Companies will soon learn that the best protection and defense against a potentially serious and morale lessening whistleblower suit is to have in place a corporate culture that emphasizes ethical conduct by all involved in the company.
In contrast to the opinion expressed in a lecture at the Brookings Institute, the dockets of Katrina litigation provide ample evidence that the corporate culture of State Farm is one that, instead, views a protective order as the Company’s best protection and defense. At SLABBED we call the tactic gutting a case to settlement. However, by any name, the process begins with a protective order that consistently ends up disposing of so much evidence it effectively disposes of most plaintiffs’ Constitutional right to a jury trial and, in turn, either disposes of the case itself or forces settlement,.
SLABBED has published numerous posts documenting how the routine protective orders granted State Farm have repeatedly been used to shield damaging evidence of State Farm’s claims handling following Katrina. One such post quoted a plaintiff’s attorney who wrote:
It is black-letter law that a litigant who might be embarrassed, incriminated, or exposed to litigation through dissemination of materials is not, without more, entitled to the Court’s protection. Stated otherwise, those types of harm do not constitute “good cause” for entry of a protective order under the Rules…
State Farm has not right to an automatic protection from the public being granted access to evidence of its misconduct in the arena of responding to Hurricane Katrina claims in Mississippi.
Discovery in a qui tam case, more than any other, should be transparent for the Relators stand in the place of the USA which in turn represents the public interest. We the people, therefore, have a concomitant right to know. Nonetheless, as SLABBED recently reported in Qui Tam Olympics – the protection game: ex rel Rigsby v State Farm, State Farm filed for a Protective Order seeking to limit the Rigsbys’ discovery. Counsel for the Rigsbys has now filed the Relators’ Response in Opposition :
State Farm asserts that the contested discovery requests “do not pertain to the McIntosh flood claim and amount to mere speculation by the Rigsbys of the type that has been condemned by this Court.” State Farm’s Motion at 6. In fact, the Relators have tailored carefully their discovery requests based on this Court’s August 10, 2009 Order…and this Court’s related rulings in individual policyholder cases. Accordingly, all of the discovery sought by the Relators seeks information that may lead to admissible evidence regarding whether the Defendants submitted a false claim with respect the McIntosh flood claim.
A footnote to the paragraph quotes the Court’s August 10, 2009 Order:
This case also involves allegations that the defendants conspired to submit false claims to the government. As such, permissible discovery should be even broader in this case than in individual policyholder cases because this case directly involves the defendants’ intent, an issue not present in individual policyholder suits. (emphasis added)
No doubt realizing the Company was on thin ice, State Farm all but simultaneously filed a motion for a second protective order – this one, an ostensibly routine Consent Protective Order, could become a Trojan Horse for dispositive motions in the guise of protective orders. Experience encourages the Company to saddle up and ride to and from courts in Mississippi and Louisiana – a similar ride from the Renfroe v Rigsby court in Alabama trampled plaintiffs’ discovery in the Mississippi court for McIntosh v State Farm.
The significance of the word intent to a qui tam case becomes crystal clear when examining what State Farm is attempting to do in the eastern district of Louisiana case Schafer v State Farm. The Schafers are seeking to declassify documents submitted by defendants State Farm and Xactware under a protective order. Their attorney Soren Gisleson – introduced to SLABBED readers in Chapter Six of the scheme – also represents the plaintiffs in Brown v State Farm and, in that case, recently took the deposition of State Farm’s representative Christopher Lapinskie.
The Company’s intent is to protect information aboutState Farm’s use of Xactware’s Premier Services application following Hurricane Katrina. Xactware, a defendant in the Schafer case, owns XactTotal – the software application central to the fraudulent scheme alleged in the Rigsby qui tam Complaint, a role reported on SLABBED in The First Bailout. In Xactware’s Supplemental Memorandum in Opposition to Plaintiff’s Motion to Declassify, the Company makes the following incredible claim:
Plaintiffs have moved to declassify internal confidential analyses and reports prepared by Xactware, documents detailing the methodology that Xactware employs in compiling and producing its price lists, and certain price lists that represent unique products that Xactware offers to paying customers. Xactware responded to the motion by filing an affidavit establishing that the documents at issue contained confidential and commercially sensitive information and that disclosure of the documents would adversely affect Xactware financially, harm Xactware’s competitive position in the marketplace, and damage Xactware’s customer relationships.
Among those things that make the Xactware claim incredible is a history of patent litigation with Symbility Solutions that reveals the methodology it seeks to protect in Louisiana. Another is that the Xactware’s market share was assured when the Company was purchased by ISO, a transaction reported on SLABBED in Behind Door #1 – Xactware come on down.
