Steans v. Combined Insurance Co. of America , 148 F.3d 1266 ( 1998 )

United States Court of Appeals,
Eleventh Circuit.
Nos. 97-6023, 97-6123.
Sarah P. STEANS, Plaintiff,
v.
COMBINED INSURANCE COMPANY OF AMERICA, Defendant-Appellee,
Elizabeth Aldridge, Cross-Defendant-Appellant,
Doris Williams, Cross-Defendant.
Sarah P. Steans, Plaintiff,
v.
Combined Insurance Company of America, Defendant-Appellee,
Elizabeth Aldridge, Cross-Defendant,
Doris Williams, Cross-Defendant-Appellant.
Aug. 4, 1998.
Appeals from the United States District Court for the Southern District of Alabama. (No. 95-0809-
BH-M), W. B. Hand, Judge.
Before ANDERSON and MARCUS, Circuit Judges, and HANCOCK*, Senior District Judge.
ANDERSON, Circuit Judge:
In this case, the appellants Elizabeth Aldridge and Doris Williams appeal the district court's
orders prohibiting future punitive damages awards in Alabama against Combined Insurance
Company of America, and enjoining them from prosecuting their claims for punitive damages in
state court. We conclude that the August 19, 1996, order prohibiting future punitive damages
*
Honorable James H. Hancock, Senior U.S. District Judge for the Northern District of
Alabama, sitting by designation.
awards was not binding on Aldridge and Williams and that Aldridge and Williams did not have a
full and fair opportunity to litigate the orders enjoining their state court claims for punitive damages.
We vacate and remand.
I. FACTS AND PROCEDURAL HISTORY
On May 9, 1995, appellant Doris Williams filed a complaint in the Circuit Court of Mobile
County, Alabama, against appellee Combined Insurance Company of America ("Combined")
alleging that Combined and its agents had engaged in insurance fraud and seeking compensatory and
punitive damages.1 Appellant Elizabeth Aldridge filed a complaint against Combined on July 6,
1995, in the Circuit Court of Marengo County, Alabama.2 In her complaint, Aldridge sought
compensatory and punitive damages for the alleged fraudulent misrepresentations of Combined and
its agents.3
1
In her complaint, Williams alleged that she purchased an insurance policy based on the
fraudulent misrepresentations of Combined and its agents. Williams alleged that Combined had
actual or constructive knowledge of its insurance agents' misrepresentations that the policy
would provide health and disability coverage in the event Williams was hospitalized or treated
by a physician for any reason, when, in fact, the policy only provided limited coverage in the
event of an accidental bodily injury.
2
Aldridge and Williams were represented by the same counsel, but filed separate lawsuits.
3
In her complaint, Aldridge, like Williams, alleged that Combined had actual or constructive
knowledge of its insurance agents' misrepresentations that the policy she purchased would
provide coverage in the event Aldridge was hospitalized or treated by a physician for any reason,
when the policy only provided limited coverage in the event of an accidental bodily injury.
Aldridge also added a second cause of action alleging that Combined negligently and wantonly
trained, supervised, and retained its employees, as well as a third cause of action alleging that
Combined's insurance agents knew or should have known that the policy would not provide any
benefits to her because she was a Medicaid recipient and, pursuant to Alabama statutory law, all
Medicaid recipients assign their benefits under any insurance policy to the Alabama Medicaid
Agency.
2
On August 24, 1995, Sara P. Steans filed a complaint in the Circuit Court of Mobile County,
Alabama, alleging insurance fraud on the part of Combined and its agents and seeking compensatory
and punitive damages.4 Subsequently, Combined removed Steans' action to the United States
District Court for the Southern District of Alabama (hereinafter referred to as "the Steans case").
Prior to trial, the parties in the Steans case reached an agreement to settle their case, and pursuant
to this agreement,5 filed a motion requesting that the district court enter an order prohibiting claims
for punitive damages by any other insureds of Combined. On August 19, 1996, the district court
held a hearing with counsel for Combined and counsel for Sara Steans regarding the parties'
settlement agreement and the requested order prohibiting punitive damages claims by other insureds.
On the same date, the district court entered the requested order ("August 19 Order") and made the
following findings:
Combined has settled litigation or threatened litigation with approximately 63
plaintiffs/claimants for a total of $8.25 million. The aggregate amount of the settlements
agreed to be paid is four-and-a-half times Combined's entire statutory profits earned during
the whole of the ten year period between 1985 and 1994 in the State of Alabama.... The ratio
of punitive damages to compensatory damages paid in these settlements is more than 125
to 1.... The payment by Combined of the amounts it has either paid or agreed to pay is
sufficient to punish Combined for the alleged Misconduct and to deter Combined and others
from similar Misconduct in the future.... The imposition of additional punitive damages
against Combined for such alleged Misconduct would constitute duplicative, multiple, unjust
and grossly excessive punitive awards.
