Latham v. First Marine Insurance , 16 F. App'x 834 ( 2001 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
JUL 17 2001
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
NORMAN and GAIL LATHAM,
husband and wife,
Plaintiffs-Appellees,
v. No. 00-5222
(D.C. No. 99-CV-1029-H)
FIRST MARINE INSURANCE (N.D. Okla.)
COMPANY, a corporation,
Defendant-Appellant.
ORDER AND JUDGMENT *
Before HENRY , ANDERSON , and MURPHY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
This is an appeal from a ruling by the district court awarding attorneys’
fees. We exercise jurisdiction under 28 U.S.C. § 1291.
I. Factual Background
Plaintiffs Gail and Norman Latham own a large motor-boat, which they
moor at a marina on Grand Lake in Oklahoma. In 1998 the boat was damaged in
an accident; the Lathams filed a claim with their insurer, First Marine Insurance
Company.
Dissatisfied with the offer to settle their claim, the Lathams sued First
Marine in Oklahoma state court, alleging breach of contract. An amended
complaint added a tort claim–bad faith–and named an additional defendant,
First Marine Financial Services, Inc., or FMFS. FMFS is a holding company that
owns 100% of First Marine’s issued and outstanding stock. After the Lathams
filed their amended complaint, First Marine, invoking the district court’s diversity
jurisdiction, removed the action to federal court.
The parties engaged in a protracted and contentious discovery process.
The defendants resisted discovery requests directed at establishing both the bad
faith claim and the necessary factual basis for including FMFS in the lawsuit.
The Lathams filed a motion to compel, which was briefed and then heard by
the magistrate judge. The magistrate judge’s decision was for the most part
favorable to the Lathams. First Marine filed an objection with the district court ,
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accompanied by a lengthy brief. While its appeal was pending, First Marine
extended to the Lathams an offer to allow judgment pursuant to Fed. R. Civ. P.
68. The offer of judgment totaled $50,005. The Lathams accepted. They later
stipulated to the dismissal of FMFS from the lawsuit. The record indicates that
in addition to the motion to compel, also pending before the district court at the
time the Lathams accepted the offer of judgment were summary judgment motions
filed by both First Marine and FMFS.
The offer of judgment did not include attorneys’ fees. But in documents
submitted to the court, First Marine acknowledged that the Lathams were entitled
to reasonable attorneys’ fees under a state statute, Okla. Stat. tit. 36, § 3629(B),
which awards fees to the prevailing party in any action between an insurance
company and an insured.
II. Attorneys’ Fee Hearing
The Lathams filed an initial fee petition with the district court , seeking
more than $46,000 in attorneys’ fees. The petition was deficient in that it omitted
the lawyers’ hourly rates. The Lathams submitted an amended petition, which
contained the proper billing rates. The district court held a hearing, at which it
heard argument from the parties but did not receive evidence.
Following the hearing, the court reduced the fee petition in two respects.
It agreed with First Marine’s contention that the $185 per hour charged by the
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Lathams’ lead lawyer was excessive, and reduced the rate to $150 per hour.
The court also slashed 25% from the compensable attorney time devoted to
prosecuting the bad faith claim and adding a second defendant, FMFS, to the
lawsuit. In total, the court awarded attorneys’ fees to the Lathams in the amount
of $37,235, plus prejudgment and postjudgment interest. First Marine appeals
from that ruling.
III. Standard of Review
Our role in reviewing the district court’s fee award is quite limited.
“We customarily defer to the District Court’s judgment because an appellate
court is not well suited to assess the course of litigation and the quality of
counsel.” Mares v. Credit Bureau of Raton , 801 F.2d 1197, 1200-01 (10th Cir.
1986) (quotation omitted). We did not see “the attorneys’ work first hand,”
and thus are not as well situated as the district court, which “has far better means
of knowing what is just and reasonable than an appellate court.” Id. at 1201(quotation omitted). “Accordingly, an attorneys’ fee award by the district court
will be upset on appeal only if it represents an abuse of discretion.” Id.Under the abuse of discretion standard, our task is not to independently
assess the merits of each attorney’s performance and fine-tune individual fee
awards. Instead, our job is to determine whether the district court “made a clear
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error of judgment or exceeded the bounds of permissible choice in the
circumstances.” Cummins v. Campbell , 44 F.3d 847, 854 (10th Cir. 1994).
