Samson v. Apollo Resources Inc

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________________________
No. 02-30218
_____________________________________
GEORGE C. SAMSON III, ET AL,
Plaintiffs,
v.
APOLLO RESOURCES INC., Etc.; ET AL,
Defendants,
APOLLO RESOURCES INC.,
doing business as Apollo Services Inc.,
Defendant - Third
Party Plaintiff - Cross
Defendant - Appellee,
v.
QBE INTERNATIONAL INSURANCE, LIMITED.,
Third Party Defendant -
Cross Claimant -
Appellant.
__________________________________________________
Appeal from the United States District Court
For the Western District of Louisiana, Lafayette
(98-CV-62)
__________________________________________________
March 20, 2003
Before DAVIS, BARKSDALE, and DENNIS, Circuit Judges.*
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
W. EUGENE DAVIS, Circuit Judge:**
Apollo Resources, Inc. (“Apollo”) seeks recovery against QBE
International Insurance, Limited (“QBE”), under its Employment
Practices Liability Insurance Policy. Apollo seeks to recover
defense costs it incurred in defending an action brought by its
employees for overtime compensation which QBE declined to defend.
The district court found that QBE owed Apollo a defense and
granted partial summary judgment in favor of Apollo on this
claim. For the reasons that follow, we conclude that the policy
provides no coverage for the claims asserted by Apollo’s
employees. We, therefore, vacate the district court’s grant of
partial summary judgment in favor of Apollo and remand the case
with instructions to enter judgment in accordance with this
opinion.
I.
Apollo asserted a third party demand against QBE seeking
reimbursement of defense costs incurred in Apollo’s successful
defense of this suit1 by thirty of its former employees.
Apollo’s employees brought the suit to recover overtime
compensation which Apollo defended after QBE denied coverage.
The employees alleged that Apollo wrongfully avoided payment of
**
Judge Dennis concurs in the judgment only.
1
The Fifth Circuit affirmed the district court’s judgment
in favor of Apollo in the underlying suit. Samson v. Apollo Res.,
Inc., 242 F.3d 629 (5th Cir. 2001).
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overtime by its improper use of a fluctuating workweek (“FWW”)2
or sliding scale method of calculating overtime pay. The
Employment Practices Liability policy QBE issued is a “claims
made” policy effective from May 21, 1997, to May 21, 1998.
In 1995, the Department of Labor began an investigation into
Apollo’s use of the FWW calculation method.3 As a result of
this investigation, Norman Landry, a former Apollo employee,
wrote a letter on January 25, 1996, to Apollo demanding payment
of overtime wages allegedly due as a result of Apollo’s improper
use of the FWW method of calculating overtime wages.
On February 6, 1996, James Meche filed a complaint in
district court seeking to recover overtime wages due and payable
2
Regulations promulgated by the Department of Labor under
the F.L.S.A. authorize employers to use various methods of
calculating overtime compensation to suit different employment
needs. The FWW is one such method. 29 C.F.R. § 778.114. As we
explained in Samson:
Under the FWW method, the employee receives a
fixed salary as compensation for all hours
worked by the employee, whether above or below
forty hours, as well as an additional overtime
premium for each overtime hour. The overtime
premium is calculated by dividing the fixed
weekly salary by the number of hours that the
employee actually works in a particular week
to yield the employee’s “regular rate of pay.”
The employee is paid an overtime premium of
one-half his regular rate of pay for each
overtime hour. This premium is in addition to
his fixed weekly salary.
242 F.3d at 633.
3
The Department of Labor ruled Apollo’s wage calculation
method to be legal.
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pursuant to the Fair Labor Standards Act (“F.L.S.A.”), 29 U.S.C.
§ 203 et seq., alleging that Apollo’s use of the FWW method was
an illegal practice. In his Complaint, Meche asked the district
court to appoint him as class representative for other similarly
situated individuals. The district court dismissed Meche’s suit
without prejudice on August 8, 1997.
Samson and Smith filed the underlying suit against Apollo on
May 27, 1997 (“Samson suit”). A total of twenty-eight additional
plaintiffs, including Landry and Meche, joined the suit.4 The
plaintiffs in this suit (“Plaintiffs”) sought unpaid wages,
safety bonuses, attorney’s fees and punitive damages resulting
from Apollo’s alleged illegal application of the FWW method. In
March 1988, the district court consolidated the suit with the
related Norton and Weaver v. Apollo (“Norton suit”) case and
declared a “collective action.” The district court tried the
claims of six of the Plaintiffs and granted Apollo’s Motion for
Judgment as a Matter of Law at the close of the Plaintiffs’ case.
The Fifth Circuit affirmed.5
The district court severed Apollo’s third party demand
4
Thirty-six former employees joined the suit, but six were
dismissed or withdrew at various times.
