316 F.3d 431 (3rd Cir. 2003), 01-4271, Federal Home Loan Mortg. Corp. v. Scottsdale Ins. Co.

Docket Nº:01-4271, 01-4356.
Citation:316 F.3d 431
Case Date:January 22, 2003
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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316 F.3d 431 (3rd Cir. 2003)

("Freddie Mac"); Federal Insurance Company, Cross-Appellants



Nos. 01-4271, 01-4356.

United States Court of Appeals, Third Circuit

January 22, 2003

Argued Dec. 10, 2002.

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Theresa E. Mullen (argued), Allan Maitlin (argued), Sachs, Maitlin, Fleming, Greene, Wilson & Marotte, West Orange, for Appellant/Cross-Appellee Scottsdale Insurance Company.

Gerard H. Hanson (argued), Todd J. Leon, Hill Wallack, Princeton, for Appellees/Cross-Appellants FHMLC and Federal Insurance Company.

Before FUENTES, and GARTH, Circuit Judges, and WALLACH, Judge.[*]


GARTH, Circuit Judge.

This case involves a controversy over what obligations Scottsdale Insurance Company ("Scottsdale"), the appellant/cross-appellee, owed to appellee/cross-appellant Federal Home Loan Mortgage Corporation ("Freddie Mac")1 with respect to costs and payments incurred by Freddie Mac in defending, litigating, and settling various lawsuits filed by persons who alleged damages from a fire that occurred in an apartment building owned by Freddie Mac.

The district court granted partial summary judgment for Freddie Mac in the amount of $427,234.37, plus attorney's fees and prejudgment interest. We will affirm that judgment.

Prior to reviewing the district court's judgment on the merits in Parts III and IV of this opinion, however, we consider a significant question concerning our appellate jurisdiction in Part II.


The event from which this case arose was a fire that took place in February 1996 in an apartment building in East Orange, New Jersey. The fire was apparently started due to an accident that occurred when a thirteen-year-old boy was using a cooking range. Several of the residents filed suit against Freddie: Mac, which owned the building, and Sibley Real Property Services ("Sibley"), Freddie Mac's property manager.2

Freddie Mac and Sibley filed a third-party complaint against T & R Alarm Systems, Inc. ("T & R") based on T & R's contracts related to the installation and/or

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maintenance of the fire and smoke alarm systems, including exit signs and emergency lighting systems, in the apartment building. The third-party complaint alleged that the underlying and primary lawsuits contained allegations that these systems were insufficient or ineffective. Prior to commencing its work on the premises, T & R had purchased an insurance policy from appellant/cross-appellee Scottsdale Insurance Company ("Scottsdale"). The Scottsdale policy listed Freddie Mac and Sibley as "additional insureds."

During discovery related to the third-party complaint against T & R, Freddie Mac claimed that T & R, which was represented by the same counsel representing Scottsdale, failed to inform Freddie Mac about its insurance policy, or to produce a copy of the policy. Eventually, the magistrate judge ordered T & R to produce the insurance policy.

Freddie Mac claims that it and Sibley as coinsureds sought coverage from Scottsdale within three weeks after the insurance policy was produced by T & R, but Scottsdale did not respond to their demands.

Freddie Mac thereafter filed a third-party complaint against Scottsdale on October 25, 1999; and filed an amended complaint on December 7, 1999. The amended complaint contained three counts. In Count One, Freddie Mac sought a declaratory judgment that the insurance policy issued by Scottsdale obliged Scottsdale "to defend and indemnify Freddie Mac and Sibley as to the underlying claims and to indemnify both Freddie Mac, Sibley, and Vigilant for all settlement monies, costs, expenses, and attorney's fees arising from the underlying claim." Am. Compl. ¶¶ 16-17.

In Count Two, Freddie Mac alleged that Scottsdale breached an implied covenant of good faith and fair dealing by failing to investigate, process, and grant Freddie Mac's claims that Scottsdale was obliged to defend and indemnify Freddie Mac, and thus that Freddie Mac was not only entitled to actual and consequential damages, but it was entitled as well to exemplary and punitive damages and attorney's fees and costs incurred in the instant litigation. Id. ¶¶ 20-24.

In Count Three, Freddie Mac alleged that Scottsdale had breached its insurance contract by failing to defend and indemnify Freddie Mac for the underlying claims, and for breaching the implied duty of good faith and fair dealing, as asserted in Count Two. Id. ¶ 27.