IV. Legal Analysis
First Marine points to what it says are six errors in the district court’s
ruling.
A. Compensation for the Bad Faith Claim
First Marine claims initially that the fee awarded to the Lathams is
unreasonable because it includes compensation for the bad faith claim. First
Marine does not contend the text of the underlying offer of judgment supports its
position. Indeed, the offer of judgment neither limits nor excludes the claims on
which judgment is confessed. Perhaps recognizing this, First Marine urges
instead that the Lathams’ bad faith allegation was unfounded and should never
have been brought in the first place. Stripping any compensation from the claim,
First Marine suggests, would appropriately sanction the Lathams.
We need not address the considerable difficulties this court would
encounter, on a rather limited record, were we to reassess the Lathams’ bad faith
claim. This much we know: At the time it awarded the Lathams attorneys’ fees,
the district court had before it not only First Marine’s motion for summary
judgment on the merits of the bad faith claim, it also had the very contention that
First Marine presses here, namely that the bad faith claim was wholly
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unwarranted and should never have been part of this suit. Still the district court
rejected First Marine’s position.
Despite reducing the compensable time devoted to the bad faith claim, the
court expressly stated, “I believe that some allocable share . . . with respect to the
bad faith claim is appropriate because it [the ultimate disposition of the claim] is
not clear one way or the other.” Appellant’s App., Vol. II at 382. Whatever else
this signals, it hardly reflects a belief on the part of the court that the Lathams’
bad faith claim was as unfounded as First Marine insists. No doubt the district
court viewed the claim from a better vantage point than we.
For its part, First Marine has not persuaded us that the district court’s
finding regarding the potential merit of the bad faith claim is clearly erroneous.
Nor, to the extent the district court’s factual finding rested on matters of law, has
First Marine convinced us that the court’s legal analysis was incorrect. Given
our limited role in reviewing an award of attorneys’ fees, we are unable to say the
court made a clear error of judgment or exceeded the bounds of permissible
choice. We find no abuse of discretion. 1
1
We note that in an earlier hearing, the district court referred to certain
“unsubstantiated motions” brought by First Marine. Appellant’s App., Vol. II at
366. The court did not specifically identify which motions it had in mind, though
it appears from the record that only two were pending: First Marine’s summary
judgment motion and its appeal from the magistrate judge’s discovery ruling.
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B. Compensation for FMFS
First Marine next argues that the fee award is unreasonable because it
includes compensation for time billed as part of the Lathams’ effort to bring
second defendant FMFS into the lawsuit. First Marine tells us that “FMFS
should never have been a party to this case,” since it is merely a holding
company. Appellant’s Br. at 14. Again, we defer to the district court.
At the attorneys’ fee hearing, the court repeated its view that, like the
Lathams’ bad faith claim, the potential liability of FMFS “is not clear one way
or the other.” Appellant’s App., Vol. II at 382. “[T]here is,” the district court
found, “a basis for including the second defendant.” Id. at 388.
We note too, as stated earlier, that FMFS and First Marine each had
pending before the district court motions for summary judgment at the time First
Marine extended and the Lathams accepted the offer of judgment. By securing
the dismissal of the lawsuit before the motions were decided, both First Marine
and FMFS tactically avoided the uncertainty of an unfavorable decision from the
district court . Under these circumstances, we will not disturb the district court ’s
conclusion that the Lathams were entitled to some compensation for efforts
directed at holding FMFS liable.
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C. Size of Fee Award
First Marine also argues that the $37,235 fee award is unreasonable given
the size of the $50,005 judgment. But as the district court observed, this
judgment was significantly more than the initial offer to settle the Lathams’
insurance claim. Said the court to First Marine’s lawyer: “You offered $10,000
for the longest time and then you upped that by five times and settled it; right?”
Id. at 379. The intervening variable between the initial offer and the judgment,
of course, was the litigation, from which, as even First Marine concedes, the
Lathams emerged as the prevailing party.
