CASES (2023)

Eagle Express Lines, Inc. v. U.S

United States District Court, N.D. Illinois, Eastern Division.

EAGLE EXPRESS LINES, INC., Plaintiff,

UNITED STATES of America; Pete Buttigieg, Secretary of the United States Department of Transportation; and the Federal Motor Carrier Safety Administration, Defendants.

Case No: 22-cv-03747

Signed November 14, 2023

Attorneys and Law Firms

Donald W. Devitt, Pro Hac Vice, Michael David Reed, Scopelitis, Garvin, Light, Hanson & Feary, P.C., Chicago, IL, John T. Pion, Pro Hac Vice, Timothy Allan Montgomery, Pro Hac Vice, Pion, Nerone, Girman, Winslow & Smith, P.C., Pittsburgh, PA, for Plaintiff.

AUSA, Virginia Ovitz Hancock, William McHenry Strom, U.S. Attorney’s Office, Civil Division, Chicago, IL, for Defendant United States of America.

AUSA, United States Attorney’s Office, Chicago, IL, for Defendants Pete Buttigieg, Federal Motor Carrier Safety Administration.

MEMORANDUM OPINION AND ORDER

LaShonda A. Hunt, United States District Judge

*1 This lawsuit by Plaintiff Eagle Express Lines, Inc. arises from a fatal vehicle crash caused by one of its drivers who received a false medical certificate from a medical examiner on the national registry administered by the Federal Motor Carrier Safety Administration (“FMCSA”) and United States Department of Transportation (“USDOT”). Plaintiff seeks relief against Defendants under the Federal Tort Claims Act, 28 U.S.C. § 2671, et seq., asserting that USDOT and FMCSA (collectively, “the federal agencies”) negligently failed to comply with their statutory duties to police medical examiners.¹ Before the Court is the motion of Defendant United States of America to dismiss the complaint. For the reasons discussed below, the motion [21] is granted in part and denied in part.

BACKGROUND

Plaintiff was a commercial trucking company incorporated in Illinois that engaged in interstate commerce and was licensed as an interstate motor carrier by FMCSA, “an operating administration” of the USDOT. (Dkt. 1 at ¶¶ 2-3, 6). In February 2016, Steve Holland (“Holland”) applied to drive commercial vehicles for Plaintiff. (Id. at ¶ 11). As a motor carrier, Plaintiff was legally required to maintain a driver qualification file for Holland, which included a Medical Examiner’s certificate. (Id. at ¶ 34). Unbeknownst to Plaintiff, Holland had heart bypass surgery in 2010. (Id. at 2). However, Holland completed medical forms indicating that he had not had heart disease, a heart attack, or another cardiovascular issue. (Id. at ¶¶ 12-16). Dr. Darrin Frye certified Holland as qualified for a 2-year medical certificate. (Id. at ¶19).

In February 2018, Holland underwent a subsequent medical examination by Ronald Sherry, P.A. (“P.A. Sherry”) at the Health Care Centers of Miami. (Id. at ¶ 25). Once again, Holland falsely indicated on his medical forms that he had no prior heart issues or surgeries. (Id. at ¶¶ 26-29). Had P.A. Sherry performed the required examination of twelve body systems, Holland would have had to remove his shirt, “at which time the scar from his open-heart surgery performed in 2010 would have been visible,” thereby requiring “a more thorough examination, obtain[ing] prior medical records, and likely certify[ing] Holland to operate commercial vehicles for a shorter time period, if at all.” (Id. at ¶ 31). Despite having failed to adequately examine Holland, P.A. Sherry signed a false medical certificate on February 12, 2018, clearing Holland to drive for two years. (Id. at ¶¶ 32-33). Both Dr. Frye and P.A. Sherry were listed on the National Registry of Medical Examiners. (Id. at ¶¶ 12, 25).

A regulatory review conducted by FMCSA for the period from May 2014 to November 2016 revealed that P.A. Sherry “submitted approximately 4 times more Medical Examiner Certificates than the next highest FMCSA certified Medical Examiner in the State of Florida.” (Id. at ¶ 55). Due to this anomalous activity, the USDOT Office of the Inspector General, Miami Division, launched a further investigation of P.A. Sherry and discovered that in 2016 and 2017, he had conducted 10 times more medical examinations than the national average. (Id. at ¶¶ 56-57). Accordingly, USDOT-OIG arranged a sting, and in July 2018, an undercover officer visited P.A. Sherry at the Health Care Center of Miami for a purported medical examination. (Id. at ¶¶ 58-59). P.A. Sherry’s examination consisted of nothing more than placing a stethoscope on the undercover officer’s chest and asking him to breathe in and out, after which P.A. Sherry certified that the examination “was performed in accordance with FMCSA Regulations and that all recorded information was accurate.” (Id. at ¶ 60). In November 2019, Sherry was indicted in the United States District Court for the Southern District of Florida for his role in issuing false medical certificates. (Id. at ¶ 47). The USDOT did not publicly announce P.A. Sherry’s criminal activity until his indictment, well over a year after the undercover sting. (Id. at ¶ 47).

