Interstate Fire and Casualty Company v. Washington Hospital Center Corporation

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
INTERSTATE FIRE AND CASUALTY )
COMPANY, )
)
Plaintiff, )
)
v. ) Civil Action No. 10-1193 (ABJ)
)
WASHINGTON HOSPITAL CENTER )
CORPORATION, d/b/a WASHINGTON )
HOSPITAL CENTER, GREENSPRING )
FINANCIAL INSURANCE LIMITED, )
and MEDSTAR HEALTH INC., )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION
Plaintiff, Interstate Fire and Casualty Co. (“Interstate”), brought this action against
Washington Hospital Center Corp. (“WHC”), Medstar Health, Inc., and Greenspring Financial
Insurance Ltd. (“GFIL”). Interstate seeks reallocation of a $3,055,000 payment that it made to
patient Radianne Banks as part of the settlement agreement between Banks, Progressive Nursing
Staffers of Virginia, Inc. (“Progressive”) (insured by Interstate), Nurse Chichio Hand, and WHC
(insured by GFIL), as well as legal fees, costs, and monies paid by Interstate in defense and
settlement of the underlying litigation. The action is now before the Court on GFIL’s objections
to Magistrate Judge Alan Kay’s Memorandum Order on the issue of damages. Mem. Order
[Dkt. # 59] (“MJ Mem. Order”). GFIL has objected to the Magistrate Judge’s Memorandum
Order and asks the Court to set aside the Magistrate Judge’s determination of damages on the
basis that the Magistrate Judge lacked the authority to make a determination of the damages to be
awarded to Interstate, and that he erred in determining that Interstate was entitled to
reimbursement of the entire $3,055,000 paid to Banks, and $148,062 in attorneys’ fees. The
Court will construe the Magistrate Judge’s Memorandum Order as a Report and
Recommendation. Because the parties to the underlying action agreed to preserve Interstate’s
right to seek reallocation of the entire $3,055,000, and Interstate is entitled to pre-judgment
interest on that amount at the rate set forth in D.C. Code Section 28-3302(a), the Court will adopt
the Magistrate Judge’s findings and recommendations in full.
JURISDICTION OF THE MAGISTRATE JUDGE
GFIL first objects to the Magistrate Judge’s Memorandum Order on the basis that the
Magistrate Judge lacks authority to make a determination of the damages to be awarded to
Interstate. The Court declines to wade into the legal question of the bounds of authority
delegated to magistrate judges under the local rules of this Court, the Federal Rules of Civil
Procedure, and the Federal Magistrates Act of 1968, 28 U.S.C. § 631 et seq. (2012). Rather, the
Court will treat the Magistrate Judge’s Memorandum Order as a Report and Recommendation
and, accordingly, review the portions to which GFIL has objected under a de novo standard. See
Callier v. Gray, 167 F.3d 977, 982–83 (6th Cir. 1999) (holding that a magistrate judge was
authorized to provide a report and recommendation on a question of damages “subject to the
district judge’s ongoing supervision and final decision” under 28 U.S.C. § 636(b)(3), which
gives magistrate judges “such additional duties as are not inconsistent with the Constitution and
the laws of the United States”); cf. Conetta v. Nat’l Hair Care Ctrs., Inc., 236 F.3d 67, 73 (1st
Cir. 2001) (acknowledging that a magistrate judge could “hear the evidence and prepare a
recommended decision as to the amount of damages [plaintiff was entitled]”). This will not
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prejudice GFIL, which has had the opportunity to lodge its objections to any portions of the
Magistrate Judge’s order and to brief the relevant issues fully.
