Moses Enterprises, LLC v. Lexington Insurance Company ( 2023 )

USCA4 Appeal: 22-1373 Doc: 37 Filed: 04/28/2023 Pg: 1 of 10
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 22-1373
MOSES ENTERPRISES, LLC,
Plaintiff - Appellee,
v.
LEXINGTON INSURANCE COMPANY; AIG CLAIMS, INC.,
Defendants - Appellants.
Appeal from the United States District Court for the Southern District of West Virginia, at
Huntington. Robert C. Chambers, District Judge. (3:19-cv-00477)
Argued: March 7, 2023 Decided: April 28, 2023
Before THACKER and HEYTENS, Circuit Judges, and Joseph DAWSON, III, United
States District Judge for the District of South Carolina, sitting by designation.
Vacated and remanded by published opinion. Judge Heytens wrote the opinion, in
which Judge Thacker and Judge Dawson joined.
ARGUED: Robert Lawrence Massie, NELSON MULLINS RILEY & SCARBOROUGH,
LLP, Huntington, West Virginia, for Appellants. William Lowell Mundy, MUNDY &
ASSOCIATES, Huntington, West Virginia, for Appellee. ON BRIEF: Marc E. Williams,
Huntington, West Virginia, James T. Fetter, NELSON MULLINS RILEY &
SCARBOROUGH, LLP, Charlotte, North Carolina, for Appellants.
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TOBY HEYTENS, Circuit Judge:
This case is about whether an award of attorneys’ fees was proper under West
Virginia law. Because the district court’s analysis omitted a required step, we vacate the
fee award and remand for further proceedings.
I.
Plaintiff Moses Enterprises, LLC, sells cars. Moses had an insurance policy issued
by defendant Lexington Insurance Company, with defendant AIG Claims, Inc. serving as
the claims administrator.
While the insurance policy was in place, Moses sold a car to someone using a fake
identity. As the reader might guess, the fraudster never paid. Luckily, the policy covered
“Trick, Device, and False Pretense.” JA 24. But AIG denied coverage. Even though Moses
filed a claim the same day it learned the purchase was a sham, AIG concluded Moses did
not provide notice of the claim within the policy’s required period.
Moses sued Lexington and AIG in federal district court. The complaint made four
claims under West Virginia law, including—as relevant here—one for breach of the
insurance contract and one for violating the State’s unfair trade practices statute. Among
other relief, Moses requested “[d]amages for attorney fees.” JA 34. 1
1
Our review revealed “a jurisdictional tangle that could have been avoided by more
careful pleading.” Thompson v. Ciox Health, LLC, 52 F.4th 171, 173 n.1 (4th Cir. 2022).
Moses is a limited liability company, but the complaint contains no mention of its
members’ citizenships. See Central W. Va. Energy Co. v. Mountain State Carbon, LLC,
636 F.3d 101, 103 (4th Cir. 2011) (“For purposes of diversity jurisdiction, the citizenship
of a limited liability company . . . is determined by the citizenship of all of its members.”).
Fortunately for Moses, 28 U.S.C. § 1653 allows “[d]efective allegations of jurisdiction” to
(Continued)
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Moses moved for partial summary judgment, asking the district court to hold as a
matter of law that Lexington was “obligated to pay Moses for the loss it sustained as a
result of the purchase of a 2017 Toyota by a purchaser who used a stolen identity.” D. Ct.
ECF 25, at 1. While that motion was pending, defense counsel wrote Moses a short letter.
It read, in part:
Because my clients remain committed to resolving all claims fairly and
reasonably, we are issuing a check to Moses Enterprises, LLC for the
purchase price of the vehicle . . . plus the . . . statutory interest rate . . .
accruing from the date of the loss.
JA 213. The check—which was mailed separately—listed its “reason for payment” as
“case 3:19-cv-00477,” this suit’s number on the district court’s docket. JA 215. Moses
returned the check without cashing it. In a letter, Moses’s counsel explained: “As I
informed you prior to you sending this check, I did not agree to accept this check and that
I would return it.” JA 216.