District Court Order, at 6 (August 19, 1996).6 Based on these findings, the district court ordered that
4
Steans alleged in her complaint that Combined's insurance agents made false representations
regarding the extent of coverage provided by her policy and that she was sold a policy that was
void from its issuance due to defects in its delivery.
5
This agreement also settled claims by twelve other individuals represented by Steans'
counsel. Steans' counsel did not represent Elizabeth Aldridge and Doris Williams.
6
The district court noted that Combined had agreed to pay $775,000 to Steans and 12 other
claimants represented by Steans' counsel, and that Combined had agreed to pay $7.5 million to
3
no additional punitive damages may be assessed in Alabama against Combined or any of its
past or present agents for any allegations of the same or similar Misconduct which occurred
on or before the date of this Order. This Court will retain jurisdiction of this case for
purposes of enforcing this Order and the settlement of this case. In making these findings
and this Order, this Court has considered allegations of 63 Plaintiffs/claimants who reside
throughout the state of Alabama, and evidence relating to Combined's operation in the entire
state of Alabama.
approximately 50 other claimants in Alabama who were not represented by Steans' counsel.
4
Id. at 7.7 The August 19 Order was entered without advance notice to either Aldridge or Williams,
and neither Aldridge nor Williams was a party to the Steans case at the time that the order was
entered.
On October 18, 1996, Combined filed a motion with the district court in which it sought to
add Elizabeth Aldridge as a "cross-defendant" in the Steans case and to enjoin Aldridge's state court
action with respect to her punitive damages claims. On October 21, 1996, the district court entered
7
The district court defined the "alleged Misconduct" of Combined to include
1. Intentionally making misrepresentations or engaging in a pattern and practice
of making misrepresentations to policyholders, including, but not limited to,
misrepresenting benefits payable under various insurance policies issued by
Combined, misrepresenting amounts payable under various policies,
misrepresenting issues as to Medicaid or Medicare, misrepresenting the effect of
the age of the policyholders on benefits available, misrepresenting the time during
which benefits are payable, and misrepresenting the type of treatment, medical or
otherwise, covered by the policies;
2. Fraudulently suppressing from policyholders or engaging in a pattern and
practice of fraudulently suppressing from policyholders material and important
information regarding policies, including, but not limited to, suppressing what
benefits are or are not payable under various insurance policies issued by
Combined, suppressing what is or is not covered by various insurance policies,
suppressing what amounts are payable and what amounts are not payable under
various policies, suppressing facts material to issues as to Medicare or Medicaid,
suppressing whether the age of policyholders does or does not impact available
benefits, suppressing the time during which benefits are payable or not payable,
suppressing the type of treatment, medical or otherwise, which is or is not
covered by the policies;
3. Negligent or wanton hiring, training, or supervision of agents;
4. Converting policy holder funds; and
5. Violating Alabama State law in the sale of policies or the servicing of claims.
District Court Order, at 2-3 (August 19, 1996).
5
an order granting the motion to add Aldridge as a cross-defendant under Fed.R.Civ.P. 21,8 and
ordered a show cause hearing regarding Combined's motion to enjoin Aldridge from prosecuting her
claims for punitive damages.9 Subsequently, on December 2, 1996, the district court entered an
order enjoining Aldridge from prosecuting her claims for punitive damages in state court. The
district court concluded that an injunction was "necessary to protect" its August 19 order and
enjoined Aldridge under the Anti-Injunction Act, 28 U.S.C. § 2283.10 Aldridge filed a notice of
appeal.
Combined also filed a motion seeking to add Doris Williams as a "cross-defendant" in the
Steans case and seeking to enjoin Williams from pursuing her claims for punitive damages in state
court. On December 2, 1996, the district court granted Combined's motion to join Williams as a
cross-defendant, and ordered all parties to show cause as to why Williams should or should not be
enjoined from pursuing her punitive damages claims. On January 22, 1997, the district court entered
8
Rule 21 provides in relevant part that "[p]arties may be dropped or added by order of the
court on motion of any party or of its own initiative at any stage of the action and on such terms
as are just." Fed.R.Civ.P. 21.
9
In response to the order setting a date for the show cause hearing, Aldridge filed a motion to
shorten time for Combined to answer Aldridge's "First Interrogatories and Request for
Production." Aldridge alleged that she needed the discovery material in order to effectively
participate in the show cause hearing. The district court carried Aldridge's motion to compel
discovery until the show cause hearing, and apparently denied the motion by enjoining
Aldridge's state court claims for punitive damages. Williams also filed a motion to compel
discovery which was denied by the district court in a February 6, 1997, order.
