Groups argue trial lawyers abusing discovery to force hail suit settlements

By David Yates | Dec 15, 2015

Several groups, including the world's largest business federation, recently filed amicus briefs in two actions pending before the Texas Supreme Court, arguing trial lawyers are abusing discovery to force insurers to settle even frivolous lawsuits.

In November, State Farm Lloyds filed two petitions for writ of mandamus with the high court, seeking to overturn a district judge’s decision to impose a protocol for the production of electronically stored information (ESI for short) in a hailstorm lawsuit.

“A new but significant battleground has emerged in Texas involving an unprecedented number of lawsuits against insurance carriers, with plaintiffs claiming bad faith underpayment of property damages following hail and wind storms,” State Farm’s petition reads.

“This new battleground involves a group of plaintiffs’ attorneys who routinely sue on behalf of insureds after essentially every Texas storm and seek to leverage the value of cases by demanding extensive and invasive discovery that is disproportionate to the value of their claims.”

The mass filing of lawsuits against Texas insurers began in 2012 after hailstorms ravaged Hidalgo County.

Insurance litigators, such as Houston attorney Steve Mostyn, who made hundreds of millions suing insurers in the aftermath of Hurricane Ike, advertise after every major storm in search of clients.

Around a third of the policy claims submitted after the Hidalgo County hailstorms morphed into lawsuits, prompting the creation of a multidistrict litigation panel to handle the thousands of suits being filed on the behalf of insureds.

Prior to the 2012 storms, only 1 to 2 percent of policy claims blossomed into lawsuits, according to the Insurance Council of Texas.

Court records show that on Sept. 30, 2014, District Judge Rose Reyna, who is presiding over the hailstorm MDL, granted plaintiffs Alejos and Ofelia Ramirez’s amended motion for entry of judgment of production protocol.

The plaintiffs are represented by Mostyn.

State Farm maintains the order violates Texas Rules of Civil Procedure 192.4 and 196.4, as well as Rule 13 of Texas Rules of Judicial Administration.

The civil rules compel courts to require the production of ESI only in reasonably usable formats that are less intrusive and less burdensome means of meeting the defendant’s discovery obligations.

“In short, (Reyna’s) order allows the Plaintiffs to dictate the entire manner and method by which State Farm, as the responding party, must collect, process, review, and produce electronic documents and data based solely on what the

Plaintiffs want,” the petition states.

The Texas Civil Justice League, which filed its amicus brief on Dec. 11, argues the implications of the case go far beyond the mass litigation in hailstorm claims, affecting all businesses that store data in electronic form and may be called on to respond to discovery in a civil lawsuit.

“If the pretrial court’s protocol is allowed to stand, State Farm will be faced with reprogramming its systems, which are already designed to respond to litigation requests in state and federal courts around the country, to produce specific formats in each case,” TCJL’s statement on the case reads.

“The only justification for the protocol, as far as we can tell, is to use the discovery process to ratchet up the settlement values of each lawsuit.”

On Dec. 14 the U.S. Chamber of Commerce, which owns the Record, also submitted an amicus brief, questioning whether Reyna abused her discretion.

“Where the discovery costs overwhelm the potential value of the underlying litigation, it is no surprise that defendants are frequently forced to settle even meritless claims,” the Chamber’s brief states, adding that the high court should grant State Farm’s petition so “Texas courts do not become a forum for exploitation of its discovery rules that impose a disparate economic impact on American industries doing business in Texas.”

Joining the Chamber are the National Association of Mutual Insurance Companies and Texas Association of Business.

TCJL says given the potential size of the financial payoff of filing mass numbers of lawsuits and making blanket discovery requests in an attempt to leverage settlements, trial courts must be especially vigilant about issuing pretrial orders that give an undue advantage to one side.

“We need only remember the spectacular abuses in the mass litigation of asbestos and silica-related claims in the late 1980s and 1990s (to which the present hailstorm litigation bears an uncanny resemblance) and the subsequent legislative intervention necessary to rebalance the system,” TCJL says in its statement.

“In this case, however, the pretrial court’s protocol for discovery of ESI gives the plaintiff carte blanche to demand discovery in an inefficient, unnecessary, and burdensome form.

“By any standard, the prospect of paying up to $200,000 in each of thousands of lawsuits is terrifying enough to a responsible corporate defendant without also being dragged through the extraordinary amount of time and expense of unnecessary litigation over essentially equivalent forms of producing ESI.”

TCJL is represented in part by Austin attorney George Christian.

State Farm is represented in part by Brian Chandler, attorney for the Houston law firm Ramey, Chandler, Quinn & Zito.

The Chamber is represented in part by Daniel Lim, attorney for the Houston law firm Shook, Hardy & Bacon.

Case Nos. 15-0903 and 15-0905

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