Allstate Wins Victory in Whistleblower Suit Against ‘Sham’ Law Firm

Allstate Insurance Co. won an appellate court victory in a whistleblower lawsuit against a Los Angeles attorney whom it accuses of operating a “sham law practice” that conspired with “sham health care providers” to defraud auto insurers.

The Second District Court of Appeal on Dec. 23 affirmed a trial court order denying a motion by attorney Kelly Casado to dismiss the lawsuit because his actions, in sending demand letters to insurers, constituted “protected prelitigation activity.”

Allstate’s attorney, Thomas E. Fraysse, said the decision is important because it expands upon a precedent set in others cases that have limited the circumstances under which lawyers can escape civil action by filing anti-SLAPP suits. The term is derived from the acronym for strategic litigation against public participation. A California law, known as the anti-SLAPP statute, provides a process for defendants to dismiss litigation that would chill the exercise of constitutional rights.

“The presentation of an insurance claim is not a constitutionally protected activity,” said Fraysse, with the Knox Ricksen law firm in Walnut Creek, California. “What they said is there is no litigation protection for lawyers.”

Casado declined to comment.

Fraysse said although the 2nd District decided the case with an unpublished opinion that doesn’t set legal precedent, he will ask the court to publish the decision because it expands on existing case law.

The California False Claims Act allows insurance carriers to file whistleblower lawsuits — called qui tam actions — on behalf of the government and receive a share of the treble damages that can be awarded. Allstate in 2016 added Casado as a defendant in a qui tam suit that accused two law firms, two chiropractic clinics, a medical management company and nine individuals of participating in an insurance fraud scheme.

“This case illustrates why California law prohibits non-professional ownership of law offices and health care facilities, as the profit motive in this case trumped the interests and well-being of the clients and patients,” Allstate’s civil complaint states. “Indeed, the sham law offices and sham health care providers prey upon and use personal injury victims (as) a fungible commodity to steal from insurance companies.”

Casado argued that his activities were protected by the anti-SLAPP statute. The trial court denied his motion to dismiss, finding that Casado had sent demand letters to Allstate “in the regular course of business,” even if litigation were only a possibility. Casado appealed.

In its analysis, the appellate court said that a statement could protected by California’s anti-SLAPP statute if it concerns the subject of the dispute and was made “in anticipation of litigation contemplated in good faith and under serious consideration.” But there is no protection for demand letters that are sent as a routine part of the claims process, the court said. Casado admitted that he would send demand letters before knowing whether Allstate intended to pay the claim.

“Unless and until informal negotiations with Allstate failed or Allstate denied payment, litigation was purely theoretical,” the court said. “Indeed, prior to receiving correspondence from Casado, Allstate may not have had any knowledge of his clients’ injuries or claims against one of its insureds.”

The appellate court ruling removes a hurdle that has delayed Allstate’s day in court, after more than five years of litigation.

Fraysee said the 2nd District’s decision comes on the heels of another appellate court win for Allstate in a lawsuit against a Southern California fraud ring.

The 2nd District in June affirmed a jury’s award of more than $11 million in damages to Allstate in a qui tam suit against Christine Suh, her mother, Christina Chang, and other defendants. The jury found that the Suh fraud ring paid seven Los Angeles-area attorneys $3,000 per month to use their state Bar numbers to file insurance claims and pocketed insurer’s payouts.

The fraud ring would deposit insurers settlement checks into trust accounts set up in the name of the sham law firms, but then use remote check-cashing facilities to withdraw untraceable cash, according to Knox Ricksen.

“Chang and Suh rented office space, named the firms using the lawyers’ names, hired staff, opened firm bank accounts, obtained clients, presented demands to insurance companies for settlement and negotiated settlements, all in the name of licensed California attorneys, falsely making it appear as if a lawyer represented the client and claimant,” the law firm said.

Fraysse said the case now returns to the lower court and can proceed to trial sometime next year.