FACTUAL BACKGROUND
Since neither party objects to the findings set forth in the background section of the
Magistrate Judge’s Memorandum Order, the Court will adopt those findings. In addition, the
facts of this case are laid out in detail in the Court’s previous Memorandum Opinion addressing
liability. Memorandum Opinion (Mar. 28, 2012) [Dkt. # 47] (“Mem. Op.”). In summary, the
relevant facts are as follows:
In the litigation underlying this action, a patient named Radianne Banks sued WHC and
two physicians for medical malpractice. Id. at 2; Defs.’ Statement of Undisputed Material Facts
[Dkt. # 33-2] (“Defs.’ SMF”) ¶ 46; accord Pl.’s Opp. to Defs.’ SMF [Dkt. # 34] ¶ 46. WHC
filed a third-party complaint against Nurse Hand, the nurse responsible for Banks’s post-op care,
and Progressive, the organization that supplied her to WHC. Mem. Op. at 2. The third-party
complaint alleged contribution, and both common-law and contractual indemnification. See
Third-Party Complaint, Banks v. WHC, No. 2007 CA 002022 M (D.C. June 25, 2008), Ex. 10 to
Pl.’s Mot. for Partial Summ. J. [Dkt. # 32-14], ¶¶ 10–22. The contractual indemnification claim
relied on a Temporary Staffing Agreement between Progressive and WHC, which provided that
Progressive was required “to indemnify WHC for claims arising from the negligence of
Progressive or its registered nurse employees who were provided to WHC.” Id.; Mem. Op. at 5.
Progressive and Nurse Hand filed a fourth-party complaint against WHC, in relevant part, for
contribution and/or indemnification. See Settlement Agreement, Ex. 12 to Pl.’s Mot. for Summ.
J. [Dkt. # 32-25], at 1.
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Eventually, Banks, WHC, Hand, Progressive, and Interstate entered into a settlement
agreement, which settled all of the underlying claims. Id. Interstate agreed to pay Banks a sum
of $3,055,000, and WHC agreed to pay Banks a sum of $1,050,000. Id. ¶ 4. As part of the
agreement, WHC released Progressive “from any and all claims” that “WHC may now have or
may hereafter have against . . . Progressive by reason of any matter, cause or thing arising out of,
or in any manner connected with, the Litigation . . . including but not limited to the Temporary
Staffing Agreement.” Id. ¶ 2. Hand and Progressive similarly released WHC “from any and all
claims” that “Hand and Progressive may now have or may hereafter have against WHC by
reason of any matter, cause or thing arising out of, or in any manner connected with, the
Litigation or the facts giving rise to the Litigation.” Id. ¶ 3. The agreement also contained a
provision that stated:
Nothing contained in this Agreement should be construed as a waiver of
[Interstate]’s rights under its policies to seek reallocation of the settlement.
WHC agrees and understands that [Interstate] does not waive and
expressly reserves the right to rely on the ‘other insurance’ clauses
incorporated into its policies to seek reallocation of the settlement as may
be warranted.
Id. Finally, the agreement stated that “[t]his Settlement Agreement contains the entire agreement
among the parties hereto with regard to the matters set forth in it . . . .” Id. ¶ 15.
Interstate filed this action on July 15, 2010. Compl. [Dkt. # 1]. The Complaint contains
claims for breach of contract, contribution, subrogation, and declaratory judgment. Id. Both
sides moved for summary judgment; Interstate moved only for partial summary judgment against
GFIL on the contribution and declaratory judgment claims.
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In its Order and accompanying Memorandum Opinion of March 28, 2012, [Dkts. # 46,
47], 1 this Court granted Interstate’s motion for partial summary judgment against GFIL, denied
GFIL’s cross-motion for summary judgment, and granted summary judgment for defendants
WHC and MedStar Health, Inc. The Court found that GFIL’s insurance contract with WHC
covered the actions of Nurse Hand. Moreover, since GFIL’s contract provided primary
insurance and Progressive’s contract provided secondary insurance, Interstate was entitled to
reimbursement from GFIL for the amount it paid to settle the underlying litigation.
In its Order, the Court directed the parties to file a joint status report stating their
respective positions on the sole remaining issue: the amount of damages to which Interstate was
entitled in light of the Court’s ruling on the merits. See Order (March 28, 2012) [Dkt. # 46]. The
parties filed their status report on April 26, 2012, [Dkt. # 50], and the Court referred the action to
a Magistrate Judge for his or her determination of the amount of damages to be awarded, [Dkt.
