Rivet v. State Farm Mutual Automobile Insurance

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 09a0194n.06
Filed: March 12, 2009
No. 07-1864
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ROBERT RIVET, )
)
Plaintiff, )
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
STATE FARM MUTUAL AUTOMOBILE ) EASTERN DISTRICT OF MICHIGAN
INSURANCE COMPANY, )
)
Defendant/Counter-Plaintiff-Appellee, )
)
MARK L. SILVERMAN; et al. )
)
Counter-Defendants-Appellants. )
Before: MERRITT, COLE and SUTTON, Circuit Judges.
SUTTON, Circuit Judge. This appeal stems from a six-week jury trial, as well as a related
bench trial, that led to a $4.2 million verdict and several declaratory judgments, premised on fraud
and fiduciary breach, against attorney Mark Silverman and State Farm claim representative Linda
Swagler. We affirm.
I.
In 1997, Linda Swagler, a State Farm claim representative, hired Silverman to represent her
daughter in a medical-malpractice claim against a hospital. As the case proceeded, Swagler kept her
supervisor at State Farm informed about its progress—and about her growing admiration for
No. 07-1864
Rivet v. State Farm Mut. Auto. Ins. Co.
Silverman. According to her supervisor, Swagler’s admiration verged on “hero-worship”: “She
described him as masterful at his work. She would say things like he’s awesome, he’s incredible. . . .
[S]he spoke of him very, very highly, which I would expect if someone were doing a great job on
a case, but I thought she took it to another level.” JA 1833. In February 2000, Swagler’s supervisor
warned her that she should “let [him] know if [Silverman] should ever become involved with any
of her files” because he thought a “conflict of interest existed between her and Mr. Silverman.” JA
1836. In 2001, after Silverman obtained a $1.5 million settlement on behalf of Swagler’s daughter,
Swagler’s supervisor repeated his warning, noting that if Silverman represented an individual against
State Farm and Swagler handled the claim, “[i]t just would really, really look bad . . . knowing the
history [they] ha[d].” JA 1838.
Nevertheless, over the next several years, Silverman represented at least nine individuals who
had filed claims against State Farm, and Swagler worked as the case manager for State Farm on each
claim. In 2005, after learning what had happened and after investigating the settlements in these
cases, the insurance company filed counterclaims against Silverman and Swagler in one of
Silverman’s pending diversity cases, alleging that the two of them had “methodically robbed State
Farm of millions of dollars by causing State Farm to issue unjustified and excessive payments . . .
either directly to Silverman or to injured persons . . . , who in turn, endorsed the payments over to
Silverman,” JA 315. State Farm premised its claims on fraud and fiduciary breach, and sought
declaratory judgments voiding the settlement agreements obtained by Silverman for six of his clients.
Several of the claims were tried to a jury, which found against Silverman and Swagler on all
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counts and awarded damages of $4.2 million. The declaratory-judgment claims were tried to the
court, which found in favor of State Farm on all counts and voided all six settlement agreements.
The district court entered judgment in April 2007, and denied Silverman’s motions for judgment as
a matter of law and for a new trial. Silverman appealed, as did the six clients affected by the voided
settlement agreements.
II.
A.
Silverman first argues that State Farm failed to present sufficient evidence of fraud. To show
fraud under Michigan law, a plaintiff must establish (1) the existence of a knowing or reckless
material misrepresentation, (2) reliance and (3) injury. Hord v. Envtl. Research Inst. of Mich., 617
N.W.2d 543, 546 (Mich. 2000).
The jury had ample grounds for finding Silverman responsible for several knowing and
material misrepresentations. The record, as an initial matter, shows that Silverman himself made
several misrepresentations: The court-appointed computer expert testified that Silverman backdated
several of the settlement agreements between State Farm and his clients; a doctor testified that
Silverman submitted a forged prescription for attendant care and supervision for his client; a care
provider for one of Silverman’s clients testified that Silverman instructed her to bill as if she had
provided 24 hours of care per day, even though she agreed only to provide four to eight hours of care
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per day; and a State Farm case manager (who replaced Swagler) testified that Silverman
misrepresented the claimant’s previous need for 24-hour attendant care.