The district court granted partial summary judgment for Moses on the breach of
contract claim but resolved only liability—not damages. Nearly a year later, the court
denied the defendants’ motion for summary judgment, which argued Moses’s
compensatory damages were zero because Moses rejected the check the defendants had
sent. In the district court’s view, “[i]t borders on absurd to argue that mailing opposing
counsel an unwanted check is sufficient to settle or moot a claim,” particularly where
“be amended” on appeal, and Moses has provided information showing its members are all
West Virginia citizens. Because neither defendant is a citizen of West Virginia and the
amount in controversy exceeds $75,000, the district court had subject matter jurisdiction
under 28 U.S.C. § 1332(a).
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“Defense Counsel was told before the check was sent that [Moses] would not settle for the
amount proposed by the Defendants.” JA 95. The court further concluded “a material
question of fact remain[ed] as to what damages [Moses] [was] entitled to as a result of
Defendants’ breach of contract.” JA 94.
“Litigation continued.” JA 261. By the eve of trial, the dispute had narrowed to two
claims—the claim for violating West Virginia’s unfair trade practices statute and damages
on the breach of contract claim.
The day before trial, the parties settled both claims, but continued to disagree about
the amount of attorneys’ fees to which Moses was entitled. Six months later, the district
court awarded Moses “$293,135.45 in attorney’s fees and costs,” representing “the entire
amount of attorney’s fees incurred until the final resolution of the case.” JA 265, 267.
We review an award of attorneys’ fees for abuse of discretion. See Colorado
Bankers Life Ins. Co. v. Academy Fin. Assets, LLC, 60 F.4th 148, 153 (4th Cir. 2023). In
so doing, we review any underlying factual findings for clear error, see Andrews v.
America’s Living Ctrs., LLC, 827 F.3d 306, 312 (4th Cir. 2016), while reviewing any “legal
determinations”—including “the proper interpretation of ” state law—de novo. Colorado
Bankers, 60 F.4th at 153. We look to decisions of “the State’s highest court” for “the final
word about what . . . state law means.” Id.
II.
As a general matter, West Virginia follows the “American rule that both sides of a
civil controversy must pay their own attorneys’ fees—win, lose, or draw.” Hayseeds, Inc.
v. State Farm Fire & Cas., 352 S.E.2d 73, 78 (W. Va. 1986). But West Virginia’s highest
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court has abrogated that rule for “prevailing claimants in property damage insurance
cases.” Id. at 79. “[W]henever a policyholder must sue his own insurance company over
any property damage claim, and the policyholder substantially prevails in the action,” West
Virginia law makes the insurance company “liable for the payment of the policyholder’s
reasonable attorneys’ fees.” Id. at 80.
The parties agree the policy at issue was one for property damage and that Moses
substantially prevailed. See Jordan v. National Grange Mut. Ins. Co., 393 SE.2d 647, 650
(W. Va. 1990) (holding a policyholder may “substantially prevail[ ] in the litigation as a
result of a settlement or as the result of a jury verdict”). There is thus no dispute Moses
“may recover some amount of attorney’s fees.” JA 262. The question is: How much and
for what?
A.
We reject the defendants’ argument that Moses is not entitled to any fees for work
done after Moses returned the defendants’ check or after the district court granted partial
summary judgment on the contract claim. True, West Virginia law allows fee-shifting only
for work “necessary to obtain payment of the insurance proceeds.” Jordan, 393 S.E.2d at
652. But the district court made no reversible error in rejecting the view that any work done
after those dates inherently flunks the “necessary to obtain payment” test.
