JUDGE
IN SUPERSTORM SANDY LITIGATION: Alarmingly,
one attorney prominently involved in coordinating the defense of the WYO carriers
has predicted that the defense of these cases could cost more than $100
million, a figure that likely exceeds the cost of settling all of the cases at full
value
On December 2nd, the Court entered the attached Case Management Order No. 13 (CMO #13) where the Court explained some of the
obstacles the parties were having with the mediation process. The number of
Hurricane Sandy cases has grown to over 1,200. The Court noted that to date,
approximately 25% of the cases originally filed have successfully resolved
through the expedited discovery and mediation process. Another 490 cases were
since filed and currently over 600 cases are scheduled for mediation or in the
process of mediation.
The Court stated that defense of these cases may exceed $100 million dollars, a figure that exceed the cost of settling all the cases. Importantly, the taxpayers are paying the defense costs of the WYO insurers' lawyers (mostly outside lawyers who are milking the taxpayers for every dime); therefore, these lawyers have no incentive in settling the cases, as they charge the taxpayers at will and at huge amounts. The federal judges obviously realized what is going on and are trying to put an end to it or at least manage the process in more favorable terms to the taxpayers.
We wrote recently about the letter written by Fugante to the WYO insurers regarding these issues. Here is that blog.
CRAIG
FUGATE (FEMA ADMINISTRATOR) URGES PRIVATE INSURERS TO RELEASE THE DRAFT
ENGINEERING REPORTS TO INVESTIGATE UNDERPAYMENT OF FLOOD DAMAGE CLAIMS
http://metroforensics.blogspot.com/2014/12/craig-fugate-fema-administrator-urges.html
In order for mediations to proceed more expeditiously, the
Court has ordered additional requirements for the parties in CMO #13:
- The Parties must comply with CMO #12 regarding the selection of a mediator.
- Mediations will no longer be conducted in Louisiana.
- Plaintiff must participate actively in the mediations. Unless it is regarding an issue involving privilege, they must be available to answer questions about their claim since the mediation process is confidential.
- Parties should consider having adjusters and/or engineers present for mediations where the issue involves a difference of agreement between adjusters’ estimates or engineering experts’ conclusions.
- No party can unilaterally terminate the mediation—only the mediator may decide if the session should be adjourned and reconvened at a later date.
- At least 30 days prior to the mediation, Plaintiff must send a written demand to Defendant’s counsel that includes a detailed description of Plaintiff’s position regarding areas of disagreement, including any critiques of defendant’s experts or adjuster’s conclusions, and which is supported by all documentation. If documents are not provided 30 days before the mediation, they will not be used at the mediation and may also be excluded from trial.
- Within two weeks of receipt of the Plaintiff’s demand, Defendant must notify Plaintiff’s counsel about gaps in documentation and any areas of disagreement.
- Mediators will hold a pre-mediation conference two weeks before the mediation. They will review items listed in a checklist which was directed to the mediators on November 20, 2014.
- It is left to the discretion of the mediator to adjourn the mediation conference if necessary to obtain more information, however, if parties indicate they are ready for mediation and later indicate that they could not settle due to missing information, sanctions may be imposed.
- If the parties reach an impasse about issues such as foundation damage that requires expert testimony, the parties must jointly notify the court, preferably before the mediation, so that a hearing can be held expeditiously and allow the mediation to proceed more smoothly.
- Finally, the Court reminds the parties that sanctions may be a possibility if the Court discovers dilatory tactics or a lack of good faith by a party or its counsel.
Here is a copy of the CMO #13.
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
ORDER
IN RE HURRICANE SANDY CASES
14 MC 41
THIS DOCUMENT APPLIES TO:
ALL RELATED CASES
-------------------------------------------------------------X
CASE MANAGEMENT ORDER NO. 13
In January
2014, the undersigned Committee of
Magistrate Judges
(“the Committee”) was appointed
by
the Board of
Judges in connection with the
more than 800 cases then filed
arising from Hurricane
Sandy. Among other things, the Committee
was tasked Ato recommend procedures
to ensure proper case
filing . . . to establish a plan for expedited discovery, and to facilitate the efficient resolution of
these matters in a manner designed
to avoid the duplication of effort and unnecessary expense.” CMO No. 1 at 1 (Feb. 21, 2014).
The number
of Hurricane Sandy cases
has since grown to more than 1,200.
