Lagstein v. Certain Underwriters at Lloyd's of London

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ZEV LAGSTEIN, M.D., Nos. 11-17369
Plaintiff-Appellant / 11-17460
Cross-Appellee,
D.C. No.
v. 2:03-CV-01075-
GMN-LRL
CERTAIN UNDERWRITERS AT
LLOYD’S OF LONDON, a foreign OPINION
insuring entity,
Defendant-Appellee /
Cross-Appellant.
Appeal from the United States District Court
for the District of Nevada
Gloria M. Navarro, District Judge, Presiding
Argued and Submitted
May 14, 2013—San Francisco, California
Filed August 5, 2013
Before: Richard R. Clifton and Carlos T. Bea, Circuit
Judges, and Kevin Thomas Duffy, District Judge.*
Opinion by Judge Duffy
*
The Honorable Kevin Thomas Duffy, United States District Judge for
the Southern District of New York, sitting by designation.
2 LAGSTEIN V. CERTAIN UNDERWRITERS
SUMMARY**
Attorney’s Fees / Arbitration Award
The panel reversed and remanded the district court’s
ruling on interest and attorney’s fees, and affirmed the district
court’s denial of a request for return of an alleged
overpayment to plaintiff from an escrow fund in an diversity
action involving an arbitration award arising from a
plaintiff’s claim on a disability insurance policy.
The panel held as a threshold issue that the decision of the
arbitrators—which awarded the plaintiff interest on contract
damages—did not foreclose the district court from awarding
interest on the remaining portions of the arbitration award.
The panel held that under Nevada law plaintiff was entitled
to collect post-award, pre-judgment interest on the non-
contract damages portions of the arbitration award from the
date of the awards through the date of payment. The panel
also held that plaintiff was entitled to collect post-judgment
interest on his post-award, pre-judgment interest from the
date of this opinion until the date the insurer pays the interest.
The panel remanded with instructions to award plaintiff
attorney’s fees pursuant to Nev. Rev. Stat. § 689A.410(5).
Finally, the panel held that the district court did not
impermissibly overpay plaintiff when it released funds from
the escrow account and included interest on the contract
damages through the date of payment.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
LAGSTEIN V. CERTAIN UNDERWRITERS 3
COUNSEL
Thomas L. Hudson (argued), Osborn Maledon, P.A., Phoenix,
Arizona; Charles J. Surrano III and John N. Wilborn, Surrano
Law Offices, Phoenix, Arizona; Julie A. Mersch, Law Offices
of Julie A. Mersch, Las Vegas, Nevada, for Plaintiff-
Appellant/Cross-Appellee.
Evan M. Tager (argued) and Philip Allen Lacovara, Mayer
Brown LLP, Washington, D.C.; Joseph M. Rimac, Anna M.
Martin, and Kevin G. Gill, Rimac Martin, P.C., San
Francisco, California, for Defendant-Appellee/Cross-
Appellant.
OPINION
DUFFY, District Judge:
After undergoing major heart surgery in 2001, Dr. Zev
Lagstein, a nuclear cardiologist, made a claim on a disability
insurance policy he had purchased from Certain Underwriters
at Lloyd’s of London. Lloyd’s pussyfooted for years only to
eventually deny the claim, so Dr. Lagstein sued in the United
States District Court for the District of Nevada. Lloyd’s
moved to arbitrate pursuant to the policy, and the District
Court granted the motion.
Illustrating the maxim “be careful what you wish for,” the
arbitration was wildly successful for Dr. Lagstein, resulting
in a total damages award of over $6 million against Lloyd’s,
including $4 million in punitive damages. Lloyd’s, unhappy
with the result of the arbitration it had demanded,
successfully moved in the District Court to vacate the award.
4 LAGSTEIN V. CERTAIN UNDERWRITERS
Dr. Lagstein appealed, and this court reversed and remanded
with instructions to confirm the award. The District Court
then confirmed the award but denied Dr. Lagstein’s request
for interest and attorneys’ fees. Dr. Lagstein now appeals the
District Court’s ruling on interest and attorneys’ fees, and
Lloyd’s cross-appeals requesting return of an alleged
overpayment to Dr. Lagstein from a fund which held the
award in escrow pending the outcome of litigation. As
discussed below, we REVERSE and REMAND on the
issues of interest and attorney’s fees, and AFFIRM on the
issue of overpayment.
