Appling v. State Farm Mut. Auto. Ins. Co.
| Decision Date | 13 August 2003 |
| Docket Number | No. 02-16452.,No. 00-16521.,00-16521.,02-16452. |
| Citation | 340 F.3d 769 |
| Parties | William A. APPLING; Joseph J. Kelly; Robert Buehler; John Lloyd; Daryl Mitchell; Richard Pyorre; John Weir; Gerard M. Verdi; William R. Sparks; Leonard D. Doctor; Jerry Lee Flanders; Verne Walton Ins; Larry K. Wilson; Michael C. Hartman; Daniel Brumfield; Martin H. Lefton; Douglas H. Perry; Mathew N. Pickett, Jr.; Jo Ann Searcy; William R. Cornelison; Marilyn J. Cusimano; Dennis B. Farrell; Andrew W. Gaines; David B. Gordon; Paul Julian Ins; Rosanne Smith; W.F. "Bill" Burbank Insurance Agency, Inc.; Jean A. Cormier; Lee Cramer Insurance Agency, Inc.; Franklin Dutto; Joan F. Ehler; Raymond C. Gilmore; Allen K. Golden; Richard O. Johnson; Gabriel O. Juarez, Jr.; Bob Kennedy Insurance Agency, Inc.; Lewis Insurance Agency, Inc.; Lykke Insurance Agency, Inc.; Robert G. Marshall; Terry L. McManus; Alan L. Perkins; Dale W. Pitney, Jr.; Eleanor E. Rowland; Jorge Sotelo Insurance Agency, Inc.; Anthony E. Vito; Terry D. Walker; Judy E. Weldin-Leathers; Thomas A. Wilson; Michelle B. Pierce, aka Michelle B. Yates; Clifford K. Young; William Batchelder; Hooper Insurance Agency; Harold R. Little; Fred Love; Sam I. Mayeda; Jim Moore Insurance Agency, Inc.; Michael L. Morgan; The Edward Pierce Insurance Agency, Inc.; Dick Juge Insurance Agency, Inc.; Paul Quilici; Bill Bernard Insurance Agency, Inc.; Jacob Castroll; Reguera Insurance Agency, Inc.; Chambers Insurance Agency, Inc.; Lee P. Saghirian; Tana P. Glockner, aka Tana P. Glockner-Shultz; Kenneth E. Carroll; Richard S. Frank Insurance Agency, Inc.; Bob Andras Insurance Agency, Inc.; Patricia Adkins Insurance Agency, Inc.; Joann M. Pergrem, aka Joann McWilliams, Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; State Farm Fire and Casualty Company; State Farm Life Insurance Company; State Farm General Insurance Company, Defendants-Appellees. William A. Appling; Leonard D. Doctor; Jerry Lee Flanders; Larry K. Wilson; Michael C. Hartman; Daniel Brumfield; Martin H. Lefton; Douglas H. Perry; Mathew N. Pickett, Jr.; Jo Ann Searcy; William R. Cornelison; Marilyn J. Cusimano; Dennis B. Farrell; Andrew W. Gaines; David B. Gordon; Rosanne Smith; Paul Julian Insurance Agency, Inc.; Verne Walton Insurance Agency, Inc.; Raymond C. Gilmore; Bob Kennedy Insurance Agency, Inc.; Lewis Insurance Agency, Inc.; Dale W. Pitney, Jr.; Anthony E. Vito; Terry D. Walker; Paul Quilici; Jacob Castroll, Plaintiffs-Appellants, v. Orrick, Herrington & Sutcliffe; State Farm Mutual Automobile Insurance Company; State Farm Fire and Casualty Company; State Farm Life Insurance Company; State Farm General Insurance Company, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
William P. Tedards, Jr., Washington, D.C., for the plaintiffs-appellants.
George A. Yuhas, Orrick, Herrington & Sutcliffe LLP, San Francisco, California, for the defendants-appellees.
Steven A. Brick, Orrick, Herrington & Sutcliffe LLP, San Francisco, California, for the defendants-appellees.
Appeal from the United States District Court for the Northern District of California; Martin J. Jenkins, District Judge, Presiding. D.C. Nos. CV-97-01569-MJJ/MEJ, CV-01-03181-MJJ.
Before: Betty B. Fletcher, Alex Kozinski, and Stephen S. Trott, Circuit Judges.