In view of Silverman and Swagler’s collusive agreement, the jury also was permitted to hold
Silverman responsible for Swagler’s fraudulent statements. “Where there is evidence that parties
are acting in collusion, [e]verything said, done, or written by any one of the parties to the
combination, in furtherance of the common purpose, is deemed the act of all.” Kefuss v. Whitley,
189 N.W. 76, 83 (Mich. 1922) (dealing with a claim to rescind a contract) (internal quotation marks
omitted); see also Kahn v. Friedman, 45 N.W.2d 18, 19 (Mich. 1950); Martinoff v. Jackson News
Publ’g Co., 197 N.W. 576, 577 (Mich. 1924); McDonald v. Smith, 102 N.W. 668, 669–70 (Mich.
1905); Gumberg v. Treusch, 61 N.W. 872, 875 (Mich. 1895).
Silverman does not deny that Swagler made numerous fraudulent statements during the
relevant years. He instead denies that the two of them colluded to defraud State Farm, maintaining
that her misstatements therefore may not be used against him. Yet the frequency of the
communications between Silverman and Swagler, well documented in the record, by itself suggests
a contrary conclusion. Over two years, Swagler called Silverman almost 700 times. On November
20, 2003, the day State Farm auditors interviewed Swagler about several claimants for whom
Silverman served as attorney, they spoke on the phone twelve times, including eight phone calls
initiated by Silverman. Swagler even referred State Farm claimants to Silverman—which might
have made some sense based solely on Silverman’s successful representation of her daughter but
made no sense given her job as a State Farm claim representative. See JA 1902 (a State Farm
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employee testifying that in her 20 years at State Farm, she had never known of anyone who had
referred a claimant to an attorney). And of course all of this happened after Swagler was told by her
supervisor not to work on claim files in which Silverman was involved.
Silverman, the record shows, also benefitted from Swagler’s misrepresentations: State Farm
often issued checks directly to Silverman, and Silverman ensured that payment would continue to
come directly to him by, for example, instructing a provider to send bills to him instead of sending
them directly to State Farm, and arranging for the provider to be fired after she began billing State
Farm directly. Even if Swagler, as the insider, made the vast majority of the fraudulent
misstatements, Silverman knew what she was doing and benefitted directly from it. Having
participated in the scheme and “accepted the fruit of the fraud,” Kefuss, 189 N.W. at 83, he cannot
disclaim responsibility for Swagler’s actions.
Silverman insists that, “[w]ithout a scheme/conspiracy claim, there is no legal basis for using
evidence about what Ms. Swagler said or did to hold Mr. Silverman vicariously liable.” Br. at 40.
But he cites no Michigan case for the proposition that a freestanding conspiracy claim is a
precondition to imposing liability on Silverman for Swagler’s actions. At least one Michigan case
holds it is not, reasoning that the “concert of action theory does not depend on proving an
independent claim of civil conspiracy. It requires evidence that parties knowingly acted to further
a common purpose.” Korn Family Ltd. P’ship v. Harbor Bldg. Co., No. 272813, 2008 WL 239651,
at *3 (Mich. Ct. App. Jan. 29, 2008). And other cases do not on their face involve underlying
conspiracy claims. See, e.g., Gumberg, 61 N.W. at 875 (“There was evidence from which the jury
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might infer that the transactions were collusive, and the same rule is applicable as in a case where
a conspiracy is charged, and there is evidence tending to establish it. Everything said, done, or
written by any one of the parties to the combination, in furtherance of the common purpose, is
deemed the act of all.”).
To the extent Silverman means to complain that he lacked notice that State Farm would use
Swagler’s misstatements against him, that is hard to take seriously. The essence of State Farm’s
allegation was that Silverman used Swagler, as a State Farm insider, to carry out the fraudulent
scheme. The first paragraph of the counterclaim accuses Silverman and Swagler of engaging in a
“scheme to defraud . . . for the sole purpose of enriching Silverman and Swagler, at the expense of
State Farm, and in some instances, at the expense of Silverman’s own clients and patients.” JA 315.
And to the extent he means to argue that the court should have given “a fraud conspiracy/scheme
instruction,” Br. at 40, he has not to this day explained the instruction that should have been given
or what authority required it to be given, see Leary v. Livingston County, 528 F.3d 438, 449 (6th Cir.
2008). The overwhelming evidence of a conspiracy between them, at any rate, shows that any such
error would have been harmless. See United States v. Kuehne, 547 F.3d 667, 681 (6th Cir. 2008).
State Farm also presented ample evidence of reliance and injury. Its damages witness
testified at length about each of the payments that State Farm included in its total damage
calculation, noting that the final damages figures “represent the difference between the monies State
Farm paid to Mark Silverman and his clients and what State Farm believes to be the maximum
amount that [State Farm] would have paid, had Mark Silverman not been involved.” JA 2100. For
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each payment included in the total damages calculation, the witness explained why the Silverman-
Swagler scheme caused the insurance company to pay more than it should have.
