July 2, 2015

Tenth Circuit: Insurer Who Failed to Reserve Rights Responsible for Default Judgment

The Tenth Circuit Court of Appeals issued its opinion in Cornhusker Casualty Co. v. Skaj on Monday, May 18, 2015.

Vincent Rosty, an employee of R&R Roofing, Inc., drove a company dump truck to the home of Shari Skaj, his ex, to drop off roofing supplies and see if his kids were there. At some point after Vincent stopped in an alley behind the Skaj residence, the truck was accidentally knocked into second gear and rolled forward, pinning Ms. Skaj against a parked motor home and causing serious injuries. A lab test performed later in the day confirmed the presence of marijuana and methamphetamine in Vincent’s bloodstream.

Cornhusker Casualty provided commercial liability insurance to R&R at the time of the accident, and R&R and Randy Rosty (0wner of R&R, along with Steven Rosty) were the named insureds. Within days of the accident, Cornhusker hired AmeriClaim adjuster Charles Brando to investigate the incident. Brando’s report noted that Vincent had driven off-route on personal business despite an unwritten company policy prohibiting personal use of company vehicles.

After receiving notice of Ms. Skaj’s forthcoming claim, Cornhusker wrote to R&R, Steven Rosty, and Vincent to notify them of potential excess liability exposure and to inform them of the right to retain independent counsel. Cornhusker specifically stated it would continue to defend the claim. The Skajs filed suit in Wyoming county court, asserting several claims based on negligence and requesting punitive damages since Vincent was intoxicated at the time of the accident. Cornhusker’s counsel filed an answer to the complaint as to Steven and R&R only, asserting she did not represent Vincent. Cornhusker determined Vincent was not entitled to a defense. However, Cornhusker did not attempt to inform Vincent it was no longer defending him. Default issued against Vincent, the non-defaulting defendants were dismissed, and eventually the Wyoming trial court set a default judgment hearing. Cornhusker hired separate representation for Vincent for that hearing, who opposed the default judgment, and after the hearing default entered against Vincent for $897,344.24.

One week after the default judgment hearing, Cornhusker sent Vincent a letter purporting to deny coverage for the first time. In support of its coverage denial, Cornhusker stated Vincent was not a permissive user of the truck, was not acting within the course and scope of his employment with R&R, was intoxicated, and had misappropriated roofing materials from R&R, also stating he had not cooperated with Cornhusker during the Skajs’ lawsuit. Shortly after, Cornhusker sent another letter to Vincent, characterizing its representation of him at the default judgment hearing as “pursuant to a reservation of rights” and for the limited purpose of having the default set aside. Meanwhile, Vincent’s counsel appealed the default, and eventually the Wyoming Supreme Court affirmed the judgment except insofar as it awarded punitive damages. Cornhusker refused to pay, maintaining Vincent was not covered by the policy.

Cornhusker filed suit in the U.S. District Court for the District of Wyoming, seeking a declaration that the policy did not provide coverage for Vincent because he was not an insured and had not cooperated in the investigation. Vincent counterclaimed against Cornhusker, asserting theories of negligence, intentional infliction of emotional distress, promissory estoppel, and breach of contract. The Skajs also counterclaimed, seeking a declaration that Cornhusker was required to pay the judgment in the underlying action and seeking attorney fees based on Cornhusker’s refusal to pay. Vincent and the Skajs jointly counterclaimed that Cornhusker should be estopped from asserting the defense of noncoverage because of its unconditional defense of Vincent in the underlying action. All parties filed motions for summary judgment. After a hearing, the district court declared Cornhusker was estopped from denying coverage to Vincent because it represented it would provide a defense, never reserved its rights, and did not advise Vincent of its decision to deny coverage until more than 16 months after entry of default. The court granted summary judgment to Cornhusker on Vincent’s various claims and denied the Skajs’ motion for attorney fees. The district court ordered Cornhusker to pay the full amount of the default judgment. Cornhusker appealed the district court’s finding of estoppel. The Skajs cross-appealed the court’s denial of their attorney fees. Vincent also appealed, seeking reversal on his bad faith and punitive damages claims.