Through
the concerted efforts of the undersigned, who have held hundreds of conferences and issued
more than a dozen case management orders, along with an
unprecedented expenditure of resources by the
Court, the Committee designed and implemented an expedited
discovery procedure. In addition, the Court expanded its mediation panel and provided
training specifically tailored
to the issues raised in these cases.
To date, approximately 25% of those
cases originally filed have been successfully resolved, largely through this expedited discovery and mediation
process. Although
another approximately 490 cases have
since been filed, currently
over 600 cases are
scheduled for mediation or in the process of mediation.
Others, filed more recently, are in various
phases of the Committee’s procedure; some are in the process of being
served; some are awaiting
answers; and still others are exchanging discovery
pursuant to CMO Nos. 1 and 8. While the procedure
has, by and
large, been embraced by the parties, in some instances, resolution of the cases has been thwarted by what can
only be described as
dilatory and unreasonable actions
by
certain counsel.
To be clear, there are many reasons
for heightened diligence in these cases. There are, of
course, victims who,
more than two years after
the storm, remain unable to
get review of their
claims. On the other hand, because
of the structure
of FEMA’s WYO Flood insurance program, the
defense of these claims is funded by the
taxpaying public; thus, care must be taken to ensure both that claims
are legitimate and properly documented
and that they are litigated in an cost-effective manner.
At
the same time, prolonged litigation, with its attendant expense[1] and ultimate delay in the efficient resolution of these cases
benefits neither the storm victims
nor the public. In
CMO No.
3, the Committee reminded counsel of these imperatives:
Counsel for all parties are reminded, as set forth in
CMO #1, that these cases present a massive
undertaking and require the balancing of serious,
competing interests. See CMO #1 at 2 (Athe Court must ensure that victims of the storm,
many of whom were rendered homeless for a time and who may
be left without the necessary records
or
access to qualified contractors
to effect repairs, receive an
expeditious review of their
claims, while at the same
time, safeguarding insurers
from meritless or inflated claims@). As such, this is not a time for “business
as usual.” Extraordinary circumstances call for extraordinary measures. And counsel are
not only expected, but required, to work diligently,
cooperatively and reasonably to help ensure a
fair and efficient
resolution of these cases.
See
Local Rule 26.4
(requiring cooperation among attorneys).
CMO No. 3 (April 7, 2014) at 7.
Yet, repeated exhortations by the members of the Committee appear to have gone unheeded. In
fact, while the Committee recognizes that many
counsel in these cases have proceeded in good faith,
in an unacceptable number of cases,
attorneys -- in some cases those with responsibility for a large number of
cases -- have acted
in a manner that is objectively unreasonable or seemingly calculated to delay efficient
resolution of the cases.
On November 25, 2014, the Committee held a Liaison Counsel conference (“the conference”) with Plaintiffs’ and Defendants’ Liaison
Counsel, representatives from FEMA, and any other counsel in Hurricane Sandy cases who
wished to attend, in an attempt to address the issues that seem to be hindering
successful mediations. This Order provides
certain procedures to deal
with those problems that have
been identified to the
Committee.
A. Failure
to Participate in Good Faith
During Mediation
Despite the clear mandate
of this Committee, as well as applicable rules and law, directing
counsel to participate in good
faith in mediation and settlement
discussions, in certain instances, counsel
for both plaintiffs and defendants have failed to do so.
In several cases reported to the
Committee, defense counsel
have, while appearing at mediation
sessions, refused to participate in
settlement talks, claiming that
they have not received necessary documents or other
information from plaintiffs. See,
e.g., Weber et al.
v. Allstate Ins. Co., 13-cv-6752 (DE [84]) (explaining that
“Defendant came to mediation with
no offer and no intention of settlement. Defendant refused to discuss or even consider Plaintiffs’ estimate. Defendant
categorically refused to participate in any meaningful,
good faith discussion about resolving
Plaintiffs’ . . . claim”);
Yannello et al. v. Allstate Ins.
Co., 13-cv-6720. These refusals to participate have followed
court conferences in which defendants’ counsel have represented to the Court that they
have received all
of the information needed
to proceed to mediation. Had
defense counsel conferred with counsel for plaintiffs or contacted
the Court prior to the scheduled mediation to indicate
what they still needed,
steps could have been taken to avoid wasting
the time of
counsel and the mediators.
Such
conduct can only be viewed as
dilatory.
In another
instance, after mediation had failed to resolve
the case, defense
counsel advised
the Court that “depositions of the Plaintiffs, their engineer, their contractor and the public adjuster are necessary
to complete discovery.” Stapleton v. Wright, 14 CV 470 (DE [57]).