The district court also stated that First Marine was at least partially
responsible for the “contentiousness” of the pretrial discovery, and, referring
directly to counsel for First Marine, warned of its “lack of enthusiasm for your
recalcitrance in this case.” Id. at 380-81, 366. Counsel for First Marine insists
he was merely protecting the interests of his client. This may be so, but the
client cannot escape the consequences of tactics that undeniably drive up the cost
of litigation, even if such tactics amount to no more than aggressive advocacy.
See City of Riverside v. Rivera , 477 U.S. 561, 580 n.11 (1986) (defendant
“cannot litigate tenaciously and then be heard to complain about the time
necessarily spent by the plaintiff in response”) (quotation omitted) .
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D. Simplicity of Breach of Contract Claim
Accusing the Lathams’ lawyers of overworking the case, First Marine
claims that the relative simplicity of the underlying breach of contract claim
renders the fee award unreasonable. Whether we could ever agree that any
breach of contract case is as simple as First Marine believes this one to be is
beside the point. Our earlier conclusion to accept the district court’s finding that
the pursuit of the bad faith claim by the Lathams was not inappropriate requires
that we reject First Marine’s contention. We are similarly guided by our
determination that the district court did not err in awarding at least some fees to
the Lathams for their efforts to hold FMFS liable as a additional defendant.
E. Constitutionality of Prejudgment Interest Statute
First Marine next turns its gaze to the constitutionality of the statute under
which the district court granted prejudgment interest to the Lathams. First Marine
maintains that the statute, Okla. Stat. Ann. tit. 36, § 3629(B), violates the Equal
Protection Clause of the Fourteenth Amendment.
That statute requires an insurer to submit a written offer of settlement or
rejection of the claim to the insured within ninety days of receiving proof of the
loss. In the event the insured refuses the offer and litigation ensues, the statute
states that attorneys’ fees shall be awarded to the prevailing party. The statute
declares that the insured is the prevailing party, as here, when the judgment
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exceeds the initial offer of settlement. First Marine challenges the next provision
of the statute:
If the insured is the prevailing party, the court in rendering judgment
shall add interest on the verdict at the rate of fifteen percent (15%)
per year from the date the loss was payable pursuant to the provisions
of the contract to the date of the verdict.
Id. First Marine argues this provision is unconstitutional because it imposes what
the company says is a excessive rate of interest upon only one industry, the
insurance industry. According to First Marine, the constitution prevents the
legislature from targeting a single industry in this manner.
First Marine did not raise its constitutional challenge in its Rule 68 offer of
judgment. Nor did it mention any such objection during the course of the parties’
correspondence clarifying and defining the precise terms of the offer. And
finally, the company did not signal its disagreement with the court’s entry of
judgment, which it “approved as to form and content” and which provided for
prejudgment interest under § 3629. Appellant’s App., Vol. I at 195, 207-08;
Vol. II at 280-81.
It was not until two months after judgment had entered, during the hearing
on attorneys’ fees, that First Marine first mentioned on the record its “continuing
objection to the constitutionality of 3629.” Id. at 390. The order later signed by
the district court granting attorneys’ fees and interest to the Lathams reflects
First Marine’s “objection to the constitutionality” of the statute, as well as the
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Lathams’ contention that First Marine has waived any such objection. Id. at 285.
A handwritten note in the margin indicates that “the court finds for plaintiff and
against defendant on this claim.” Id.
We are tempted to agree with the Lathams, as well as the district court, that
First Marine has waived its constitutional challenge to the statute. We question
whether objecting to a final judgment nearly two months after judgment has
entered adequately preserves the objection for appeal. But because we can easily
resolve the merits of what is a pure question of law, we will excuse any possible
waiver committed by First Marine. See Petrini v. Howard , 918 F.2d 1482, 1483
n.4 (10th Cir. 1990) (exercising discretion to hear issues for the first time on
appeal, in part because proper resolution of the issue was beyond doubt).
Ordinary economic and commercial regulations are subject only to rational
basis scrutiny under the Equal Protection Clause. FCC v. Beach
Communications, Inc. , 508 U.S. 307, 313-14 (1993). The Supreme Court has
admonished that rational-basis review in equal protection analysis “is not a
license for courts to judge the wisdom, fairness, or logic of legislative choices.”