After quickly dismissing Cornhusker’s standing argument, the Tenth Circuit evaluated the estoppel claim. Prior circuit precedent established estoppel where an insurer defended a claim without reserving its rights. Although the question had not been reached in Wyoming, the Tenth Circuit construed Wyoming law and determined the insurer must accept the consequences of its decision to assume full control of the litigation without a reservation of rights, because the insured was induced to relinquish control of the defense. In this case, Cornhusker never explicitly reserved its rights as to Vincent. Even Vincent’s counsel “found it odd” that Cornhusker would take the approach of providing a full defense to Vincent without a reservation of rights, but the Tenth Circuit found that since that was the path Cornhusker chose, it should face the consequences of its action and pay the judgment. The Tenth Circuit found no error in the district court’s order for Cornhusker to pay the default judgment.

Next, the Tenth Circuit considered Vincent’s bad faith and punitive damages claims. Vincent characterized the bad faith as Cornhusker’s retention of counsel who refused to defend him and allowed entry of default against him. However, the Tenth Circuit found neither substantive nor procedural bad faith in Cornhusker’s conduct. Because Cornhusker had a reasonable basis for its denial, there was no substantive bad faith. And, because Cornhusker did not fail to investigate the claim, there was no procedural bad faith, and certainly not enough to satisfy Wyoming’s “high bar” for conduct constituting procedural bad faith. The Tenth Circuit similarly disposed of the punitive damages claim since it was based on the same conduct as the bad faith claim. Finding that punitive damages are only to be awarded for conduct so egregious it is nearly criminal, the Tenth Circuit could discern no such conduct here.

The Tenth Circuit then turned to the Skajs’ counterclaim for attorney fees. The district court had determined that Wyoming’s “unreasonable or without cause” standard for refusal to pay losses covered by insurance was so similar to the standard for bad faith that the same analysis applied. The Tenth Circuit found no error in the district court’s finding and affirmed its denial of attorney fees. Although the Skajs sought to introduce supplemental material to the Tenth Circuit to bolster their attorney fee claim, the Tenth Circuit denied the motion, finding the Skajs could have introduced the evidence in district court but failed to do so. Likewise, Cornhusker’s motion to seal the Skajs’ supplemental index was denied as moot.

The Tenth Circuit affirmed the decision of the district court in full, denied the Skajs’ motion to file a supplemental index, and denied as moot Cornhusker’s motion to seal the supplemental index.

Colorado Court of Appeals: CORA Exception for Prosecuting Attorney Does Not Apply to Land Use Violation

The Colorado Court of Appeals issued its opinion in Shook v. Pitkin County Board of County Commissioners on Thursday, June 18, 2015.

Colorado Open Records Act—Investigatory Records Exception.

In August 2012, the Pitkin County Attorney’s Office received a citizen complaint regarding a potential code violation of plaintiff Shook’s property. The complaint was investigated and a violation notice for failure to obtain a necessary construction permit was issued. Shook cured the violation by obtaining a permit.

Several months later, Shook submitted a Colorado Open Records Act (CORA) request to the county attorney (custodian), seeking access to records related to the violation. The custodian provided certain documents but denied access to the original citizen complaint and the investigating officer’s handwritten notes.

Shook then filed this action, seeking a declaratory judgment that the custodian violated CORA by withholding the records, an order directing the custodian to disclose the records, and attorney fees and costs. The district court held that the custodian properly denied access to the records under CORA’s investigatory records exception, CRS § 24-72-204(2)(a)(I).

The investigatory records exception allows a custodian to withhold records if (1) the records relate to investigations conducted by a sheriff, prosecuting attorney, or police department, or are contained in investigatory files compiled for criminal law enforcement purposes; and (2) disclosure would be contrary to the public interest. Here, the record did not support the finding that the records related to an investigation by a prosecuting attorney. Such an attorney refers to one prosecuting a criminal matter, and this was not a criminal prosecution. The order was reversed for failure to meet the first prong.

CRS § 24-72-204(5) requires the court to award costs and reasonable attorney fees to any person who applies for and receives an order requiring a custodian to permit inspection of public records. The case was remanded with directions to order the custodian to allow Shook to inspect the records and, upon Shook’s application, assess and award reasonable court costs and attorney fees in her favor.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Proof of “Case Within a Case” Not Required in All Legal Malpractice Actions

The Colorado Court of Appeals issued its opinion in Boulders at Escalante LLC v. Otten Johnson Robinson Neff & Ragonetti PC on Thursday, June 18, 2015.

Legal Malpractice—Negligence—Statute of Limitations —Legal or Proximate Causation—Case Within a Case.

