State Farm last month asked a federal judge to alter or amend his March 28 order that denied its motion to dismiss a class action lawsuit alleging fraudulent activity in Avery v. State Farm.
In addition to that request, the insurance company on April 19 filed a motion to stay discovery in the suit that three plaintiffs in Avery v. State Farm brought in May 2012 against it. Co-defendants include William Shepherd, an attorney at the company and Ed Murnane, president of the Illinois Civil Justice League (ICJL).
The plaintiffs – Mark Hale, Todd Shale and Carly Vickers Morse—accuse the defendants of violating the Racketeer Influenced and Corruption Organizations (RICO) Act by creating an enterprise “to enable State Farm to evade payment of a $1.05 billion judgment affirmed in favor of approximately 4.7 million State Farm policyholders.”
They assert that the defendants implemented their scheme in two phases, the first of which involved recruiting, financing and electing a candidate to the Illinois Supreme Court who would vote to overturn the judgment against State Farm once elected.
That phase, the suit contends, was completed when Lloyd Karmeier won the 2004 race for the Fifth District seat on the state high court and nine months later, voted in favor of overturning the billion-dollar judgment against State Farm.
The suit goes on to assert that the second phase took place in 2005 and 2011, when State Farm filed alleged misrepresentations to the Supreme Court in response to the plaintiffs’ requests for the justices to vacate their decision overturning judgment.
In seeking dismissal of the class action suit, the defendants claimed that federal courts don’t have jurisdiction to review civil judgments of state courts under the Rooker-Feldman doctrine and that the plaintiffs failed to prove their claims under RICO in a timely fashion.
U.S. Chief Judge David Herndon in March denied the motion, determining that he did have subject-matter jurisdiction, the Rooker-Feldman doctrine didn’t apply and that the RICO claims were brought before the statute of limitations expired.
“Based on the record before the Court, the Court finds that plaintiffs have sufficiently alleged injury to business or property element and that they have standing to pursue the RICO claims,” Herndon wrote in his March 28 order.
Motion to alter or amend Herndon’s order
State Farm asserts in its motion that reconsideration of Herndon’s order “is warranted because the Court overlooked or misapprehended controlling Seventh Circuit precedent as well as factual matters as to which the Court was obligated to take judicial notice in ruling on State Farm's motion to dismiss.”
“The Court's Order gave no apparent consideration to the judicially noticeable record facts of the proceedings before the Illinois Supreme Court in Avery, repeatedly deferring consideration of such matters ‘at this stage of the proceeding’ and relying solely on the allegations of Plaintiffs' Complaint instead,” State Farm argues.
It adds that “in overlooking judicially noticeable facts, the Court failed to apply the correct standard for ruling on a motion to dismiss, a manifest error of law that merits reconsideration.”
Among several other arguments, State Farm contends that Herndon overlooked relevant case law and judicially noticeable facts when he declined to dismiss the claims based on statute of limitation grounds, as well the Rooker-Feldman doctrine and RICO’s requirements.
Saying that the case presents significant questions of law in these three categories, State Farm asked Herndon for certification for interlocutory review if he doesn’t alter or amend his denial order.
“Immediate interlocutory review is particularly warranted in this complex putative nationwide class action which threatens to impair prior decisions of the Illinois Supreme Court and in which Plaintiffs seek over a billion dollars in damages, trebled,” State Farm states in its motion.
Interlocutory review, the company asserts, would prevent “needless burdensome discovery and proceedings and the concomitant waste of the Court’s and the parties’ time and resources.”
“An early ruling by the Seventh Circuit may bring this litigation to an end or may provide guidance to the Court and the litigants in the further conduct of the litigation, thus materially advancing the ultimate termination of the litigation,” State Farm contends in its motion.
In their May 6 response to that motion, the plaintiffs claim that the defendants “mostly restate and rehash the same arguments previously raised and briefed by them and considered and rejected by this Court.”
“Make no mistake, nowhere in [Herndon’s] 43-page opinion did this Court express, imply or otherwise indicate that it had either ignored or rejected any of the facts properly placed before it by the parties,” the plaintiffs assert.
