Zurich American Insurance Company of Illinois v. Palmetto Contract Services, Inc.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals
Zurich American Insurance Company of Illinois,
Respondent,
v.
Palmetto Contract Services, Inc., Appellant.
Appellate Case No. 2018-000692
Appeal from Charleston County
Kristi Lea Harrington, Circuit Court Judge
Opinion No. 5833
Heard November 3, 2020 – Filed July 7, 2021
AFFIRMED
William A. Scott, of Pedersen & Scott, PC, of Charleston,
for Appellant.
Larry D. Cohen, of Larry D. Cohen LLC, and Carolyn H.
Blue, both of Charleston, for Respondent
GEATHERS, J.: In this breach of contract action, Appellant Palmetto Contract
Services, Inc. (Palmetto) appeals the circuit court's order granting Respondent
Zurich American Insurance Company's (Zurich) motion to strike Palmetto's jury trial
demand. Palmetto argues it revived its right to a jury trial when it raised
counterclaims for the first time in its amended answer and counterclaim.
Additionally, Palmetto asserts its counterclaims raised new issues of fact that also
revived its right to a jury trial. We affirm.
FACTS/PROCEDURAL HISTORY
In February 2012, Palmetto entered into a contract with Zurich for workers'
compensation and employers' liability insurance coverage. After a premium audit,
Zurich determined Palmetto owed it additional premiums in the amount of $158,744.
On December, 11, 2015, Zurich sued Palmetto for breach of contract, seeking
to recoup the unpaid premiums, accrued and post-judgment interest, costs, and any
other relief to which it may have been entitled. Palmetto answered on February 16,
2016, denying Zurich's allegations and asserting the following defenses: failure to
mitigate damages; waiver, estoppel, laches; and fraud. Neither party demanded a
jury trial in its initial pleading.
On July 12, 2016, Palmetto filed a motion to amend its answer and assert
counterclaims. Palmetto's proposed amended answer and counterclaim added the
following: a defense of full accord and satisfaction; a defense of setoff—asserting
Zurich's claims must be reduced by the amount paid for the value of the work
performed; a counterclaim for negligent representation and fraud; and a
counterclaim for breach of contract.
As to the counterclaims for negligent representation and fraud, Palmetto
asserted Zurich previously classified some of Palmetto's employees under National
Council on Compensation Insurance (NCCI) code 3040. However, Palmetto
contended, as a result of Zurich's audit, Zurich determined that those employees
should have been listed under code 6824F. This caused Zurich to invoice Palmetto
for the unpaid premiums. Palmetto argued the following: (1) the representation that
Zurich would properly classify employees under code 3040 and bill Palmetto
accordingly was false and material; (2) Zurich "knew the representations . . . were
false" and "intended that the representations be acted upon"; (3) "Palmetto did not
know that the representations were false[] and relied on the representations"; (4)
Zurich had a pecuniary interest in making the false representations; (5) Zurich had a
duty of care to provide truthful information to Palmetto—which it breached by
failing to properly communicate information regarding class codes to Palmetto; (6)
"Palmetto had a right to rely on the representations in the agreement"; and (7) as a
result of the negligent misrepresentations and fraud, Palmetto incurred actual,
incidental, and unspecified damages. As to the counterclaim for breach of contract,
Palmetto asserted "Zurich breached the contract by failing to classify operations
properly and improperly billing Palmetto." Palmetto did not request a jury trial at
the time it filed its motion to amend. Zurich opposed Palmetto's motion to amend
its answer.
A hearing on the motion was held on September 19, 2017. Zurich argued it
was prejudiced by the potential amendment because it would not be able to seek a
jury trial if it so desired. Zurich clarified, however, that it was not requesting a jury
trial at that time. The court granted Palmetto's motion to amend and instructed
Palmetto to "put it in the order that [it] consent[ed] to a jury trial if [Zurich] desires
a jury trial . . . ." The court found no prejudice in granting the motion because
Palmetto's original answer included "issues of fraud and misrepresentation" and
Palmetto consented to a jury trial if Zurich requested one.
Subsequently, on September 27, 2017, Palmetto filed its amended answer and
counterclaim, designated "(Jury Trial)" below the document's title. Thereafter, the
clerk's office placed the case on the jury roster. Zurich objected to the transfer to the
jury roster and moved to strike Palmetto's jury trial demand, arguing Palmetto
waived its right to a jury trial when it did not demand a jury trial following its initial
answer and that the amended answer and counterclaim did not revive the right to a
jury trial because it was not based upon new issues of fact pursuant to King v.