Plaintiff is a real estate development company formed to develop townhomes in a subdivision in Durango. Defendant is a law firm that was hired to represent plaintiff in a lawsuit against it by its general contractor to foreclose the contractor’s mechanic’s lien. Defendant filed several compulsory counterclaims on behalf of plaintiff for breach of contract and negligence. Plaintiff was concerned the contractor would not be able to pay a judgment if plaintiff succeeded on the counterclaims and asked defendant to review the insurance policies it had obtained for the project to determine whether the policies would pay a judgment against the contractor.

In 2006, defendant told plaintiff there was $2 to $4 million of coverage to pay a judgment against the contractor. In 2009, after plaintiff had obtained new representation, plaintiff learned that the policies contained an exclusion precluding payment to plaintiff if it succeeded on its claims against the contractor. Plaintiff and the contractor eventually settled, dismissing the claims against each other with prejudice. No payments were made by either party.

In 2011, plaintiff filed this action, asserting defendant was negligent in incorrectly advising regarding the insurance coverage, leading to extensive losses, including legal fees and expenses in continuing the litigation. The jury found defendant was negligent and its negligence caused 82.5% of the damages suffered by plaintiff. Judgment entered for approximately $2.7 million, plus pre- and post-judgment interest.

On appeal, defendant argued the claim was barred by the two-year statute of limitations set forth in CRS § 13-80-102. Defendant argued that plaintiff’s claim accrued no later than February 2009, when plaintiff learned defendant’s advice regarding insurance coverage might be wrong, and the action wasn’t filed until April 1, 2011. The Court of Appeals disagreed. A cause of action for negligence accrues on the date both the injury and its cause are known or should have been known to the plaintiff by the exercise of reasonable diligence. Under the circumstances here, the question of when plaintiff knew or should have known that the advice was incorrect and that it was injured by that advice was properly a question resolved by the jury.

Defendant argued that in a legal malpractice action based on negligence, the plaintiff must prove a case within a case; namely, that the claim underlying the malpractice action would have been successful but for the attorney’s negligence. The Court disagreed. Here, the claimed injury does not relate to the outcome of the underlying matter, and therefore plaintiff did not need to prove a case within a case.

Defendant challenged whether its negligence caused plaintiff’s damages. The Court determined that the evidence was sufficient to establish that plaintiff proved its malpractice claim for damages based on the legal expenses it incurred because of defendant’s incorrect advice. But for this advice, plaintiff would not have continued incurring legal expenses in an attempt to prove its counterclaims. However, plaintiff should not have recovered damages based on the business losses it sustained. As a matter of law, defendant’s advice regarding the insurance coverage was not the legal, or proximate, cause of plaintiff’s claimed business losses. Although defendant could have reasonably foreseen that plaintiff would make business decisions based on defendant’s advice, the actual harm plaintiff suffered because of those business decisions was not within the scope of the risk created by defendant’s negligence. The case was remanded for a new trial, limited to determining the amount of damages plaintiff incurred in continuing to pursue its counterclaims against the contractor after receiving incorrect advice from plaintiff.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Settlement Agreement Not “Payment” and Therefore Does Not Toll Statute of Limitations

The Colorado Court of Appeals issued its opinion in Stoesz v. State Farm Mutual Automobile Insurance Co. on Thursday, June 18, 2015.

Underinsured Motorist Benefits—Statute of Limitations—Meaning of “Payment”—Summary Judgment.

Plaintiff Stoesz, an insured of defendant (State Farm), was injured when an underinsured motorist rear-ended her car. Three days before the statutorily required three-year limitations period expired, Stoesz sent an e-mail to the underinsured motorist’s liability insurer, Progressive Insurance Company (Progressive), confirming a policy limits settlement. Shortly after the limitations period had ended, State Farm approved the settlement at Stoesz’s request. Within two years of receiving the settlement payment from Progressive, Stoesz commenced this action to recover underinsured motorist benefits from State Farm. The trial court entered summary judgment against Stoesz on the basis that this settlement agreement did not constitute payment that would have extended the limitations period for an additional two years. The Court of Appeals affirmed.

On appeal, State Farm argued that, pursuant to CRS § 13-80-107.5(1)(b), payment must be made during the three-year limitations period, which was not met here, and a tolling agreement between Progressive and Stoesz did not affect its rights. The Court agreed. Under the clear wording of the statute, an insured is allowed an additional two years only if the underlying bodily injury liability claim against the underinsured motorist has been preserved by commencing an action against the underinsured motorist or by payment of either the liability claim settlement or judgment. No action was commenced and no payment occurred within the limitations period. The summary judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Colorado Governmental Immunity Act Does Not Apply Retroactively

The Colorado Court of Appeals issued its opinion in Smokebrush Foundation v. City of Colorado Springs on Thursday, June 18, 2015.

