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PACIFIC GROUP v. FIRST STATE INS. CO.

October 7, 1993

THE PACIFIC GROUP, U.S. HOTEL PROPERTIES CORPORATION, U.S. HOTEL PROPERTIES HOTEL AND RESORT MANAGEMENT COMPANY, WALLACE SMITH, and HORST OSTERKAMP, Plaintiffs,
v.
FIRST STATE INSURANCE COMPANY, Defendant.


Jensen


The opinion of the court was delivered by: D. LOWELL JENSEN

On May 28, 1993, the Court heard the following post-trial motions in this case: Defendant's motions for a new trial, to alter or amend the verdict, and for judgment notwithstanding the verdict; and plaintiffs' motions for compensatory damages, judgment, and attorneys' fees. Plaintiff The Pacific Group was represented by William J. Keegan of The Keegan Law Firm. The U.S. Hotel plaintiffs were represented by Brian R. Strange of Strange & Hoey. Defendant First State Insurance Company was represented by John N. Frye and Jeffrey A. Katz of Frye & Alberts.

 On June 2, 1993, the Court requested supplemental briefing on certain issues. All motions were to be deemed under submission on June 24, 1993, the date on which the final supplemental papers were due. In the interim, the Court has received numerous letter briefs from the parties. Now, having considered the voluminous papers submitted, the arguments of counsel, the applicable law, and the entire record herein, the Court DENIES defendant's motion for a new trial; DENIES defendant's motion to alter or amend the verdict; DENIES IN PART and GRANTS IN PART defendant's motion for judgment notwithstanding the verdict; GRANTS plaintiffs' motion for compensatory damages and judgment; and DENIES IN PART and GRANTS IN PART plaintiffs' motion for attorneys' fees.

 I. BACKGROUND

 This is an action alleging breach of an insurance contract and breach of the covenant of good faith and fair dealing by defendant's failure to defend or indemnify certain U.S. Hotel plaintiffs ("the insureds") and defendant's failure to participate in settlement discussions. *fn1"

 Trial in this action commenced on February 1, 1993. On February 12, 1993, the jury returned a verdict on three issues against the defendant First State Insurance Company ("First State"). First, the jury found that defendant's failure to defend the U.S. Hotel Properties Corporation, U.S. Hotel properties Hotel and Resort Management Company, Wallace Smith, and Horst Osterkamp ("U.S. Hotel plaintiffs") proximately caused the settlement and judgment in the underlying Hawaii lawsuit. Second, the jury found that defendant breached its duty to act fairly and in good faith with the U.S. Hotel plaintiffs. Third, the jury found that defendant acted with malice or oppression in its dealings with the U.S. Hotel plaintiffs.

 On February 19, 1993, after a second phase of the trial, the jury returned a verdict finding that First State pay Punitive damages to the U.S. Hotel plaintiffs in the amount of $ 21 million.

 Following the jury's initial verdict, defendant moved for judgment as a matter of law, arguing that it was entitled to judgment on the bad faith claim and therefore the punitive damages claim as well. The Court denied the motion during a hearing on February 17, 1993.

 Not surprisingly, the parties made numerous post-verdict motions. The U.S. Hotel plaintiffs have moved for attorneys' fees, for compensatory damages, and for entry of judgment. The Pacific Group submitted a memorandum in favor of the U.S. Hotel plaintiffs' proposed judgment and in opposition to any diminution of compensatory damages. Defendant, on the other hand, filed motions for a new trial and to alter or amend the verdict or for judgment notwithstanding the verdict. The Court held a hearing on these motions on May 28, 1993. On June 2, 1993, the Court requested supplemental briefing, the last of which was submitted June 24, 1993. The parties have also submitted several unsolicited letter briefs.