5
The district court severed and stayed the claims of the
remaining twenty-four Plaintiffs pending the outcome of this trial.
Following the Fifth Circuit’s decision, the remaining twenty-four
Plaintiffs dismissed their claims with prejudice in stipulated
judgments approved by the district court as part of a settlement
agreement with Apollo.
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against QBE from the underlying suit. After this court affirmed
the district court’s judgment in favor of Apollo in the
underlying litigation, the district court proceeded to consider
the issue of coverage between Apollo and QBE. The district court
granted partial summary judgment in favor of Apollo and concluded
that QBE owed a defense to Apollo on the underlying suit. The
court also entered judgment in favor of Apollo in the amount of
$362,362.49 for costs and expenses incurred.
Following entry of the district court’s Order and Reasons
for Judgment, QBE requested certification of an interlocutory
appeal under 28 U.S.C. § 1292(b). Apollo asked the district
court to certify the grant of partial summary judgment as a
partial final judgment appealable under Federal Rule of Civil
Procedure 54(b). The district court inadvertently entered the §
1292(b) certification, but later withdrew the certification and
entered judgment under Rule 54(b).
II.
QBE argues first that the district court erred in certifying
the partial summary judgment as a partial final judgment
appealable under Federal Rule of Civil Procedure 54(b) rather
than certifying it for interlocutory appeal under 28 U.S.C. §
1292(b). We review this question de novo.
Federal Rule of Civil Procedure 54(b) allows a district
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court to expressly direct entry of a final judgment on “one or
more but fewer than all of the claims or parties” to a suit “upon
an express determination that there is no just reason for delay.”
FED. R. CIV. P. 54(b). QBE argues that a Rule 54(b)
certification is inappropriate in this case because there was no
final disposition of a claim. QBE argues that one of its
affirmative coverage defenses - that Apollo made a material
misrepresentation in its policy application - was not ripe for
decision and precluded the district court’s entry of judgment on
Apollo’s claim for defense costs. QBE argues that it expressly
reserved this affirmative defense for trial, and Apollo did not
specifically request summary judgment on this issue. QBE relies
on Sharlitt v. Gorinstein, 535 F.2d 282 (5th Cir. 1976), in
support of its position that it was inappropriate for the
district court to enter summary judgment sua sponte without
providing adequate notice and opportunity for QBE to present its
argument.
QBE’s reliance on Sharlitt is misplaced. Apollo requested a
judgment from the district court ordering QBE to honor its
defense obligations, and ordering QBE to reimburse Apollo for the
attorney’s fees and litigation costs that Apollo has incurred to
date in defense of the underlying suit. Such a request by its
terms required the district court to consider all defenses QBE
might have to coverage, including QBE’s material
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misrepresentation defense.
The party moving for summary judgment bears the initial
burden of production to demonstrate the absence of a genuine
issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986). Once the movant has met his initial burden of
production, the burden shifts to the nonmovant to set forth
“specific facts showing that there is a genuine issue for trial.”
Id. at 324. QBE failed to introduce evidence of Apollo’s
material misrepresentation in opposition to Apollo’s Motion for
Partial Summary Judgment on the issue of QBE’s duty to defend and
reimburse Apollo for defense costs. It was QBE’s duty to come
forward with evidence to demonstrate that a material issue of
fact existed on its affirmative defense, requiring a trial on the
merits. QBE could not simply “reserve” this defense to coverage
and thus shield itself from an adverse summary judgment on the
coverage issue.
The district court’s grant of partial summary judgment in
favor of Apollo resolved Apollo’s claim that QBE was obliged to
defend Apollo in the Samson litigation and reimburse Apollo for
its defense costs.6 The district court properly entered a Rule
54(b)final judgment certification.
III.
6
Apollo’s claim for bad faith failure to provide coverage
is still pending in the district court.
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QBE argues next that the district court erred in granting
summary judgment in favor of Apollo and ruling that QBE’s policy
required QBE to furnish Apollo a defense and reimburse Apollo for
defense costs already incurred in defending the Consolidated
Action Suit. We review the district court’s grant of partial
summary judgment de novo. See Blow v. City of San Antonio, 236
F.3d 293, 296 (5th Cir. 2001).
In determining whether coverage for defense costs is
provided under a policy, Louisiana law - which controls this
issue - adopts the Eight Corners Rule and requires us to compare
the allegations in the complaint to the policy provisions. As we
explained in Alert Center, Inc. v. Alarm Protection Services,
Inc., 967 F.2d 161, 163 (5th Cir. 1992):
Under Louisiana law, an insurer has a duty to
defend its insured unless the allegations in
the complaint unambiguously exclude coverage.