Freddie Mac moved for partial summary judgment on Count One alone, and Scottsdale moved for summary judgment in its favor on all three counts. The district court entered an order on March 20, 2001, granting Freddie Mac's motion for partial summary judgment on Count One, and denying Scottsdale's motion for summary judgment. The district court reasoned that under New Jersey law, Scottsdale had a duty to defend Freddie Mac because Freddie Mac was named as an additional insured on the policy, and the complaints in the underlying lawsuits by the residents of the apartment building made claims that were "clearly connected to T & R work under the alarm system." Federal Home Loan Mortgage Corp. v. Scottsdale Ins. Co., Civ. No. 99-05056 (bench opinion) (Mar. 19, 2001) [hereinafter District Court Bench Op.], at 60, App. 70.

The district court concluded that Scottsdale also had a duty to indemnify Freddie Mac for the settlement amounts, reasoning that Scottsdale was equitably estopped from denying coverage because "T & R's and Scottsdale's conduct, or lack of participation, failed to meet the insureds' reasonable expectation of protection generated by the fiduciary duty to deal with

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[Freddie Mac] fairly and to defend" Freddie Mac against the claims made by those alleging injuries due to the fire. Id. at 71, App. 81.

The district court thus granted partial summary judgment to Freddie Mac and directed Scottsdale to pay Freddie Mac $427,234.37, reflecting reimbursement of defense costs in the amount of $101,113.87 and settlement payments of $326,120.50. See Federal Home Loan Mortgage Corp. v. Scottsdale Ins. Co., Civ. No. 99-05056 (Oct. 12, 2001), slip op. at 3.

Following this determination, the district court, in an order dated October 12, 2001, awarded attorney's fees to Freddie Mac in the amount of $38,261.66, and, having granted Freddie Mac's motion for pre-judgment interest, set the amount of pre-judgment interest at $32,612.05 in an order dated October 19, 2001.

The district court then entered a Consent Judgment, to which the parties had agreed, on November 1, 2001. The Consent Judgment, the text of which we reproduce, infra, purported to permit an appeal by Scottsdale from the district court's grant of summary judgment to Freddie Mac on Count One, notwithstanding that Counts Two and Three were dismissed without prejudice.

Scottsdale filed a timely notice of appeal on November 28, 2001, and Freddie Mac cross-appealed.


The district court had federal subject matter jurisdiction over this action pursuant to 12 U.S.C. § 1452(f)(2).3 In the posture presented to us at the time of oral argument, the Consent Judgment from which the appeal was taken could not vest us with appellate jurisdiction.

Neither party addressed the subject of appellate jurisdiction in their briefs to the Court. We therefore requested supplemental letter-memoranda from the parties addressing the issue of appellate jurisdiction. After receiving supplemental briefing from the parties, we also directed the parties to be prepared to discuss at oral argument a number of authorities we had cited to them.

A. The Consent Judgment

As noted earlier, the district court entered a Consent Judgment, which provided as follows:

THIS MATTER having been presented to the Honorable Katharine S. Hay-den by way of joint application for entry of Consent Judgment; and the parties having agreed to the form of this Order;

IT IS on this 25th day of Oct., 2001, hereby ORDERED that Judgment be entered in favor [of] the plaintiffs in the amount of $427,234.37 in accordance with this court's Order and Bench Opinion of March 19, 2001 granting plaintiff's Motion for Partial Summary Judgment as to Count One of the Complaint.

IT IS FURTHER ORDERED that Count Two and Three of plaintiffs' Complaint is [sic] hereby dismissed, without prejudice, subject to the plaintiffs' right to reinstate Counts Two and Three if the March 19th Order should be vacated and this matter remanded for trial by the Third Circuit Court of Appeals based upon the appeal the defendant has represented will be filed in accordance with the Rules of Court; and

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IT IS FURTHER ORDERED that entry of this Consent Judgment will not preclude plaintiff from otherwise filing future applications seeking an award of counsel fees in accordance with the Rules of Court and applicable case law; and

IT IS FURTHER ORDERED that post-judgment interest will be added to this Consent Judgment in accordance with the Rules of Court to be calculated as of the time of satisfaction of this Consent Judgment; and

IT IS FURTHER ORDERED that this Consent Judgment shall be deemed final pursuant to Rule 54(b) for purposes of defendant's intent to appeal this court's Judgment of March 19, 2001 in favor of the plaintiffs in the amount of $427,234.37.

Consent Judgment at 1-2, App. 8-9 (emphasis added).4

It was from this judgment that Scottsdale appealed and Freddie Mac cross-appealed. The Consent Judgment, by its terms, kept Counts Two and Three alive by dismissing them without prejudice, and specifically allowed their reinstatement if we were to reach a particular outcome.

B. Finality under § 1291

The finality requirement of 28 U.S.C. § 1291 is grounded "not in merely technical conceptions of 'finality,'" but rather on a...

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