 II. DISCUSSION

 A. Defendant's Motion for a New Trial

 1. Legal Standard

 Federal Rule of Civil Procedure ("Rule") 59 permits the Court to grant a new trial, stating that a "new trial may be granted to all or any of the parties and on all or part of the issues . . . ." Fed. R. Civ. P. 59(a). A trial court may grant a new trial if the verdict is "contrary to the clear weight of the evidence, or is based upon evidence which is false, or to prevent, in the sound discretion of the trial judge, a miscarriage of justice." Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1245 (Fed. Cir.), cert. denied, 493 U.S. 853, 110 S. Ct. 154, 107 L. Ed. 2d 112 (1989) (quoting Hanson v. Shell Oil Co., 541 F.2d 1352, 1359 (9th Cir. 1976), cert. denied, 429 U.S. 1074, 97 S. Ct. 813, 50 L. Ed. 2d 792 (1977)). A new trial may be granted when the trial court finds that the damages awarded were grossly excessive, clearly not supported by the evidence, or only based on speculation and guesswork. See Los Angeles Memorial Coliseum Comm'n v. Nat'l Football League, 791 F.2d 1356, 1360 (9th Cir. 1986), cert. denied, 484 U.S. 826, 98 L. Ed. 2d 53, 108 S. Ct. 92 (1987).

 Although the judge may weigh the evidence and assess the credibility of witnesses, and need not view the evidence in a light most favorable to the moving party, "a decent respect for the collective wisdom of the jury, and for the function entrusted to it in our system, certainly suggests that in most cases the judge should accept the findings of the jury, regardless of his own doubts in the matter." Landes Constr. Co. v. Royal Bank of Canada, 833 F.2d 1365, 1371 (9th Cir. 1987) (quoting 11 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2806, at 49 (1973)). If, on the other hand, having given full respect to the jury's findings and having reviewed the entire evidence, the judge "is left with the definite and firm conviction that a mistake has been committed," a new trial should be granted. Id. at 1372 (quoting 11 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2806, at 49). It is insufficient that the district court would simply have reached a different verdict. Richardson, 868 F.2d at 1245.

 2. Analysis

 Defendant First State moves for a new trial on the following grounds: (1) Defendant claims that the contract interpretations and legal opinions by plaintiffs' expert should have been excluded; (2) Defendant argues that the Court's exclusion of Mr. Adler's testimony regarding the Unocal case was improper and prejudicial; and (3) Defendant maintains that the Court should have recognized defendant's right to equitable subrogation.

 a. Testimony of Plaintiffs' Expert Ray Rosecrans

 Defendant argues that the contract interpretations and legal opinions by plaintiffs' expert Ray Rosecrans should have been excluded for three reasons.

 First, First State avers that Rosecrans's testimony concerning his interpretation of First State policies went beyond the proper scope of expert testimony. Rosecrans was called by plaintiffs as an expert to testify to standard claims handling practices within the insurance industry. He testified that Frank Lagana violated the industry standard by determining that First State should not drop down and defend its insureds. Defendant argues that Rosecrans exceeded his proper role of describing industry practice by testifying as to the legal effect of the insurance agreement. For example, defendant quotes Rosecrans as saying that "they are aware of the drop down problem and this has happened." Transcript, Feb. 9, 1993, at 723-24.

 Plaintiffs reject defendant's arguments, noting that Rosecrans did not testify as to First State's contract, but rather to industry standard concerning the duty to drop down. This is proper ground to cover and certainly does not justify a new trial.

 Second, defendant claims that Rosecrans's testimony concerning his reliance on three court opinions should not have been introduced to the jury because interpretation of judicial opinions is not admissable and the probative value was outweighed by the prejudice to First State. In particular, defendant states that Rosecrans testified that Hocker v. New Hampshire Ins. Co., 922 F.2d 1476 (10th Cir. 1991); Utah Power & Light Co. v. Federal Ins. Co., 711 F. Supp. 1544 (D. Utah 1989); and Continental Casualty Co. v. Synalloy Corp., 667 F. Supp. 1523 (S.D. Ga. 1983), should have given notice to Lagana of First State's duty to drop down.

 The Court instructed the jury that: "You are not asked to decide whether or not those decisions or the statements or the arguments are correct statements of law for this case, so you are not to consider the evidence for that purpose. You can consider that evidence, however, for any bearing it may have on the state of mind of any of the parties who acted for First State in handling the claim of U.S. Hotels in this case." Transcript, Feb. 12, 1993, at 1214. Thus, as to the three legal opinions, the Court specifically refused to allow the cases into evidence, but instead only allowed reference to the cases to demonstrate First State's state of mind since in all three cases First State was a party.

 Defendant insists, however, that the probative value was outweighed by the undue prejudice to First State under Federal Rule of Evidence 403. However, defendant did not raise a 403 objection at trial. Moreover, the evidence of the three drop down cases was highly probative as to First State's state of mind and plainly outweighed any prejudice. A new trial is thus not warranted.