Although counsel are well aware
that the Court has, with
the input of counsel for both sides,
narrowly tailored discovery in
these matters in an effort
to reach a fair and
efficient resolution, without any reasoned explanation
of the need for this additional discovery, the Committee is
left to conclude that
in refusing to settle cases absent such extensive
discovery, defense counsel is
seeking to unreasonably delay
resolution of the these cases and inflate the costs and fees
required to conduct such discovery.
Given the modest
amounts at stake in many of these cases,
and in light of the fact that litigation
is being funded by the
taxpaying public, it seems highly unlikely that such a broad unilateral
expansion of discovery would
reasonably be warranted.
Counsel for plaintiffs have fared only marginally better. Defendants
cite to the regulations issued by FEMA to
argue that, in the absence
of documentation showing what was repaired,
the costs of those the repairs, and detailed estimates
of the costs necessary to repair any other
covered items, defendants are not authorized to compromise
claims. Defendants complain that
in many instances, plaintiffs
have not produced the necessary items prior to the
date of mediation, only to appear at the mediation
sessions with pages of invoices and documentation that are not tied
directly to specific items of damage, requiring counsel to spend hours sifting
through the documents for the first time during the mediation session.
The problems created by this last minute production of
documents have been further complicated, in some instances, by the fact that
plaintiffs have not actually been present or even available to answer questions
during the mediation.[2] Thus, there have been cases where, without
plaintiffs= assistance, it has been difficult to determine what repairs have
been made and what receipts reflect payments for those particular repairs.
As a result of complaints of plaintiffs’ repeated violations of
their discovery obligations, the Committee has issued multiple warnings to the
firm of Gauthier Houghtaling & Williams, which represents the vast majority
of plaintiffs in these cases. See, e.g., No. 14 MC 41 (DE [472] at 31) (warning
Gauthier attorneys that there will be “most dire consequences” for failure to
comply with the CMOs). In response, John Houghtaling, a managing partner of the
firm, stated to the Committee: “I receive the message,” assuring the Committee
that the firm had the appropriate resources to meet its obligations. Id.
Apparently, though, the message has not been received. On November 7, 2014,
based upon the firm’s failure to comply with multiple discovery orders in two
cases, Magistrate Judge Brown imposed a monetary sanction on the Gauthier firm
pursuant to Fed. R. Civ. P. 37(b)(2)(A). See No. 14 MC 41 (DE [636]).
In part, plaintiffs’ inability to comply with their discovery
obligations stems from the fact that they are often faced with a moving target
in terms of what has been demanded and what is eventually required by
defendants. For example, in at least one case, plaintiff had provided a
contractor’s invoice demonstrating that repairs to storm damaged property had
been made. The handwritten invoice,
endorsed by the contractor and signed “paid” was deemed insufficient by
defendant’s counsel, who stated that, in the absence of cancelled checks, the
insurer would require the production of plaintiffs’ bank statements in order to
demonstrate cash withdrawals. In a
subsequent letter to the Court further explaining its position, counsel for
defendant Allstate stated: “[h]andwritten notations indicating that a bill or
invoice has been “paid in full,” however, are not sufficient proof of payment
as required by the NFIP but are merely evidence that a cost has been incurred.”
Fitzpatrick v. Allstate, 13 CV 6768 (DE [78]). At the conference, the
representative from FEMA indicated that this type of proof was in fact
acceptable to FEMA because it could, if necessary, be verified directly.[3]
Defendants report that these problems of insufficient
documentation have been exacerbated in some instances by plaintiffs’ counsel’s
refusal to permit their clients to speak or answer questions at mediation. This refusal undermines one of the fundamental
functions of the mediation process and is contrary to this Committee’s
determination to forego lengthy depositions of plaintiffs in every case, so
long as they were present at the mediation to fill in evidentiary gaps in the
documentation and answer questions about repairs. To the extent that plaintiffs’
counsel expressed concern that their clients might be subjected to a “depositions”
during the mediations or asked irrelevant harassing questions, the Committee
reminded counsel that mediators would help prevent any improper conduct and
counsel will be present and capable of objecting to any improper inquiries.