*2 In January 2019, almost a year before the indictment, Holland suffered a fatal heart attack while driving a tractor-trailer owned by Plaintiff in Alachua County, Florida, and tragically crashed into multiple vehicles, killing five children traveling in a church van as well as another tractor-trailer driver. (Id. at ¶¶ 38-43). In connection with that accident, Plaintiff has paid over $30 million in settlements and several lawsuits remain pending. (Id. at ¶¶ 73-75).

Plaintiff alleges that “[k]nowing many thousands of commercial truck drivers were issued phony medical certificates, the Defendants had an obligation and a duty to inform motor carriers that those unqualified drivers were in their employ and afford them an opportunity to remove those drivers from services to protect the monitoring public.” (Id. at ¶ 47). Plaintiff therefore filed this FTCA complaint alleging indemnification (Count I), negligence based on respondeat superior (Count II), negligence based on duty to warn (Count III), negligence per se (Count IV), and contribution (Count V). Defendant has moved to dismiss the complaint for lack of jurisdiction, contending that the circumstances alleged here do not give rise to liability under the FTCA. The motion is fully briefed and ready for resolution.

DISCUSSION

I. Legal Standard

Motions to dismiss for lack of subject matter jurisdiction are proper under Fed. R. Civ. P. 12(b)(1). Many of the arguments raised by Defendant in its motion appear to attack the merits of Plaintiff’s claims, which would normally be considered under Fed. R. Civ. P. 12(b)(6). But the FTCA “creates a unique context where a jurisdictional analysis under Rule 12(b)(1) and a merits analysis under Rule 12(b)(6) motion may be identical.” Heiderman v. United States, 20 C 7579, 2021 WL 5988556, at *2 (N.D. Ill. Dec. 17, 2021) (citing Scholz v. United States, 18 F. 4th 941 (7th Cir. 2021)). “Accordingly, in the FTCA context, a motion attacking an element of jurisdiction that is also a merits element may be decided under either Rule 12(b)(1) or Rule 12(b)(6).” Id.

The focus of an FTCA jurisdictional challenge is whether the case presents “circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.” 28 U.S.C. § 1346(b)(1). Defendant argues that standard is not met here, as the complaint alleges only “noncompliance with [FMCSA’s] federal law duties [which] cannot be analogized to any state law tort.” (Dkt. 22 at 7) (emphasis in original). The Court disagrees.

II. Choice of Law

Before turning to the substantive issues raised in Defendant’s motion, the Court must determine what state law to apply. The first step in the analysis is to decide which forum’s choice-of-law jurisprudence to use, based on the “whole law” “of the place where the act or omission occurred.” See Richards v. United States, 82 S. Ct. 585, 591-92 (1962). The thrust of Plaintiff’s complaint is that the federal agencies did not timely warn Plaintiff about P.A. Sherry’s scheme to churn out thousands of fraudulent medical certifications for truck drivers, including Holland. It is clear that all relevant activity related to the acts and omissions that make up this case took place in Florida—Holland’s medical examination was performed by P.A. Sherry in Florida, the USDOT-OIG investigation was conducted by the Miami field office, the undercover agent met with P.A. Sherry in Florida, and the crash occurred in Florida. Therefore, the Court concludes that Florida choice-of-law rules govern.

*3 “Florida courts apply the ‘significant relationship test’ to choice-of-law issues arising from tort claims.” Coulter v. ADT Security Servs., 744 Fed. Appx. 615, 619 (11th Cir. 2018) (citing Crowell v. Clay Hyder Trucking Lines, Inc., 700 So.2d 120, 122-23 (Fla. Dist. Ct. App. 1997)). “Under this test, the court determines which state has the most significant relationship to the parties and to the alleged tort by considering (1) where the injury occurred, (2) where the conduct causing the injury occurred, (3) the residence of the parties, and (4) where the relationship between the parties is centered.” Id.

