this case. Branch Consultants, 560 F.3d at 379…

To this day, Branch remains the sole source of any specific information connecting Allstate to allegations concerning a scheme to overstate flood damages to insured properties damaged by Hurricane Katrina. But for Branch’s disclosure and this suit, the Government would remain unaware of anything more than “skeletal allegations” directed at Allstate. See United States ex rel. Branch Consultants, 560 F.3d at 379 (5th Cir. 2009). And even those “skeletal allegations” were raised by a suit that has since been dismissed as to Allstate…

To be clear, whether Allstate is entitled to immunity under the first-to-file provision of the False Claims Act is not at issue in this motion, and Branch has not attempted to fully brief the issue here. Rather, what is at issue is merely whether Branch may amend its complaint to attempt to state a claim against Allstate…

Branch should be granted leave to amend so that it can add allegations against Pilot. In dismissing adjuster defendants NCA Group, Crawford & Company, and Pilot Catastrophe
Service under Rule 9(b) grounds, this Court observed, “For the majority of adjuster defendants, Branch lists at least one specific named and fraudulently adjusted property for which each company served as adjuster, which serves as the factual basis for its allegation on information and belief.” Order at p. 54. However, with respect to the dismissed adjusters, the Court reasoned that “Branch only alleges that on information and belief that they were the primary Louisiana adjusters for specific insurance company defendants, and it does not list any factual basis, such as a property that Branch is aware these companies adjusted, for its information or belief.” Order at 54 (emphasis added). The Court therefore dismissed NCA Group, Crawford & Company, and Pilot Catastrophe Service without prejudice, and expressly “grant[ed] Branch the opportunity to amend its complaint to allege an adequate factual basis for its allegations.” Order at 54; see also Order at 69 (“Branch will be afforded the opportunity to amend its complaint to make adequate allegations against them.”).

Branch now seeks leave to amend its complaint to identify a specific exemplar property that Pilot adjusted and to add the factual basis for its information and belief as to Pilot. See Exh. A (Second Amended Complaint ¶ 24). Specifically, Branch’s information and belief is based on testimony given under oath by an Allstate corporate representative. The corporate representative testified that Pilot served as Allstate’s primary adjuster on Hurricane Katrina flood claims and that Allstate paid Pilot approximately $400 million for Hurricane Katrina work. See Exh. E (3/27/07 Deposition of Paul H. Tracy as the corporate representative of Allstate at p. 14:12-15:21).

It should be noted that the Tracy deposition was taken in Weiss v Allstate – a case tried before Judge Vance:

Q: What is the relationship, in light of Hurricane Katrina between Allstate and Pilot?

A. Post Katrina or generally speaking?

Q. Well, related to Katrina, please.

A: We have a contractual relationship with Pilot to supply resources for adjusting claims, catastrophe claims; and for Katrina, they supplied a large number of adjusters to Allstate to meet the capacity demand from Hurricane Katrina.

Q. How much money did Allstate pay Pilot as a result of  Hurricane Katrina?

A. Hurricane Katrina, I believe — and I’m going from memory now. I believe in 2005 we paid the Pilot Corporation — I want to say it was about $155 million, $160 million. Then in 2006,  we paid them an additional $250 million, $255 million.

Q. As of 2005 and 2006, Allstate had paid Pilot about $400 million; correct?

A. Sounds about right, yes.

The proposed Second Amended Complaint contains 20 examples of Allstate insured properties examined by the Branch Consultants – a number  that more than “sounds about right” to have the Motion to Amend granted.

actually, both already have big trouble  just to keep up.