Insurance agent sues State Farm over 'scratch agency' program

Claiming that it was a “gigantic mistake” to start his career as a State Farm scratch agent, Arizona resident Mark Gaudio has filed suit against the insurance company, alleging the company oversold him on the position. 

Gaudio, seeking damages for his inconvenience, filed the suit Jan. 23 in Jefferson County District Court. The suit also names James Campbell as a defendant.

According to the lawsuit, in 2005 Gaudio worked for Cowboy Harley-Davison in Beaumont when a State Farm recruiter approached him.

“Plaintiff became interested after hearing defendant’s sales pitch,” the suit states. “Becoming a State Farm agent appeared to be a promising new career.”

Gaudio joined State Farm’s scratch agent program and was required to provide capital of at least $50,000 for his new agency. The program allows a new agent to start up his or her own agency rather than first becoming a producer under another agency owner.

“Defendant helped plaintiff significantly formulate his business plan with inflated, unrealistic numbers,” the suit states. “Plaintiff, completely new to State Farm, thought these numbers were realistic.”

After completing the program, Gaudio was transferred to Arizona.

“Plaintiff eventually realized that this was a gigantic mistake,” the suit states.

“The numbers simply never added up like defendant’s projections suggested. Plaintiff ended up putting over $200,000 dollars into his new agency just to keep his agency afloat. Plaintiff would have never considered this opportunity if he was expected to pony up more than triple the amount initially required to run a ‘successful agency.’”

The suit further accuses State Farm of fraud, negligent misrepresentation and breach of fiduciary duty.

On top of exemplary damages, Gaudio is suing for loss of earnings, mental anguish, emotional pain, inconvenience and attorney’s fees.

He is represented by Beaumont attorney Matthew Matheny of the Provost Umphrey Law Firm.

Provost Umphrey is not the first law firm to take on a "scratch agency" lawsuit.  The Sizemore Law Firm of El Segundo, Calif., and the Birmingham, Ala., law firms of Whatley-Kallas and Archie Lamb and Associates LLC are involved in litigation after a suit first filed in 2012 against State Farm by a former agent in Pasadena, Calif.

Judge Donald Floyd, 172nd District Court, is assigned to the case.

Case No. E193-851