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The Texas Supreme Court agreed on Oct. 17 to weigh in on a different kind of discovery dispute. David Mattax, chief of the Financial Litigation Division at the Texas Office of the Attorney General, says the dispute isn’t over documents that the state is seeking to protect. The real fight, he contends, is over the OAG’s authority to bring a class action. “We’re fighting about the principle, not the documents,” Mattax says. In December 2002, the state transformed Texas v. Farmers Group — a suit brought against the insurer over alleged abuses in its homeowners’ insurance — into a class action that will affect approximately 2.7 million of Farmers’ homeowners and auto insurance policyholders in this state. It’s the first-ever class action that the attorney general has brought under Article 21.21, � 17, of the Texas Insurance Code. The fight over the OAG’s authority to bring the class action is intertwined with the dispute over documents. In In Re State of Texas, the OAG is asking the state Supreme Court to order 53rd District Judge Scott Jenkins of Austin to vacate portions of his April 18 order that requires the state to release documents related to the $117.5 million settlement between the state and Farmers Group Inc. to Farmers policyholders who intervened in the case to try to block the settlement. The settlement is on hold. Although Jenkins certified the class and preliminarily approved the settlement in June, the 3rd Court of Appeals stayed the sending of notices to class members until the intervenors’ appeal of the class certification order has been decided. Lubin, et al. v. Farmers Group Inc., et al. is pending before the Austin appeals court. The state argued in its brief on the mandamus petition that the documents Jenkins ordered it to disclose are protected by the attorney-client and work-product privileges. According to the brief, the documents include memoranda between officers and attorneys at the Texas Department of Insurance and the OAG outlining legal strategy in Texas v. Farmers Group, which was filed in August 2002. Another document is an interoffice e-mail between members of Gov. Rick Perry’s staff about the settlement negotiations. David Jones, an attorney representing Farmers policyholders Gilberto Villanueva and Michael Paladino in their efforts to stop the settlement, says the intervenors don’t know whether the documents at issue are important in determining how the settlement was negotiated. “We can’t know whether they are significant or aren’t significant until the [Supreme Court] ultimately rules on whether or not we get to see them,” says Jones, a partner in Houston’s Beck, Redden and Secrest. Mattax contends that attorneys for the intervenors are using the discovery dispute to try to create a catch-22 situation for the OAG and that their real purpose is to preclude Texas’ attorney general from ever bringing a class action. “In my opinion, that’s what they’re trying to do,” he says. WHO’S REPRESENTING? Joe Longley, an attorney for Jan Lubin, another Farmers policyholder who intervened to stop the settlement, believes the dispute is a win-win situation for the intervenors. Either the OAG is representing Lubin and other policyholders in a class action and must turn over the documents to its clients or the OAG is not representing the policyholders, leaving them unrepresented, says Longley, a partner in Austin’s Longley & Maxwell. If class members aren’t represented by the OAG, Longley questions how can there be a class action. Without the class action, he says, the settlement will come undone. “If they’re not representing us, we’re not bound by anything they did,” Longley contends. In her response to the state’s mandamus petition, Lubin cites former Assistant Attorney General Christopher Livingston’s testimony at a March 26 hearing before Jenkins. Under questioning by Longley, Livingston, identified as the Rule 8 attorney-in-charge of the suit against Farmers, testified that he was representing the unnamed class members and settling the case on their behalf, according to a transcript of the hearing. Later in the hearing, Livingston testified that the OAG doesn’t represent class members in terms of giving them advice and counsel and negotiating a settlement, the transcript shows. Livingston, now a law clerk for the U.S. District Court of the Northern District of Alabama, alleges in an interview that Longley is twisting Livingston’s testimony. “What Longley is trying to do is say we were representing as the individual attorney for each one of those people,” Livingston says. The OAG represents the class as a whole, he says. The idea for a class action came out of weeks of private negotiations between state officials and Farmers after the insurer announced in September 2002 that it would pull out of the Texas market. “This is the largest property and casualty settlement in the insurance history of the state of Texas,” says Gerard G. Pecht, lead attorney for Farmers and a partner in Houston’s Fulbright & Jaworski. “This case was settled pursuant to a statute that expressly allows the attorney general to bring these claims as class claims,” Pecht says. “Parens patri authority — which authorizes the state to sue on behalf of its citizens — has long been recognized as an inherent power of the state.” Lubin alleges in her response brief to the Texas Supreme Court that Insurance Commissioner Jose Montemayor asked the OAG to bring a class action against Farmers on behalf of injured policyholders, but the state agreed that class action settlement release mechanism was for the benefit of Farmers. “The class action was not to be litigated; rather, it would serve only to release claims that these policyholders could have brought against Farmers,” the brief alleges. Jack Ratliff, a University of Texas School of Law professor emeritus who serves as a consultant to the intervenors, contends the OAG had a conflict of interest in handling the class action. Ratliff, who worked at the OAG under former AG John Cornyn, says the attorney general is trying to represent the interests of the state and the interests of the policyholders. “People who have potential claims, if they’re going to give [the claims] up, have a right to have somebody represent them,” he says. “There’s no conflict,” Livingston says, adding that individual policyholders can opt out of the settlement. But Longley says most people who receive notice of the settlement will throw it away without looking at it. Despite the concerns raised by Longley, Jenkins found that there had been “zealous representation” of the class members by the OAG, according to the state’s brief to the 3rd Court in Lubin, et al. v. Farmers Group, et al. The Texas Supreme Court scheduled arguments on the discovery dispute for Jan. 14, 2004.

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