# 52]. The Court expressly referred the matter under Local Rule of Civil Procedure 72.2(a). Id.
Magistrate Judge Alan Kay was randomly assigned the same day. [Dkt. # 53].
After an unsuccessful attempt to mediate the case, the Magistrate Judge permitted GFIL
to file a supplement to its statement on damages and permitted Interstate to respond. Minute
Order (July 9, 2012). The Magistrate Judge also ordered Interstate to provide the Court with a
breakdown of the costs and expenses claimed, a reconciliation with the Bill of Costs, and a
summary of the attorneys’ fees claim, Minute Order (Aug. 7, 2012), which Interstate filed on
August 17, 2012, [Dkt. # 58]. On September 4, 2012, the Magistrate Judge issued a
Memorandum Order, finding that Interstate was entitled to reimbursement of the $3,055,000.00
paid to Banks in settlement of the underlying lawsuit; attorneys’ fees in the amount of
1 The Order was amended the same day to reflect that it was not a “final appealable
Order.” Amending Order (March 28, 2012) [Dkt. # 48].
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$148,062.00; and costs incurred in defending the underlying lawsuit against Nurse Hand in the
amount of $5,186.76; as well as pre-judgment interest at the rate set forth in D.C. Code § 28-
3302(a); and post judgment interest at the rate set forth in 28 U.S.C. § 1961(a). MJ Mem. Order
at 12–13.
STANDARD OF REVIEW
When a party objects to a magistrate judge’s recommendation, the court “must determine
de novo any part of the magistrate judge’s disposition that has been properly objected to.” Fed.
R. Civ. P. 72(b)(3); see also Smith v. District of Columbia, 846 F. Supp. 2d 197, 199 (D.D.C.
2012); D.D. ex rel. Davis v. District of Columbia, 470 F. Supp. 2d 1, 1 (D.D.C. 2007). The
Court may “accept, reject, or modify” the magistrate judge’s recommendation, “receive further
evidence,” or “return the matter to the magistrate judge with instructions.” Fed. R. Civ. P.
72(b)(3).
ANALYSIS
I. Interstate is entitled to the entire $3,055,000 that it paid to settle the
underlying litigation.
GFIL’s first objection is to the Magistrate Judge’s conclusion that Interstate is entitled to
the entire $3,055,000 that it paid to settle the underlying litigation. GFIL’s Objections to Sept. 4,
2012 Mem. Order of Mag. J. Kay (“GFIL’s Objections”) [Dkt. # 62] at 10–12. It points out that
while the Settlement Agreement fully resolved WHC’s claims against Nurse Hand, who was
insured by Interstate, at the end of day, after the agreement was executed, Progressive –
Interstate’s other insured – had also been released from any claims against it. GFIL argues that
this release must have factored into the determination of how much of the settlement would be
paid to the patient by Interstate and how much would be paid by WHC, and that therefore, some
portion of the $3,055,000 paid by Interstate was paid in order to obtain Progressive’s release
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from WHC’s indemnification claim. Id. at 11. GFIL reasons that since it was not the source of
any other insurance covering Progressive, it is not required to reimburse Interstate for any
portion of the settlement amount that was paid on behalf of Progressive. Id. In other words,
GFIL maintains that Interstate is only entitled to recover the portion of the settlement payment
that was attributable to the claims against Nurse Hand. Id. GFIL further argues that the burden
rests on Interstate to prove with reasonable certainty how much of the settlement was paid on
behalf of Nurse Hand. Mem. In Support of GFIL’s Position on Damages [Dkt. # 55] at 6–8. If it
fails to meet its burden, GFIL argues, Interstate cannot recover any amount. Id. at 7–8.
At the outset, the Court notes that GFIL’s argument is at bottom a defense to liability that
was not raised in GFIL’s Answer to the Complaint or briefed in the cross-motions for summary
judgment. To raise it at this point – after the close of discovery – and to claim that plaintiff has
the burden of coming forward with additional facts now is prejudicial to plaintiff.
