Insurance Law

State Farm v. Hood update: the day before the big hearing

By David Rossmiller

Some things I wanted to update you on in State Farm v. Hood. Remember what this case is -- State Farm sued Hood back in November in his capacity as Attorney General, seeking to enjoin his renewed criminal investigation into the insurer's claims adjusting activity.  State Farm obtained an injunction, that continues to this day, barring Hood from his investigation on the basis of an agreement he signed in early 2007 not to prosecute the insurer as a result of its settlement of 640 Katrina cases brought by the Scruggs Katrina Group.  State Farm also paid $5 million to Hood, which he wanted to cover legal fees and costs of his investigation.  

Now, I have heard from all sides on this question, and one very interesting point of view -- and these folks would not be in the category of really big fans of State Farm, quite the contrary -- is that it was remarkably not smart to link a criminal investigation so directly to the fate of civil litigation.  A couple conclusions derive from this point of view.  First, what better way to say this whole thing was a wholly owned subsidiary of Scruggs, Inc.  Second, even if it wasn't, it was less than astute to give grounds for the appearance of a shakedown, especially as -- again, in this view -- that the whole massive settlement of 640 cases was a boon for State Farm, not a great deal for many if not most of the 640 homeowners, and a big payoff to Scruggs & Co. for results that, when you do the math and look at the individual cases, were not that impressive.  This view would also hold that, whatever his motives, Hood didn't necessarily want to drop the criminal investigation, but got pushed to do so by those who said it was a good idea to put dollars in the hands of Mississippi policyholders.

We should also recall that, at that time, it appeared it would be possible to some -- not to me, but to some others -- to get approved a massive proposed class action involving some 36,000 policyholders in Mississippi, and that this deal between State Farm and Scruggs, with Hood's blessing, would pump more millions into the state.  The class action, which was to have been settled as soon as it was approved, was rejected by Judge L.T. Senter Jr. on grounds of procedural unfairness and failure to comply with the Federal Rules for class actions.  Hood, a few months later, filed his own lawsuit against State Farm for alleged breach of this class action agreement, even though the insurer did enter into an agreement with Insurance Commissioner George Dale that resembled the class action settlement in some ways, and even though if a federal judge rejects your class action settlement, that is a pretty good excuse for not doing it .  I have always wondered if Hood believed that State Farm thought all along the class action was not likely to be approved -- kind of like they hoodwinked him.  It would be difficult for him to say this publicly, because to do so would be to admit State Farm was smarter.  In addition to filing his own lawsuit, Hood also restarted his criminal investigation with a state grand jury in July 2007. 

In any event, here's some recent documents relevant to this case.

As you know, a hearing on whether the injunction should continue is coming up February 6.  State Farm issued a subpoena for the attendance of Courtney Schloemer, one of Hood's assistants who was involved with the grand jury investigation of State Farm, to attend the hearing.  My prediction is that Schloemer will attend, will not seek to avoid testimony under any form of privilege, and will air out some things she's been wanting to say for some months. 

Hood, for his part, issued a subpoena to Kerri Rigsby, of "whistleblowing," data dump and Scruggs Katrina Group fame.  Here's a copy of the subpoena. I imagine he wants her there to testify about State Farm's allegedly wrongful acts that led her to take some 5,000 to 15,000 State Farm claims documents and bolster Hood's reasons for wanting to investigate the insurer.  

Now this is interesting: here is the transcript of a February 1 hearing held before Michael Mills, chief federal judge of the Northern District of Mississippi, on State Farm's motion to compel Dickie Scruggs to submit to a deposition for the case and Scruggs' motion to quash the deposition subpoena. The hearing was held in Oxford, not in the Southern District where the State Farm v. Hood case is located, because Scruggs is in northern Mississippi, and outside the reach of a trial subpoena to bring him to the hearing.  As the transcript makes clear, Scruggs intends to assert the Fifth Amendment at the deposition, and we know from Judge Mills' testy order yesterday that Scruggs will have his deposition taken no later than today. 

State Farm, however, wants him at the deposition because it wants to use an evidentiary presumption against him -- in the civil case -- that his answer to each question would have been unfavorable to Hood's position. I'm not sure I fully buy the extent to which such a presumption can be made in these circumstances, but I haven't really researched the issue for some time, so I don't really know.  Aside from substantive issues, you and I both know State Farm wants to take this deposition and get Scruggs to take the Fifth for fun -- Scruggs endlessly cited the fact that some State Farm employees took the Fifth in some of their depositions, not to mention the simple fact that it's Scruggs.  Not saying their aren't legit reasons to take his deposition, but as a lawyer who takes depositions himself, I can vouch that legitimate purposes and having fun are not always strangers to one another.   The result of the hearing, of course, was that Judge Mills ordered the deposition to go forward.    

Here is a copy of State Farm's trial brief for the hearing tomorrow.  I didn't see a trial brief for Hood on PACER. 

The hearing is going to be a big one. I imagine everyone will be watching for the result, particularly some of the folks in the criminal division of the U.S. Attorney's Office for the Southern District, who are debating which way to go with their own grand jury investigation.  Sometimes prosecutors aren't all that different from other folks, they don't need a weatherman to know which way the wind blows.

Full post as published by Insurance Coverage Law Blog on February 05, 2008 (boomark / email).