Applying those factors here, the facts establish that Florida has the most significant relationship to the parties and the tort. While Defendant correctly points out that Plaintiff is headquartered in Illinois and the USDOT has field offices in Illinois, both the injury and relevant conduct causing the injury occurred in Florida. Furthermore, the relationship between the parties is centered in Florida, as all material government activity concerning the investigation took place out of the USDOT Miami field office. As such, Florida law will apply.

III. Negligence Claims (Counts II, III, IV)

Plaintiff’s negligence claims may proceed. The FTCA waives sovereign immunity and authorizes private tort actions against the United States in limited circumstances. United States v. Olson, 126 S. Ct. 510, 511 (2005). Indeed, the United States “shall be liable … in the same manner and to the same extent as a private individual under like circumstances.” 28 U.S.C. § 2674. The Supreme Court has rejected arguments that government entities do not have liability when performing “uniquely governmental functions” and held that the FTCA “requires a court to look to the state-law liability of private entities, not to that of public entities, when assessing the Government’s liability under the FTCA ‘in the performance of activities which private persons do not perform.’ ” Id. at 46 (quoting Indian Towing Co. v. United States, 350 U.S. 61, 64 (1955)). Accordingly, the Court must analyze Florida law to determine whether a private person or entity could be held liable in similar circumstances to those alleged here.

“[T]he threshold inquiry in a negligence case is whether the defendant owes a legal duty to the plaintiff.” In re Marjory Stoneman Douglas High School Shooting FTCA Litig., 482 F. Supp. 3d 1273, 1288 (S.D. Fla. 2020) (citing Goldberg v. Fla. Power & Light Co., 899 So. 2d 1105, 1110 (Fla. 2005)). “[I]t is hornbook tort law that one who undertakes to warn the public of danger and thereby induces reliance must perform his ‘good Samaritan’ task in a careful manner.” Indian Towing, 350 U.S. 61, 64-65 (1955). “Thus, in cases where the plaintiff points to the violation of a federal statutory or regulatory duty, we generally look to the applicable state’s Good Samaritan doctrine to decide if the plaintiff has alleged a state tort claim that satisfies the § 1346(b)(1) requirement and thereby opens the door for a claim under the FTCA.” Zelaya v. United States, 781 F.3d 1315, 1325 (11th Cir. 2015).

Under Florida law, there is generally no duty to prevent misconduct by third parties, but there are exceptions to that rule, such as “the undertaking doctrine.” Stoneman Douglas, 482 F. Supp. 3d at 1289. The common law of Florida has adopted the undertaking doctrine from the Restatement (Second) of Torts, § 324A (1965), which states:

*4 One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if:

(a) his failure to exercise reasonable care increases the risk of such harm, or

(b) he has undertaken to perform a duty owed by the other to the third person, or

“Courts analyzing FTCA cases routinely find cognizable duties arising in a wide variety of undertakings by the federal government, following the Second Restatement approach.” Stoneman Douglas, 482 F. Supp. 3d at 1289-90 (collecting cases). To find that the government has undertaken “to render services to another which he should recognize as necessary for the protection of a third party,” the government need not set out to provide services to the particular people injured nor do the third parties need to be known or identifiable at the time of the undertaking. Id. at 1290. “Voluntarily undertaking to do an act that if not accomplished with due care might increase the risk of harm to others … confers a duty of reasonable care ….” Union Park Mem’l Chapel v. Hutt, 670 So. 2d 64, 67 (Fla. 1996).

In Stoneman Douglas, victims of a school shooting sued under the FTCA, alleging that the FBI “failed to comply with its mandatory obligations to handle, investigate, and intervene on tips it received about” the school shooter’s plan to attack his high school. 482 F. Supp. 3d at 1276. Prior to 2012, citizens would call their local FBI field office to report tips, and often spoke directly to FBI agents and analysts; the FBI subsequently changed that system and implemented a centralized Public Access Line in its place to intake tips from the public and relay them to agents. Id. at 1278. Although the FBI received two tips regarding the school shooter, the agency did not take “the appropriate investigative steps in response to the call” and “the tip never reached the FBI’s agents and analysts, including those at the local FBI Field Office in Miami, Florida, where additional investigative steps would have been taken.” Id. at 1279. After the victims’ parents filed suit, the government moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(1), arguing that “Florida law would not impose liability on a private individual in similar circumstances … and therefore the United States has not waived its sovereign immunity under the FTCA.” Id.