At the summary judgment stage, GFIL argued that it was not liable to Interstate for the
$3,055,000 because Nurse Hand was not a covered employee of WHC under its insurance
agreement with the hospital. GFIL did not raise an alternative argument that even if Nurse Hand
was a covered employee of WHC under its insurance agreement, GFIL is not liable for the
portion of the $3,055,000 that was paid to discharge WHC’s contribution and indemnification
claim against Interstate. 2 Since GFIL failed to raise this argument in its Answer to the
Complaint or during summary judgment briefing, the Court may treat the argument as waived.
2 The only place where GFIL raised the issue at all was in its Memorandum of Points and
Authorities in Support of Defendants’ Motion for Summary Judgment, [Dkt. # 33-1] (“GFIL’s
MSJ”), where it simply asserted that “the very nature of the relief sought by Interstate attests to
the speciousness of its claim as according to its complaint, Interstate expects WHC (through its
insurer, GFIL) to indemnify Interstate for funds it paid to settle the very claim for indemnity
brought by WHC against Interstate’s insured (Progressive).” Id. at 4. GFIL did not go on to
argue that the amount due to Interstate should be offset by the amount of the settlement that was
attributable to the settlement of WHC’s indemnity claim against Progressive.
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See Noble Energy, Inc. v. Salazar, 691 F. Supp. 2d 14, 23 n.6 (D.D.C. 2010), citing Grenier v.
Cyanamid Plastics, Incl, 70 F.3d 667, 678 (1st Cir. 1995) (finding that an argument not raised by
a party in their summary judgment briefing is waived); see also Head Start Family Educ.
Program, Inc. v. Coop. Educ. Serv. Agency 11, 46 F.3d 629, 635 (7th Cir. 1995) (waiving
arguments not raised in a summary judgment motion before the district court ). But the
contention fails on the merits as well.
GFIL’s argument ignores the structure and express language of the settlement
agreement. First, the entire sum paid by Interstate was paid to Banks. No money was transferred
from Interstate to WHC. And while it is true that the Settlement Agreement expressly resolved
WHC’s claims against Progressive, the parties presented no evidence at the summary judgment
stage that indicates that any portion of the money paid to the patient was for the purpose of
discharging WHC’s claims against Progressive. The Settlement Agreement itself is silent on this
point.
What is clear in the Settlement Agreement is that Progressive and WHC both agreed to
permanently release and discharge the contribution and indemnification claims that they had
filed against the other. Sophisticated parties sat in a room and hammered out a deal, and the only
right they preserved was for Interstate to bring the claim that it brought in this case: the claim
seeking indemnification in reliance upon the “other insurance” clauses in its contract. This
provision operates as a one-way street. It clearly allows Interstate to seek reallocation of the
amount it paid in the settlement, but it does not afford WHC or its insurer, GFIL, the same
opportunity. There are no facts on which the Court could find that WHC or its insurer preserved
any ability to offset that amount. Indeed, the very fact that this reallocation provision was
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included for the benefit of Interstate without any parallel safety valve for WHC suggests the very
opposite – that the parties intended that the amount could not be offset. 3
The Court finds that it must decline GFIL’s invitation to go beyond the face of the
contract. GFIL’s premise is that the Court must assume, because the Settlement Agreement
expressly includes, among other things, a release of WHC’s claims for indemnity against
Progressive, that the calculation of the amount that the parties to the settlement agreed Interstate
would pay on behalf of its insureds – Progressive and Nurse Hand – took that into consideration.
But if the Court makes this assumption, it must also assume that the calculation of the amount of
the settlement also took into account the expressly stated possibility that GFIL would have to
reimburse Interstate if Interstate were to exercise the right that it reserved to seek reallocation
under the “other insurance” clauses. In other words, after considering a large number of factors,
all of the parties to the settlement agreed to accept all of the risks and benefits – which were
spelled out in the Settlement Agreement – that flowed from the payment of the specified
amounts. They memorialized that agreement within the four corners of a contract that specifies
that it represents the entire agreement among the parties. The Court cannot peel it back and find
– especially in the absence of any facts submitted at the summary judgment phase on this issue –
that there is some unspecified slice of the settlement that falls outside the scope of the agreed-
upon paragraph under which Interstate, and Interstate only, reserved its rights to seek
reallocation of the settlement. 4
3 Moreover, the Settlement Agreement reserved Interstate’s right to seek reallocation under
any “other insurance” clauses. Since the type of other insurance clause here is an all-or-nothing
proposition, this suggests that the reservation of rights in the Settlement Agreement is also all-or-
nothing.