The defendants’ first proffered date rises or falls on a contention that the rejected
check was payment for “the amount due under the insurance policy.” Defs.’ Br. 4–5. But
the district court made a factual finding that the check “was a settlement offer” for the
entire litigation, JA 265, and that finding is not clearly erroneous. The defendants’ letter
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announced its purpose as “resolving all claims”—not just the breach of contract claim—
“fairly and reasonably,” JA 213 (emphasis added), and the check’s “reason for payment”
line referenced the docket number for the case as a whole, JA 215. Moses had no duty to
settle its entire case for an amount its adversaries insisted represented full compensation
for one of Moses’s discrete claims. Nor was Moses required to open itself up to an
argument it had done so by cashing the defendants’ “unsolicited” check. JA 264.
The district court’s later grant of partial summary judgment also did not obviate the
need for further work to “obtain payment of the insurance proceeds.” Jordan, 393 S.E.2d
at 652. For one thing, Moses had no way of knowing whether the defendants would appeal
the district court’s ruling. But even leaving that aside, the district court’s grant of partial
summary judgment did not fully resolve the breach of contract claim because it left open
the amount of damages. Indeed, by stating “a material question of fact remains as to what
damages the Plaintiff is entitled to as a result of Defendants’ breach of contract,” JA 94,
the district court invited further attorney time to resolve “what is actually payable under
the insurance policy,” JA 230. 2
2
It would not matter if we agreed with the defendants that “liability and damages
for the contract claim were either entirely settled by, or easily mathematically determinable
after, the district court’s [partial] summary judgment order.” Defs.’ Br. 17. The defendants
offer no reason to believe Moses would still have been paid had its lawyers simply patted
themselves on the back and stopped working. And any disputes about how much additional
work was “necessary to obtain payment of the insurance proceeds” go to the amount of
compensation for any post-summary judgment work, not whether such work is
compensable at all. Jordan, 393 S.E.2d at 650–52 (emphasis added).
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B.
At the same time, we reject Moses’s contention that the district court committed no
legal errors in concluding Moses was entitled to “the entire amount of attorney’s fees
incurred until the final resolution of the case.” JA 265, 267. We need not—and do not—
resolve whether any particular figure could survive abuse of discretion review. Instead, we
conclude the district court’s analysis missed a step and thus vacate and remand for further
proceedings.
The parties litigated and settled two claims, but only one of them entitles Moses to
fee shifting under West Virginia law. In Count One of its complaint, Moses accused the
defendants of breaching a first-party insurance contract. That claim is eligible for fee
shifting. See Hayseeds, 352 S.E.2d at 80. In Count Two, Moses charged the defendants
with violating the West Virginia Unfair Trade Practices Act “in their handling of [Moses’s]
claim.” JA 30. That “type of action”—which West Virginia courts call a Jenkins claim—
requires showing an insurance company’s “general business practice” of “bad faith
settlement.” McCormick v. Allstate Ins. Co., 475 S.E.2d 507, 514–15, 519 (W. Va. 1996).
And West Virginia’s highest court (the Supreme Court of Appeals) has held fee shifting is
unavailable for a Jenkins claim. See Lemasters v. National Mut. Ins. Co., 751 S.E.2d 735,
742–43 (W. Va. 2013) (per curiam).
Lemasters is closely on point and largely resolves this case. In Lemasters, the
plaintiffs sought attorneys’ fees for both a breach of contract claim and a Jenkins claim.
See Lemasters, 751 S.E.2d at 738–39. The trial court denied fee shifting for work “incurred
in the prosecution of ” the Jenkins claim (id. at 738), and the plaintiffs appealed, relying on
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dicta in an earlier decision stating that “Jenkins does allow, under certain conditions, a
party to seek reasonable attorney fees.” Lemasters, 751 S.E.2d at 742 (quoting McCormick,
475 S.E.2d at 519). West Virginia’s highest court affirmed the trial court’s “conclusion that
it was without authority to award the [plaintiffs] attorney fees, costs and expenses incurred
in vindicating their Jenkins/[Unfair Trade Practices Act] claims.” Id. It also contrasted
work on a Jenkins claim with work “necessary to obtain payment of the insurance
proceeds” in “a contract-based action,” for which fee shifting is available. Id. at 742–43.