During the conference, Professor Charles Platto, an expert on
insurance law and one of the Court’s Hurricane Sandy mediators, conveyed his
thoughts on some of the problems he has encountered in attempting to resolve
the NFIP flood cases. In essence, he
indicated that the attorneys often came to the mediation session with no
demand, no offer, and having failed to conduct an analysis of their client’s
evidence. He urged the parties to confer
well in advance of the mediations, to be prepared to explain their positions,
specifically, where their estimates of damage differed and to have provided the
documents supporting the plaintiffs’ claims. Patricia Lambert, Esq., counsel for
Harleysville Worcester Insurance Company and Nationwide Fire Insurance Company,
indicated that she viewed the mediations as a “process,” not a one-time event,
and she described a willingness on the part of her client to continue
discussions even after the first mediation session had ended. Like Professor Platto, she urged plaintiffs’
counsel to be prepared prior to the mediation to not only identify where the
adjusters’ estimates differed but to explain why plaintiffs believed that a
certain item was covered or cost more than the defendants’ adjuster had
allotted.
Finally, apart from the issue of counsels’ conduct during the
mediations, in many cases, counsel for both parties have chosen to conduct
mediations in Louisiana for the convenience of the lawyers, even though
plaintiffs generally do not travel to attend these sessions. While Louisiana may be convenient for the
lawyers, many of the plaintiffs live in New York; the properties at issue are
located in New York, as is the evidence and potential witnesses, such as
experts and adjusters, who are generally from New York. The need for plaintiffs, and sometimes
adjusters and experts, to be present at the mediations has proven to be a
critical factor in some mediations. As
noted, the absence of the plaintiffs at the mediations defeats one of the
purposes of the mediation - namely, to facilitate the informal exchange of
information to help resolve disputes about repairs and costs of repairs. In at least one instance, counsel cited the
absence of the plaintiffs at the mediation, who could only be available by
phone, as the central reason behind the failure of the process. Since defendants have not been permitted to
depose plaintiffs, it is no longer acceptable to conduct mediations if the
plaintiff is not present and available to answer questions.
Furthermore, the scheduling of mediations - particularly those
in Louisiana - has unnecessarily delayed resolution of these actions. Frequently, the Court has set short deadlines
for mediation only to be informed by counsel that the mediations had been
scheduled months into the future. In one
case, Denora v. Allstate Ins. Co., 14-cv-6925, even though the Order sending
the case to mediation had issued on September 2, 2014, defendants indicated
that the reason the mediation could not be scheduled until March 2015 was an
inability to coordinate the schedules of the chosen mediator and the one and
only corporate representative assigned to attend the mediations in all 200 plus
cases involving this defendant. In
another set of cases, counsel reported that they were unable to retain a
mediator from the Eastern District of New York panel, even though there are 85
trained mediators ready and willing to undertake mediations in these cases. The Committee member in charge of monitoring
that case was obliged to assign a mediator.
The conduct that has led to these delays will no longer be
tolerated. While there are some insurance carriers on both the wind and flood
sides that have been able to successfully settle a good percentage of their
cases, others have had less success. Accordingly,
after hearing the complaints and suggestions of the parties and considering the
helpful comments of Professor Platto, the Court ORDERS as follows:
1) The parties are to comply with CMO No. 12, which sets forth
a new procedure for the selection of mediators and should obviate any
complaints that Eastern District of New York mediators are not available to
conduct mediations within the time frame ordered by the Committee. If the
parties are unable to select a mediator themselves, the Committee will select
one for them.
2) There will be no further mediations conducted in Louisiana. The presence of the plaintiffs, and in some
instances, the adjusters and/or other experts, is critical to the success of
the mediation process. To the extent
mediations are currently scheduled to proceed in Louisiana in the next 30 days,
they will be allowed to proceed, with the caveat that plaintiffs are to be
available in person or by telephone during the entire mediation session.[4]
3) Plaintiffs shall participate actively in mediations. In absence of an issue involving privilege,
instructions to plaintiffs not to answer questions are deemed inappropriate. The mediation process is confidential;
anything said during the mediation may not be used against the plaintiffs later
in the litigation and if counsel believes that the questioning is improper or
harassing, they can appeal to the mediator to intercede.
4) Where the issue involves a difference of agreement between
adjusters’ estimates or engineering experts’ conclusions, the parties are
strongly encouraged to have their adjusters and/or engineers present for the
mediation.
5) No party shall unilaterally terminate a mediation session;
mediation shall continue until the mediator determines that the session has
concluded. It will be up to the mediator to decide if the session should be
adjourned and reconvened at a later date.