They further argue that “while Defendants repeatedly berate the Court for its decision not to repeat those voluminous facts verbatim, they cannot identify a single reference made by the Court might support their speculation that the Court did not appropriately review ‘judicially-noticeable facts.’”
The plaintiffs assert that Herndon’s analysis “was thorough and complete, painstaking probing the respective arguments advanced by the parties” and that he properly ruled on the defendants’ arguments over the Hooker-Feldman doctrine, RICO requirements and the statute of limitations.
“Defendants’ frequent but ill-fated reliance throughout their papers on the Court’s purported disregard of ‘judicially-noticeable facts’ is not the least bit persuasive,” the plaintiffs contend.
“And while there is no doubt that Courts should take care to take judicial notice of properly documented facts at the motion to dismiss stage,” the plaintiffs claim that the “Defendants’ argument stretches the requirement well beyond its intended limits.”
The plaintiffs also claim in their response that the defendants continue to mischaracterize their theory as one that seeks to reverse or modify the court’s decision in Avery v. State Farm.
“Rather,” they argue, they “seek damages from entities whom they claim acted unlawfully in route to the judgment, in procuring that judgment by contaminating the proceedings, and by concealing their actions after the fact.”
In an attempt to counter the defendants’ claim that Karmeier’s vote in Avery v. State Farm was not decisive since two of the three portions of the ruling were unanimous, the plaintiffs argue that “what matters is that Justice Karmeier participated in the deliberations and decisions.”
His participation in the case, they claim, “imported a bias into the Illinois Supreme Court’s deliberative process and violated due process, providing the necessary causal connection between Defendants’ orchestration of Justice Karmeier’s election and Plaintiffs’ injury.”
Motion to stay discovery
State Farm contends that discovery is not necessary to resolve the issues currently before the court and doing so at this time “would unnecessarily raise numerous difficult issues relating to” judicial deliberation, First Amendment and attorney-client privileges.
“Moreover, Plaintiffs apparently are not under any time pressures that would indicate that discovery should begin immediately,” the motion states. “The events that are the main focus of this action occurred approximately eight years ago.”
The company's motion adds, “Given the slow pace at which Plaintiffs have pursued their purported claims, Plaintiffs cannot legitimately complain of unfair prejudice if discovery is deferred.”
The plaintiffs, however, assert in their May 6 response to the defendants’ motion to stay discovery that they “profoundly disagree” with that argument.
“If State Farm were seeking a short delay this argument would have more merit, but State Farm is not just seeking reconsideration of the Court’s ruling. It has stated its intention to go straight to the Seventh Circuit if the Court denies its motion to alter,” the plaintiffs contend, noting that such a process would consume “many, many months.”
They further argue the fact that the allegations in their suit do date back several years makes it “imperative to begin the discovery process immediately” because “every day information … is lost, memories fade and witnesses cannot be found.”
“The motion to dismiss has been decided,” their response states. “It is now time for this case to proceed.”
The plaintiffs contend that none of State Farm's arguments for a stay of discovery have merit.
They contend that State Farm just rehashed its arguments from the now-denied motion to dismiss simply because it didn’t agree with Herndon’s order.
They also claim that the insurance company’s argument that discovery should be stayed because privilege issues might arise “makes little sense.”
“Privilege issues inevitably come up in most cases, some being easy to litigate and others being ‘difficult’ as State Farm describes the issues it lists in its motion,” the plaintiffs state in their response. “The fact that such issues may potentially arise, however, is certainly no reason to halt the entire discovery process.”
State Farm’s motions were submitted by Edwardsville attorney Patrick Cloud and Chicago attorneys Joseph Cancila Jr., J. Timothy Eaton and James Gaughan.
The other defendants named in the suit -- Murnane and Shepherd --joined both of State Farm’s motions.
Chicago attorneys Richard O’Brien and David Greenfield represent Murnane and Belleville attorneys Russell Scott and Laura Oberkfell represent Shepherd.
The plaintiffs are represented by Tennessee attorneys W. Gordon Ball and Charles Barrett, as well as Louisiana attorney Patrick Pendley, Arkansas attorney Thomas Thrash and Alabama attorneys Steven Martino, Richard Taylor and W. Lloyd Copeland.