BACKGROUND
In 1999, Dr. Lagstein purchased a disability insurance
policy from Lloyd’s. Under the policy, Lloyd’s agreed to pay
Dr. Lagstein $15,000 per month for up to sixty months in the
event that Dr. Lagstein became unable to practice medicine
due to disability. In 2001, Dr. Lagstein developed heart
disease, severe migraine headaches, and other neurological
problems. Several physicians who examined him concluded
that he was permanently disabled and could no longer
practice medicine. Dr. Lagstein made a claim for benefits
under the policy.
By early 2002, Dr. Lagstein had yet to receive any
benefits or even a decision on his claim, so he went back to
work against the advice of his doctors. In September 2003,
with still no decision on his claim, Dr. Lagstein filed a
complaint in the District Court claiming breach of contract,
breach of the covenant of good faith and fair dealing, and
unfair trade practices. Upon Lloyd’s motion, the District
Court stayed the lawsuit pending binding arbitration required
by the policy.
LAGSTEIN V. CERTAIN UNDERWRITERS 5
An initial arbitration was held from July 11 to July 14,
2006, and the panel issued a decision on August 31, 2006. A
divided panel concluded that Dr. Lagstein should be awarded
the full value of his policy, $900,000, plus interest from “30
days after January 17, 2002” (the date Lloyd’s was obligated
to rule on the claim under Nevada law), and $1,500,000 for
emotional distress. The panel also concluded that punitive
damages would be determined at a separate hearing.
The punitive damages hearing was held on November 21
and 22, 2006, and the same majority of the panel awarded Dr.
Lagstein $4 million in punitive damages on December 14,
2006. The panel also awarded Dr. Lagstein attorneys’ fees
for the arbitration in the amount of $350,000.00 and one-half
of the arbitrators’ fees.
Lloyd’s moved in the District Court to vacate the
arbitration award on several grounds. The District Court
vacated the awards on August 15, 2007, concluding that the
size of the awards was excessive and in manifest disregard of
the law, and that the punitive damages award contravened
public policy and exceeded the panel’s jurisdiction. See
Lagstein v. Certain Underwriters at Lloyds of London, CV-S-
03-1075-RCJ, 2007 WL 2363871, at *2 (D. Nev. Aug. 15,
2007).
Dr. Lagstein appealed. On June 10, 2010, this court
reversed and remanded with instructions to confirm the full
awards, holding that the vacatur was not properly based on
any of the enumerated grounds upon which a court may
vacate, modify, or correct an arbitration award pursuant to the
Federal Arbitration Act (“FAA”). See Lagstein v. Certain
Underwriters at Lloyd’s, London, 607 F.3d 634, 645 (9th Cir.
2010).
6 LAGSTEIN V. CERTAIN UNDERWRITERS
After this court issued its opinion, the District Court
entered an order confirming the awards on June 16, 2010.
However, because the mandate had not yet issued from this
court, Lloyd’s filed an emergency order to vacate, which the
District Court promptly granted on June 21, 2010. Lloyd’s
petitioned for a panel rehearing and a rehearing en banc, both
of which this court denied.
The parties then entered into a stipulation. Lloyd’s
requested a stay of the mandate while it petitioned the
Supreme Court for a writ of certiorari. In exchange for Dr.
Lagstein agreeing to the stay, Lloyd’s posted a security in the
amount of $7.4 million and stipulated that “any undisputed
amount to which [Dr. Lagstein] is entitled under the Awards
will be distributed to his attorney’s trust account from the
security following the certiorari process . . . .” The Supreme
Court denied Lloyd’s petition on December 13, 2010.
Certain Underwriters at Lloyd’s, London v. Lagstein, 131 S.
Ct. 832 (2010). On December 14, 2010, Dr. Lagstein moved
for release of the funds pursuant to the parties’ stipulation.
On December 16, 2010, the District Court ordered the clerk
to pay Dr. Lagstein $7,315,975.34 from the security posted
by Lloyd’s, which was comprised of the principal amount of
the arbitration awards ($6,943,950.17) plus interest on the
contract damages award1 ($372,025.17).