Opinion by Judge TROTT; Dissent by Judge BETTY B. FLETCHER
Plaintiffs-Appellants ("Agents") are independent-contractor insurance agents who sold insurance products for the State Farm group of insurance companies ("State Farm").1 Each Agent has or had an independent-contractor agreement with State Farm ("contract").2
This consolidated appeal arises from an action the Agents brought in district court alleging that State Farm breached the contract ("breach of contract action"). The district court granted summary judgment in favor of State Farm on July 3, 2000. The Agents appeal this decision in Case No. 00-16521, arguing that the district court abused its discretion by not applying collateral estoppel against State Farm based on our unpublished decision in Sandberg v. State Farm Mut. Auto. Ins. Co., 182 F.3d 927 (9th Cir.1999) (mem. disposition), cert. denied, 528 U.S. 1118, 120 S.Ct. 938, 145 L.Ed.2d 816 (2000). The Agents also argue that a genuine issue of material fact exists as to: (1) whether the contract's termination provision required good cause before State Farm could terminate its agents; (2) whether State Farm breached the implied covenant of good faith and fair dealing by terminating some of the Agents; (3) whether the contract's provision granting State Farm the right to prescribe rules governing the binding, acceptance, renewal, rejection, or cancellation of risks allowed State Farm to implement a program that limited its risk exposure in certain geographic locations; and (4) whether State Farm breached the implied covenant of good faith and fair dealing by not giving the Agents permission to place rejected business with other insurance carriers. We have jurisdiction under 28 U.S.C. § 1291, and we affirm because we hold that there are no genuine issues of material fact on any of these claims.
On August 20, 2001, the Agents brought an independent action ("independent action") to set aside part of the summary judgment in their failed breach of contract action. In the independent action, Case No. 02-16452, the Agents alleged as a ground for relief that State Farm's counsel, Orrick, Herrington & Sutcliffe LLP ("Orrick"), committed fraud on the district court by (1) responding to a subpoena for information from a retired State Farm executive without the executive's permission, and (2) assuring the Agents' counsel that the retired executive did not have any documents or knowledge concerning the subject matter of the litigation. The district court dismissed the independent action pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. We have jurisdiction under 28 U.S.C. § 1291, and we affirm because we hold that Orrick's actions do not amount to fraud on the district court.
The Agents' breach of contract action arises from their contract with State Farm. The contract contained two integration clauses clearly superseding all prior agreements, and stating that changes to the terms of the contract could only be made by signed writings. The contract contained also the following provisions upon which the Agents based their claims.
The Termination Provision states: "You or State Farm have the right to terminate this Agreement by written notice...." State Farm adopted this version of the provision in 1966. The prior version read: "This agreement may be terminated ... with or without cause, by either party or parties giving written notice to the other...." In 1966, State Farm also added a "Termination Review Provision" that did not appear in its prior version of the contract, providing for review of decisions made by State Farm to terminate the contract: "In the event we terminate this Agreement, you are entitled upon request to a review in accordance with the termination review procedures approved by the Boards of Directors of the Companies, as amended from time to time."
The Agents who brought the breach of contract action included some agents terminated by State Farm in March/ April 1997.
In response to catastrophic losses caused by Hurricane Andrew (1992) and the Northridge Earthquake in Southern California (1994), State Farm implemented programs to reduce its risk exposure pursuant to the Risk Provision. The Risk Provision stated:
We retain the right to prescribe all policy forms and provisions; premiums, fees, and charges for insurance; and rules governing the binding, acceptance, renewal, rejection, or cancelation [sic] of risks, and adjustment and payment of losses.
In September 1994, State Farm announced an exposure management program for the State Farm Fire and Casualty Company.3 The program limited risk exposure growth that varied by geographic areas, called "exposure segments." These segments were determined by degrees of exposure to catastrophic loss. Those segments with the highest exposure were subject to the most stringent growth limitations — a requirement that the agents not write new business until policyholders' non-renewal or relocation removed 4% of the existing business. Most segments, however, were not subject to growth limitations.
State Farm refused to grant the Agents permission to place business rejected as a result of State Farm's program — including the exposure management program — with other insurance carriers. State Farm relied on the contract's Principal Occupation Provision, which stated:
The fulfillment of this Agreement will be your principal occupation, and you will not directly or indirectly write or service insurance for any other company, other than a State Farm affiliate or through an assigned risk plan, or for any agent or broker, except in accordance with the terms of any written consent we may give you.4
The basis for the Agents' independent action involved Orrick's response to an October 1998 subpoena issue in the breach of contract action and served on Henry Keller ("Keller"), a former State Farm executive who retired in 1976. The subpoena sought the following information:
1. Any and all documents regarding [State Farm] ... from, and including, January 1, 1988 to the present.
2. Any and all correspondence with any representative, employee, officer, director, agent, consultant or and all other persons working for or with [State Farm] ... from, and including, January 1, 1988 to present.
Keller contacted State Farm about the subpoena, and State Farm assured him they would handle the matter on his behalf. On November 9, 1998, Orrick...
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