Colorado Governmental Immunity Act—Gas Facility Exception—Public Building Exception.

The Smokebrush Foundation (Smokebrush) alleged that various contaminants had migrated from the City of Colorado Spring’s (City) property onto its property, causing damages. The district court denied the City’s motion to dismiss, concluding that the City’s immunity was waived under two statutory provisions of the Colorado Governmental Immunity Act (CGIA): the gas facility exception and the public building exception. The district court also concluded that these waiver provisions applied retroactively to contamination that undisputedly occurred before the CGIA was enacted.

On appeal, the City argued that the trial court erred in finding that the CGIA applied retroactively. Nothing in the CGIA states that it is intended to operate retroactively. Therefore, the CGIA operates prospectively, effective July 1, 1972. Accordingly, to the extent that Smokebrush’s allegations were based on contamination stemming from the City’s coal gas operations in the 1920s and 1930s, the district court erred in concluding that the gas facility or public building exceptions to governmental immunity applied retroactively. The City is therefore immune from tort claims based on such contamination.

The City argued that the district court erred in concluding that the City was subject to suit under the gas facility and public building exceptions to governmental immunity for the injuries claimed by Smokebrush from alleged asbestos migration during the demolition activities on the property beginning in late 2012. The legislature waived governmental immunity for injuries resulting from “[t]he operation and maintenance of any public water facility, gas facility, sanitation facility, electrical facility, power facility, or swimming facility by such public entity.” Because the City’s property was not used in the collection, production, or distribution of natural gas and only housed administrative functions after the 1930s, the gas facility exception did not apply. Governmental immunity is also waived for injuries resulting from a dangerous condition of a public building. Although the City acknowledged that the property was a public building, this exception only applies to “constructing” and “maintaining” a public building. When the asbestos allegedly migrated to Smokebrush’s property, the property was in the process of being completely demolished. The dangerous condition definition applicable to the public building exception does not expressly recognize negligence claims stemming from demolition of a public facility. Therefore, the public building exception did not apply. The order denying the City’s motion to dismiss was reversed and the case was remanded to the district court with instructions to grant the motion.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Court of Appeals: No Error in Trial Court’s Calculation of Medicaid Lien

The Colorado Court of Appeals issued its opinion in State of Colorado Department of Health Care Policy & Financing v. S.P. on Thursday, June 18, 2015.

Accident—Medicaid—Settlement—Statutory Lien—Calculation.

S.P. was injured in a snowboarding accident at a ski area. As a result of her injuries, she is a paraplegic and will require ongoing medical care and assistance for the rest of her life. She applied for Medicaid assistance and was accepted. Over the course of several years, Medicaid paid $142,779 for her accident-related medical care. S.P. sued the ski area, alleging negligence, and eventually settled the case for $1 million. Medicaid was entitled to a statutory lien against the settlement for repayment of the medical assistance it had provided. The settlement agreement, however, did not specify the portion of the settlement amount attributable to medical expenses, as opposed to other categories of damages. The Medicaid administration agency sued S.P. to enforce its lien.

On appeal, both parties argued that the trial court incorrectly calculated the amount S.P. was required to repay to Medicaid. Colorado has not enacted statutory, administrative or other procedures for apportioning third-party settlements for Medicaid lien purposes. The trial court applied a proportional allocation formula to determine what amount out of S.P.’s settlement funds should be considered compensation for past medical expenses. The trial court also relied on an objective indication of S.P.’s total past medical expenses that was supported by the record.

The Court of Appeals held that the decision to rely on the amount paid rather than the amount billed by Medicaid was not clearly erroneous, and that the trial court’s method in this case was neither unreasonable nor arbitrary. The trial court also did not err in applying its formula to the gross settlement amount and properly took attorney fees into consideration in reducing the amount owed to Medicaid. The judgment was affirmed and the case was remanded to the trial court to release the funds held in its registry pursuant to the judgment.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Jury Determination that Defendant’s Negligence Did Not Cause Plaintiff’s Injuries Acceptable

The Colorado Court of Appeals issued its opinion in Vititoe v. Rocky Mountain Pavement Maintenance, Inc. on Thursday, June 18, 2015.

Personal Injury—Challenges to Jurors and Jury Verdict and Jury Instructions.