4 Moreover, as Interstate points out in its response to GFIL’s objections, it is hard to
imagine what value could be ascribed to the release of Progressive since there has been no
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Accordingly, the Court will adopt the Magistrate Judge’s recommendation that Interstate
is entitled to the full amount of $3,055,000 that it paid to Banks to settle the underlying litigation.
II. Interstate is entitled to pre-judgment interest for the period between
payment of the $3,055,000 and the commencement of this action.
GFIL next objects to the Magistrate Judge’s determination that Interstate is entitled to
pre-judgment interest for the eleven month period between when it paid Banks and when it
commenced this action. 5
GFIL first argues that the $3,055,000 is not a liquidated debt under D.C. Code § 15-108because that section of the code requires that a liquidated debt be “an easily ascertainable
amount.” It argues that since Interstate has not apportioned the $3,055,000 between settlement
of Banks’s claims against Nurse Hand and WHC’s claim for contractual indemnity against
Progressive, the amount of damages to which Interstate is entitled is not “an easily ascertainable
sum.” GFIL’s Objections at 12. Because the Court has already rejected GFIL’s apportionment
argument, the Court rejects this argument as well.
Next, GFIL challenges the Magistrate Judge’s determination that the eleven-month gap
was reasonable. Id. “[I]t may be appropriate to limit prejudgment interest, or perhaps even deny
it altogether, where the [plaintiff] has been responsible for undue delay in prosecuting the
lawsuit.” Fed. Mktg. Co. v. Va. Impression Prods. Co., 823 A.2d 513, 533 (D.C. 2003), quoting
Gen. Motors Corp. v. Devex Corp., 641 U.S. 468, 657 (1983). The Magistrate Judge found,
however, that courts may only withhold or limit pre-judgment interest under D.C. Code § 15-109argument that Progressive had any liability to the patient that was independent and not merely
derivative of Nurse Hand’s.
5 GFIL does not object to the Magistrate Judge’s findings that: (1) Interstate paid the
$3,055,000 sum to Banks on August 20, 2009, MJ Mem. Order at 9, and (2) the pre-judgment
interest rate set forth at D.C. Code § 28-3302 would apply, should the Court find that Interstate is
entitled to pre-judgment interest, id. at 13. See GFIL’s Objections at 12–13.
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– which applies to unliquidated sums – but not under under D.C. Code § 15-108 – which applies
to liquidated sums. MJ Mem. Order at 11. GFIL did not object to this conclusion. Thus, since
the settlement amount paid by Interstate is a “liquidated sum,” section 15-108 applies and pre-
judgment interest is mandatory.
The Magistrate Judge only reached the question of whether the eleven-month gap
between when Interstate paid the money to Banks and when it brought this action was reasonable
because he “assum[ed] arguendo that the indemnity payment cannot be characterized as
‘liquidated.’” Id. Since this Court concludes that the indemnity payment was in fact liquidated,
it need not reach the question of whether the eleven month gap was reasonable.
CONCLUSION
Accordingly, the Court will construe the Magistrate’s Memorandum Order as a report
and recommendation. Upon de novo review, the Court will adopt the Magistrate Judge’s
findings and recommendations in full. Interstate will be awarded: (1) $3,055,000.00, which
represents the sum that Interstate paid to Banks; (2) pre-judgment interest on the amount of
$3,055,000, for the period between August 20, 2009 and the date of the order accompanying this
Memorandum Opinion, at the rate set forth in D.C. Code § 28-3302(a); (3) attorneys’ fees in the
amount of $148,062.00; (4) costs in the amount of $5,186.72; and (5) post-judgment interest at
the rate set forth in 28 U.S.C. § 1961(a).
A separate order and judgment will issue.
AMY BERMAN JACKSON
United States District Judge
DATE: January 18, 2013
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