Shorter.1 Zurich contended Palmetto's allegations were based upon the same issues
and facts raised in Zurich's complaint and Palmetto's initial answer. Zurich further
noted that the court's order granting Palmetto's motion to amend its answer stated
Palmetto raised the same issues as previously pled.
A hearing on Zurich's motion to strike was held before the circuit court on
March 6, 2018. At the hearing, Palmetto argued that the counterclaims asserted in
the amended answer were new issues of fact not in the original pleading, and
therefore, it was allowed to demand a jury trial under King. Additionally, Palmetto
noted that Zurich had previously argued against Palmetto's motion to amend by
stating Zurich would not have the ability to seek a jury trial.
On March 8, 2018, the circuit court issued an order granting Zurich's motion
to strike Palmetto's jury trial demand pursuant to Rule 38(d), SCRCP and King. The
circuit court found Palmetto's amended answer and counterclaim did not create new
issues of fact. This appeal followed.
ISSUE ON APPEAL
1
291 S.C. 501, 503, 354 S.E.2d 402, 403 (Ct. App. 1987) (finding the circuit court
did not abuse its discretion by allowing the defendant to amend his pleading, while
simultaneously denying his motion to transfer the case to the jury calendar, because
the amended pleading did not create new issues of fact).
Did the circuit court err by finding Palmetto's amended answer did not entitle
it to a jury trial?
STANDARD OF REVIEW
As an initial matter, the parties disagree on the appropriate standard of review
for this appeal. Unlike a jury trial request under Rule 39(b), SCRCP,2 the decision
of whether to order a jury trial under Rule 38 is not discretionary with the circuit
court. See Lester v. Dawson, 327 S.C. 263, 267, 491 S.E.2d 240, 242 (1997) ("Rule
38 concerns trial by jury as of right. Rule 39(b), on the other hand, allows the
[circuit] court discretion to order a jury or non-jury trial."). In Dawson, the supreme
court found that because the decision of whether to order a jury trial pursuant to a
Rule 38 request was not discretionary, the appellant's failure to immediately appeal
the circuit court's denial of his request for a jury trial under Rule 38 barred his appeal
of the issue. Id. at 266–67, 491 S.E.2d at 241–42. Like the appellant in Dawson,
Palmetto is challenging the circuit court's denial of its pretrial jury demand under
Rule 38. See id. Here, the issue is not whether Palmetto waived its right to a jury
trial; rather, the sole issue is whether the amended answer and counterclaim revived
Palmetto's previously waived right to a jury under Rule 38. Because this is a
question of law, the proper standard of review is de novo. See Verenes v. Alvanos,
387 S.C. 11, 15, 690 S.E.2d 771, 772 (2010) ("Whether a party is entitled to a jury
trial is a question of law."); California Scents v. Surco Prod., Inc., 406 F.3d 1102,
2
Rule 39 states in relevant part
(a) By Jury. . . . The trial of all issues so demanded shall
be by jury, unless . . . the court upon motion or its own
initiative finds that a right of trial by jury of some or all of
those issues does not exist.
(b) By the Court. Issues of law and issues not demanded
for trial by jury as provided in Rule 38 shall be tried by the
court or may be referred to a master as provided in Rule
53; but, notwithstanding the failure of a party to demand a
jury in an action in which such a demand might have been
made of right, the court in its discretion upon motion may
order a trial by jury of any or all issues.
(Emphasis added).
1105 (9th Cir. 2005) ("Entitlement to a jury trial is a question of law reviewed de
novo.").3
LAW/ANALYSIS
Rule 38(b), SCRCP, provides that
[a]ny party may demand a trial by jury of any issue triable
of right by a jury by serving upon the other parties a
demand therefor in writing at any time after the
commencement of the action and not later than 10 days
after the service of the last pleading directed to such issue.
Such demand may be endorsed upon a pleading of the
party.
(emphasis added). Subsection (d) further states that "[t]he failure of a party to serve
a demand as required by this rule and to file it as required by Rule 5(d) constitutes a
waiver by him of trial by jury." Rule 38(d), SCRCP. Accordingly, a party's right to
a jury trial is waived if a demand is not served within ten days of service of "the last
pleading directed to such issue." Rule 38(b). Because Rule 38 is substantially the
same as Fed. R. Civ. P. 38, this court has analyzed federal case law interpreting the
federal rule when deciding on issues related to our state rule. See King, 291 S.C. at
503, 354 S.E.2d at 403.