Plaintiff was riding his motorcycle late at night. Shortly after making a U-turn, he collided with a lowboy trailer that was connected to a tractor driven by an employee of defendant. The collision occurred as the tractor was either stopped or beginning to proceed through an intersection controlled by a traffic signal that had turned green.

Plaintiff alleged negligence on the part of the truck driver. Plaintiff’s expert opined that defendant’s employee had worked more than the allowable fourteen-hour day and was likely tired and inattentive at the intersection and stopped for an unreasonable amount of time. Another expert for plaintiff testified that the taillights were positioned too low. The jury returned a special verdict form finding defendant was negligent but its negligence was not a cause of plaintiff’s injuries. Judgment was entered for defendant.

On appeal, plaintiff argued that some of the jurors made prejudicial statements during voir dire concerning motorcyclists’ helmet use, and that the trial court erred by refusing to canvass the jurors on that topic, give a limiting instruction, or declare a mistrial. The Court of Appeals disagreed. In Colorado, evidence of a plaintiff’s failure to wear a helmet is inadmissible to show negligence on the part of the plaintiff or to mitigate damages. If the jury learns a motorcyclist was not wearing a helmet, a limiting instruction may be required. When a prospective juror makes a potentially prejudicial statement during voir dire, the trial court may issue a curative instruction, canvass the jury, or declare a mistrial. Whether a statement is potentially prejudicial depends significantly on the facts and circumstances. Here, no juror expressed an opinion that plaintiff was negligent for not wearing a helmet and, in fact, there was no evidence allowed as to whether or not plaintiff wore a helmet.

Plaintiff argued that the evidence admitted at trial did not support the jury’s verdict. After reviewing the evidence presented, the Court found that there was competent evidence to support the verdict.

Plaintiff argued that the court erroneously instructed the jury by not omitting any reference to the doctrine of assumption of risk because the evidence did not support it. The Court found that testimony from a detective that plaintiff “accelerated toward something he saw” supported the instruction regarding assumption of risk.

Plaintiff argued that the court erred by instructing the jury that the law presumes a driver is negligent if the driver hits another vehicle in the rear. Plaintiff contended that the instruction should not have been given because this was not a rear-end collision, but a barrier crash. The Court found no authority to suggest that hitting the lowboy trailer, even if not moving forward, constituted a barrier crash as opposed to a type of rear-end collision. The judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Junk Fax Claims Against Commercial Insurer Barred by Policy Language

The Tenth Circuit Court of Appeals issued its opinion in Emcasco Insurance Co. v. CE Design, Ltd. on Monday, May 4, 2015.

In April 2008, Custom Mechanical Equipment, Inc., an Oklahoma company, faxed an unsolicited advertisement to CE Design, Inc. in Illinois. Rather than simply throw the fax away, CE Design sued Custom in Illinois state court and sought to certify a class of others who had received unsolicited faxes from Custom. CE Design alleged Custom breached the Telephone Consumer Protection Act (TCPA), which provides $500 in damages for each violation, as well as alleging common law conversion based on the use of paper, toner, the fax machine, and CE Design staff time. Custom submitted the claim to its insurer, Emcasco, which denied coverage and declined to defend Custom. In June 2011, CE Design and Custom settled, entering into an agreement for $1,276,000 in damages ($500 for each of the 2,552 junk faxes Custom sent) whereby CE Design agreed to enforce the judgment only against Emcasco. The Illinois trial court approved the settlement in September 2011.

CE Design brought suit against Emcasco in the U.S. District Court for the Western District of Oklahoma, seeking a declaratory judgment that Emcasco’s policy legally obligated it to pay the CE Design’s judgment. Emcasco then filed suit in the U.S. District Court for the Northern District of Illinois, seeking a declaratory judgment that it was not liable. Upon CE Design’s motion, the Illinois district court transferred the case to Oklahoma. In June 2013, both parties moved for summary judgment. Emcasco argued it had properly denied coverage and refused to defend because Custom’s fax was neither an “occurrence” causing property damage nor a “personal and advertising injury,” and alternatively argued that three policy exclusions barred coverage. CE Design responded that the policy covered Custom and no exclusion applied. After hearing arguments, the district court granted summary judgment in favor of Emcasco and denied CE Design’s motion. CE Design appealed.