The district court denied the motion to dismiss, holding that the government could be held liable under Florida law. Id. at 1304. Among other reasons, the court concluded that the FBI had undertaken to render services “as the central repository and conduit for information regarding potential threats to life, and to handle and relay that information to the agency’s agents,” thereby satisfying the “undertaking” requirement. Id. at 1293. The court further found the FBI increased the risk of harm because: 1) one tipster allegedly “forwent additional steps that would have mitigated or prevented the harm” because the tipster relied on the centralized Public Access Line; and 2) had the FBI not set up the Public Access Line, the tips would have gone directly to the field office and had the FBI’s Miami-based agents received this information, they would have taken appropriate investigative steps.” Id. at 1300. Therefore, the plaintiff had adequately alleged a claim that satisfied the first prong of the undertaking test (i.e., an increased risk of harm). Id.

*5 The Court believes that, like the FBI in Stoneman Douglas, a private individual in like circumstances to the federal agencies here could be held liable under Florida law. Plaintiff alleges that the federal agencies undertook to conduct periodic reviews of some medical examiners to ensure that proper examinations were being conducted, and to remove any medical examiners who failed to meet or maintain the requisite qualifications. (Dkt. 1 at ¶ 77). These regulations were designed to protect the public from harm and thus, the Court accepts as true for purposes of this motion, that the federal agencies should have recognized the undertaking was necessary for the protection of third parties—e.g., employers of truckers subject to medical examinations and motorists who may have been endangered by inadequately examined drivers. (See id. at ¶ 47). And the undertaking, if not done with due care, would increase the risk of harm to others, since the federal agencies’ failure to adequately perform their reviews or remove unqualified medical examiners would make it more likely that medically dangerous drivers were on the road.

In sum, Plaintiffs have alleged sufficient facts to establish that the federal agencies engaged in a voluntary undertaking. Florida law thus confers on them a duty to act with reasonable care in their handling of the investigation and removal of unqualified medical examiners. See Hutt, 670 So. 2d at 67 (collecting cases). Because the Florida undertaking doctrine applies here, Defendant can be held liable and therefore have waived its sovereign immunity under the FTCA.

Defendant cites Florida cases in support of their motion that are distinguishable. Pollack v. Cruz discussed the very specific issue of psychiatrists’ duty to warn, holding that “[g]iven the unpredictable nature of a mental health patient’s future behavior, mental health providers such as [defendant] are not legally tasked with identifying, advising, or warning third parties when the patient has made a general threat to harm others.” 296 S0. 3d 453, 459 (Fla. 4th Dist. Ct. App. 2020). Pollack relied on Boynton v. Burglass, 590 So.2d 446, 450 (Fla. 3d. Dist. Ct. App. 1991), which found that imposing a duty to warn third parties on psychiatrists “would require the psychiatrist to foresee a harm which may or may not be foreseeable … [b]ecause of the inherent difficulties psychiatrists face in predicting a patient’s dangerousness.” The unpredictability faced by psychiatrists is unlike the scenario presented here, where the federal agencies were allegedly certain by July 2018 that Sherry had been conducting sham medical examinations on an enormous number of truck drivers, thereby creating a significant risk that unqualified drivers were on the road threatening citizens. Pollack is not applicable.

Similarly, Rehabilitation Center at Hollywood Hills, LLC v. Florida Power & Light Co., 299 So. 3d 16 (Fla. 4th Dist. App. 2020) is distinguishable from the instant suit. In that case, a resident of a skilled nursing facility sued the defendant electric company for failing to restore power to the nursing facility quickly enough after Hurricane Irma hit South Florida. Id. at 18-19. The appeals court affirmed the trial court’s decision to dismiss plaintiff’s complaint, reasoning that the undertaking doctrine did not make the power company “the insurer of power” and create a duty to “supply[ ] continuous power to the entirety of South Florida.” Id. at 22. The Court held that to qualify under the doctrine, the undertaking must be “narrow and specific, not a general obligation to furnish services.” Id. Defendants argue that the undertaking here, like in Rehabilitation Center, is too broad. However, the Court believes the undertaking alleged—periodically performing random spot checks of a certain number of medical examiners and removing those who are not qualified from the registry—is sufficiently narrow and specific and not nearly as generalized as the duty to supply continuous power to a densely populated area of the United States. Accordingly, the motion to dismiss is denied as to Count III for negligence based on a duty to warn.²