10
Section 2283 provides that "[a] court of the United States may not grant an injunction to
stay proceedings in a State court except as expressly authorized by Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C. § 2283
(1994).
6
an order enjoining Williams from prosecuting her claims for punitive damages in state court.11
Williams filed a notice of appeal.
II. DISCUSSION
A. The August 19 Order
In its August 19 Order, the district court "ordered, adjudged and decreed that no additional
punitive damages may be assessed in Alabama against Combined or any of its past or present agents
for any allegations of the same or similar Misconduct which occurred on or before the date of this
Order." District Court Order, at 7 (August 19, 1996). Combined contends that the August 19 Order
and its prohibition on future punitive damages awards is binding on Aldridge and Williams. We
disagree.
In Martin v. Wilks, 490 U.S. 755, 109 S. Ct. 2180, 104 L. Ed. 2d 835 (1989), a group of white
firefighters sued the city of Birmingham, Alabama, alleging that they were being denied promotions
in favor of less qualified black firefighters. The white firefighters alleged that the City was making
promotion decisions on the basis of race in reliance on certain consent decrees entered in previous
litigation to which the white firefighters were not parties.12 Id. at 758, 109 S.Ct. at 2183. In
rejecting the City's argument that the white firefighters' suit constituted an impermissible collateral
attack on the consent decrees, the Court concluded that "it is a principle of general application in
11
This order was virtually identical to the order enjoining Elizabeth Aldridge. In this order,
the district court concluded that an injunction was "necessary to protect" its August 19 order and
enjoined Williams under the Anti-Injunction Act, 28 U.S.C. § 2283.
12
In the previous litigation, the white firefighters appeared and filed objections as amicus
curiae at a fairness hearing regarding the consent decrees. Martin, 490 U.S. at 759, 109 S.Ct. at
2183. The white firefighters also attempted to intervene in the previous litigation, but the trial
court denied their motion to intervene as untimely. Id.
7
Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in
which he is not designated as a party or to which he has not been made a party by service of
process." Id. at 761, 109 S.Ct. at 2184 (quoting Hansberry v. Lee, 311 U.S. 32, 40, 61 S. Ct. 115,
117, 85 L. Ed. 22 (1940)). The Court reasoned that
[a] judgment or decree among parties to a lawsuit resolves issues among them, but it does
not conclude the rights of strangers to those proceedings.... Joinder as a party, rather than
knowledge of a lawsuit and an opportunity to intervene, is the method by which potential
parties are subjected to the jurisdiction of the court and bound by a judgment or decree.
Id. at 762, 765, 109 S. Ct. at 2184, 2186.13
The reasoning of the Supreme Court in Martin v. Wilks is applicable to the instant case. At
the time that the district court entered the August 19 Order prohibiting future punitive damages
awards, Aldridge and Williams were not parties to the Steans case and were not in privity with Sara
Steans or the other settling plaintiffs. After reviewing the record and considering the arguments of
Combined,14 we see no reason in the instant case to make an exception to the "principle of general
13
But see § 108 of the Civil Rights Act of 1991, 42 U.S.C. § 2000e-2(n)(1) (providing that a
person who had notice of, and an opportunity to present objections to, a proposed consent
decree, cannot challenge in a claim under the Constitution or federal civil rights laws an
employment practice that implements the consent decree). Section 108 is not applicable to the
instant case and does not change the analysis of the Supreme Court in Martin v. Wilks as applied
to this case.
14
Combined argues that the August 19 Order facilitates settlement and thus is supported by
the "strong public policy favoring settlement." We note that an almost identical argument was
rejected by the Supreme Court in Martin v. Wilks. In rejecting the City's argument that the
congressional policy favoring voluntary settlement of employment discrimination claims
supported binding the white firefighters to the consent decrees, the Court in Martin v. Wilks
concluded that
[a] voluntary settlement in the form of a consent decree between one group of
employees and their employer cannot possibly "settle," voluntarily or otherwise,
the conflicting claims of another group of employees who do not join the
agreement.... "Parties who choose to resolve litigation through settlement may
8
application" that a judgment in personam is not binding on a person who is not designated as a
party.15 Therefore, we conclude that the district court's August 19 Order prohibiting future punitive
damages awards is not binding on Aldridge and Williams.16
We also note that, at the time the district court entered the August 19 Order in the Steans
case, Combined and Steans had already reached an agreement to settle their case.17 During the
August 19 hearing, Combined's counsel argued extensively for the district court to enter an order
prohibiting future punitive damages awards in Alabama against Combined,18 while Steans' counsel
silently acquiesced.19 After reviewing the record of the August 19 hearing, we are satisfied that prior
not dispose of the claims of a third party ... without that party's agreement. A
court's approval of a consent decree between some of the parties cannot dispose
of the valid claims of nonconsenting intervenors."
