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Grabau v. Commerce Insurance Co.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

August 2, 2018

Joseph GRABAU, on Behalf of Himself and All Others Similarly Situated
v.
The COMMERCE INSURANCE COMPANY

          File Date: August 3, 2018

          MEMORANDUM OF DECISION AND ORDER ON DEFENDANT’S MOTION TO STRIKE CLASS ALLEGATIONS FROM PLAINTIFF’S FIRST AMENDED COMPLAINT

          Janet L. Sanders, Justice of the Superior Court

          This is the latest in a string of lawsuits challenging an insurer’s failure to pay interest on arbitration awards to its insureds or third-party claimants. Plaintiff’s counsel in each of these actions has been Yasi and Yasi (now McCullough, Yasi & Yasi) or a related firm, PIP Collect. Although the first lawsuit, Meaney et al. v. One Beacon Insurance Co. et al., Civ. No. 2007-1294-BLS 2, involved several years of litigation, suits filed after Meaney generally resulted in quick settlements. See e.g., Diminico v. National Grange Mutual Insurance Co., Civ. No. 11-03037-BLS 2. In each case, each individual plaintiff’s recovery was relatively small; as part of the settlement, however, plaintiff’s counsel sought (and often obtained court approval of) attorneys fees in the tens of thousands of dollars.[1] See Memorandum of Decision dated December 4, 2012 [30 Mass.L.Rptr. 654] in Diminico, supra (declining to approve fee request of $136, 800). Still, these lawsuits did have the effect of requiring insurers to change their practice and to adopt a companywide policy of paying post-award interest on arbitration awards at the rate of 12 percent. Thus, although each individual plaintiff realized very little, the effect carried into the future in a way that was presumably beneficial for many others.

         The instant case is brought against one of the original insurers in the Meaney action who reached a settlement with plaintiffs in 2010 and agreed to change its policy. According to the Complaint, the defendant Commerce Insurance Company (Commerce) did not include one day of post-award interest ($22.03) on an arbitration award rendered to the plaintiff Joseph Grabau on December 21, 2017. As alleged in the Complaint, this was in breach of the 2010 Settlement Agreement and G.L.c. 93A, § 9. The Complaint further alleges that this was part of an "unlawful practice and policy" of Commerce and that Grabau’s claim is typical of the claims of others who have likewise failed to receive post-award interest from Commerce. Because these other putative plaintiffs are so numerous (the Complaint alleges), certification of a class is warranted.

         Now before the Court is defendant’s Motion to Strike the class allegations pursuant to Rule 12(f), Mass.R.Civ.P. In support, Commerce contends that the failure to pay the $22.03 to plaintiff Grabau was a simple oversight: the arbitration award was not received by Commerce until after business hours on December 21 and although it was paid immediately, that did not occur until the next day. Commerce further argues that plaintiff’s counsel is not in possession of any information that there are others like Grabau. In support, Commerce (who apparently deals regularly with the Yasi firm in connection with claims made by its insureds) says that it has searched its records and that in every other arbitration handled after 2010 in which the Yasi law firm has been involved, Commerce has paid post-award interest every time. Commerce also cites to an exchange of letters between counsel shortly after suit was filed that suggests that the Yasi firm does not itself have evidence that others beyond plaintiff Grabau did not receive the interest they were due on arbitration awards involving Commerce. Rule 11 states that the signature of counsel on a pleading constitutes a certification that counsel does have "knowledge, information and belief that there is good ground" to support the allegations therein. Commerce argues that not only does the Complaint lack an adequate factual basis for the class allegations but that plaintiff’s counsel will not be able to supply such allegations and still comply with Rule 11.

          Commerce’s request is an unusual one, and goes against the general rule that motions to strike should rarely be granted. See e.g., Manning v. Boston Medical Center Corp., 725 F.3d 34 (1st. Cir. 2013) (A motion to strike should be granted only when "it is obvious from the pleadings that the proceeding cannot possibly move forward on a class-wide basis"). Moreover, motions brought under Rule 12(f) essentially challenge the sufficiency of the pleading and thus are governed by the same standard as a motion to dismiss filed pursuant to Rule 12(b)(6). That means that this Court is not to consider materials beyond the four corners of the Complaint and is to accept the allegations in the Complaint as true. Factual allegations are sufficient to satisfy the Rule 12(b)(6) standard if together they "raise a right to relief above the speculative level." Flomenbaum v. Commonwealth, 451 Mass. 740, 751 n.12 (2008). Here, the Complaint (although carefully worded) essentially alleges that Commerce is engaging in a companywide policy not to pay interest on arbitration awards, and further alleges that there are so many others like Grabau that this case must proceed on a class basis. That is sufficient under the standard that I must apply. The Motion to Strike Class Allegations is therefore DENIED.

         Still, this Court does share Commerce’s concern that the class allegations are being used as a vehicle to discovering a right of action-here, the right to proceed as a class. In reply, plaintiff argues that he cannot determine how many others besides Grabau have not received the interest they are due on arbitration awards until counsel has had the opportunity to conduct discovery. But in order to be entitled to that discovery, then counsel must file a Complaint that not only contains sufficient factual allegations; counsel must also represent to the court that he or she has a good faith basis to believe that a right of action lies. Such a representation is made when counsel signs the pleading. When asked at the hearing on this Motion whether the Yasi firm had any information that there were others in addition to Grabau who have not received the interest due on an arbitration award, plaintiff’s counsel was unable to provide an answer. If in fact such information exists, then this action should be allowed to proceed on to discovery. If plaintiff’s counsel does not have such information, however, then to have signed a pleading essentially alleging that such information exists would be a violation of Rule 11 and sanctions would be in order.

         Accordingly, it is hereby ORDERED that:

         1. Defendant is permitted to propound one or two interrogatories and/or document requests to plaintiff as to what factual basis the Yasi law firm has in alleging that Commerce has a policy or practice of not paying post-arbitration interest to its insureds or third-party claimants.

         2. Defendant may bring a motion to deny class certification and/or for sanctions if it determine that the results of that discovery support such a motion, which will be heard on October 30, 2018 at 2:00 p.m.

         3. Until that discovery is completed, all other discovery in the case is stayed.

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Notes:

[1] Class actions netting very small amounts for individual plaintiffs but substantial attorneys fees negotiated as part of the settlement appear to be a specialty of Yasi & Yasi and its related firm PIP Collect. For example, in Moran v. IOD, Inc., Civ. No. 13-4224-BLS2, the firm brought a class action alleging wrongful overcharge of postage fees, the average overcharge being 57 cents. The case quickly settled and as part of the settlement, defendant agreed not to oppose plaintiff’s counsel’s request for $45, ...


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