Cynthia Allocco v. Metropolitan Life Insurance Co ( 2011 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT MAR 29 2011
MOLLY C. DWYER, CLERK
U .S. C O U R T OF APPE ALS
CYNTHIA ALLOCCO, No. 09-16021
Plaintiff - Appellant, D.C. No. 2:01-cv-02220-JAT
and
MEMORANDUM *
RALPH ALLOCCO,
Plaintiff,
v.
METROPOLITAN LIFE INSURANCE
COMPANY, a foreign corporation,
Defendant - Appellee.
CYNTHIA ALLOCCO, wife, No. 09-17609
Plaintiff - Appellant, D.C. No. 2:01-cv-02220-JAT
v.
METROPOLITAN LIFE INSURANCE
COMPANY, a foreign corporation,
Defendant - Appellee.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Appeal from the United States District Court
for the District of Arizona
James A. Teilborg, District Judge, Presiding
Argued and Submitted March 18, 2011
San Francisco, California
Before: HUG, REAVLEY**, and W. FLETCHER, Circuit Judges.
This case involves two consolidated appeals by plaintiff-appellant Cynthia
Allocco stemming from her diversity suit against defendant-appellee Metropolitan
Life Insurance Company (“Met Life”). First, Allocco appeals the district court’s
decision granting summary judgment to Met Life on her bad faith tort claim.
Second, she appeals the district court’s order granting Met Life $30,928.40 in
attorneys’ fees under A RIZ. R EV. S TAT. § 12-341.01. Because the parties are
familiar with the factual and procedural history of this case, we do not recount
additional facts except as necessary to explain the decision.
We review the district court’s grant of summary judgment de novo.
Broussard v. Univ. of Cal., 192 F.3d 1252, 1255 (9th Cir. 1999). We review the
award of attorneys’ fees for abuse of discretion. Velarde v. PACE Membership
**
The Honorable Thomas M. Reavley, Senior Circuit Judge for the Fifth
Circuit, sitting by designation.
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Warehouse, Inc., 105 F.3d 1313, 1318 (9th Cir. 1997). Jurisdiction is proper
pursuant to 28 U.S.C. § 1291 and we affirm the district court’s grant of summary
judgment on the bad faith claim and reverse the award of attorneys’ fees.
1. The bad faith tort claim
We affirm the district court’s grant of summary judgment to Met Life on
Allocco’s bad faith claim. Under Arizona law, the tort of bad faith requires both a
contract and a “special relationship” between the parties. Burkons v. Ticor Title
Ins. Co., 813 P.2d 710, 720 (Ariz. 1991). However, contractual privity is not
required if the defendant is a third-party administrator of an insurance contract.
See Sparks v. Republic Nat’l Life Ins. Co., 647 P.2d 1127, 1137-38 (Ariz. 1982);
Farr v. Transamerica Occidental Life Ins. Co., 699 P.2d 376, 386 (Ariz. Ct. App.
1984).
Here, there is no contractual relationship between Allocco and Met Life
because Met Life is the third-party administrator of her employer’s salary
continuation plan. Moreover, we cannot accept Allocco’s argument that
contractual privity is unnecessary because the record does not support her assertion
that the salary continuation plan is an insurance contract. See Guaranteed
Warranty Corp. v. State ex. rel Humphrey, 533 P.2d 87, 90 (Ariz. Ct. App. 1975)
(establishing a five-factor test for analyzing whether a contract is insurance).
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2. Attorneys’ fees
We reverse the district court’s award of attorneys’ fees to Met Life. The
court made several errors in its analysis of the factors trial courts should consider
in deciding whether to award fees under A RIZ. R EV. S TAT. § 12-341.01. See Assoc.
Indemnity Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985).
The district court drew unreasonably negative conclusions about merits of
Allocco’s claim in its discussion of the first Associated Indemnity factor. The fact
that Allocco prevailed in the first trial and the fact that her employer eventually
paid her the disputed benefits weigh against granting attorneys’ fees.
In its discussion of the third factor, the court elected to give “very little
weight” to Allocco’s financial circumstances because “[p]laintiffs without
significant resources must not be free to pursue frivolous contract litigation.” This
rationale, however, is inapplicable to Allocco because her suit was not frivolous.
Additionally, in considering the fourth factor, the district court concluded
that Met Life had prevailed on all issues, relying in part on American Express’s
decision to pay Allocco salary continuation benefits. This reasoning improperly
penalizes Allocco for her success in obtaining the disputed benefits.
Finally, the district court’s conclusion that the novelty of Allocco’s claim
weighed in favor of granting fees is contrary to Arizona precedent. See Rowland v.
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Great States Ins. Co., 20 P.3d 1158, 1168 (Ariz. Ct. App. 2001); Scottsdale Mem’l
Health Sys., Inc. v. Clark, 791 P.2d 1094, 1099 (Ariz. Ct. App. 1990). A court “by
definition abuses its discretion when it makes an error of law.” Koon v. United
States, 518 U.S. 81, 100 (1996).
Judgment Affirmed but Modified by Vacating the Attorneys’ Fees
Award.
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