On appeal, the parties agreed that Oklahoma law regarding insurance contracts governed the dispute. At oral argument, CE Design conceded the statutory violation language in the policy removed Emcasco’s duty to defend the TCPA claim. The Tenth Circuit agreed. Turning next to the conversion claim, the Tenth Circuit found that CE Design sufficiently pleaded conversion, but in doing so defeated policy coverage, since by pleading conversion CE Design acknowledged that the fax was not an “accident” for policy purposes. The Tenth Circuit next turned to CE Design’s “negligent conversion” claim, alleging conversion under a mistaken belief of right to appropriation of the property. The Tenth Circuit agreed that such “negligent conversion” could qualify as an “accident” under the policy, but CE Design’s bare allegations of mistake were not supported by anything in the record, noting that “[i]f this sufficed as an accident, it is hard to imagine what would not.” The Tenth Circuit found Emcasco had no duty to defend under the “negligent conversion” theory. Tenth Circuit similarly rejected CE Design’s Illinois Consumer Fraud Act (ICFA) claim, finding CE Design was required to prove the defendant intended the plaintiff to rely on a deceptive act in order to further an ICFA claim, and further finding such a deceptive act would trigger all of the same exceptions from Emcasco’s coverage.

The Tenth Circuit next analyzed Emcasco’s argument that its statutory violation exclusion barred coverage under all three of CE Design’s claims. The Tenth Circuit, looking at the plain language of the insurance policy, agreed that coverage would have been barred, since all of CE Design’s claims relied at their core on violations of the TCPA. Because TCPA claims were barred by the contract, all of CE Design’s claims failed.

The Tenth Circuit affirmed the district court’s grant of summary judgment to Emcasco.

Tenth Circuit: Settlement Fair Because it Incentivized Western Union to Change its Business Practices

The Tenth Circuit Court of Appeals issued its opinion in Tennille v. Western Union Co. on Friday, May 1, 2015.

Western Union was the subject of a class action lawsuit challenging its practice of holding and earning interest on customers’ money after failed wire transfers without notifying customers of the failure. While an interlocutory appeal from Western Union was pending, Western Union and the class representatives reached a settlement, agreeing that Western Union would change its business practices to notify customers when wire transfers failed, would help customers whose unclaimed money had escheated to the state to reclaim their money, and would pay interest for the time Western Union held the funds before the escheat. The settlement will be funded using approximately $135 million in customers’ unclaimed funds still held by Western Union, and the funds will be distributed as follows: (1) a $7,500 incentive award to each of the four named plaintiffs; (2) interest to the customers who have already claimed their money from Western Union for the time period from the transfer’s failure to the customer’s claim, minus Western Union’s administrative fees; (3) the unclaimed money plus interest to the customers whose money Western Union still holds, minus Western Union’s administrative fees; (4) the costs of administering the settlement; and (5) 30 percent of the settlement award to class counsel as attorney fees.

Because the settlement was reached during the pendency of the interlocutory appeal, the Tenth Circuit remanded to the district court to consider whether to certify the class and approve the settlement. The district court preliminarily certified the class and approved the settlement, directing that notice be sent to the approximately 1.3 million putative class members. A dozen class members objected to the settlement, including Sikora Nelson (represented by counsel) and Paul Dorsey (pro se). The district court held a “fairness hearing” and eventually overruled all the objections, entered a final class certification, approved the settlement, and entered judgment. Objectors posted bond after it was reduced by the Tenth Circuit and appealed.

The named plaintiffs argued the objectors lacked standing to pursue the appeal, but the Tenth Circuit disagreed, finding Article III standing as to all class members. Plaintiffs also argued the objectors were raising arguments that were not properly preserved below, but the Tenth Circuit again disagreed, noting it has wide discretion to consider all arguments on appeal and the arguments were raised in some form in the lower court proceedings.

Objectors first contended the district court erred in certifying the class because the named plaintiffs could not fairly and adequately protect the interests of the class as a whole, and the district court should have created subclasses to adequately address the needs of all class members. Objector Nelson first argued that because the named plaintiffs had arbitration clauses in their agreements with Western Union and not all class members had arbitration provisions, including Nelson, the plaintiffs could not adequately protect the other class members’ interests. The Tenth Circuit noted that at the time the class was certified the district court had already ruled the arbitration provisions were unenforceable. Nelson argued she, and other similarly situated class members, could have negotiated a much better settlement than the named plaintiffs, but the Tenth Circuit disagreed, finding Nelson had agreed not to initiate any class actions in her contract.

