Michael Sean Quinn, Ph.D, J.D., C.P.C.U., Etc.

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Coen v. Aptean, et al (Ga. Dist Ct., 12A42185-6)

         

There were sanctions imposed. There were (legal fees (maybe extras) awarded. Or maybe there were  both.  The quickie description of the problem would be “obviously unjustified war of attrition litigation” tactics

A Georgia District Court make this decision in  a wrongful discharge case.  The background involved a complex business with a parent company, a subsidiary,  where the subsidiary of the parent, the bankruptcy of the parent, the sub being its huge creditor, what to do with—how to treat–the sub’s assets, and various complex transactions.

            The sub had hired a new general counsel. There was a contract specifying a time period of employment, a formula for payment if there was termination, a schedule of payment, and the specification of a substantial bonus. 

            The new General Counsel was terminated. He was not paid. He sued. According to my source, the defendant was a likely loser.  The defense went forward, however.

In the process of defending, defense counsel appears to have sent a letter to plaintiff’s counsel saying the following, or something close to it: “the costs of [Plaintiff] Coen’s suit[—both defense and indemnity–]was being covered by the company’s insurer, a development that ‘remov[ed] the only material litigation risk for the company in pursuing its defense of this case through trial and, if necessary, appeal, which the company fully intends to do.’”

            The defense was aggressive in standard ways of aggression, e.g., it pled 20 affirmative defense when only a fraction of them—probably a small fraction, in my experience—though it reduced them substantially upon the filing of an

objection.  Other than being over done, this is standard.

            In any case, the district judge said he found the letter “revealing,” and wrote that the “’[d]efendants gambled on a bad faith strategy and lost.’” “’This strategy constitutes the very, [i.e., exact] bad faith [that  Georgia law] exists to prevent, and the very bad faith that warrants an award of attorneys’ fees and expenses.” (Of course, this language suggests that there were sanctions and not just fees.)

            Maybe so. . .maybe the conduct of the defense really was outrageous on the whole.  And the letter upon which the judge apparently focused strikes me as in poor taste—what used to be called “ungentlemanly” and now must be called “ungentlepersonly,” or something like it. The question is whether the letter was itself actually revealing, as the judge said, of a defense conduct contrary to laws forbidding such performances.

            The letter by itself, if I have seen all the important part of it on the Law360 news blog is not revealing at all.  One of the lawyers involved says that he has never seen anything like it in his 35 years of practice.  I’m not sure I have either—when coming from a defendant–but I can easily imagine circumstances where such a letter might be thought appropriate and not indicate an invalid and unsound pursuit of a defense.

            What that letter does not do is to say, “We have no defense in this. We know we will lose it, if you pursue it to the end. But keep in mind that, although our client is at the vortex of the financial difficulties surrounding it, there is plenty of money to defend this case, since we have applicable insurance. It has coverage, so we have no real risk in never giving up—something we have no intent of doing.” Part of the message would that the surrounding Chapter 11, “or whatever,” problems are not an impediment to a prolonged struggle.

            One might want to do this if plaintiff’s counsel was saying the same sort of thing: “We will never give up, and we have the money to pursue the matter.” Remember: If you lose, you may well have to pay my attorney fees, and I don’t lose cases. Ask around and find out what my fees usually are.”  That kind of statement is often said in contingency fee cases, for example, by—and only by–prideful, hubristic, “loud and  rambunctious,” ill-educated plaintiff lawyers.

            The word “only” is perhaps the most important in letter from junior (?) defense counsel.  It does not say that the use of our insurance is the only reason we have to pursue the case.  It says that “our only risk, i.e., having to pay a lot of money for a defense as we go along, isn’t really a risk for us. It’s insured. That fact means that we won’t  ourselves have to pay the damages.”

            All of these statements may be absolutely true or thought to be true.  Still, it’s tacky.  How should it have been done?  
First, the insurer should have been informed.  If it had been informed, and had permitted this, the adjuster as well as defense counsel should be replaced. 
Second, all messages like this one, if sent at all—a bad idea– should happen in conversation not in writing. 
Third, if the plaintiff did not know about the insurance, and had not asked about it in discovery s/he should be told. 
Fourth, if opposing counsel is told, the next event in the law suit will be a Request for the Production of Documents focusing on the policy, the insured’s correspondence with the insurer, reservation of rights letters,  and maybe even a coded or clandestine offer from the plaintiff to restructure the case to make sure that the defendant had plenty of coverage to pay the loss. Conceivably, the defendant trying to put the plaintiff on the kind of notice just mentioned in an effort to make sure that got all the insurance information he “needed.”
            I am not licensed in Georgia, so what I am about to write is general and theoretical only.  There is no indication in Law360 as to the procedure that was employed in the Coen case as to the procedure leading up to what happened.  If there were sanctions involved, and not just fees, it seems to me there would have to be a separate hearing. There would have to be independent testimony regarding the extent to which the defendant deviated from accepted practice and in what ways.  Probably there would have to be expert witness testimony regarding standard litigation practice.  In the absence of this, in many jurisdictions, there could be an application for a writ of mandamus, and not just an appeal when the case in the district court was completely over and done with.

            It is interesting to reflect upon other law suits. We know that Coen has sued at least one of the other participants in the farrago that lead to this suit for defamation. It seems to me that the defendant may wish to sue it s carrier, if was providing a defense and what happened here increases its insurance premiums. The defendant may want to sue its lawyers it increases the damages that have to be paid.

In any case, what happened was still tacky. And my analysis focuses on the letter. All sorts of other things may also be true, and they may affect the correct evaluation of the letter. The district judge may be right; then again, maybe he’s not.

Originally posted on 09/19/2014 @ 7:34 pm

Michael Sean Quinn, PhD, JD, CPCU, Etc

Michael Sean Quinn, PhD, JD, CPCU, Etc. (530)

One of Texas's leading insurance scholars, Michael Sean Quinn is a past chair of the Insurance Section of the State Bar of Texas and has a broad legal practice.

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