U.S. Judge Questions the Tactics of USAA : Legal system: Large insurance firm is accused of misleading the courts to avoid claims cases. Company denies any wrongdoing.
A federal judge said in a Los Angeles courtroom Friday that he was troubled by the tactics of a large insurance company that has responded to years of lawsuits for non-payment of claims by alternately arguing that the cases should be heard in state or federal courts.
U.S. District Court Judge William F. Nielsen said he “was surprised, to say the least” by documents showing that in more than 170 instances throughout the United States, the Texas-based United Services Automobile Assn. has argued to state and federal judges that it was being sued in the wrong court--while at the same time, failing to reveal that it had argued the other way in previous cases.
USAA’s litigation tactics have come center stage in a Los Angeles case where it is being sued by U.S. District Judge Laughlin E. Waters and his wife, Voula. The Waterses allege that USAA acted in bad faith, failing to honor a claim they made after their Los Angeles home was devastated by a fire last December.
The Waterses have also asked that the company be forced to pay them sanctions of $1.7 million for engaging in “a massive . . . fraudulent scheme to mislead the federal courts.”
USAA has not commented on the merits of the Waterses’ insurance claim. The company is trying to have the case dismissed on the grounds that it does not belong in federal court. USAA lawyers insist that no sanctions are warranted.
On Friday, Paul R. Fine, USAA’s lawyer, and William M. Shernoff, the Waterses’ lawyer, debated the technical issue of which court--state or federal--should decide the case. Nielsen said he might hold another hearing early next year.
Fine said the company had done nothing wrong. He said USAA was adhering to a 1988 federal appeals court decision that directed the company to remove itself from all its federal cases after a controversy arose over its litigation tactics in an Oklahoma lawsuit.
Fine said USAA has since “gone to great extremes . . . to clean up their act.” He told Nielsen he had no authority to sanction USAA for anything it had done in the past.
Nielsen then asked: “So if USAA does things right in this case, even though they’ve taken contrary positions dozens of times in . . . disregard for ethics across the country in the federal system . . . we have to ignore that?”
When Fine said yes, Shernoff responded that federal judges had “inherent power” to police their own rules and that “the integrity of . . . the federal court system is somewhat at stake here.”
Shernoff also said that USAA had not fully adhered to a 1988 federal appeals court order. He cited three cases, including one in which USAA collected a $353,417 judgment in Honolulu federal court after promising to get out of all its federal cases.
“I just can’t imagine conduct that is more deserving of some type of sanction than this,” Shernoff said. “Some signal has to be sent out by this court--to not only lawyers, but more importantly, litigants--that you just can’t play games like this with the federal court system.”
Nielsen asked the two lawyers for additional briefs on his authority to sanction someone for conduct in earlier cases. Nielsen, a Spokane, Wash.-based judge, was brought in especially to hear the case after all Los Angeles federal judges disqualified themselves because of their work with Waters.