For example: she noted that State Farm requested damages for two back payments that
Swagler had issued despite the fact that “[t]here was no basis, no documentation, nothing to warrant
payment of these two payments,” JA 2105; that State Farm requested damages for an overpayment
in continuing care for a claimant, explaining that “[t]here was support and documentation in the
files” to justify the amount that had been provided for care before Silverman became involved but
that “there was no documentation” to justify the increase that Swagler had paid after Silverman
became involved, JA 2107; and that State Farm requested damages for back payments made in
reliance on a fraudulent letter by Silverman indicating that one claimant was “horribly injured” and
“needed back attendant care.” JA 2114.
Silverman claims that the damages evidence “was based upon assumptions, not facts,” Br.
at 30, and that State Farm treated certain payments as “damages because they were made after
Silverman became involved, not because Mr. Silverman made an intentional misrepresentation of
fact,” Br. at 31 (internal quotation marks omitted). Yet this is merely a reprisal of his argument,
already rejected, that a member of a fraudulent scheme does not have to answer for the fraudulent
conduct of each member of the coordinated scheme. To the extent Silverman means to say there was
no evidence of injury based on his assessment of the evidence regarding payments to three of his
clients, that argument does nothing for him. State Farm presented evidence of injury tied to the
claims of several other clients, and Silverman does not challenge these. Evidence of damages from
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even one misstatement suffices to establish the injury necessary to reject a sufficiency challenge to
the fraud verdict.
B.
Silverman separately argues that he cannot be held liable for aiding and abetting Swagler’s
breach of fiduciary duty because Swagler’s misconduct was in urging State Farm to “pay[] too much
money” in a series of settlement agreements and Silverman had no duty to “avoid getting too good
a deal” for his clients. Br. at 48. But there is a line between zealous representation and aiding and
abetting fraud—which is why a lawyer may not use fraud to obtain a verdict or look the other way
when he knows a client has testified falsely. See Nix v. Whiteside, 475 U.S. 157, 166 (1986)
(“[C]ounsel’s duty of loyalty and his overarching duty to advocate the defendant’s cause . . . [are]
limited to legitimate, lawful conduct compatible with the very nature of a trial as a search for truth.
Although counsel must take all reasonable lawful means to attain the objectives of the client, counsel
is precluded from taking steps or in any way assisting the client in presenting false evidence or
otherwise violating the law.”) (internal quotation marks omitted); People v. Atkins, 243 N.W.2d 292,
299 (Mich. 1976). Nor was this merely an aiding and abetting of Swagler’s negligence. State
Farm’s breach-of-fiduciary-duty counterclaim alleged that “Swagler’s extensive and pervasive
breach of her fiduciary duties to State Farm displays a high level of moral turpitude and wanton
dishonesty.” JA 417. The evidence at trial bore out this allegation. Among a long list of bad acts,
Swagler falsified her log notes and attested to conversations with doctors that never happened.
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In offering two case citations in support of this argument, Silverman gives analogy a bad
name. Friedman v. Dozorc, 312 N.W.2d 585 (Mich. 1981), held that one party may not sue an
opposing party’s attorney “on a theory of negligence because an attorney owes no duty of care to an
adverse party in litigation.” Id. at 588. True enough, but State Farm accused Silverman of aiding
and abetting a breach of fiduciary duty, not negligence, and that claim does not turn on a duty of care
owed by Silverman to State Farm. Reynolds v. Schrock, 142 P.3d 1062 (Or. 2006), “h[e]ld that a
lawyer may not be held jointly liable with a client for the client’s breach of fiduciary duty unless the
third party shows that the lawyer was acting outside the scope of the lawyer-client relationship.” Id.
at 1063. Silverman, however, was not Swagler’s attorney, and Reynolds expressly does not shield
attorneys from liability for their fraudulent actions, see id. at 1069.
C.
Silverman next challenges several of the jury instructions. To obtain a new trial on this
ground, he must show not only that there were “deficiencies” in the instructions but also that “the
instructions, taken as a whole, [were] misleading or [gave] an inadequate understanding of the law.”
Arban v. West Publ’g Corp., 345 F.3d 390, 404 (6th Cir. 2003).