 Third, First State asserts that Rosecrans's opinion as to the ultimate issue was improperly premised upon inadmissable testimony. Although citing no specific testimony, defendant argues that Rosecrans overstepped the boundaries of acceptable expert testimony by rendering his opinion on the applicable rules of law and application of law to the facts in this case.

 This argument will not carry the day. The Court finds no such record of improper testimony, nor has First State directed the Court to any specific improper testimony. Moreover, and more importantly, defendant has made no showing of prejudicial opinion evidence which justifies a new trial.

 b. Exclusion of Erwin Adler's Testimony

 Defendant called Erwin Adler to testify as to conversations he had with Lagana in 1985 and 1986. The conversations concerned Adler's handling of the Wilen and Unocal cases on behalf of First State. In Unocal, a superior court ruled that First State was not required to drop down. The content of those conversations, defendant insists, contributed to Lagana's knowledge in 1988 and 1989 when defendant refused to cover its insureds in this case. Defendant complains that the Court's refusal to allow Adler to discuss the Unocal case, on the basis that it did not corroborate Lagan's testimony, was erroneous and requires a new trial. First State argues that despite the fact that Lagana could not recall the Unocal case, it does not eliminate the relevance of Adler's testimony. Rather, defendant asserts that the Court should have allowed the testimony and left it to the jury to decide Lagana's state of mind in 1988.

 Plaintiffs maintain that the Court properly excluded Adler's testimony concerning the Unocal case because Lagana never testified about the Unocal case and, thus, the testimony did not corroborate. Plaintiffs also note that defendant disclosed Adler as a witness only three days before he took the stand and only right before taking the stand did First State say that it wanted Adler to testify about Unocal to corroborate Lagana's testimony.

 In any event, there is no evidence of prejudice in light of the fact that Lagana, neither in his deposition nor at trial, ever remembered the Unocal case. The testimony would have been of only speculative relevance at best. This, then, cannot be the basis of a new trial. *fn2"

 c. Equitable Subrogation

 Defendant argues that the Court's Order of January 28, 1993 denying First State's claim for equitable subrogation and trial Order denying a right of set-off were reversible error. The Court explored this issue previously and will not revisit the issue now. The Court need not reconsider its previous rulings because defendant fails to raise any new arguments or evidence before the Court.

 Accordingly, defendant's motion for a new trial is DENIED.

 B. Defendant's Motion to Alter or Amend the Verdict or for Judgment Notwithstanding the Verdict

 Defendant moves to alter or amend the verdict pursuant to Rule 59(e) or for judgment notwithstanding the verdict pursuant to Rule 50(b).

 1. Legal Standards

 a. Rule 59(e)

 Rule 59(e) provides a means whereby the Court may alter or amend judgment. Northern Cheyenne Tribe v. Hodel, 842 F.2d 224, 227 (9th Cir. 1988); United States v. Western Elec. Co., 690 F. Supp. 22, 25 (D.D.C. 1988) (Rule 59(e) motion not to be used as vehicle to relitigate matters already disposed of, but simply permits courts to correct errors of fact appearing on the face of the record or errors of law). A Rule 59(e) motion may be based on one of three grounds: (1) Intervening change of controlling law; (2) New evidence not previously available; and (3) A need to correct clear error of law or to prevent manifest injustice. Atkins v. Marathon LeTourneau Co., 130 F.R.D. 625, 626 (S.D. Miss. 1990) (citing Natural Resources Defense Council v. United States Envtl. Protection Agency, 705 F. Supp. 698, 702 (D.D.C.), vacated on other grounds, 707 F. Supp. 3 (D.D.C. 1989)). The movant must "clearly establish either a manifest error of law or fact or must present newly discovered evidence." Western Elec. Co., 690 F. Supp. at 25 (quoting FDIC v. Meyer, 781 F.2d 1260, 1268 (7th Cir. 1986)). The decision whether to grant or deny the motion is entrusted to the sound discretion of the district court.

 b. Rule 50(b)

 A renewed motion for judgment as a matter of law, also referred to as a motion for judgment notwithstanding the verdict ("JNOV"), is proper to raise when a motion for judgment as a matter of law, otherwise known as a directed verdict, has been denied. Fed. R. Civ. P. 50(b). A Rule 50(b) motion must be preceded by a motion for directed verdict at the close of all evidence. Air-Sea Forwarders, Inc. v. Air Asia Co., 880 F.2d 176, 183 n.9 (9th Cir. 1989), cert. denied, 493 U.S. 1058, 110 S. Ct. 868, 107 L. Ed. 2d 952 (1990). In addition, the motion must be made on the same grounds as the directed verdict motion. Murphy v. City of Long Beach, 914 F.2d 183, 186 (9th Cir. 1990).