State Farm, of course, also filed a related brief, State Farm’s Sur-Reply in Opposition to Plaintiff’s Motion to Declassify:
It is simply extraordinary that Plaintiffs are characterizing the recent Lapinskie deposition as revelatory of State Farm Fire’s confidential practices and procedures in Louisiana…As the attorney who deposed Mr. Lapinskie in Brown, Soren Gisleson (one of Plaintiffs’ attorneys here) is well aware that under a pre-deposition discovery order in Brown, questioning “regarding State Farm’s use of pricing programs and pricing information” throughout Louisiana was ruled to be irrelevant and off-limits…
If Mr. Gisleson had actually used the Lapinskie deposition in Brown to explore the extensive, detailed information that State Farm Fire has designated as Confidential in this case, he would have been doing so in flagrant violation of the Brown Court’s discovery order. Not surprisingly, as it turns out, no such testimony was actually obtained during Mr. Lapinskie’s deposition, and Plaintiffs have not tied a single supposed disclosure by Mr. Lapinskie in the Brown deposition to any specific State Farm Fire Confidential Information that Plaintiffs are attempting to declassify here.
State Farm Fire’s extensive evidentiary affidavits already have established the commercial value of State Farm Fire’s designated Confidential Information and the measures that State Farm Fire has taken to maintain the confidentiality of that Information.
Xactware’s memorandum also makes it clear plaintiff’s’ counsel did not violate the protective order in Schafer:
…it is undisputed that: (i) none of the documents designated by Xactware as confidential in this case were produced in the Brown litigation and (ii) Mr. Lapinskie did not testify about the content of any of those documents.
Since Mr. Gisleson did not violate the protective order in Schafer or the scope-limiting order in Brown, an educated guess – based on Plaintiffs’ Memorandum supporting declassification of the protected documents – suggests the defendants are giving the Trojan Horse a test ride:
State Farm can not un-ring this bell. On December 18, 2009, undersigned took the corporate representative deposition of State Farm in Brown v. State Farm…The deposition was not subject to a protective order….In his deposition, Mr. Lapinskie testified as to all manner of topics and areas of inquiry that are the subject of Plaintiffs’ Motion to Declassify.
The most explosive testimony confirms what has been the central allegation in this case (and in which the bulk of the documents that are the subject of the Motion to Declassify address), namely, that State Farm takes the pricelists that Xactware tells the public (and its customers) reflect market prices, and State Farm changes them. (emphasis added)
The functionality to change the pricelists is built into the Xactware application. In fact, Xactware competitor Symbility Solutions, plaintiff in the previously referenced patent dispute, published a white paper describing the functionality of the pricing database:
…altering just a single trade rate…(“Demolition worker” for instance)…can alter many line item unit prices instantly.
When this information about the functionality of claims handling applications is considered, a case can be made for editing the title of Times-Picayune reporter Rebecca Mowbray’s awarding winning story to read Same house. Same repairs. Same insurer. Same application. Why different prices? Xactware patents describe, in part, the method and system ; but for the “why” continue to read.
Xact 819 patent and Xact 945 patent are for: A method and system for modeling rooms or chambers in a structure for intuitive and accurate estimation of process parameters (e.g., material and labor costs for performing the process) associated with the rooms.
Xact patent documents evidence the additional functionality of changing room dimensions – a functionality central to the fraudulent scheme described by the Rigsby sisters – and that brings us closer to what’s hidden in the Horse.
Obviously, the protected documents filed under seal in Schafer are not available for review. However, it is likely there is one similar to this item on the June 14, 2007 agenda of the Claims Committee and June 27, 2007 agenda of the Board of Governors for Louisiana Citizens:
XactAnalysis is a central repository for estimate data from many sources including vendors, independent adjusters and staff adjusters. This tool provides real time management reports on loss costs estimating which Citizens has not previously had. This will enable Citizens to monitor trade pricing as well as assignment tracking.
This is the only product that works with the XACTIMATE estimating platform which Citizens has contracted with until July 31, 2008. (emphasis added)
Two words – “estimating platform” – indicate the Premier Services application Xactware licensed to State Farm works from same estimating platform as the other Xactware products the Company used in handling policyholder claims following Hurricane Katrina.
Xactware’s website touts how easily the products work together in a description of Xactimate:
All your important estimating and communication tasks are available through one, central dashboard. That includes communications such as sending and receiving estimates and price lists, easier access to files in process, and improved reporting features.