Id. at 768, 109 S.Ct. at 2188 (quoting Firefighters v. Cleveland, 478 U.S. 501, 529, 106
S. Ct. 3063, 3079, 92 L. Ed. 2d 405 (1986)).
15
In Martin v. Wilks, the Court noted an exception to the general rule "where a special
remedial scheme exists expressly foreclosing successive litigation by nonlitigants, as for
example in bankruptcy or probate." Martin, 490 U.S. at 762 n. 2, 109 S. Ct. at 2184 n. 2. No such
exception is present in the instant case.
16
Because the August 19 Order was not binding on Aldridge and Williams, there was no need
for them to appeal it.
17
At the August 19 hearing, the district court stated to the attorneys for Combined and Steans
that "I take it then from both of you that you consider this case pending before me has been
settled." Both of the attorneys responded "Yes, your honor." The district court then stated "[a]ll
right. Then I will discharge the jury and we'll proceed from that and I will try to give you your
order as soon as possible."
18
In support of its motion for an order prohibiting future punitive damages awards, Combined
also introduced evidentiary material regarding the amount of damages it had paid in prior
settlement agreements and regarding its operating profits in Alabama. Steans did not challenge
Combined's evidentiary materials nor did she offer any competing evidence.
19
Midway through the August 19 hearing, Steans' counsel had made no arguments in
opposition to the proposed order and thus the district court stated to Steans' counsel that "you are
9
to the district court's entry of the August 19 Order, no party tested in an adversarial manner
Combined's request for an order prohibiting future punitive damages awards. Steans had no interest
in contesting Combined's position. In fact, she had an affirmative interest—i.e., her own
settlement—in acquiescing to the August 19 Order. Under such circumstances, we attach no
significance to the August 19 Order.
B. The December 2 and January 22 Orders Enjoining Aldridge's and Williams' State Court Actions
On December 2, 1996, and January 22, 1997, the district court entered orders enjoining
Aldridge and Williams, respectively, from prosecuting their state court claims for punitive damages
against Combined. We conclude that the district court abused its discretion in enjoining Aldridge
and Williams because neither Aldridge nor Williams had a full and fair opportunity to litigate the
issue. Aldridge and Williams were enjoined from prosecuting their state court punitive damages
claims without a meaningful opportunity to present evidence, conduct discovery,20 or test the
veracity and sufficiency of Combined's evidence which served as the basis for the district court's
August 19 Order.
being awfully quiet down there." Steans' counsel responded that "[w]ell, your honor, we
discussed this. They [settled] our cases and we are excited." The only other comment made by
Steans' counsel during the hearing was his acknowledgment that the parties had reached a
settlement agreement. See supra note 17.
20
Both Aldridge and Williams filed "Motion[s] for Leave to Propound Discovery and
Motion[s] to Shorten Time for Combined to Respond." In these motions, Aldridge and Williams
sought to compel discovery in order to be able to fully and fairly respond to the district court's
show cause order. Aldridge and Williams sought to conduct discovery regarding (1) the
settlement negotiations and agreement between Sara Steans and Combined, (2) documents and
settlement agreements relating to other plaintiffs in the State of Alabama, and (3) information
relating to the discovery undertaken by Steans concerning the degree of reprehensibility of
Combined, the economic impact of any additional punitive damages verdicts on Combined, and
Combined's "statutory profit" in Alabama. The district court denied Aldridge's and Williams'
motions to compel discovery. See supra note 9.
10
We also note that in issuing the injunctions against Aldridge's punitive damages claims, the
district court concluded that "the pursuit of such claims could nullify this court's [August 19] order
and must therefore be enjoined under 28 U.S.C. § 2283." District Court Order, at 3 (December 2,
1996) (relying on the "necessary ... to protect or effectuate its judgments" exception to the Anti-
Injunction Act, 28 U.S.C. § 2283).21 We are confident that a district court cannot enter a judgment
purporting to bind nonparties over which it does not have jurisdiction, seek to join those nonparties
to the underlying litigation,22 and then issue an injunction against those parties based on a need to
protect its earlier judgment. In light of our holding that the district court did not have authority to
bind nonparties with its August 19 Order, we readily conclude that the district court can not rely on
the "necessary to protect its judgments" exception to the Anti-Injunction Act in order to justify its
injunctions prohibiting Aldridge and Williams from pursuing their punitive damages claims against
Combined. Therefore, the district court's reliance on the Anti-Injunction Act is misplaced.
