Suit Must Proceed Against Public Adjusters

Arbitration by Two Plaintiffs Does not Stay Trial By Other Plaintiffs

A group of homeowners sued multiple attorneys, “door-to-door solicitors,” and insurance adjusters, including public adjuster National Claims Negotiators LLC (NCN), alleging fraud and other individual and class claims regarding insurance proceeds for roof repairs.

In National Claims Negotiators LLC v. Juan Guerra, Amanda Cardenas, Cesar Quinones, Fernando Marin, Kevin Clay, Barry Nix, Sandra Nix, Juan Deltoro, Glen Moore, Gail Moore, Esmerelda Hernandez, And Fermin Lopez, No. 05-19-00495-CV, Court of Appeals Fifth District of Texas at Dallas (March 31, 2020) The attorney defendants moved to compel arbitration of claims asserted against them by two appellees, Juan Guerra and Juan Deltoro, with whom they had signed arbitration agreements. After the trial court granted that motion, NCN moved to stay the litigation against it until the attorney defendants’ arbitration concluded. The trial court denied NCN’s motion to stay.

In a single issue on appeal, NCN contended the trial court abused its discretion by denying NCN’s requested stay because of the arbitration two plaintiffs agreed to use with regard to disputes with the lawyers.

BACKGROUND

In their suit the appellees described the defendants as falling into three groups:

  1. door-to-door solicitors,
  2. public insurance adjusters, and
  3. attorneys.

The Scheme Alleged

According to the suit the defendants “have set up a scam using Texas insurance policyholders as pawns to make themselves rich at the expense of Texas homeowners.” They describe an “elaborate web” that begins with the door-to-door solicitors “telling a homeowner his/her roof is damaged and they can get the homeowner’s insurer to buy the homeowner a new roof.” “Following these door-to-door salesmen attempting to collect payment from the homeowner’s insurer, the next play is to bring in a ‘public adjuster’ or person(s) alleged to be public adjusters as the second level of the claim.” The public adjuster “will then charge the homeowner a ten percent (10%) fee ‘to represent’ the homeowner” and “charge the homeowner additional fees to inspect the home and for reports to allegedly advance the homeowner’s claims.” When the public adjuster “fails to recover any payment, or more likely does nothing substantive to settle the homeowner’s claims,” an attorney “is brought in.” The door-to-door solicitors “provide the homeowner with agreements to sign for the public adjuster and the lawyer.” The homeowner ultimately receives a “settlement share” with “inappropriate” amounts deducted. By the time a lawyer gets involved, the homeowner is saddled with a 10% contingency fee from the public adjuster as well as other unnecessary and perhaps even fraudulent expenses” and “the lawyer then heaps a 30% or more contingency fee as well as other unnecessary and perhaps even fraudulent expenses on the Texas homeowner.”

The petition separately described each appellee’s experience involving the defendants and asserted claims against “all defendants” for fraud, barratry, breach of fiduciary duty, violation of the Texas Deceptive Trade Practices Act, aiding and abetting breaches of fiduciary duty, conspiracy, and vicarious liability. Claims against NCN and other non-attorney defendants for “alter ego. Claims against the door to door solicitors for conversion. Class claims against each defendant group for fraud and breach of fiduciary duties. Mr. Guerra and Mr. Deltoro were the only appellees whose complained-of experiences involved the attorney defendants. Ten appellees, including Mr. Guerra and Mr. Deltoro, alleged involvement with adjuster defendants they described as including “and/or NCN.”

The Arbitration Decision

After the trial court compelled arbitration of Mr. Guerra and Mr. Deltoro’s claims against the attorney defendants, thus staying litigation as to those claims, NCN filed a motion to stay all proceedings with respect to the claims against NCN pending conclusion of the arbitration.

The trial court denied NCN’s motion to stay.

ANALYSIS

When an issue is pending in both arbitration and litigation, arbitration should be given priority to the extent it is likely to resolve issues material to the lawsuit. Issues that are not the subject of arbitration need not be stayed until the arbitration is concluded.

Factors courts consider include whether (1) the arbitrated and litigated disputes involve the same operative facts, (2) the claims asserted in the arbitration and litigation are “inherently inseparable,” and (3) the litigation has a “critical impact” on the arbitration.

The Trial Court Did Not Abuse Its Discretion By Denying NCN’s Motion To Stay

The claims subject to arbitration include only Mr. Guerra and Mr. Deltoro’s claims against the attorney defendants.

The record shows:

  1. each appellee relied on a separate, distinct set of underlying facts and there is no single incident or contract common to all appellees, even though the petition describes a pervasive “scam” and alleged the same causes of action against multiple defendants;
  2. the petition alleged that the adjuster defendants, including “and/or NCN,” made representations to, and imposed individual charges on, each appellee;
  3. while the arbitration includes only two appellees and the attorney defendants, the litigation involves all twelve appellees and their experiences with the defendants at various chronological stages of the alleged fraud, including distinctions as to each defendant group’s roles and acts; and
  4. NCN’s motion in the trial court requested a stay of “all proceedings.”
  5. The fact that nonarbitrable claims against third parties are based on facts related to arbitrable claims does not alone make a stay of those claims necessary.

As to factors two and three, NCN further contended the claims are “inherently inseparable” and the litigation will have a critical impact on the arbitration because the plaintiffs only allege that they suffered one harm: the reduction or loss of their homeowners’ insurance proceeds. In order to determine whether the Attorney Defendants engaged in a conspiracy with NCN the arbitrator will necessarily review the same operative facts as the jury in the litigation. NCN contended that if the litigation is allowed to proceed it may resolve some of the same issues to be determined to arbitration.

The Court of Appeal noted that this case involves a suit with multiple plaintiffs unrelated by anything but similar harm from a similar scheme; the petition describes multiple transactions, differentiating the defendants’ actions. Rather than alleging “one harm” appellees described damages based on their individual interactions at various stages of their experiences with members of the three defendant groups.

Because the Plaintiffs are seeking remedies for different violations, the claims are not inherently inseparable. Likewise, the conspiracy and vicarious liability claims are dependent on each appellee’s experience regarding the defendants alleged to have harmed that appellee.

The question is not ultimately one of weighing potential harm to the interests of the non-signatory, but of determining whether proceeding with litigation will destroy the signatories’ right to a meaningful arbitration. The trial court and the court of appeal concluded it would not deprive the parties of a meaningful arbitration.

In accordance with the Court’s opinion, the judgment of the trial court was affirmed and appellees Juan Guerra, Amanda Cardenas, Cesar Quinones, Fernando Marin, Kevin Clay, Barry Nix, Sandra Nix, Juan Deltoro, Glen Moore, Gail Moore, Esmerelda Hernandez, and Fermin Lopez recover their costs of this appeal from appellant National Claims Negotiators LLC.

ZALMA OPINION

The suit against the lawyers, public adjusters and solicitors will proceed except as to the two plaintiffs who agreed to arbitration. If proved at trial the actions claimed of the solicitors, adjusters and lawyers are unconscionable and should result in damages and disciplinary action. If not proved the plaintiffs will lose. If the allegations are true not only do the plaintiffs have a provable cause of action but the Department of Insurance of the State of Texas should start its own investigation as should the Texas Supreme Court for the false and allegedly fraudulent activities of the lawyers and adjusters.


© 2020 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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