Judge Vance has her Reasons – orders Nielsen to dance with Branch; band is playing fraud

Qui tam plaintiffs move to strike Fidelity’s Third-Party Complaint against its policyholders… Because Fidelity’s claims do not meet the appropriate standard under the Federal Rules of Civil Procedure and because third-party practice is considerably restricted in False Claims Act actions, the motion is GRANTED.

With 24-pages of Reasons supporting her Order, no one can call Judge Sarah Vance a party pooper for turning  down Nielsen’s “morally correct” [sic] Third Party Demand.

Fidelity has filed an answer to Branch’s complaint, and this answer includes a complaint asserting claims against third parties.1 R. Doc. 247. Specifically, Fidelity, acting in its “fiduciary capacity” as a “fiscal agent of the United States,” brings claims against certain of its own policyholders for breach of contract and unjust enrichment, as well as the common-law doctrine of payment by mistake. Fidelity proposes to sue those Fidelity policyholders whose property adjustments Branch put in issue in its complaint against Fidelity. Fidelity alleges that, if Branch proves that Fidelity overpaid its policyholders, these policyholders improperly received payments that are rightfully the property of the United States government.

In a footnote, Judge Vance point out, “These claims are brought by Fidelity only. None of the other defendants has brought a similar complaint against its own policyholders or has filed support for Fidelity’s.”  Surprisingly, however, Judge Vance goes no further.  Since she once again demonstrates mastery of a broad range of controlling decisions in discussing the Reasons for denial of Fidelity’s motion, the obvious assumption is she elected to spare the Company’s counsel, Gerald Nielsen, the embarrassment of revealing his apparent failure to read the Maurstad memo:

FEMA will not seek reimbursement from the company when a subsequent review identifies overpayments resulting from the company’s proper use of the FEMA depth data and a reasonable method of developing square foot value in concluding claims.

According to Nielsen, “Currently, virtually every major participant “Write-Your-Own Program” (“WYO”) insurance company in the NFIP utilizes Nielsen Law Firm, L.L.C. to handle its NFIP-related litigation on a national basis”  In that case, the embarrassment he was spared could just as easily been that his motion was an admission by omission.  In other words, Fidelity Fidelity did not properly use “the FEMA depth data and a reasonable method of developing square foot value”.

Whatever grace Nielsen was extended, however, was short-lives when Vance began the discussion of his motion on its merits:

As an initial matter, there appears to be confusion as to what Fidelity’s claims actually are and under what procedure Fidelity seeks to bring them into this litigation. In its response to the motion to strike, Fidelity correctly argues that although it labels its claims against the policyholders under the heading “third-party demand” or “third-party complaint,” R. Doc. 247 at 1, 20, the Court may construe mislabeled pleadings as if they were correctly designated. FED. R. CIV. P. 8(d). Fidelity offers two suggestions as to what procedure and which corresponding Federal Rule of Civil Procedure it seeks to invoke.

First, Fidelity suggests that its claims are actually compulsory counterclaims that should be governed by Rule 13(a). They are not. Compulsory counterclaims under Rule 13 are brought “against an opposing party.” Fidelity’s view is that the text of Rule 13 allows counterclaims against “opposing parties,” and the policyholders are opposing parties — or they will be if the Court allows the claims against them to proceed.

The flaw in this argument is manifest: claims asserted in complaints are by definition against opposing parties…

Fidelity also suggests that it may file its complaint against the third-party policyholders because they are mandatory parties under Rule 19(a)(1)(B). This, too, appears to be the incorrect rule that governs this procedure. Rule 19 of the Federal Rules of Civil Procedure concerns itself with “required joinder of parties.” Joinder of a non-party to an existing litigation as a plaintiff or defendant is not the same as an existing defendant’s initiation of entirely new claims against a non-party. As one court explained, “Rule 19 does not provide or support the introduction of a third-party defendant into a lawsuit. Rather, Rule 19 provides that the court may, under proper circumstances, require the joinder of a non-party as a plaintiff, defendant or involuntary plaintiff. It does not empower the court to order joinder of a third-party defendant, because that is what Rule 14 is for.”…

Even if Rule 19 did allow Fidelity to file a complaint against a non-party, Fidelity has not met the requirements of that Rule…

Fidelity is exclusively concerned with a scenario in which the Court determines that it has overpaid the policyholders, but that it did not do so fraudulently. It claims that, if such an event comes to pass, the Court will have determined that the policyholders are wrongfully in possession of government funds. But this argument is premised upon a misunderstanding of what this case is about. This case is not about overpayment; it is about fraud. (emphasis added)

With two of the Rules suggested by Fidelity off the table, Judge Vance examines Rule 14, the Rule applicable to third party claims:

Fidelity asserts a third-party complaint in a different capacity than its capacity as a defendant in this action. Branch sued Fidelity as an insurance company and participant in the WYO program. But Fidelity now brings its third-party complaint as a fiscal agent of the government. In other words, Fidelity has not only failed to demonstrate that the policyholders are liable to Fidelity for Branch’s FCA claims. It also brings its third-party complaint as a functionally different party than the one sued by Branch. This is a considerable stretch of the Rule 14 requirements.