In the meantime, while awaiting the Supreme Court’s
decision on Lloyd’s certiorari petition, Dr. Lagstein applied
to this court for attorneys’ fees. On August 24, 2010, this
1
For simplicity, this opinion refers to the $900,000.00 damages awarded
for Lloyd’s breach of the insurance policy as the ‘contract damages’
award. The other awards Dr. Lagstein received are collectively referred to
as the ‘non-contract damages.’
LAGSTEIN V. CERTAIN UNDERWRITERS 7
court ordered that the request be transferred to the District
Court. On January 5, 2011, Dr. Lagstein moved for
attorneys’ fees in the District Court. On January 6, 2011, Dr.
Lagstein filed in this court a Motion to Lift Stay and Issue
Mandate Taxing Costs and Request for Instructions in the
Mandate About the Allowance of Interest (“Motion to Lift
Stay”). The Motion to Lift Stay requested that this court
include in the mandate instructions concerning pre- and post-
judgment interest. The motion acknowledged, however, that
“if [this court] . . . is inclined to have the district court
consider the interest issue in the first instance and is inclined
to agree that the state rates should apply until the awards are
confirmed on remand, it need not specify anything about
interest in the mandate . . . .” The following day—January 7,
2011—the clerk issued the mandate, which awarded costs to
Dr. Lagstein in the amount of $1,050.40. On January 24,
2011, without awaiting a response from Lloyd’s, this court
denied Dr. Lagstein’s Motion to Lift Stay as moot.
On January 27, 2011, Dr. Lagstein moved in the District
Court for confirmation of the arbitration awards and for the
court to enter judgment with post-award interest and
arbitrators’ fees. Lloyd’s opposed Dr. Lagstein’s motion, and
cross-moved for “an order that Dr. Lagstein return the
overage of $372,025.17,” which is what the District Court
had released from the escrow fund as interest on Dr.
Lagstein’s contract damages. Remarkably, Lloyd’s now
argued that the interest constituted an impermissible revision
of the arbitration award, even though it had earlier stipulated
to that method of interest calculation.
The District Court issued the order that is the subject of
this appeal on September 15, 2011, see Lagstein v. Lloyd’s
Underwriter at London, 2:03-CV-01075-GMN, 2011 WL
8 LAGSTEIN V. CERTAIN UNDERWRITERS
4356517 (D. Nev. Sept. 15, 2011), and separately entered
judgment confirming the arbitration award on September 23,
2011.2 In its September 15, 2011 order, the District Court
delineated the three types of interest potentially available to
Dr. Lagstein, since the cases cited by the parties use a number
of inconsistent terms. This opinion adopts the same terms as
follows: Pre-award interest refers to interest that pre-dates
the arbitration award (typically calculated from the date the
plaintiff filed the complaint); post-award, pre-judgment
interest refers to interest that runs from the date of the
arbitration award until the court’s entry of a judgment
confirming the award; and post-judgment interest refers to
interest that runs after the entry of judgment confirming the
arbitration award until the day the award is paid.
Ultimately, the District Court granted in part and denied
in part Dr. Lagstein’s motion, and denied in full Lloyd’s
cross-motion. The District Court held that (i) Dr. Lagstein
was not entitled to post-award, pre-judgment interest under
Nevada law; (ii) the arbitrators’ fees should be split equally
between Plaintiff and Defendant; (iii) Plaintiff was not
entitled to attorneys’ fees because federal procedural rules,
rather than state law, apply to the issue of whether attorneys’
fees should be granted; and (iv) since the arbitration award
provided for interest on the contract damages until payment,
the District Court did not overpay Dr. Lagstein when it
released him funds pursuant to the parties’ stipulation. Dr.
2
In its September 23, 2011 judgment, the District Court awarded Dr.
Lagstein additional interest of $22,396.75. The District Court reached this
amount by calculating 10.75% interest on the $900,000.00 contract
damages award from November 23, 2006 through December 20, 2010
(totaling $394,421.92) and deducting the interest Lloyd’s had already paid
from the escrow fund on December 20, 2010 (which totaled $372,025.17).
LAGSTEIN V. CERTAIN UNDERWRITERS 9
Lagstein appealed issues (i) and (iii), and Lloyd’s appealed
issue (iv).