Id. at 313. Rather, a statute survives rational-basis scrutiny “if there is a rational
relationship between the disparity of treatment and some legitimate governmental
purpose.” Heller v. Doe , 509 U.S. 312, 320 (1993). Moreover, under rational
basis review, the legislature need not actually articulate the legitimate purpose or
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rationale that supports the classification at issue. Instead, a statute “must be
upheld against equal protection challenge if there is any reasonably conceivable
state of facts that could provide a rational basis for the classification.” Id.(quotation omitted).
Under this deferential standard of review, we have no difficulty in
concluding that § 3629 is constitutional. Among others, one possible rational
basis for the statute is Oklahoma’s presumed desire to encourage prompt and
efficient settlement of insurance claims. The legislature may have felt that the
insurance industry needed the threat of a high rate of prejudgment interest to
encourage the settlement of claims. Perhaps, as First Marine would no doubt
point out, the insurance industry is not solely responsible for any delay
(perceived or actual) in the settlement of claims; perhaps policy-holders and their
lawyers are to blame. This may be so, but we have never stated that a policy
aimed at correcting a social ill need solve the entire problem in one fell swoop; in
many cases it may be more prudent and efficacious to address social problems
one step at a time, so that each step may be reviewed and adapted as necessary.
See Williamson v. Lee Optical of Okla., Inc. , 348 U.S. 483, 489 (1955) (“[T]he
reform may take one step at a time, addressing itself to the phase of the problem
which seems most acute to the legislative mind.”).
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F. Postjudgment Interest
Finally, First Marine argues that the district court erred in calculating
postjudgment interest. The court awarded postjudgment interest under a rate
provided by state law. First Marine claims the court should have employed the
lower federal rate, which is found at 28 U.S.C. § 1961. The Lathams do not
disagree. See Everaard v. Hartford Accident & Indem. Co. , 842 F.2d 1186, 1193
(10th Cir. 1988) (holding that in diversity cases the federal rate governs).
Instead, they maintain that First Marine has not preserved the issue on
appeal, pressing the same argument they raised with respect to the claimed
waiver of the prejudgment interest issue, namely that First Marine “approved”
a judgment that said postjudgment interest would be calculated according to the
state rate. Denying that it waived the issue, First Marine claims the parties could
not agree on a final judgment and for that reason the district court held a brief
hearing to iron out the differences; but at the hearing, according to First Marine,
the district court refused to hear any argument.
We are dismayed at the prospect of having to decide yet another
fact-intensive waiver dispute between the parties, especially in light of our
limited role in reviewing an appeal from a attorneys’ fee award. The parties
plainly have ignored our admonition that a “request for attorney’s fees should not
result in a second major litigation.” Homeward Bound, Inc. v. Hissom Mem’l
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Ctr. , 963 F.2d 1352, 1360 (10th Cir. 1992) (quotation omitted). We are
particularly troubled by First Marine’s role in failing to resolve this dispute by
agreement. Before any appeal was filed, counsel for the Lathams offered to
correct the postjudgment interest rate, substituting the proper federal rate in place
of the erroneous state rate. For reasons that escape us, counsel for First Marine
declined, choosing instead to burden this court with an issue that could easily
have been addressed below.
Despite our disapproval of counsel’s conduct, we conclude that even if
First Marine did not preserve its objection to the rate of postjudgment interest,
the manifest injustice exception to the general waiver rule nonetheless compels
us to address the issue on appeal. See Doelle v. Mountain States Tel. & Tel. , 872
F.2d 942, 944 n.4 (10th Cir. 1989). Adhering to our clear precedent, we reiterate
that the federal rate of postjudgment interest governs diversity cases, and thus we
reverse the district court in this regard.
However, in light of counsel’s refusal to resolve the issue by agreement,
costs attendant this appeal will be assessed to First Marine. Counsel should work
with his adversary as a professional and be cognizant of this court’s caseload.
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We REMAND this appeal to the district court to correct the rate of
postjudgment interest. In all other respects, the judgment of the United States
District Court for the Northern District of Oklahoma is AFFIRMED.
Entered for the Court
Robert H. Henry
Circuit Judge
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