Meloy v. Conoco, Inc., 504 So. 2d 833, 838
(La.1987) (citing American Home Assurance Co.
v. Czarniecki, 255 La. 251, 230 So. 2d 253(1969)); Jensen v. Snellings, 841 F.2d 600,
612 (5th Cir.1988) (applying Louisiana law).
Coverage is determined by comparing the
allegations in the complaint with the terms
of the policy, and the court is to look only
at the face of the complaint and the
insurance contract in reaching this
determination. Jensen v. Snellings, 841 F.2d
at 612; Scarborough v. Northern Assurance Co.
of America, 718 F.2d 130, 134 (5th Cir.1983)
(applying Louisiana law). The insurer has a
duty to defend its insured if the complaint
discloses the possibility of liability under
the policy. Meloy v. Conoco, 504 So. 2d at
839. Thus, if the complaint alleges a single
claim against the insured that is covered by
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the policy, the insurer must defend the
entire lawsuit, even those claims clearly
excluded from coverage. Montgomery Elevator
Co. v. Building Engineering Services Co.,
Inc., 730 F.2d 377, 382 (5th Cir.1984)
(applying Louisiana law).
“The duty to defend is determined solely from the plaintiff’s
pleadings and the face of the policy, without consideration of
extraneous evidence.” Houghtaling v. Richardson, 800 So.2d 1012,
1014 (La. Ct. App. (5th Cir.) 2001). If the complaint asserts
facts that, if proven, establish both coverage under the policy
and liability to the plaintiff, the insurer must defend the
insured regardless of the outcome. Czarniecki, 230 So.2d at 259.
Under the policy, QBE agreed:
To pay on behalf of the Insureds Loss that
the Insureds are legally obligated to pay as
a result of any Claim first made against the
Insureds during the Policy Period for a
Wrongful Employment Practice, provided always
that such Wrongful Employment Practice
occurs:
1. During the Policy Period, or
2. Prior to the effective date of this
Policy, provided further that the
Insured had no knowledge prior to the
effective date of this Policy of any
matter, fact or circumstance that would
cause a reasonable person to believe
that a Claim for such Wrongful
Employment Practice might be made.
The term “Wrongful Employment Practice” is defined in the policy7
7
The policy defines “Wrongful Employment Practices” to mean:
any actual or alleged:
1. Wrongful Employment Termination by an
Insured of an Employee;
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and limits covered acts to specific types of conduct by the
employer. The only conduct relevant to this case included in the
definition is “employment-related misrepresentation by an
Insured.”
QBE argues that coverage for Apollo’s defense costs is
excluded by Exclusion H of the policy which denies coverage for
Wrongful Employment Practices that relate back to claims made
before the effective date of the policy and Interrelated Wrongful
Employment Practices.8 Consideration of QBE’s argument led us to
2. Discrimination by an insured against an
Employee or an applicant for employment;
3. Sexual harassment by an Insured of an
Employee;
4. Adverse employment action in violation of
the whistle blower provisions of any
federal, state or local law;
5. False arrest, libel, slander or
defamation, invasion of privacy, assault
or battery by an Insured of an Employee,
when asserted in connection with a Claim
within III.O.1. through III.O.4 above;
6. Employment-related misrepresentation by
an Insured; or
7. Negligent hiring, supervision, promotion,
demotion or retention.
8
Exclusion H denies coverage for any claim made against an
Insured:
Based upon or directly or indirectly arising
out of:
1. Any Wrongful Employment Practice or any
matter, fact or circumstance that has
been the subject of any claim made prior
to the effective date of this Policy or
of any notice given during any prior
policy;
2. Any other Wrongful Employment Practice
which, together with a Wrongful
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consider whether the terms of the policy provided coverage for
defense costs absent this exclusion. After the issue of coverage
was raised in more detail at oral argument, the parties were
asked to submit additional briefs directly addressing the
application of the Eight Corners Rule and the exclusions in the
policy’s “Loss” provision to this case.
In its original brief to this court, Apollo did not rely on
any misrepresentation allegation the Plaintiffs made in their
Complaint to establish coverage or a duty to defend. Rather,
Apollo pointed to the deposition testimony of former Apollo
employees to support their contention that these plaintiffs based
their claim in part on “misrepresentations.” When asked by the
court following argument to submit a supplemental brief citing
specific allegations in the Plaintiffs’ Complaint that alleged
misrepresentations, Apollo points to four paragraphs from the
Complaint,9 the deposition testimony of some of the Plaintiffs
Employment Practice that has been the
subject of any claim or notice identified
in H.1. above, would constitute
Interrelated Wrongful Employment
Practices.
9
In its supplemental brief, Apollo points to the following
portions of the Plaintiffs’ Fourth Amended Complaint as alleging
employment-related misrepresentations:
21.
