Auto Europe, LLC v. Connecticut Indem. Co.

• Citation: 321 F.3d 60
• Decision Date: 04 March 2003
• Docket Number: No. 02-1799.,02-1799.
• Parties: AUTO EUROPE, LLC, Plaintiff, Appellee, v. CONNECTICUT INDEMNITY COMPANY, Defendant, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

321 F.3d 60

AUTO EUROPE, LLC, Plaintiff, Appellee, v. CONNECTICUT INDEMNITY COMPANY, Defendant, Appellant.

No. 02-1799.

United States Court of Appeals, First Circuit.

Heard January 9, 2003.

Decided March 4, 2003.

COPYRIGHT MATERIAL OMITTED

Andrew J. Gallogly with whom Margolis Edelstein was on brief for appellant.

Catherine R. Connors with whom Louise K. Thomas and Pierce Atwood were on brief for appellee.

Before LYNCH, Circuit Judge, COFFIN and CAMPBELL, Senior Circuit Judges.

COFFIN, Senior Circuit Judge.

A Maine company, Auto Europe, LLC, brought this diversity action against Connecticut Indemnity Company ("CI"), seeking a declaratory judgment that the insurance company has a duty to defend Auto Europe in a pending consumer fraud suit. The district court, over CI's objection, concluded that Maine is the proper venue for the coverage dispute, Maine substantive law governs it, and CI has a duty to defend Auto Europe. After careful review of the law and the record, we conclude that CI's challenges to those determinations are unavailing. We also affirm the district court's award of attorney's fees against the insurer.¹

I. Background

Auto Europe is a defendant in a lawsuit ("the Harter action") filed in June 2001 by four Illinois residents who claim that the Maine company and two other travel businesses "deceptively concealed" an "add-on" to their charges for foreign car rentals. The Harter plaintiffs contend that the defendants calculated foreign sales tax on a car rental base price that included a nontaxable broker's fee, effectively increasing the brokers' fees in the guise of a charge they claimed was a foreign tax. The complaint alleged that the price information given to consumers was "designed to mislead and conceal" the nature of the additional charge, and it accused the defendants of engaging in a "fraudulent scheme of overcharges." The complaint alleged various violations of federal and state law, including both the Maine and Illinois consumer fraud acts.

CI coincidentally insured all three Harter defendants under separate policies, each of which provided the same coverage. Auto Europe's policy promises payment for all sums that the insured becomes obligated to pay because of "any negligent act, error or omission of the `insured' ... in the conduct of `travel agency operations' by the `named insured.'" The policy excludes coverage, however, for "liability arising out of any act, error or omission which is wilfully dishonest, fraudulent or malicious, or in wilful violation of any penal or criminal statute or ordinances, and is committed (or omitted) by or with the knowledge or consent of the `insured.'"

Based on the exclusion, CI refused to defend Auto Europe in the Harter action, and Auto Europe thereafter filed this suit.² CI filed a counterclaim in the Maine litigation, seeking a declaratory judgment that it had no duty to defend, and it filed suit in Illinois against all three Harter defendants, seeking that same relief. It also filed a motion in Maine to transfer venue of Auto Europe's action to Illinois.

The magistrate judge in Maine denied the transfer motion, determined that Maine law applied to the action, and concluded that CI had a duty to defend Auto Europe. The district court, after a de novo review that included oral argument, affirmed the decision denying transfer of venue and adopted the magistrate judge's recommendation that summary judgment be granted for Auto Europe on the duty to defend. Under Maine law authorizing an award of attorney's fees to an insured when the insurer's duty to defend was "clear," the district court awarded reasonable fees and costs to Auto Europe.³

Subsequently, the district court in Illinois also ruled, in the lawsuit filed by CI, that the insurer had a duty to defend in the Harter action. That ruling, applying Illinois law, was not directly applicable to Auto Europe, however, because the Maine company had been dismissed from the Illinois proceedings.

In its appeal of the Maine decision, CI argues that the district court, as reflected in the decisions of both the magistrate judge and district judge, erred on the procedural issues of venue and choice of law as well as in finding a duty to defend under Maine law. The insurer further objects to the imposition of attorney's fees and costs. We address each issue in turn.

