Defendants argue that the Court should adopt Judge Senter’s interpretation of Rockwell and require Branch to prevail at a trial limited to the 27 Exemplar Properties before allowing Branch to obtain discovery concerning other properties…No court has ever interpreted Rockwell to mean that a relator who alleges a long-running scheme has to have direct and independent knowledge of every individual instance of that scheme…
By definition, a bellwether is an indicator of trends. The term originated from the practice of tying a bell around the neck of a wether (a castrated male sheep) to induce other sheep in a flock to follow the belled-wether…Courts utilize a bellwether approach when large numbers of plaintiffs are proceeding on the same theory or claim and there is no other feasible way for the courts to handle the enormous caseload.
Not only is there is a feasible way to handle the Branch qui tam case – the statistical sampling proposed by Branch that is the litigation standard for identifying fraud in federally funded insurance programs – there’s something slightly creepy about proposing a bifurcation procedure involving a wether to Magistrate Shushan.
Suggesting such a proposed bifurcation models Judge Senter’s decision in Rigsby is really over the top – so is Fidelity’s claim there was no scienter involved in the Company’s adjustment of the Exemplary Property at 2625 & 2627 General Pershing.
…all Defendants have asserted affirmative defenses contending that they had “no knowledge” of any inflated flood adjustments and that any such adjustments associated with the 27 Exemplar Properties were the result of innocent mistakes. The SSRS sample Branch seeks directly addresses these affirmative defenses and the issue of scienter: a sample will show whether inflated flood adjustments were isolated incidents or a pervasive practice that could not have been a “good faith” mistake.
An example will help put the importance of the sampling evidence in context. The elevated property at 2625 & 2627 General Pershing in New Orleans had a floodline of 3 inches and extensive damage that obviously was caused predominantly by wind…
Fidelity caused the Government to pay the policy limits of $250,000 on this property for purported flood damage. At trial, Fidelity intends to assert as affirmative defenses that it acted in “Good Faith” and that it had no “contemporaneous knowledge of the fact of the overpayment (a.k.a. scienter).”
The last paragraph begs the question what is it that Fidelity did know about a $250,000 claim?
All Defendants also had the additional motive of earning inflated adjusting fees from the Government, which are based as a percentage of the claim amount. As Fidelity’s corporate representative testified at her deposition:
Q: If Fidelity is paid three and a half [sic] percent of all the—the payouts on loss, isn’t it in the best interests of Fidelity to pay as much as possible on a claim?
The photographs and brief description of the exemplar property on General Pershing lend context to the 28-page Branch response to the 13 questions Magistrate Shushan ask all parties to address in her January 28, 2010 Order. Shushan’s questions are related to specific points of NFIP authority and related case law.
Once all parties respond, a separate post on these questions would be appropriate treatment. That said, a few point of particular interest in the Branch response to the first question – What is the authority, both statutory and regulatory, for the government to recoup overpayments by it to insurers in the NFIP? – follow:
The relationship between WYO companies and FEMA is governed by a provider agreement that each WYO company enters each year, which is codified at 44 C.F.R. Pt. 62, App. A. By intentionally submitting inflated flood claims, Defendants breached several sections of the provider agreement and would be liable to the government for damages…
…the government has the right to obtain the overpayments directly from Defendants and has a strong interest in the prompt return of erroneously paid funds to ensure the viability of the NFIP. Indeed, the interest is even strongerhere where the overpayments were based on a fraudulent scheme to inflate the flood claims.
The NFIP Bureau and Statistical Agent has also issued a notice making clear that WYO companies are to reimburse FEMA for claim overpayments. On June 18, 2003, the NFIP Bureau circulated a memorandum to all WYO companies in which it provided “two options for WYO Companies to use in resolving” certain overpayments.49 Both options require that the WYOcompany reimburse FEMA for the overpayment…
Additionally, 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
The sworn deposition testimony that Deborah 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 disbursed?