Having concluded that the district court's orders enjoining Aldridge and Williams constituted
an abuse of discretion because Aldridge and Williams did not have a full and fair opportunity to
litigate, we need not address the harder issues entailed in Combined's attempt to attain a pre-trial
21
The district court reached the same conclusion in issuing its January 22, 1997, order
enjoining Williams' punitive damages claims against Combined. District Court Order, at 3
(January 22, 1997).
22
Aldridge and Williams also challenge the district court's October 21, 1996, and December 2,
1996, orders in which they were joined as "cross-defendants" under Fed.R.Civ.P. 21 to the
Steans case. Aldridge and Williams argue that they were not properly made parties under Rule
21 because Combined did not comply with the requirements of Fed.R.Civ.P. 4 relating to the
issuance of a summons and service on an added party. See 7 Charles A. Wright et al., Federal
Practice and Procedure § 1688 (2d ed.1986). Because the district court did not address this
argument and the issue has not been adequately briefed on appeal, we decline to address it in the
first instance. If the effort to enjoin Aldridge and Williams is pursued on remand, the district
court shall address this argument.
11
limit on Aldridge's and Williams' claims for punitive damages.23 With the instant poorly developed
record and in the absence of a comprehensive analysis by the district court of all relevant concerns24
(including comity concerns), we decline to speculate whether a legally supportable procedure (in
addition to the procedures outlined in footnote 23) is available in federal court to accomplish what
Combined seeks in the instant case.
23
However, we reject Combined's argument that its due process right to be free from the
imposition of excessive punitive damages, a right articulated in BMW of North America, Inc. v.
Gore, 517 U.S. 559, 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996), would be rendered meaningless in
the absence of the particular procedure and remedy reflected in the district court's judgment. In
Alabama, a civil defendant has the right to request a post-verdict hearing under Hammond v. City
of Gadsden, 493 So. 2d 1374 (Ala.1986). In this post-verdict hearing, the trial court reviews the
sufficiency of the evidence supporting a verdict for punitive damages and the excessiveness of
the punitive damages award. See Ala.Code § 6-11-23(b) (1993) (providing for a post-verdict
hearing on punitive damages); Green Oil Co. v. Hornsby, 539 So. 2d 218, 223-24 (Ala.1989)
(listing factors for the trial court to consider in determining whether a jury's award of punitive
damages is excessive). In Pacific Mutual Life Insurance Company v. Haslip, 499 U.S. 1, 20-22,
111 S. Ct. 1032, 1044-45, 113 L. Ed. 2d 1 (1991), the Supreme Court approved the procedures in
Alabama for post-verdict review of juries' punitive damages awards. Further, in BMW of North
America, Inc. v. Gore, supra, the Court considered an Alabama punitive damages award that had
survived the Alabama review procedures, and the Court independently examined whether the
award was so grossly excessive as to violate due process. Finally, in Life Insurance Company of
Georgia v. Johnson, 701 So. 2d 524, 527-32 (Ala.1997), the Alabama Supreme Court adopted the
Supreme Court's BMW analysis as a supplement to its own review procedures. Thus, it cannot
be said that Combined's due process rights under BMW would be rendered meaningless in the
absence of the particular procedure employed by the district court in the instant case and in the
absence of the particular remedy awarded by the district court. The foregoing procedures are
available to Combined in the instant case and in any future case in Alabama in which punitive
damages are assessed.
24
See, e.g., Ex parte Holland, 692 So. 2d 811, 820-22 (Ala.1997) (discussing relevant
considerations); Alfa Financial Corp. v. Key, 927 F. Supp. 423, 428-431 (M.D.Ala.1996)
(discussing other considerations relevant in federal courts), aff'd, 112 F.3d 1172 (11th Cir.1997)
(unpublished table decision).
12
In light of the foregoing, we conclude that the district court abused its discretion in enjoining
Aldridge and Williams from prosecuting their state court claims for punitive damages against
Combined, and thus the district court's December 2 and January 22 orders are vacated.
III. CONCLUSION
For the foregoing reasons, we hold that the district court's August 19, 1996, order is not
binding on Aldridge and Williams, and we vacate the district court's December 2, 1996, and January
22, 1997, orders that enjoined Aldridge and Williams from prosecuting their punitive damages
claims in state court.25
VACATED AND REMANDED.
25
We also vacate the district court's October 21, 1996, and December 2, 1996, orders. See
supra note 22.
13