He first complains about the “fail[ure] to disclose” instruction, JA 1639, which as he sees it
authorized a verdict based on “fraud by omission,” Reply Br. at 19. Silverman cites just one case
in his opening brief in support of this argument, see M&D, Inc. v. McConkey, 585 N.W.2d 33 (Mich.
Ct. App. 1998), and it deals only with the duty of sellers to disclose defects in their products, id. at
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36. Why that case citation helps him is never explained. More fundamentally, he fails to account
for the fact that “[i]n Michigan, even without a fiduciary relationship, a party is under a duty to use
diligence in making a complete disclosure of facts where partial disclosure may convey false
impressions and mislead the plaintiff. Such half-truths or non-disclosures are considered to be
concealment of facts and, therefore, misrepresentations.” Strand v. Librascope, Inc., 197 F. Supp.
743, 753 (E.D. Mich. 1961). Silverman offers no reason why that requirement does not apply here,
and it is particularly difficult to imagine why a jury could not hold him responsible for failing to
disclose Swagler’s fraudulent behavior. As we have already explained, moreover, Silverman is
liable for Swagler’s failures, and he never challenges the application of the failure-to-disclose
instruction to her actions.
He next claims that the damages instructions were misleading. The district court delivered
one general damages instruction for all three charges, asking the jury to “determine the amount of
money which reasonably, fairly, and adequately compensates State Farm for each of the elements
of damage which you decide has resulted from the fraud, breach of fiduciary duty, or aiding and
abetting breach of fiduciary duty, engaged in by the Counter-Defendants, taking into account the
nature and extent of the injury,” JA 1646. Silverman half-heartedly suggests that this instruction is
only “for negligence claims,” Br. at 51, but offers no explanation (or authority) why.
He separately insists that the court should have given instructions about aiding and abetting
and fraud, but he provides no precedent in support of this argument either. It is unclear, in any event,
how additional instructions would have helped him. Silverman suggests that the appropriate
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damages for fraud “are how much more was paid because the plaintiff relied upon a misrepresented
fact to its detriment,” Br. at 51, and State Farm requested damages according to the same
“overpayment” calculation. See JA 2100 (testifying that the damages calculations “represent the
difference between the monies State Farm paid to Mark Silverman and his clients and what State
Farm believes to be the maximum amount that [State Farm] would have paid, had Mark Silverman
not been involved”). Because the jury accepted the damages figure proposed by State Farm, it is
clear that they were not misled or influenced by the general jury instructions on damages—at least
for the fraud claim. And because the jury could have awarded this entire amount as damages on the
fraud claim, we need not review the propriety of the instructions for the aiding and abetting claim.
See Consenco Fin. Servicing Corp. v. N. Am. Mortgage Co., 381 F.3d 811, 823 (8th Cir. 2004).
He next challenges the charge on aiding and abetting a breach of fiduciary duty. In arguing
that the instruction improperly omitted an element of the offense—that “the fiduciary and the
aider/abetter profited” from the breach, Br. at 54—Silverman cites a case that neither mentions nor
requires that element. See German Free State of Bavaria v. Toyobo Co., 480 F. Supp. 2d 958, 965
(W.D. Mich. 2007). To our knowledge, there is no such requirement. Nor does it make any sense
that there would be: Fiduciaries may readily—and quite egregiously—breach their duties of good
faith without directly benefitting financially from the breach.
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D.
Silverman next argues that the district court erred in denying his motion to amend or alter
the judgment. See Fed. R. Civ. P. 59(e). We review the denial of a motion to amend or alter the
judgment for abuse of discretion. Nat’l Ecological Found. v. Alexander, 496 F.3d 466, 476 (6th Cir.
2007). A court may grant a motion to alter or amend judgment only if there was “(1) a clear error
of law; (2) newly discovered evidence; (3) an intervening change in controlling law; or (4) a need
to prevent manifest injustice.” Intera Corp. v. Henderson, 428 F.3d 605, 620 (6th Cir. 2005). In
arguing that there was an “error of law,” Silverman places all of his eggs in an insufficiency-of-the-
evidence argument, one we already have rejected, one we therefore need not discuss again.
E.
Silverman next argues that the district court should have compelled State Farm “to produce
a prepared [Civil Rule] 30(b)(6) designee.” Br. at 27. Under that discovery rule, an organization
must designate an individual “to testify on its behalf . . . about information known or reasonably
available to the organization.” Fed. R. Civ. P. 30(b)(6). In May 2006, Silverman deposed State
Farm’s 30(b)(6) witness. At a hearing in July 2006, Silverman argued that the witness was not able
to testify about what State Farm “would have had to pay” in these cases absent the fraud. JA 1810.