IV. Indemnification (Count I)

*6 Plaintiff’s indemnification claim will be dismissed. To state a claim for indemnification under Florida law, the plaintiff must allege: 1) its liability is vicarious and solely for the wrong of another, 2) the party against whom indemnification is sought was at fault, and 3) the existence of a special relationship between the parties. Q.B.E. Ins. Co. v. Jorda Enterprices, Inc., Case No. 10-21107-CIV-GOLD/MCALILEY, 2010 WL 11442644, at *2 (S.D. Fla. Aug. 18, 2010) (citations omitted). “A special relationship is one that makes the defendant vicariously, constructively, or derivatively liable for the acts of the party against whom identification is sought,” and “courts generally consider whether the party against whom indemnification is sought has breached a duty under a contract with the defendant or breached a duty implied by the parties’ conduct.” Id. (citations omitted). Here, Plaintiff has failed to allege any special relationship between the parties. The relationship between a regulator and a member of the regulated industry is not the type of special relationship considered by Florida courts, and Plaintiff has not alleged a breach of a duty under contract or implied by the parties’ conduct. Because Plaintiff has failed to allege an element of an indemnification claim under Florida law, the Court grants the motion to dismiss Count I for indemnification.

V. Contribution (Count V)

Plaintiff’s contribution claim may proceed. Florida’s Uniform Contribution Among Tortfeasors Act provides that a right to contribution exists where the parties are “jointly or severally liable in tort for the same injury to person or property, or for the same wrongful death.” Fla. Stat. Ann. § 768.31(2)(a). Defendant argues that Plaintiff “has not alleged facts sufficient to demonstrate a viable failure to warn claim by the victims of the crash, any more than it has alleged facts sufficient to establish such a claim on its own behalf.” (Dkt. 25 at 15). Not so. As noted above, the Court found that Plaintiff has adequately alleged a failure to warn claim against Defendant. And that analysis applies equally to the victims of the tragic accident in January 2019. The federal agencies engaged in a specific and discrete undertaking to periodically review and remove unqualified medical examiners, and their failure to do so with reasonable care increased the risk of injury to motorists. Obviously, the families of the crash victims believe that Plaintiff was negligent and responsible for the death and injury that occurred and have sued accordingly. The Court finds these allegations sufficiently demonstrate that Plaintiff and Defendant could be jointly and severally liable in tort for the same injury. As such, a contribution claim may be viable under Florida law, and the Court denies the motion to dismiss Count V for contribution.

CONCLUSION

For all the foregoing reasons, Defendant’s Motion to Dismiss [21] is granted in part as to the indemnification claim (Count I) and denied as to the remaining negligence and contribution claims (Counts II, III, IV, V). Defendant is ordered to file an answer to the surviving claims in the complaint within 21 days of entry of this order.

All Citations

Footnotes

Only the United States is a proper defendant in an action alleging negligence by federal agencies. See Jackson v. Kotter, 541 F.3d 688, 693 (7th Cir. 2008).
The Court also denies Defendant’s motion to dismiss Count II for respondeat superior and Count IV for negligence per se. Defendant’s brief focused on Illinois law only, which as discussed above, is not applicable here. Plaintiff, for its part, did not present any argument regarding Counts II and IV in its brief. In the reply brief, Defendant discussed these counts in passing in a footnote. Because neither party has adequately developed arguments under Florida law regarding the viability of Counts II and IV, the claims will not be dismissed. SeeTrentadue v. Redmon, 619 F.3d 648, 654 (7th Cir. 2010) (“[U]nderdeveloped arguments are considered waived”).

End of Document

Stein v. Farmers Ins. Co. of Ariz.

United States Court of Appeals for the Ninth Circuit

October 6, 2023, Argued and Submitted, Pasadena, California; October 23, 2023, Filed

No. 22-55356, No. 22-55414

BARBARA STEIN, an individual, Plaintiff-Appellee, and STUART STEIN, an individual, Plaintiff, v. FARMERS INSURANCE COMPANY OF ARIZONA, a corporation, Defendant-Appellant, and FARMERS INSURANCE EXCHANGE; et al., Defendants.BARBARA STEIN, an individual, Plaintiff-Appellant, and STUART STEIN, an individual, Plaintiff, v. FARMERS INSURANCE COMPANY OF ARIZONA, a corporation, Defendant-Appellee, and FARMERS INSURANCE EXCHANGE; et al., Defendants.

Notice: PLEASE REFER TO FEDERAL RULES OF APPELLATE PROCEDURE RULE 32.1 GOVERNING THE CITATION TO UNPUBLISHED OPINIONS.

Prior History: [*1] Appeal from the United States District Court for the Southern District of California. D.C. No. 3:19-cv-00410-DMS-AHG, D.C. No. 3:19-cv-00410-DMS-AHG. Dana M. Sabraw, Chief District Judge, Presiding.

Disposition: AFFIRMED.

