State Farm Mutual Automobile Insurance Company v. Fatiha

Background

State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company sued the defendants on common-law fraud and unjust-enrichment claims. State Farm alleged that the defendants operated a scheme involving fraudulent charges for medically unnecessary services under no-fault insurance policies. The complaint alleged that the charges began in 2013 and continued through the present.

The court’s scheduling order required fact discovery to be completed by March 3, 2021. After the defendants failed to provide any documents in response to State Farm’s discovery requests, the court ordered them to provide responses by December 23 and warned that sanctions could follow. Instead of responding, the defendants filed motions to dismiss for lack of subject-matter jurisdiction, for judgment on the pleadings, and to stay discovery. State Farm moved to strike the defendants’ answers and hold them in default.

Defendants’ Motions

The defendants argued that 28 U.S.C. § 1332(c)(1)(A) attributed the citizenship of State Farm’s New York-based insureds to State Farm, defeating diversity jurisdiction. The court rejected that argument because the case was brought by State Farm, not against State Farm, and therefore was not a direct action against an insurer within the meaning of the statute.

The defendants also argued that State Farm’s fraud and unjust-enrichment claims were barred by the statutes of limitations. The court explained that dismissal on that basis was appropriate only if the complaint clearly showed that the claims were untimely. Because State Farm alleged that some charges were submitted recently, the court concluded that the claims included charges within the applicable limitations period. The court stated that the claims might later need to be narrowed and damages limited, but that judgment on the pleadings disposing of the claims altogether was inappropriate.

Discovery Sanctions

The defendants did not provide responses by the ordered deadline, by the requested extension date, or by February 26, 2021. The court found that their overall conduct indicated an unwillingness to participate in the litigation and that they had been warned that continued noncompliance could result in sanctions, including default judgment.

Under Federal Rule of Civil Procedure 37(b), a court may impose sanctions for violating a discovery order. The court nevertheless decided that the severe sanction of striking the defendants’ answers and holding them in default might not yet be warranted. Because lesser sanctions had not previously been imposed, the court ordered the defendants to pay State Farm’s reasonable expenses, including reasonable attorney’s fees, incurred in seeking discovery. The court also prohibited the defendants from taking fact discovery, citing both their discovery misconduct and their failure to serve discovery requests by the scheduling-order deadline.

Disposition

The court denied the defendants’ motion to dismiss and motion for judgment on the pleadings. It denied the defendants’ motion to stay as moot and denied State Farm’s motion to strike. The defendants were ordered to produce the initial discovery responses covered by the December 9, 2020 order by May 24, 2021. The parties were also directed to meet and confer about an extended discovery schedule. The court stated that it would consider a renewed motion to strike the answers and hold the defendants in default if their noncompliance continued.