State Farm responded that it could not answer all of Silverman’s questions, in part because
Silverman had “never given [State Farm] any underlying backup data to show what care was
provided to which individual, during which period.” JA 1816. The judge noted that, “if [State
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Farm] get[s] that information before trial, they are required to notify” Silverman. JA 1818. In
January 2007, five weeks before trial, State Farm provided additional information on this score,
prompting Silverman to file a motion for sanctions, which the district court ultimately denied.
Granting for the sake of argument that Rule 30(b)(6) imposes a duty on a company to make
a good-faith effort to identify and prepare its Rule 30(b)(6) witnesses, that does not help Silverman.
State Farm’s initial answer to Silverman’s objection about why its witness could not answer all of
the damages questions was a reasonable one, and the record simply offers no other hand-hold for
maintaining that the district court abused its discretion in concluding that State Farm honored its
discovery obligations.
Nor, for similar reasons, does the record support Silverman’s allegation that State Farm
engaged in “a pattern of deliberately concealing evidence” and that the district court abused its
discretion by “allowing State Farm to offer evidence of damages.” Br. at 29. Silverman has not
shown that State Farm deliberately concealed evidence (or even that it could have delivered the
information in its final interrogatory answer sooner than five weeks before trial), confirming that the
district court did not abuse its discretion in refusing to grant discovery sanctions. See First Bank of
Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501, 510 (6th Cir. 2002).
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F.
Silverman independently argues that the district court committed reversible error by refusing
to admit evidence of a settlement agreement between State Farm and a non-party claimant whom
Silverman had represented. The district court refused to admit the evidence because it was “a
confidential settlement agreement,” JA 2262, and because it was signed in 2006—several years after
the events at issue in this case. As Silverman sees it, the agreement would have “rebutted numerous
theories” offered by State Farm, Br. at 33, because it showed that “other State Farm representatives
did exactly what it was fraudulent for Ms. Swagler to do,” Reply Br. at 12—that other State Farm
employees approved a large settlement agreement between State Farm and one of Silverman’s
employees. But he fails to come to grips with three realities. One, he never responds to one of the
district court’s explanations—that it was a 2006 agreement—and thus was made after the key events
in this case and at a time when Silverman may have decided to reform his ways. Two, he fails to
explain why a similar settlement agreement that was admitted at trial did not suffice to present this
theory to the jury, making any error harmless. See Cooley v. Carmike Cinemas, Inc., 25 F.3d 1325,
1330 (6th Cir. 1994). Three, the agreement by its terms purported to be confidential. No abuse of
discretion occurred.
G.
Three of Silverman’s clients—Tony Beard, Betty Davis and Raymond Andres—argue that,
because they had claims pending against State Farm in Michigan state court, they should not have
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been added as counter-defendants to this case. Abuse-of-discretion review applies. Travelers Indem.
Co. v. Bowling Green Prof’l Assoc., 495 F.3d 266, 271 (6th Cir. 2007).
In addressing this argument, we consider “(1) whether the declaratory action would settle the
controversy; (2) whether the declaratory action would serve a useful purpose in clarifying the legal
relations in issue; (3) whether the declaratory remedy is being used merely for the purpose of
‘procedural fencing’ or ‘to provide an arena for a race for res judicata’; (4) whether the use of a
declaratory action would increase friction between our federal and state courts and improperly
encroach upon state jurisdiction; and (5) whether there is an alternative remedy which is better or
more effective.” Grand Trunk W. R.R. Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984).
In considering these factors, the district court made the following observations: Because the
fraud claim involved the named counter-defendants, separate declaratory-judgment actions would
duplicate, if not multiply, the presentation of the evidence; because the damages requested in the
fraud claim included only money that State Farm had already paid to Silverman and his clients, “the
only way to get total relief is through a declaratory judgment” invalidating future payments under
the agreement, R. 448 at 26; nullification of the settlement agreement would determine the rights of
the clients in the state-court actions; and there was no evidence that State Farm was engaged in
forum shopping. On balance, this reasonable assessment of the Grand Trunk factors does not
amount to an abuse of discretion.
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H.
Silverman makes several other arguments that repeat claims we have already rejected, that
are unsupported or undeveloped, that were not raised below, or all of the above, and accordingly, we
need not address them. Leary, 528 F.3d at 449.
III.
For these reasons, we affirm.
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