 A judgment notwithstanding the verdict is proper if:

 
the evidence construed in the light most favorable to the nonmoving party permits only one reasonable conclusion as to the verdict and that conclusion is contrary to the jury's; it is improper if reasonable minds could differ over the verdict.

 Air-Sea Forwarders, Inc. v. Air Asia Co., at 181 (quoting Fleming v. Dep't of Public Safety, 837 F.2d 401, 408 (9th Cir.), cert. denied, 488 U.S. 889, 109 S. Ct. 222, 102 L. Ed. 2d 212 (1988)). Or, as one court stated, a jury verdict may be set aside if manifest injustice will result if allowed to stand. See Marley v. City of Allentown, 774 F. Supp. 343, 344 (E.D. Pa. 1991), aff'd, 961 F.2d 1567 (3d Cir. 1992).

 2. Current Procedural Posture

 In its June 2, 1993 Order, the Court requested supplemental briefing regarding the Court's authority to consider issues other than punitive damages. *fn3" The Court was concerned with the scope of its authority to hear arguments pursuant to a Rule 59(e) motion that it otherwise could not entertain under a JNOV motion.

 Upon review, it is apparent that the Court may not consider defendant's Rule 59(e) motion to alter or amend judgment at this time. "A motion to alter or amend the judgment shall be served not later than 10 days after entry of the judgment. " Fed. R. Civ. P. 59(e) (emphasis added). In this case, there has been no entry of judgment, and despite defendant's characterization of the motion as one "to alter or amend the verdict," the Court may not entertain the motion at this stage in the litigation.

 In the interest of judicial economy, however, the Court will construe defendant's motion as a Rule 60(b) motion for reconsideration of the Court's January 29, 1993 Order. *fn4" Absent reconsideration at this stage, defendant would likely refile the Rule 59(e) motion after the entry of judgment. In light of recent case law, and in an effort to conserve judicial resources, the Court will now consider defendant's arguments for reconsideration of the Court's holding that First State had breached its duty to defend, rather than await an identical motion once final judgment has been entered.

 3. Legal Standard for Rule 60(b)

 Federal Rule of Civil Procedure 60(b) governs the reconsideration of final orders. That rule permits a district court to relieve a party from a final order or judgment on grounds of:

 
(1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b), (3) fraud . . . of an adverse party, . . . or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3), not more than one year after the judgment, order, or proceeding was entered or taken.

 Fed. R. Civ. P. 60(b).

 Two arguments are commonly used to justify the reconsideration of an order. Initially, parties often come forth with new evidence. In order for evidence to be considered "new" for the purposes of Rule 60(b), it must meet three standards. First, it must be of such a character that it would change the outcome of the Court's prior decision. Fernhoff v. Tahoe Regional Planning Agency, 622 F. Supp. 121, 122 (D. Nev. 1985). Second, it must have been undiscovered at the time of Court's original decision. Engelhard Indus., Inc. v. Research Instrumental Corp., 324 F.2d 347, 352 (9th Cir. 1963), cert. denied, 377 U.S. 923, 12 L. Ed. 2d 215, 84 S. Ct. 1220 (1964). Third, it could not have been discovered through exercise of reasonable diligence by the moving party. Shiley, Inc. v. Bentley Lab., Inc., 115 F.R.D. 169, 170 (C.D. Cal. 1987); see Fed. R. Civ. P. 60(b)(2). If the evidence was previously available, the motion fails as a matter of law. Trentacosta v. Frontier Pac. Aircraft Indus., Inc., 813 F.2d 1553, 1557-58 n.4 (9th Cir. 1987).

 The second major ground used to justify reconsideration of an order is a clear error of law by the Court or the need to prevent a "manifest injustice" from occurring. In order for a party to demonstrate clear error, the moving party's arguments cannot be the same as those made earlier. Backlund v. Barnhart, 778 F.2d 1386, 1388 (9th Cir. 1985). If a party simply inadvertently failed to raise the arguments earlier, the arguments are ...


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