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.
As regular SLABBED readers know, the Expedited Claims Handling Process authorized in Maurstad’s September 21, 2005 memorandum was contrary to the WYO companies’ contractual responsibility as fiscal agents and the FEMA policies established and/or clarified in the memoranda cited in the Branch response. What some may not realize how the wording in the Maurstad invited a specific fraud:
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.
Elsewhere in the opposition brief, Branch states the intent “to prove at trial that Defendants failed to comply with their obligation to use their “own customary standards” when adjusting Katrina-related flood claims”. Branch rightly contends the related wind claims are “critically relevant, objective evidence concerning whether Defendants in fact used the same standards and practices when adjusting flood claims as they did when adjusting wind claims”.
At the May 2009 Rigsby qui tam hearing before Judge Senter, State Farm openly admitted to using a different standards when adjusting wind and flood – a difference reflected in the Company’s use of Xactimate to adjust wind claims and XactTotal for flood. Then, in an amazing act of hubris, the Company’s representative testified that State Farm always used XactTotal to adjust flood claims and then argued Xactimate and XactTotal were one in the same!
This testimony was ample motivation for State Farm’s continued misrepresentation of the USSC Rockwell decision and related attempt to limit the Rigsbys’ discovery solely to the McIntosh property and flood claim. Considered in light of the Branch defendants’ similar misrepresentation of Rockwell in their attempt to likewise limit discovery in Branch, there is no room for doubting State Farm was the “wether” wearing the Rockwell bell.
In the month since SLABBED published Qui Tam Olympics – Defendants’ games pit Judge Vance (Branch) against Judge Senter (Rigsby) the defendants have continued to play games in an effort to reconstruct Rockwell into something it is not.
The Branch opposition brief gives the play-by-play on “claims smuggling” language in Rockwell:
Defendants argue that the “claim smuggling” language in Rockwell requires that discovery be limited to the 27 Exemplar Properties, at least until Branch prevails in a trial limited to those properties. Defendants are wrong. Rockwell involved three different types of alleged FCA violations…that occurred at different times. The “claim smuggling” passage Defendants rely on refers to those different claims, not to different examples of the same claim…
Importantly, Branch also correctly states Judge Senter’s position:
And even Judge Senter, in a case involving a single exemplar property, recognized the Rigsby relators’ legitimate “interest in identifying these other allegedly false claims” related to the “vast conspiracy” alleged in the Rigsby complaint, and is still “consider[ing] whether additional discovery and further proceedings are warranted.” As part of that consideration, Judge Senter ordered State Farm to produce discovery concerning the thousands of properties related to the allegations in the Rigsby complaint for in camera review so that he could “know the outer limits of the potential claims involved in this action.”
It is worth noting the related caveat in Judge Walker’s recent granting only in part State Farm’s Motion for Protective Order.
Defendant argues that the challenged discovery requests exceed the scope of the McIntosh claim, which at this stage of the litigation is the only claim that is at issue pursuant to Judge Senter’s  Order of September 24, 2009 request to protect engineering reports on properties other than McIntosh…
Neither Judge Senter nor Judge Vance have indicated anything other than their intent to serve justice by thoroughly examining the claims made by the Relators in the qui tam case before their court. To date neither Magistrate Walker nor Magistrate Shushan have reflected a similar level of commitment – and SLABBED reader Sock Puppet took note:
The rulings on Interrogatories 4 and 11 are wrong. The problem with discovery in Katrina litigation is that these magistrates, and some judges, have erred on the side of the party seeking to hide stuff, as opposed to erring on the side of “full disclosure.” This is not the law, but it has become the law through the repeated granting of “on-demand protective orders.”
There is no legitimate justification for the bellwether trial requested by Branch Defendants and judicial economy alone is sufficient reason for Magistrate Shushan to deny the request.
Time will tell who’s in the herd when the wether rings the bell.