The district court viewed Lemasters as distinguishable because “[h]ere, unlike in
Lemasters, . . . the underlying [contract] action . . . and the bad faith action were pursued
as one singular claim, which was not resolved or paid until the [final] settlement.” JA 264.
We respectfully disagree. For one thing, West Virginia’s highest court has made clear
Moses’s breach of contract claim (for which fee shifting is available) and its Jenkins claim
(for which fee shifting is unavailable) are not “one singular claim.” To the contrary, it has
said such claims are “wholly distinct,” McCormick, 475 S.E.2d at 519, and repeatedly
“distinguished . . . the filing of an action on the insurance contract to collect benefits arising
from the insurance contract, from [an] action arising from violations of the” unfair trade
practices statute, Lemasters, 751 S.E.2d at 741.
Yes, Lemasters involved a different procedural posture. But nothing in the Supreme
Court of Appeals’ analysis suggests those distinctions make a difference. As a federal court
sitting in diversity, our role is to predict what West Virginia’s highest court would do, not
to hunt for possible bases for distinguishing this case from its past decisions. And here
Lemasters reiterated the rule from Hayseeds by stating that fee shifting is allowed only for
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an insured “vindicating its claim” “to collect benefits under [its] insurance contract,” not
for “a bad faith action.” 751 S.E.2d at 740, 743.
The district court also cited “the public policy underpinning Hayseeds” as
supporting an award of attorneys’ fees for all of Moses’s claims. JA 265. But neither Moses
nor the district court has identified how pursuing a “wholly distinct” cause of action for an
insurance company’s unfair trade practice of “bad faith settlement,” McCormick,
475 S.E.2d at 514, 519, could be “necessary” to secure “payment of the insurance
proceeds,” Jordan, 393 S.E.2d at 652. Just because two things happen at the same time—
here, pursuit of the contract claim and the Jenkins claim—does not mean one is “necessary”
to the other. Id.
Because the district court committed legal error in awarding Moses the full amount
of its requested fees without determining whether any of the work was properly attributed
only to the Jenkins claim, we vacate the fee award and remand for further proceedings. On
remand, the district court must—aided by appropriate submissions by the parties—at least
attempt to determine which portions of the requested fees were “necessary to obtain
payment of the insurance proceeds” and then award fees based on that work only.
Lemasters, 751 S.E.2d at 743.
The regime of awarding attorneys’ fees for federal civil rights litigation provides a
helpful analog for the district court’s task. Although a “prevailing party” in that context
may receive “a reasonable attorney’s fee,” 42 U.S.C. § 1988(b), a litigant is not entitled to
fees for all claims if successful “on only some . . . claims,” Hensley v. Eckerhart, 461 U.S.
424, 434 (1983). Because “no fee may be awarded for services on the unsuccessful
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claim[s]” (id. at 435), a court awarding fees under Section 1988 must attempt to separate
the compensable work on the successful claims from non-compensable work on the
unsuccessful ones. See id. at 435–37.
None of this is to prejudge the proper fee award in this case. Maybe the work
Moses’s attorneys did for the Jenkins claim was so intertwined with their work on the
breach of contract claim that some (or all) of the time cannot be disentangled. Cf. Hensley,
461 U.S. at 435; see also Pls.’ Br. 6 (so arguing). Or maybe—as Moses’s counsel asserted
at oral argument—none of the requested fees were for work done on the Jenkins claim.
See Oral Arg. 34:40–35:23. But the district court made no findings about these issues. And
because “we are a court of review, not of first view,” Cutter v. Wilkinson, 544 U.S. 709,
718 n.7 (2005), we leave to the district court the initial task of assessing which of the
requested fees were compensation for “services . . . necessary to obtain payment of the
insurance proceeds,” Lemasters, 751 S.E.2d at 743.
* * *
The judgment of the district court is vacated, and the case is remanded for further
proceedings consistent with this opinion.
SO ORDERED
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