DISCUSSION
I. Interest
As a threshold issue, the decision of the arbitrators—
which awarded Dr. Lagstein interest on the contract
damages—does not foreclose the District Court from
awarding interest on the remaining portions of the arbitration
award. Courts do not lack authority to award interest where
an arbitration award is silent. See Northrop Corp. v. Triad
Int’l Mktg. S.A., 842 F.2d 1154, 1155 (9th Cir. 1988) (per
curiam); see also Kyocera Corp. v. Prudential-Bache Trade
Servs., Inc., 299 F.3d 769, 794–95 (9th Cir. 2002) (applying
same reasoning to attorney’s fees), vacated on other grounds
by 341 F.3d 987, 994 n.11 (9th Cir. 2003) (en banc). While
the arbitrators’ explicit award of interest on the contract
damages should be respected, their failure to speak on interest
otherwise does not constitute a denial of interest on other
parts of the award.
A. Standard of Review
This court reviews a district court’s calculation of interest
de novo when, as here, it turns on issues of statutory
interpretation. AT&T Co. v. United Computer Sys., Inc.,
98 F.3d 1206, 1209 (9th Cir. 1996). In diversity cases such
as this one,3 the court looks to state law to determine the rate
3
Although the FAA “provides a means of judicial enforcement where
a controversy has been arbitrated pursuant to a valid arbitration provision
and the arbitrator has made an award,” it does not “confer jurisdiction on
10 LAGSTEIN V. CERTAIN UNDERWRITERS
of pre-judgment interest, while federal law determines the
rate of post-judgment interest. Northrop, 842 F.2d at 1155.
B. Post-Award, Pre-Judgment Interest
Under Nevada law, Dr. Lagstein is entitled to post-award,
pre-judgment interest pursuant to Nev. Rev. Stat. § 17.130.
See Mausbach v. Lemke, 866 P.2d 1146 (Nev. 1994).
Although in Mausbach the Nevada Supreme Court held that
“absent statutory or contractual authority, a district court in a
confirmation proceeding may not add prejudgment interest to
the arbitration award,” the court in the same breath stated,
“our ruling [does not] preclude the district court from
awarding post-judgment interest, commencing from the date
of entry of the award itself.” Id. at 1150 (emphasis added).
On this basis, it is evident that the term “prejudgment
interest” as used in Mausbach refers to pre-award interest
(i.e., interest on the arbitration award calculated from the date
the complaint was filed) rather than post-award, pre-
judgment interest (i.e., interest from the date of the arbitration
award until the date the court enters judgment). So while
Mausbach precludes pre-award interest, it permits courts to
award post-award, pre-judgment interest running from the
date of the arbitration award.
federal district courts over actions to compel arbitration or to confirm or
vacate arbitration awards, nor does it create a federal cause of action
giving rise to federal question jurisdiction under 28 U.S.C. § 1331.”
United States v. Park Place Assocs., Ltd., 563 F.3d 907, 918 (9th Cir.
2009) (internal citations omitted). Rather, there must be “some other
independent basis for federal jurisdiction” in an FAA case, such as
diversity jurisdiction. Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 25 n.32 (1983). The District Court had diversity
jurisdiction here since Lloyd’s is a foreign corporation and Dr. Lagstein
is a citizen of the state of Nevada. See 28 U.S.C. § 133 (2012).
LAGSTEIN V. CERTAIN UNDERWRITERS 11
Dr. Lagstein is thus entitled to collect post-award, pre-
judgment interest on the non-contract damages portions of the
award from the date of the awards (August 31, 2006 and
December 14, 2006) through the date of payment (December
20, 2010). This includes post-award, pre-judgment interest
on punitive damages because the “trier of fact,” in this
instance the arbitration panel, “has heard all the evidence,”
and the amount of damages “can[] be ascertained.” Ramada
Inns, Inc. v. Sharp, 711 P.2d 1, 2 (Nev. 1985). Once the
arbitration panel set the amount of punitive damages, Lloyd’s
could not delay payment so as “to make money during the
[confirmation] process on what has been ordered to be paid
to the plaintiff.” Powers v. United Servs. Auto. Ass’n,
962 P.2d 596, 605–06 (Nev. 1998). Post-award, pre-
judgment interest on the non-contract damages should be
calculated “at a rate equal to the prime rate at the largest bank
in Nevada as ascertained by the Commissioner of Financial
Institutions” on July 1, 2006, “plus 2 percent.” Nev. Rev.