Core Terms

injuries, insured, unfounded, bad faith, district court

Case Summary

Overview

HOLDINGS: [1]-Substantial evidence supported that defendant engaged in unfounded delay, where immediately after the accident, plaintiff gave defendant a medical authorization, allowing it to obtain her medical records. Defendant, however, did almost nothing in investigating plaintiff’s injuries for the first five months after the accident.

Outcome

Judgment affirmed.

LexisNexis® Headnotes

Civil Procedure > Appeals > Standards of Review > De Novo Review

Civil Procedure > Trials > Judgment as Matter of Law > Postverdict Judgment

HN1[] Standards of Review, De Novo Review

The appellate court reviews de novo the district court’s denial of a motion for judgment as a matter of law, construing the evidence in the nonmoving party’s favor. A jury’s verdict must be upheld if it is supported by substantial evidence. Substantial evidence is evidence adequate to support the jury’s conclusion, even if it is also possible to draw a contrary conclusion from the same evidence.

Insurance Law > Liability & Performance Standards > Bad Faith & Extracontractual Liability > Elements of Bad Faith

Insurance Law > Liability & Performance Standards > Bad Faith & Extracontractual Liability > Payment Delays & Denials

Insurance Law > Liability & Performance Standards > Good Faith & Fair Dealing > Payments

HN2[] Bad Faith & Extracontractual Liability, Elements of Bad Faith

Under New Mexico law, an insurer who fails to pay a first-party claim has acted in bad faith where its reasons for denying or delaying payment of the claim are frivolous or unfounded. Frivolous or unfounded means arbitrary or baseless conduct, lacking any support in the wording of the insurance policy or the circumstances surrounding the claim. Where an insurer fails to make an adequate investigation, its coverage position is unfounded, and it thus may be liable for bad faith denial of a claim.

Business & Corporate Compliance > … > Industry Practices > Unfair Business Practices > Claims Investigations & Practices

Insurance Law > Liability & Performance Standards > Settlements > Good Faith & Fair Dealing

Insurance Law > Liability & Performance Standards > Settlements > Reasonable Basis

HN3[] Unfair Business Practices, Claims Investigations & Practices

A violation occurs when an insurer knowingly and with such frequency as to indicate a general business practice does not attempt in good faith to effectuate prompt, fair and equitable settlements of an insured’s claims in which liability has become reasonably clear. N.M. Stat. Ann. § 59A-16-20(E).

Civil Procedure > Appeals > Standards of Review > Abuse of Discretion

Civil Procedure > … > Grounds for Relief from Final Judgment, Order or Proceeding > Excusable Mistakes & Neglect > Mistake

Civil Procedure > Judgments > Entry of Judgments > Nunc Pro Tunc Relief

Civil Procedure > Judgments > Relief From Judgments > Altering & Amending Judgments

HN4[] Standards of Review, Abuse of Discretion

The appellate court reviews for abuse of discretion a district court’s denial of a Fed. R. Civ. P. 60(a) motion. Under Fed. R. Civ. P. 60(a), the district court may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment. Fed. R. Civ. P. 60(a). Errors correctable under Fed. R. Civ. P. 60(a) include those where what is written or recorded is not what the court intended to write or record.

Civil Procedure > Appeals > Standards of Review > De Novo Review

Civil Procedure > Remedies > Judgment Interest > Postjudgment Interest

Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > Erie Doctrine

HN5[] Standards of Review, De Novo Review

The appellate court reviews de novo whether the district court properly applied federal law in awarding postjudgment interest. When the issue is whether to apply a federal statute in a diversity action, the appellate court’s analysis involves a considerably less intricate analysis than that which governs the relatively unguided Erie choice. When the federal law sought to be applied is a congressional statute, the first and chief question for the court’s determination is whether the statute covers the point in dispute. If it does, the court proceeds to inquire whether the statute represents a valid exercise of Congress’ authority under the Constitution. If Congress intended to reach the issue before the court, and if it enacted its intention into law in a manner that abides with the Constitution, that is the end of the matter. A court sitting in diversity must apply a federal statute that controls the issue before the court and that represents a valid exercise of Congress’ constitutional powers.

Civil Procedure > Remedies > Judgment Interest

HN6[] Remedies, Judgment Interest

28 U.S.C.S. § 1961(a) is constitutional under binding precedent.

Counsel: For BARBARA STEIN, an individual, Plaintiff – Appellant (22-55356, 22-55414): Michael Nello Poli, Attorney, Poli, Moon & Zane, PLLC, Phoenix, AZ; Linda G. Workman, Attorney, DICKS & WORKMAN, APC, San Diego, CA.

