Spencer v. Hartford - 1

This S2KM blog post summarizes the Spencer v. Hartford case to date. A subsequent post will offer S2KM commentary.

Status

Spencer v. Hartford is a class action lawsuit currently on appeal to the U.S. Second Circuit Court of Appeals following a decision by the U.S. District Court in Bridgeport, Connecticut granting plaintiffs' Motion for Class Certification and Appointment of Class Counsel on RICO and state-law fraud claims.

Partial Chronology

• October 31, 2005 - Plaintiffs filed the Original Class Complaint in U.S. District Court, Bridgeport, Connecticut;
• May 1, 2006 - Plaintiffs filed an Amended Complaint;
• October 24, 2006 - District Court Judge denied Defendants' Motion to Dismiss;
• February 6, 2008 - Plaintiffs filed Second Amended Complaint;
• March 4, 2008 - Plaintiffs filed Revised Second Amended Complaint;
• March 10, 2009 - U.S. District Court Judge issued Orders:
  • Granting plaintiffs' Motion for Class Certification and Appointment of Class Counsel for the RICO and state-law fraud claims;
  • Denying plaintiffs' Motion for Class Certification and Appointment of Class Counsel for the state-law breach of contract and unjust enrichment claims;
  • Certifying two subclasses (based upon alleged "cost" and "value" representations) for both the RICO and fraud claims.
• March 24, 2009
  • Defendants filed a Petition to Appeal the District Judge's Orders to the U.S. Second Circuit Court of Appeals;
  • District Court Judge issued an Order:
    • Granting Defendants' Petition to Appeal;
    • Holding in abeyance further deadlines pending a decision by the Court of Appeals.

Participants

• Plaintiffs - Three named plaintiffs (Oshonya Spencer; Charles Strickland; and Douglas McDuffie) plus all other persons who:
  • Entered into a settlement with any of the Hartford Property and Casualty Companies between 1997 and the present;
  • In which some or all of the settlement amount was to be paid as a structured settlement funded with an annuity from one of the Hartford Life Companies; and
  • Who had a written contract that, or before entering into the contract had received a written representation that, made explicit or implicit reference to the "cost" (Subclass 1) or "value" (Subclass 2) of the settlement or portion of the settlement being structured or the "cost" or "value" of an annuity being used to fund the structure.
  • Excluded from each class of plaintiffs are persons who were represented by a plaintiffs' broker in connection with the settlement.
• Defendants
  • The Hartford Financial Services Group, Inc.
  • Hartford Life, Inc.
  • Hartford Life Insurance Company
  • Hartford Accident and Indemnity Company
  • Hartford Casualty Insurance Company
  • Hartford Insurance Company of the Midwest
  • Hartford Fire Insurance Company
• U.S. District Court Judge - Hon. Janet C. Hall
• Plaintiff Class Counsel
  • David S. Golub
  • Jonathan M. Levine
  • Peter R. Kahana
  • Steven L. Bloch
  • Carl S. Kravitz
  • Ellen D. Marcus
  • Richard B. Risk, Jr.
• Defense Counsel
  • Wilmer Cutler Pickering Hale and Dorr LLP
  • Wiggin and Dana LLP

Plaintiff Allegations

• Beginning in 1992, Hartford engaged in a uniform policy, pattern and practice of fraudulently, wrongfully and systematically retaining for its own benefit at least 15% of amounts it should have used to fund its structured settlements.
• Hartford called its program "Secured Benefit Services" (SBS) the purpose of which was to direct Hartford P&C companies to settle claims against their insureds using structured settlements funded with annuities from Hartford Life companies thereby retaining a substantial portion of the settlement funds and transforming claim losses into gains.
• Hartford began a "Broker Assistance Program" (BAP) in 1997 using structured settlement brokers selected by Hartford to further the mission of the SBS program.
• If a participating broker could not arrange a structured settlement funded with a Hartford Life annuity, the broker was to arrange an all-cash settlement so Hartford would not lose annuity business to competitors.
• Instead of paying participating brokers an industry standard 4% commission, Hartford paid 3% and unjustly and fraudulently passed a 4% commission cost to the claimant while falsely portraying the brokers as independent.
• In return, the approved brokers provided Hartford with outside markets for structured settlement annuity sales through their relationships with other P&C insurance companies thereby helping Hartford generate record increases in annuity sales.
• Using SBS and BAP, Hartford executed a scheme to breach settlement agreements, defraud claimants and/or unjustly enrich itself by retaining 15% of the amount it had promised or agreed to use for its structured settlements and concealing it was illicitly profiting from each structured settlement.
• Internally, Hartford allocated the 15% as follows: 5% immediate profit to Hartford (in addition to future investment profit); 5% for Hartford's marketing and sales programs including brokerage commissions; 3% for Hartford's operational expenses; 2% to pay taxes on income derived from annuity sales.
• Representations by Hartford and its approved brokers to claimants and their advisers falsely indicated 100% of the amount Hartford promised or agreed to use to fund the annuities was in fact used for the annuities.
• Hartford instructed its SBS and BAP program participants:
  • Never to disclose Hartford was retaining 15%;
  • To affirmatively misrepresent that claimants were receiving their structured settlement annuities at "no cost" in contrast with other potential investments.
• Hartford required SBS and BAP participants to use standard and uniform sales presentations developed by Hartford plus a Hartford software program to generate annuity quotes that were inherently false and deceptive.
• By making affirmative statements, Hartford and its representatives assumed a duty to disclose all other information about the structured settlement annuities.
• Hartford changed portions of its SBS and BAP programs in 2005 in part because then New York Attorney General Eliot Spitzer had notified Hartford his office was investigating brokerage commissions.
  
• In 2005, Hartford began to disclose in writing that deductions would be made from annuity costs for brokerage expenses and to offset operating expenses but Hartford still did not disclose that it retained other amounts.
• Hartford's SBS and BAP programs constitute violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO) as well as state laws prohibiting fraud, breach of contract and unjust enrichment.
  

U.S. District Court Decision - Judge Hall:

• Granted plaintiffs' Motion for Class Certification and Appointment of Class Counsel for the RICO and state-law fraud claims;
• Denied plaintiffs' Motion for Class Certification and Appointment of Class Counsel for the state-law breach of contract and unjust enrichment claims;
• Certified two subclasses (based upon alleged "cost" and "value" representations) for both the RICO and fraud claims.

Defendants' Appeal

• District Court Judge Hall approved Hartford's Petition for Permission to Appeal to the U.S. Second Circuit Court of Appeals her Orders certifying plaintiffs' RICO and state-law fraud claims as class actions.
  
• Hartford's petition claims Judge Hall misread controlling precedent and "assumed away" the substantive elements of reliance and causation that ordinarily preclude certification of RICO and state-law claims based on allegations of fraud.
• Hartford's petition raises three basic issues:
  • Whether RICO cases require proof that someone relied on representations that allegedly caused plaintiff's injuries?
  • Whether "self-proving reliance" eliminates the need for individual proof of transaction causation in state-law fraud cases based upon alleged financial misrepresentations?
  • Whether the rule that "uniform misrepresentations" may be established by common proof extends to non-uniform but allegedly "similar" representations?