But even assuming that Fidelity has satisfied the requirements of Rule 14, the relevant case law establishes that third-party practice is highly restricted in FCA suits…

Finally, even if such an action were not barred by Rule 14 and the Public Integrity line of case law, allowing Fidelity to file a third-party complaint asserting separate, independent claims would introduce needless complication into a litigation that is already extremely complicated. The Court would exercise its discretion to strike the third-party claims on this basis alone.

Nielsen to going to dance with Branch and the band is playing their song –  “this case is not about overpayment, it is about fraud”!

7 thoughts on “Judge Vance has her Reasons – orders Nielsen to dance with Branch; band is playing fraud”

  1. Gerald Nielsen has a conflict of interest a mile wide representing the NFIP and now an insurer in Fidelity accused of defrauding same. It is amazing the man has not been booted from this case and even more amazing is that FEMA is still asleep at the wheel for not recognizing this. IMHO all it will take is one motion and Nielsen’s ethically challenged ass is gone from this litigation.

    sop

  2. You’re not alone in that opinion, Sop, and I expect we’ll hear more about about it as the case moves along – just probably not from FEMA!

  3. I just spent 2 hours with a lawyer who is actually more ethically challenged than Nielsen, this one does real estate. It gave me the urge to take another shower after I got done as I wiped my hiney with him.

    Folks the concept here is simple, a lawyer can not serve two masters and truly represent ones of those master’s interests.

    sop

  4. No one else has raised Nielsen’s issue because it is obvious that the “benefit” recieved by the homeowner thru a falsified flood claim was motivated by a corresponding reduction in the wind claim. (That is the Rigsbys’ central theory.) Once damage is identified, the damage is in the wind column or the flood column (or both, according to OIG). That’s the way the worksheets are set up. The assumption here is that the insurer as the gatekeeper is motivated to maximize his own interest. If this assumption holds, then the “benefit” of the fraud was actually transferred to the insurer.

    There is one unsettling complication….which seems to be raised in McIntosh….that the homeowner has recieved a combined flood and wind settlment that exceeds the actual damage. The expert testimony seems to be claiming that the total cost of flood damage was far less than the $250,000 flood claim.

    I have always wondered the extent to which any homeowners were “complicit” in the fraud. It is clearly possible for the homeowner and insurer to conspire to defraud the government where they would share the benefit…..slightly lower than reasonable wind payment, combined with an inflated flood claim.

  5. James yes you are right, some of the victims of the scheme were more than made whole. I can not deny it and even worse because the settlements were sealed the amounts received through litigation were not counted against insurance recoveries when the MDA grants were figured. The fleeceing of America’s taxpayers was thorough as the victims were also bought off.

    I can not rationalize what occured but I can say I have clean hands that way. At the end of the day it was the insurers that had the fiduiciary duty to properly adjust claims for the NFIP. Anything that happened after they dumped their wind obligations on the NFIP and that resulted from that breach traces back to that initial bad behavior. You and every other taxpayer including myself paid a price for that. So while I concede your point is valid I can not and will not blame the folks that had no control over the events that lead to the overpayments.

    It is important to remember that insurers benefitted by hitting the limits monetarily, first by the claims dollar not coming out of their pockets and second by the fees paid based on claims payment amounts paid insurers by the NFIP. The fact that policyholder benefitted over the long run was not the intended consequence IMHO but one that made the scheme most elegant.

    sop

  6. You guys have lost me. Could be that I’ve just been at my desk too long but I can’t get my head around the idea that payments in McIntosh exceeded actual value. I thought the issue was correct allocation of payments to cause of damage.

  7. It is Nowdy but James raises a valid point though not one of legal significance. The laws on this are clear, only David Rossmiller thinks insureds bear responsibility for the proper adjustment of a claim. Frankly the Rossmillerian viewpoint infantilizes insurers and professional adjusters but there is no denying the end result. Judge Vance saw through Rossie’s BS in her last order.

    sop

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