Next, Nelson argued that because she was a Michigan resident and a Michigan statute allowed treble damages for such failed wire transactions, the named plaintiffs could not adequately represent her interest or the interest of other Michigan residents. However, because the district court had already ruled that Colorado law governed the claims, the Tenth Circuit found this argument unavailing. Nelson also argued that because the plaintiffs had already reclaimed their money from Western Union while she and other class members had not, plaintiffs were not similarly situated. The Tenth Circuit noted that Western Union’s challenged conduct was the same as to all class members, and the difference was not enough to preclude plaintiffs from representing the class.

Nelson also challenged the district court’s approval of the settlement, contending it was unfair because absent class members will finance most of the settlement for the entire class. Although the Tenth Circuit was “not unsympathetic to Nelson’s argument,” it determined them to be ultimately unpersuasive, since Nelson and others who had not already claimed their money would not have known about it absent the settlement agreement, and because the settlement agreement incentivized Western Union to change its business practices. Although there is a possibility that the settlement funds will run out before all class members have received their share, that possibility is unlikely to be realized based on historical data indicating that only 15 percent of Western Union’s customers ever seek a refund of their money.

The Tenth Circuit next addressed Nelson’s procedural challenge to the Rule 23 notice, finding the given notice satisfied due process by identifying several ways they could obtain additional information about the claims they would be releasing if they joined the settlement. Objector Dorsey also challenged how the notice was given to class members, arguing Western Union should have cross-checked all its databases instead of mailing to the last known address of class members. The named plaintiffs assert that Western Union did cross-check its databases, and also the class administrator used the post office’s change of address database to update the addresses. The Tenth Circuit found the mailed notice sufficient. Dorsey also speculated that those plaintiffs whose transactions were “zeroed out” by administrative fees may not have received notice, but the Tenth Circuit found that in fact all class members were notified. The Tenth Circuit similarly found a typo in the notice insignificant, given the corrective measures taken on the class action website. Dorsey finally argued that because he did not receive the email notice, despite having a current email address on file with Western Union, there must have been something wrong with the email notice. The Tenth Circuit disagreed.

Finally, Dorsey and Nelson argued the district court failed to exercise its independent judgment by adopting verbatim the orders drafted by plaintiffs and Western Union in certifying the class and approving the settlement. The Tenth Circuit was satisfied that the court exercised independent judgment. Objectors also claim the district court did not address their objections, but the Tenth Circuit found that it did, albeit briefly.

The Tenth Circuit affirmed the district court’s order certifying the class and approving the settlement.

Tenth Circuit: Interlocutory Appeal of Preliminary Injunction Related to 2014 Elections Moot

The Tenth Circuit Court of Appeals issued its opinion in Fleming v. Gutierrez on Tuesday, May 5, 2015.

The 2012 general election in Sandoval County, New Mexico, was fraught with problems. Some voters waited more than five hours to vote, and others left before casting their ballots. Following the disastrous election, the Sandoval County Board of Commissioners passed two resolutions condemning the handling of the 2012 election and designating more voting centers for the 2014 election.

Several voters filed suit in federal district court after the 2012 elections, alleging equal protection and due process § 1983 violations and a violation of New Mexico’s constitutional free-and-open-elections clause. In September 2014, the district court entered a preliminary injunction against the county that essentially made any discretionary aspects of the Board’s resolutions non-discretionary. The injunction explicitly stated it was to apply through the November 2014 elections, at which point the court would reevaluate the case. The county filed an interlocutory review, seeking vacation of the injunction on the grounds that the voters lacked standing and were unlikely to prevail on the merits, and also seeking expedited review. The Tenth Circuit declined expedited review and the November 2014 election occurred under the bounds of the preliminary injunction.

The voters requested the Tenth Circuit to dismiss the appeal as moot. The county argued the election did not moot the injunction because it falls within the exception to the mootness doctrine for issues capable of repetition yet evading review, and because the injunction remains relevant to the issue of the prevailing party’s attorney fees. The Tenth Circuit addressed each contention in turn.

The Tenth Circuit held that the November 2014 election mooted the interlocutory appeal, finding any decision about the district court’s order would have no present day effect on the parties because the election and the effective time for the injunction had passed. The Circuit further found the exception to the mootness doctrine for issues capable of repetition yet evading review did not apply to the preliminary injunction, though it could apply to the case as a whole. Because the complaint, in which the voters sought permanent injunctive relief as to all future elections, was still pending in the district court, the issues were capable of review.