The key question is what the “estimating platform” means in the context of State Farm’s handling of policyholder claims for damage from Hurricane Katrina:
- Premier Service providers are vendors of material and labor willing to give State Farm a discounted price on goods and/or services.
- The “estimating platform” makes it possible for this discounted cost to seamlessly enter the vendor data maintained in XactAnalysis.
- During the adjusting process, cost data maintained in XactAnalysis was accessed via Xactimate and XactTotal following Katrina.
State Farm’s Premier Services are comparable to those featured in the SLABBED post Companies that live in a glass house should not throw key performance indicators at glass shops. In commenting on that post last October, Brian Martin wrote:
Every trust, cartel, or monopoly in the history of the world claimed it was saving its customers money by dictating special “discounts” for itself. That is not how private markets should work and it is not efficient. With secret strongarm arrangements, it almost guaranteed that the deals eventually will be based on corruption than on quality or efficiency. There is a long economic history showing the inevitability of massive fraud when anticompetitive practices are encouraged.
It is simply mind boggling to consider how massive a fraud is possible because of the seamlessly functionality all products derive from the estimating platform. If the Katrina Courts required the production of State Farm documents comparable to those produced in Watkins v State Farm (Oklahoma) orCamus v State Farm (Colorado), evidence of the seamless way fraud can be integrated into the claims handling system would not be shielded by the countless number of protective orders granted in Mississippi and Louisiana.
Here, however, State Farm’s protective orders are dispositive motions in disguise – particularly when courts do not require the Company to comply with the related requirements of law.
After traveling to Bloomington for the deposition of State Farm employee Stephan Hinkle in Pontius v State Farm, plaintiff’s attorney Derek Wyatt attempted to find out who the Company had identified as the 30(b)(6) representative for the questions Hinkle was not prepared to answer.
MR. WYATT: Okay. Who is that person?
MR. SPRAGINS: I’ll designate it when we get a protective order and get going on it. I mean, I don’t know if it would be Mr. Hinkle or not…
MR. WYATT: Let me just – let me just clarify for the record that we’re on the – the only thing the Plaintiffs are asking at this moment is for the Defendant to identify the 30(b) (6) representative who will testify as to 8, 9 and 10. anyone.
MR. SPRAGINS: Okay.
MR. WYATT: And you’re not identifying anyone.
MR. SPRAGINS: I’m not identifying.
MR. WYATT: Okay.
MR. SPRAGINS: Okay? Number 11 appears to be very much similar to number 7, and you can
MR. WYATT: Scot, let me — let me —
MR. SPRAGINS: Don’t — I’m just going to tell you what I’m designating him in. Okay?
MR. WYATT: I understand. And I’m going to – you know, I’m not going to stop you from doing that. But I do want the record to be clear, and I just want to recite this to you, that the 30 (b) (6) rule states that the organization so named — and that in this case would be State Farm Fire & Casualty — shall designate one or more officers, directors, or managing agents or other persons who consent to testify. And I’ll just let the record stand on that, that the Plaintiffs are asking that the Defendants comply with the language in Rule 30 (b) (6) .
MR. SPRAGINS: As soon as there is some agreement about the protective order and disclosure of confidential information and trade secrets, I’ll be in a position to designate that person.
MR. WYATT: Okay. We don’t accept that.
MR. SPRAGINS: Well–
MR. WYATT: Okay. I’m just making the record. Okay? You have a duty to do it right now.
MR. SPRAGINS: No, I don’t.
MR. WYATT: Fine.
MR. SPRAGINS: If we need to get the Judge on the phone yet again … (emphasis added)
In addition to a court on speed-dial and the auto-pilot approval of State Farm’s motions for protective shielding and sealing evidence of fraud, the functionality built into electronic claims handling applications also builds in the capacity for fraud. Cost data, as this post documents, can move seamlessly from one application to another where it is often indistinguishable from other data – a case in point is the discounted cost of a Premium Service provider appearing as local market cost when accessed by applications such as Xactimate and XactTotal.
This same functionality enabled by the estimating platform also facilitates other forms of fraud. For example, it’s possible to add a few legal terms that make a document appear subject to claim attorney-client privilege and seamless move the “edited” [sic] document to another application that contains the policyholder’s claims file. With similar ease, other documents can also be altered – the list of property lost to Katrina compiled by Mrs. Weiss (Weiss v Allstate) and the additions to the claims log revealed during a deposition taken for Carpenter v State Farm are two examples that come to mind.
Larry . . . do you have anything you’d like to add?