Stat. § 17.130. “The rate must be adjusted accordingly on
each January 1 and July 1 thereafter” until the date Lloyd’s
satisfied the judgment. Id. We reverse and remand for the
District Court to calculate post-award, pre-judgment interest
on the non-contract damages portions of the award
accordingly.
i. Reform of the Mandate
To the extent the mandate must include instructions on
pre-judgment interest to comply with Rule 37(b) of the
Federal Rules of Appellate Procedure, we reform the mandate
as such. The District Court is directed to enter judgment in
accordance with the amended mandate effective September
23, 2011.
12 LAGSTEIN V. CERTAIN UNDERWRITERS
C. Post-Judgment Interest
Dr. Lagstein is entitled to collect post-judgment interest
on his post-award, pre-judgment interest from the date of this
opinion until the date Lloyd’s pays the interest. Post-
judgment interest on a district court judgment is mandatory
per 28 U.S.C. § 1961. Perkins v. Standard Oil Co., 487 F.2d
672, 674 (9th Cir. 1973). Post-judgment interest should be
awarded on the entire amount of the judgment, including any
pre-judgment interest. Air Separation, Inc. v. Underwriters
at Lloyd’s of London, 45 F.3d 288, 291 (9th Cir. 1995).
Typically, post-judgment interest is awarded from the date of
judgment until the judgment is satisfied. See id. But while
judgment in this case was rendered on September 23, 2011,
it was not until today, as set forth in this opinion, that
“plaintiff's unconditional legal entitlement to pre[-]judgment
interest was initially established.” Caffey v. Unum Life Ins.
Co., 302 F.3d 576, 587 (6th Cir. 2002); see Kaiser Aluminum
& Chem. Corp. v. Bonjorno, 494 U.S. 827, 835–36 (1990).
On that basis, post-judgment interest on the post-award, pre-
judgment interest to which Dr. Lagstein is entitled will accrue
from today until the date of payment.
II. Attorney’s Fees
This court reviews de novo questions of law concerning
entitlement to attorney’s fees. Rickley v. Cnty. of Los
Angeles, 654 F.3d 950, 953 (9th Cir. 2011). State law
governs whether a party is entitled to attorney’s fees in
diversity cases such as this one. See LaFarge Conseils Et
Etudes, S.A. v. Kaiser Cement & Gypsum Corp., 791 F.2d
1334, 1340–41 (9th Cir. 1986). Nevada law mandates
attorney’s fees in certain insurance lawsuits. See Nev. Rev.
Stat. § 689A.410(5). It is the law of the case that section
LAGSTEIN V. CERTAIN UNDERWRITERS 13
689A.410 applies to this insurance policy. See Lagstein,
607 F.3d at 642, cert. denied, 131 S. Ct. 832. Thus, we
reverse and remand with instructions to award Dr. Lagstein
attorney’s fees pursuant to Nev. Rev. Stat. § 689A.410(5).
III. Alleged Overpayment from Escrow Account
The District Court did not impermissibly overpay Dr.
Lagstein when it released the funds from the escrow account
and included interest on the contract damages through the
date of payment. The arbitration award of August 31, 2006
provided for interest on the contract damages through the date
of payment, and the subsequent award of December 14, 2006
did not alter that. Moreover, Lloyd’s actually stipulated to
the very method of interest calculation used by the District
Court when it released the funds. For Lloyd’s to now
challenge that calculation as an impermissible overpayment
is disingenuous at best. We thus affirm that the District Court
did not overpay Dr. Lagstein from the escrow account.
Accordingly, the District Court is instructed to award Dr.
Lagstein (i) interest on the non-contract damages in the
arbitration awards and (ii) attorney’s fees, as set forth above.
The court affirms the District Court’s payment to Dr.
Lagstein from the escrow account, including interest on the
contract damages. Costs are awarded to plaintiff-appellant.
REVERSED AND REMANDED IN PART AND
AFFIRMED IN PART.