Palmetto concedes it did not demand a jury trial within ten days after the
service of its initial answer. However, it contends its right to a jury trial was revived
because it asserted affirmative claims against Zurich for the first time in its amended
answer and counterclaim. Palmetto maintains that based on this assertion, which
distinguishes it from King, the circuit court erred in finding it was not entitled to a
jury trial pursuant to King. Furthermore, Palmetto contends that there are different
3
In King, the court of appeals stated that the circuit court "did not abuse [its]
discretion in either allowing [defendant]'s amended pleading or in denying his
motion to transfer the case to the jury calendar." 291 S.C. at 503, 354 S.E.2d at 403.
However, that ruling was in the context of the circuit court's discretion to allow the
defendant to amend his pleading—which is unarguably reviewed for an abuse of
discretion. See id.; Foggie v. CSX Transp., Inc., 313 S.C. 98, 22, 431 S.E.2d 587,
590 (1993) ("It is well established that a motion to amend is addressed to the sound
discretion of the [circuit court]. . . .").
issues and facts in its amended answer and counterclaim that also revived its right to
a jury trial. We disagree.
In King, the plaintiff brought suit over a note he co-signed as endorser and
had to pay for the defendant. 291 S.C. at 502, 354 S.E.2d at 402. The defendant
answered, asserting fraud and coercion defenses, and counterclaimed for (1)
malpractice, (2) fraud and deceit, and (3) breach of trust and fiduciary relationship.
Id. The defendant did not make a demand for a jury trial. Id. Thereafter, the
defendant amended his answer and added an additional counterclaim for outrage.
Id. at 502, 354 S.E.2d at 402–03. After the plaintiff abandoned a motion to amend
his complaint, which he had previously served on the defendant, the defendant yet
again moved to amend his answer and counterclaim to assert an action for unfair
trade practices and to transfer the case to the jury calendar. Id. The circuit court
denied the motion to transfer but allowed the defendant to amend his answer and
counterclaim. Id.
In affirming the circuit court's ruling, the court of appeals noted that under
federal cases on the issue, "a litigant's entitlement to a jury trial on the issues
presented by an amended pleading, when no prior demand for a jury trial has been
made, turns on whether the amended pleadings create new issues of fact." Id. at 503,
354 S.E.2d at 403 (emphases added). The court did not provide any caveats to the
rule—and certainly no caveats intimating that the new issues presented by the
amended pleadings could in fact be issues of law and not fact. See id. Instead, by
its incorporation of Trixler Brokerage Co. v. Ralston Purina Co., the court of appeals
confirmed that the presentation of a new theory of recovery in an amended pleading
does not constitute the presentation of a new issue on which a jury trial should be
granted. See id. at 503, 354 S.E.2d at 403; Trixler Brokerage Co., 505 F.2d 1045,
1050 (9th Cir. 1974) ("The theory of a case relates to the ultimate basis of liability[]
rather than to an issue created by the pleadings."); id. ("When read in context, the
word issue must have been intended by the Supreme Court to mean nothing other
than an issue of fact. Obviously, appellant would not be demanding a jury trial on
an issue of law."); see also New Hampshire Fire Ins. Co. v. Perkins, 28 F.R.D. 588,
590 (D. Del. 1961) ("The authorities are uniform that when a [party] has waived a
jury trial and subsequently files an amendment to the [pleading] which does not
change the nature of the case or introduce new issues, such amendment does not
entitle the [party] to demand a jury trial as a matter of right and over objection[]
pursuant to Rule 38(b)." (quoting Reeves v. Pennsylvania R. Co., 9 F.R.D. 487, 488
(D. Del. 1949))). This rule applies equally to amendments by plaintiffs and
defendants. See Perkins, 28 F.R.D. at 590–91.
Given the jury's role as the finder of fact, it is logical "that the jury trial right
extends only to disputed factual conclusions." See Rosen v. Dick, 639 F.2d 82, 94
(2d Cir. 1980). Once a party denies an allegation, both parties are then made aware
that an issue of fact exists. See id. ("Rule 38(b) [] allows a party to wait for a
responsive pleading which shows whether an issue of fact exists before making the
jury demand."); Trixler Brokerage Co., 505 F.2d at 1050 ("An issue of fact does not
exist unless there is an allegation and a responsive denial."). If a party does not
demand to exercise its jury right on this triable issue within ten days, the party
effectively waives the right to a jury trial on this issue of fact. Fed. R. Civ. P. 38(d);
Rule 38(d), SCRCP. To that end, a party's right to a jury trial is not revived based
solely on the fact that the party asserts a counterclaim for the first time in an amended
pleading, without also introducing new factual issues that were not previously in
dispute. See Trixler Brokerage Co., 505 F.2d at 1050.