6) At least 30 days prior to the scheduled mediation,
plaintiffs shall convey, in writing, a demand to defendants= counsel, along
with a detailed description of plaintiffs’ position regarding areas of
disagreement, including any critiques of defendants’ expert’s or adjuster’s
conclusions, supported by all documentation. With limited exception to be left to the
mediators, documents not provided 30 days before the mediation may not be used
at mediation and may, after application to the Committee, be excluded from use
at trial.
7) Within two weeks thereafter, defendants are to notify
plaintiffs= counsel of any items or any perceived gaps in documentation, as
well as defendant’s statement as to areas of disagreement.
8) The mediators will hold a pre-mediation conference two weeks
in advance of the mediation and review with the parties the checklist of items
necessary to conduct a successful mediation, provided in the memorandum, dated
November 20, 2014, which was sent to the mediators. It will be left to the discretion of the
assigned mediator to adjourn the conference if necessary to obtain more information.
However, the parties are warned that
where parties indicate a readiness for mediation to the Court, and then later
contend that they could not settle because they were missing certain items,
sanctions will be imposed.
9) If the parties reach an impasse on a factual issue such as
the cause of foundation damage, that requires resolution of expert testimony in
a framed issue hearing, the parties should jointly notify the Committee member
handling the case, preferably prior to the scheduled mediation, so that the
hearing can be held expeditiously and hopefully allow the mediation to proceed
more smoothly.
The Court and the Committee expect the parties to proceed to
these mediations in good faith and having fully prepared to present their arguments
and evidence at the mediation.
It is the responsibility of both sides to fully prepare for
mediation before the scheduled mediation session. That includes notifying your adversary
counsel, the Committee member monitoring your case, or the mediator if you are
missing something.[5]
All counsel are admonished that further dilatory tactics or a
lack of good faith in the diligent prosecution and resolution of these cases
will be subject to sanctions. Counsel is
instructed that these matters should be treated with a sense of urgency. Members of the Committee will employ the full
panoply of available sanctions, including monetary sanctions, cost and fee
shifting, recommendations of dismissal and/or to strike answers and the
revocation of pro hac vice status should additional instances of bad
faith or dilatory tactics be discovered.
SO ORDERED.
Dated:
Brooklyn, New York
December 2,
2014
/S/
CHERYL L. POLLAK
Cheryl
L. Pollak
United
States Magistrate Judge
[1]
Alarmingly, one attorney prominently involved in coordinating the defense of the
WYO carriers has predicted that the defense of these cases could cost more than
$100 million, a figure that likely exceeds the cost of settling all of the cases
at full value.
[2]
Although Plaintiffs’ Liaison Counsel disputed the claim that the homeowners
were unavailable for consultation at the mediations, following the November
25th conference, the Committee received two notices of failed mediations in
which it was represented that plaintiffs were not present at the mediations.
See Balinsky v. Allstate Ins. Co, 13 CV 6996 (DE [96]); Salle v. Allstate Ins.
Co., 13 CV 6020 (DE [91]).
[3]
On November 21, 2014, Defendants’ Liaison Counsel submitted a letter to the
Committee attaching a memorandum issued by James A. Sadler, Director of Claims
at FEMA which discussed the settlement of WYO Flood Insurance claims. The memorandum explained that “If repairs have
been completed, it is the policyholder’s responsibility to prove that the
amounts paid on the claim plus the value of the deductible(s) and any
applicable physical depreciation were spent to repair or replace covered flood
damage. This can only be done by
presenting receipts, paid bills, paid invoices, and cancelled checks. The amount of loss cannot be determined on an
estimate that is not fully supported by the proof discussed above.” At the
conference, however, counsel for FEMA explained that FEMA might be more
flexible in the proof that is required and that it is willing to work with the
parties to resolve these cases where such proof is lacking.
[4]
By letter dated November 29, 2014, plaintiffs’ counsel, Mr. Williams from the
firm of Gauthier, Houghtaling & Williams, argues that mediations should be
allowed to proceed in Louisiana, because the attorneys will lose valuable time
travelling to and from New York, and the added monetary expense incurred will
have an adverse impact on the plaintiffs who will be forced to bear these
litigation expenses. Given the lack of
overwhelming success in the Louisiana mediations to date, in part due to the
absence of the homeowners and lack of documentation, the Court denies plaintiffs’
request. However, if plaintiffs can
demonstrate, through the mediations scheduled to proceed in Louisiana in the
next 30 days, that the procedure is successful, the parties may seek
reconsideration of this Order at that time.
[5]
The questions raised regarding the procedure to be followed in Raimey v. Wright
National Flood, 14-cv-461 will be addressed in a separate Order.