As to the attorney fee award, the Tenth Circuit found that the voters were the prevailing party as to the preliminary injunction but may not prevail on the suit in district court. Because no fee request had been filed, the Tenth Circuit lacked jurisdiction to address the issue.

The Tenth Circuit granted the voters’ motion to dismiss the appeal as moot and dismissed the appeal for lack of jurisdiction.

Tenth Circuit: Prejudgment Interest Due from Date Entitlement to Benefits Shown, Not Date of Breach

The Tenth Circuit Court of Appeals issued its opinion in Folks v. State Farm Mutual Automobile Insurance Co. on Tuesday, April 28, 2015.

Roberta Folks was injured in 1998 when, as a pedestrian, she was struck by the sideview mirror of a passing car. Ms. Folks received PIP benefits from State Farm, the driver’s insurer, until she exhausted the benefits in 2002. She joined a lawsuit seeking additional benefits in 2004, in which lawsuit she unsuccessfully attempted to certify a class three times. In response to her last failed attempt in 2011, the district court determined she failed to satisfy the requirements of Rule 23(a) and Rule 23(b)(2) and denied class certification. In 2012, a jury decided in Ms. Folks’ favor, and in 2013 the district court amended the judgment to correct errors in the damages calculation. Ms. Folks appealed, challenging the district court’s denial of class certification, calculation of treble damages for willful and wanton conduct, and calculation of prejudgment interest.

First examining Ms. Folks’ argument that the district court erred in finding Ms. Folks had not properly demonstrated relief was appropriate as to the class as a whole, the Tenth Circuit found the issue was not properly preserved for appeal. Although Ms. Folks pointed to several places in the record where she believes she sought class-wide notice, the Tenth Circuit determined that, because class-wide notice is different than notice apprising of a lawsuit, these claims were not preserved. Additionally, Ms. Folks did not show that she sought a certification ruling on class-wide notice, which waived the argument for purposes of appeal.

Turning to the calculation of damages in Ms. Folks’ individual case, the Tenth Circuit found the district court had correctly trebled only the $40,000 damage award for willful and wanton conduct under C.R.S. § 10-4-708(1.8) (now repealed). Ms. Folks argues the court should have trebled the damages and also applied the original damage award, for a total of $160,000, but the Tenth Circuit looked to prior circuit precedent and the Colorado Supreme Court to refute this claim.

Finally, the Tenth Circuit addressed the district court’s calculation of prejudgment interest, reviewing de novo the district court’s conclusion regarding the date of the breach. State Farm was obligated to pay benefits within 30 days after Ms. Folks demonstrated entitlement. The district court determined State Farm was first obligated to pay benefits on May 13, 2009, when she submitted documentation establishing she was entitled to benefits. Ms. Folks relied on the 2002 coverage exhaustion letter to establish the date of the breach, but statutorily prejudgment interest was due only from the date she established entitlement, not from the date of the original breach. The Tenth Circuit found Ms. Folks was not entitled to additional prejudgment interest.

The Tenth Circuit affirmed the judgment of the district court.

Tenth Circuit: “Reverse Preemption” Deprived District Court and Tenth Circuit of Subject Matter Jurisdiction

The Tenth Circuit Court of Appeals issued its opinion in Western Insurance Co. v. A & H Insurance Inc. on Friday, April 24, 2015.

Western Insurance is insolvent and being liquidated in Utah state court. The liquidator brought suit against several of Western’s “affiliates” to recover funds Western had transferred to them. The defendants removed the ancillary proceeding to federal court under diversity jurisdiction, and the liquidator sought a remand, which the district court granted. Defendants appealed.

Because insolvent insurers are exempt from federal bankruptcy protection, state law governs insurer insolvency proceedings. After the defendants removed the case to federal court, liquidators argued the McCarran-Ferguson Act barred removal, as it is essentially a “reverse preemption” doctrine. The district court remanded “for the reasons stated on the record.”

The Tenth Circuit first evaluated its jurisdiction and found it could only proceed to entertain the appeal if the remand order was not based on lack of subject matter jurisdiction. In its order, the district court made several contradictory statements regarding its rationale for remand, leaving it unclear whether it relied on the McCarran-Ferguson Act’s “reverse preemption” in its remand order. However, the Tenth Circuit found that the bulk of the district court’s decision focused on the McCarran-Ferguson Act. Because the district court’s remand was based to a fair degree on lack of subject matter jurisdiction, the Tenth Circuit found it lacked jurisdiction to hear the appeal.

The appeal was dismissed.