Our conclusion is supported by federal case law in which the presiding courts
were faced with essentially the same procedural scenario as the current matter. See
Pyramid Co. of Holyoke v. Homeplace Stores Two, Inc., 175 F.R.D. 415, 416–17 (D.
Mass. 1997). In Pyramid Co., the plaintiff, a company that owned a retail facility in
a mall, sued the defendant, a retail company, for breach of contract resulting from a
letter of intent to lease plaintiff's facility. Id. at 416. The defendant contended "it
was understood that [the defendant] would be the only store in the mall selling high-
end bath fixtures," but after signing the letter of intent, it became aware of the
opening of a company it considered to be a direct competitor in the mall. Id. In its
complaint, the plaintiff sought specific performance or treble damages for the
breach. Id. In its answer, the defendant denied the plaintiff's claims and asserted as
an affirmative defense that it was fraudulently induced to sign the letter of intent.
Id. The defendant did not request a jury trial at that point. Id. The defendant
subsequently uncovered a letter written by its competitor's parent company to
plaintiff, notifying plaintiff of its intention to open a new store in the mall. Id. at
416–417. The defendant then sought to amend its answer to assert three
counterclaims and a jury trial demand. Id. at 416.
The district court granted the defendant leave to amend the pleading to assert
the counterclaims but struck its demand for a jury trial, finding the proposed
counterclaims failed to raise any issues not encompassed by its original answer. Id.
at 419–20 ("Each of the three counts is premised on the same factual claim: that [the
plaintiff] allegedly misrepresented that the store which [the plaintiff] had identified
as 'Lechmere' would in fact be a Home Image store."). The court was not persuaded
by the defendant's argument that the counterclaims were new issues for Rule 38
purposes. Id. at 418. The court characterized this argument as an attempt by the
defendant to bypass the issue analysis, stating: "Were the Court to follow
HomePlace's lead, any defendant could automatically resuscitate a waived jury
demand simply by amending its original answer and adding a counterclaim." Id.
(emphasis added).
We find the district court's reasoning persuasive. We do not think it terribly
difficult to envision a scenario in which a party may try to circumvent Rule 38(b)'s
ten-day time limit in such a manner. See id. In light of the fact that courts routinely
grant litigants leave to amend their pleadings,4 defendants may increasingly find it
advantageous to wait and demand a jury trial pursuant to an amended pleading. As
such, we find the act of asserting counterclaims for the first time in an amended
pleading does not automatically revive the right to a jury trial.
Having rejected Palmetto's argument that its right to demand a jury trial was
revived based on the mere fact that it asserted counterclaims for the first time in its
amended answer and counterclaim, we now consider whether the substance of its
counterclaims and request for damages created new issues of fact that revived the
jury right. See King, 291 S.C. at 503, 354 S.E.2d at 403. Both the breach of contract
and negligent misrepresentation counterclaims involve essentially the same facts as
previously pled, as does the request for damages. See id. All of Palmetto's new
allegations involve the effect of Zurich's audit on Palmetto's contract with Zurich.
Further, Palmetto's claims could have easily been anticipated at the time of its
original pleading. See Pyramid Co., 175 F.R.D. at 420 ("Where a claim asserted in
an amendment could have been 'anticipated' in that manner at the time of the original
pleading, the later amendment will not revive a right to a jury trial."). The circuit
court allowed Palmetto to amend its answer because its original answer included
"issues of fraud and misrepresentation," and thus, would not prejudice Zurich.
Accordingly, the circuit court did not err by finding Palmetto's amended answer and
counterclaim did not entitle it to a jury trial under Rule 38.
CONCLUSION
Based on the foregoing, the circuit court's order is
4
See Rule 15(a), SCRCP ("[L]eave shall be freely given when justice so requires
and does not prejudice any other party."); Patton v. Miller, 420 S.C. 471, 489, 804
S.E.2d 252, 261 (2017) ("This rule strongly favors amendments[,] and the court is
encouraged to freely grant leave to amend." (quoting Parker v. Spartanburg Sanitary
Sewer Dist., 362 S.C. 276, 286, 607 S.E.2d 711, 717 (Ct. App. 2005))).
AFFIRMED.
HUFF and WILLIAMS, JJ., concur.