For FARMERS INSURANCE COMPANY OF ARIZONA, a corporation, Defendant – Appellee (22-55356, 22-55414): Curt Cutting, Mitchell C. Tilner, Horvitz & Levy, LLP, Burbank, CA; Andrew S. Hollins, Esquire, Attorney, Messner Reeves, LLP, Costa Mesa, CA.

Judges: Before: BYBEE, BENNETT, and MENDOZA, Circuit Judges.

Opinion

MEMORANDUM^*

In this diversity action, a jury found that Farmers Insurance Company of Arizona (“FICA”) breached its contract, engaged in bad faith, and violated New Mexico’s Unfair Insurance Practices Act (“UIPA”) in handling Barbara Stein’s personal injury claim under her auto insurance policy. FICA appeals from the district court’s denial of its motion for directed verdict on the bad faith and UIPA claims. It also appeals from the district court’s denial of its Federal Rule of Civil Procedure (“Rule”) 60(a) motion to correct the judgment. [*2] Stein cross-appeals from the district court’s decision to apply the federal postjudgment interest rate statute.¹

1. HN1[] We review “de novo the district court’s denial of a motion for judgment as a matter of law,” construing the evidence in the nonmoving party’s favor. Castro v. County of Los Angeles, 833 F.3d 1060, 1066 (9th Cir. 2016) (en banc). “A jury’s verdict must be upheld if it is supported by substantial evidence.” Wallace v. City of San Diego, 479 F.3d 616, 624 (9th Cir. 2007). “Substantial evidence is evidence adequate to support the jury’s conclusion, even if it is also possible to draw a contrary conclusion from the same evidence.” Johnson v. Paradise Valley Unified Sch. Dist., 251 F.3d 1222, 1227 (9th Cir. 2001).

a. FICA argues that substantial evidence does not support the jury’s bad faith finding. HN2[] “Under New Mexico law, an insurer who fails to pay a first-party claim has acted in bad faith where its reasons for denying or delaying payment of the claim are frivolous or unfounded.” Sloan v. State Farm Mut. Auto. Ins. Co., 2004- NMSC 004, 135 N.M. 106, 85 P.3d 230, 236 (N.M. 2004). Frivolous or unfounded means “arbitrary or baseless” conduct, “lacking any support in the wording of the insurance policy or the circumstances surrounding the claim.” Id. at 237. “Where an insurer fails to make an adequate investigation, its coverage position is unfounded, and it thus may be liable for bad faith denial of a claim.” Haygood v. United Servs. Auto. Ass’n, 2019- NMCA 074, 453 P.3d 1235, 1241 (N.M. Ct. App. 2019).

Substantial evidence supports that FICA engaged in unfounded delay. Immediately after [*3] the accident, Stein gave FICA a medical authorization, allowing it to obtain her medical records. FICA, however, did almost nothing in investigating Stein’s injuries for the first five months after the accident. In April 2019, Stein sent FICA a detailed, twenty-eight-page letter explaining her physical and mental injuries caused by the accident and related medical procedures. FICA made a partial payment in May 2019 and continued its investigation, but it did not conduct an independent medical examination (“IME”) to determine Stein’s injuries caused by the accident until September 2020—nearly two years after the accident. Stein’s insurance claims expert testified that FICA’s delay in investigating Stein’s claim and conducting an IME was unfounded.

Based on this evidence, the jury could have reasonably found that FICA’s two-year-long investigation amounted to an unfounded delay, and thus FICA acted in bad faith.²

Substantial evidence also supports that FICA failed to conduct an adequate investigation, rendering its coverage position unfounded. Stein’s April 2019 letter to FICA claimed that she sustained post-traumatic stress disorder (“PTSD”) and traumatic brain injury (“TBI”) from the [*4] accident. Although she never provided FICA with medical records supporting these injuries, they were plausible given the circumstances, including: the extremely violent nature of the crash, the resulting bruise on Stein’s head, and Stein’s subsequent vision problems. The evidence at trial showed that the accident caused Stein’s TBI and PTSD.

FICA, however, conducted no investigation into these injuries. Indeed, the doctor it hired to conduct the IME only evaluated Stein’s “orthopedic abnormalities” and was not qualified to evaluate PTSD or behavioral health. FICA also admitted that it had no written information suggesting that these injuries were preexisting. Thus, the jury could also have found that FICA acted in bad faith because it had no basis for excluding these injuries from its coverage determination.

b. FICA argues that there was insufficient evidence to support a UIPA violation. HN3[] As relevant here, a violation occurs when an insurer “knowingly . . . [and] with such frequency as to indicate a general business practice” does “not attempt[] in good faith to effectuate prompt, fair and equitable settlements of an insured’s claims in which liability has become reasonably clear.” N.M. Stat. Ann. § 59A-16-20(E).