The underpayment for the plaintiffs misuse of
the “sliding scale” method of making overtime
payments.
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and our opinion in Samson v. Apollo Resources, Inc., 242 F.3d 629(5th Cir. 2001).
Federal courts liberally construe the complaint to determine
if it asserts claims that are unambiguously excluded from
coverage. See Stone Petroleum Corp. v. Ins. Co. of N. Am., 961
F.2d 90, 92 (5th Cir. 1992). Apollo argues that, liberally
construed, the Plaintiffs’ Complaint alleges employment-related
misrepresentations. We disagree. The Plaintiffs alleged that
Apollo underpaid the amount of regular and overtime wages due
Plaintiffs in violation of the Fair Labor Standards Act as a
result of Apollo’s misuse of the FWW method. Plaintiffs sought
unpaid compensation, safety bonuses and liquidated damages,
attorney’s fees and pre-judgment interest under the F.L.S.A. and
penalties for failing to promptly pay wages due. The complaint
filed in the Norton suit alleged nearly identical claims. As QBE
properly points out, misrepresentation is not a required element
22.
The defendant’s employee contracts for
fluctuating hours, as used by the defendant
and applied to these plaintiffs, violated the
Fair Labor Standards Act’s requirements for
fluctuating hours employee contracts.
24.
The misuse of the sliding scale method and
fluctuating hours contracts was willful.
25.
The defendant also withheld “safety” bonuses
from the plaintiffs.
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of an F.L.S.A. wage claim. See 29 C.F.R. 778.0 et seq. The only
allegation that even arguably could include misrepresentations is
the assertion that Apollo misused the sliding scale wage method.
However, Apollo candidly admits in its letter brief that the
misuse of the sliding scale “does not fall within the definition
of ‘wrongful employment practice’ in the QBE policy.” Liberally
construing the Plaintiffs’ Complaint, we find no allegations in
the complaint that Apollo made any misrepresentations regarding
their employment that would give rise to coverage in this case.
Apollo also points to facts developed outside the pleadings
to support coverage. The court requested that Apollo provide
support for its position that we may consider facts developed in
the Plaintiffs’ deposition testimony introduced at trial in
determining whether QBE owed a duty to defend the underlying
suit. Apollo simply points to Fed. R. Civ. P. 15(b) which allows
amendment of the pleadings to conform to the evidence introduced
at trial. Apollo provides no authority to support its position
that facts outside the complaint may be considered under the
Eight Corners Rule.
All of the Louisiana cases we have found discussing this
issue definitively state that Louisiana law does not permit
reliance on evidence extrinsic to the complaint to demonstrate
the insurer’s obligation to defend. See Houghtaling, 800 So.2d at
1014; Stone Petroleum Corp. 961 F.2d at 92; KLL Consultants, Inc.
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v. Aetna Cas. & Sur. Co., 738 So.2d 691, 696 (La. App. (5th Cir.)
1999). In Singleton v. United Tugs, Inc., 710 So.2d 347 (La.
App. (4th Cir.) 1998), the court refused to impose a duty to
defend when the insurance company made the decision that it owed
no duty to defend based on the plaintiff’s failure to allege
covered claims in his petition, even though the plaintiff
produced evidence at trial that triggered coverage. Adopting a
rule that would impose a duty to defend based on evidence arising
during trial would run counter to the sensible bright line rule
which allows insurance companies to make a decision on their duty
to defend at the outset of litigation based on the allegations of
the complaint.
Because Plaintiffs asserted no claim that was covered by
QBE’s policy, QBE owed no duty to defend Apollo in the
underlying suit. See Czarniecki, 230 So.2d at 259. Because QBE
had no duty to defend, Apollo, it also has no duty to reimburse
Apollo for the defense costs Apollo spent defending the
underlying suit.10
V.
For the reasons stated above, we conclude that the district
10
Apollo argues in its letter brief that the Eight Corners
Rule is irrelevant to the resolution of this case because “QBE’s
policy contains an independent contractual duty on the part of QBE
to reimburse Apollo for its defense costs, a duty that is not
dependant on the obligation to defend or the ‘Eight Corners Rule’.”
Apollo relies on dicta in FDIC v. Booth, 824 F. Supp. 76 (M.D. La.
1993) that interprets a particular policy provision that is not
pertinent to this case.
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court erred in granting partial summary judgment in favor of
Apollo on the issue of QBE’s duty to defend and to reimburse
Apollo for defense costs, and we must VACATE that judgment.
Given our conclusion on the coverage issues, Apollo’s claim for
penalties for willful failure to provide coverage must also fall.
We therefore REMAND this case to the district court with
instructions to enter judgment consistent with this opinion.
VACATED and REMANDED.
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