II. The Motion to Transfer Venue⁴

The propriety of the venue ruling warrants little discussion. The magistrate judge fully considered and discussed CI's motion and its judgment, particularly when affirmed by the district court, is entitled to considerable deference. See Osband v. Woodford, 290 F.3d 1036, 1041 (9th Cir. 2002) (noting that magistrate judge's pretrial order is reversible by the district court, under 28 U.S.C. § 636(b)(1)(A), only if it is "`clearly erroneous or contrary to law,'" and that same standard applies to appellate review); Phinney v. Wentworth Douglas Hosp., 199 F.3d 1, 4 (lst Cir.1999) (same); see also Coady v. Ashcraft & Gerel, 223 F.3d 1, 11 (lst Cir.2000) (appellate standard of review for venue motion is abuse of discretion).

Although it may have been more efficient to determine CI's duty to defend with respect to all three Harter defendants in the same forum, we do not agree that the district court was obliged to transfer the case to Illinois. Its reasons for declining to do so were sound and appropriate, focusing on the weight accorded to plaintiff's choice of the forum in which it is located, the unlikelihood of any witness inconvenience because of the probability of a document-based determination of the duty to defend, and the absence of any compelling reason related to judicial economy. We therefore find no error in the court's denial of the transfer motion.

III. Choice of Law

CI next challenges the district court's decision to apply Maine law to the coverage dispute. A federal court sitting in diversity jurisdiction must employ the choice-of-law principles of the forum state, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 491, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Crellin Techs., Inc. v. Equipmentlease Corp., 18 F.3d 1, 4 (lst Cir.1994), and the district court's choice of law pursuant to the state framework is reviewed de novo, Crellin Techs., 18 F.3d at 4.

Under Maine law, when an insurance contract does not specify the jurisdiction that should govern disputes arising under it,

the rights and duties of the parties ... are to be determined at the forum level by the local law of the state which, with respect to that particular issue, has the most significant relationship to the transaction and the parties. Specifically, in a casualty insurance contract ... the validity of the contract and the rights and duties created thereby, are to be determined ... by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue involved, some state has a more significant relationship to the transaction and the parties .... Baybutt Constr. Corp. v. Commercial Union Ins. Co., 455 A.2d 914, 918 (Me.1983), overruled on other grounds, Peerless Ins. Co. v. Brennon, 564 A.2d 383 (Me.1989) (adopting Restatement (Second) of the Law, Conflict of Laws 2d (1971) [hereinafter "Restatement"], §§ 188, 193).

As with the venue ruling, the magistrate judge offered a thoughtful assessment of the choice of law question. Noting that the underlying complaint purported to assert the claims of a nationwide class against Auto Europe, he rejected the relevance of the location of the named plaintiffs' individual transactions because "an unknown number of plaintiffs in an unknown number of locations may have claims that fit within the purported class." He also noted that the complaint alleged that Auto Europe's principal place of business was in Portland, Maine, and because no other business location is identified, "[b]y terms of the complaint Auto Europe could only have acted in Maine." Recommended Decision at 7. The magistrate judge thus viewed Maine as "the principal location of the insured risk," and ruled that, under Baybutt, Maine law should apply.

CI contends that the law of either Florida or Illinois would be more appropriate than Maine law because both "would appear to have more significant interests in this coverage litigation and greater contacts with the transactions underlying the dispute than does Maine." According to CI, Florida is significant because the contract that provides the insurance coverage at issue in this case was negotiated and delivered there to Auto Europe's corporate parent. The policy insured more than two dozen affiliates or subsidiaries in a variety of locations, and Auto Europe apparently was the only one located in Maine. CI also cites Illinois' central importance to this case as the home state of the named plaintiffs in the Harter litigation. The two plaintiffs who did business with Auto Europe booked their rental cars through local travel agents in Chicago, and Illinois is also where the underlying lawsuit is pending.

We can easily eliminate the law of Florida as more appropriate than Maine law for resolving the coverage issue. Our reading of the authorities indicates that a policy covering numerous related companies located in different states would be deemed a multiple risk policy that, for Maine choice of law purposes, would be viewed in a particular case as if a separate policy had been issued to cover each entity. See Baybutt, 455 A.2d at 919; Restatement, § 193, comment f. Because Florida's status stems only from its role with respect to the overall policy, its significance in this case thus drops away, and the question becomes whether Maine — Auto Europe's principal location — should provide the substantive legal principles, or whether, "with respect to the particular issue involved, [Illinois] has a more significant relationship to the transaction and the...