[*5] Viewing the evidence in Stein’s favor, the jury could have concluded that FICA had a general business practice of failing to effectuate prompt, fair, and equitable settlements. FICA’s claims adjuster testified that he has worked for FICA for twenty-seven years and adjusted thousands of liability claims. He explained that he generally calculates a dollar-value range for claims, and his “custom and practice” is to start negotiations at the “low end of the range.” He also testified that sometimes he does not pay out a claim for ten or fifteen years. And he may withhold payment until an insured is ready to settle and sign a release, even if the insured suffers severe injuries like brain damage, the insured believes that FICA’s offer is too low, and the insured is under financial pressure.

Based on this evidence, the jury could have reasonably found that FICA’s settlement practices—starting at the low end of its calculated dollar-value range and withholding payment for over a decade, even for insureds who suffer severe injuries and are under extreme financial stress—showed that, even when liability is reasonably clear, FICA waits out its insureds to obtain a release rather than trying to [*6] achieve a prompt and fair settlement in violation of the UIPA.

2. The district court denied FICA’s Rule 60(a) motion to alter the judgment’s damages award by subtracting FICA’s post-verdict payment to Stein. HN4[] We review for abuse of discretion a district court’s denial of a Rule 60(a) motion. See Blanton v. Anzalone, 813 F.2d 1574, 1577 (9th Cir. 1987). Under Rule 60(a), the district court “may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment.” Fed. R. Civ. P. 60(a). “Errors correctable under Rule 60(a) include those where what is written or recorded is not what the court intended to write or record.” Blanton, 813 F.2d at 1577.

The record shows that Stein’s proposed judgment reflected a damages amount that did not deduct the post-verdict payment, and FICA expressly agreed with Stein’s damages calculation. The district court therefore reasonably determined that no mistake had been made because, consistent with the parties’ filings, the court intended to enter the damages amount reflected in the judgment.³

3. HN5[] We review de novo whether the district court properly applied federal law in awarding postjudgment interest. See In re Cnty. of Orange, 784 F.3d 520, 525 n.3 (9th Cir. 2015). When, as here, the issue is whether to apply a federal statute in a diversity action, our analysis “involves a considerably less intricate analysis [*7] than that which governs the ‘relatively unguided Erie choice.'” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 26, 108 S. Ct. 2239, 101 L. Ed. 2d 22 (1988) (quoting Hanna v. Plumer, 380 U.S. 460, 471, 85 S. Ct. 1136, 14 L. Ed. 2d 8 (1965)).⁴ “[W]hen the federal law sought to be applied is a congressional statute, the first and chief question for the . . . court’s determination is whether . . . the statute covers the point in dispute.” Id. at 26. If it does, the court “proceeds to inquire whether the statute represents a valid exercise of Congress’ authority under the Constitution.” Id. at 27. “If Congress intended to reach the issue before the [court], and if it enacted its intention into law in a manner that abides with the Constitution, that is the end of the matter . . . .” Id. A court “sitting in diversity must apply a federal statute that controls the issue before the court and that represents a valid exercise of Congress’ constitutional powers.” Id.

The federal postjudgment interest rate statute, 28 U.S.C. § 1961(a), covers the dispute. HN6[] The statute is constitutional under binding precedent. See Northrop Corp. v. Triad Int’l Marketing S.A., 842 F.2d 1154, 1156 (9th Cir. 1988). Thus, the district court properly applied § 1961(a). See Stewart Org., 487 U.S. at 27.

AFFIRMED.

End of Document

^*This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.

¹Stein’s request for attorneys’ fees included in her brief (Dkt. No. 28) is denied without prejudice to her filing a separate motion that complies with 9th Cir. R. 39-1.6. Each party shall bear its own costs on appeal.

²FICA argues that the COVID-19 pandemic caused part of the delay. We do not doubt that, but the jury was apprised of the relevant facts, and, as noted, the evidence supports the jury’s finding.

³During oral argument, Stein’s counsel made an enforceable judicial admission that Stein would never seek to double recover the post-verdict payment. Oral Arg. at 31:10-31:35. Thus, even aside from our finding that the district court did not err in denying the motion, we also fail to see any possible future harm to FICA.

⁴Stein’s arguments rest on the incorrect premise that we must conduct an Erie analysis.