R&R Sails, Inc. v. Ins. Co. of Pennsylvania
| Decision Date | 21 March 2012 |
| Docket Number | 10–55888.,Nos. 10–55115,s. 10–55115 |
| Citation | 2012 Daily Journal D.A.R. 3755,673 F.3d 1240,82 Fed.R.Serv.3d 278,12 Cal. Daily Op. Serv. 3330 |
| Parties | R & R SAILS, INC., dba Hobie Cat Company, Plaintiff–Appellant, v. INSURANCE COMPANY OF the State of PENNSYLVANIA, Defendant–Appellee.R & R Sails, Inc., dba Hobie Cat Company, Plaintiff–Appellant, v. Insurance Company of the State of Pennsylvania, Defendant–Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
John Morris (argued), Steven J. Cologne, Thomas W. Ferrell, and Victoria E. Fuller, Higgs Fletcher & Mack LLP, San Diego, CA, for the plaintiff-appellant.
Daniel J. Gonzalez (argued), Peter Abrahams, and Andrea A. Ambrose, Horvitz & Levy LLP, Encino, CA, for the defendant-appellee.
Rebecca R. Weinreich, Douglas R. Irvine, and Lane J. Ashley, Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, CA, for the defendant-appellee.Appeal from the United States District Court for the Southern District of California, Michael M. Anello, District Judge, Presiding. D.C. No. 3:07–cv–00998–MMA–POR.Before: STEPHEN REINHARDT and MARSHA S. BERZON, Circuit Judges, and MATTHEW F. KENNELLY, District Judge.*
Insured R & R Sails, Inc. (“R & R”) sued The Insurance Company of Pennsylvania, a subsidiary of the American International Group, Inc. (“AIG”), for breach of contract, unfair competition, and tortious bad faith denial of an insurance claim. The district court granted summary judgment on R & R's unfair competition claim. AIG then sent an unsolicited payment to R & R for the remaining policy benefits provided in the insurance policy, plus interest, resolving R & R's contract claim. These actions left in dispute only R & R's bad faith tort claim. On that claim, R & R sought to recover attorneys' fees and costs incurred to obtain its policy benefits, pursuant to Brandt v. Superior Court, 37 Cal.3d 813, 210 Cal.Rptr. 211, 693 P.2d 796 (Cal.1985) ( “ Brandt fees”), and punitive damages.
During the litigation, the district court determined that R & R had violated the disclosure requirements of Federal Rules of Civil Procedure 26(a) and 26(e) and, as a sanction, precluded R & R from presenting its Brandt fees evidence. The district court then granted judgment as a matter of law on R & R's bad faith tort claim. It reasoned that R & R could not recover Brandt fees because of the preclusion sanction and that R & R therefore could present no evidence of compensatory damages in order to support an award of punitive damages, as required by California Civil Code § 3294. After entering judgment in AIG's favor, the district court awarded AIG costs in the amount of $24,254.18.
In No. 10–55115, R & R appeals from the district court's grant of judgment as a matter of law on its bad faith tort claim. It contends that the district court erred in holding that it had violated Rules 26(a) and 26(e); in precluding its Brandt fees evidence as a sanction for the violations; and in granting judgment in AIG's favor on its punitive damage claim. In No. 10–55888, R & R appeals from the district court's grant of costs in favor of AIG. We have jurisdiction pursuant to 28 U.S.C. § 1291 and reverse and remand.
R & R owns Hobie Cat Australasia Pty. Ltd., an Australian corporation in the business of manufacturing and distributing watercraft. A December 2001 wildfire damaged Hobie Cat's manufacturing and sales facility in Woolamia, Australia. At the time of the wildfire, R & R held an insurance policy from AIG protecting against loss by fire at the facility. R & R submitted a claim for the losses; AIG paid some portions of the claim and declined to pay others.
R & R sued AIG, asserting breach of contract, unfair competition, and tortious bad faith denial of an insurance claim. On its bad faith claim, R & R sought to recover punitive damages and Brandt fees. The central dispute on appeal concerns the invoices that R & R planned to use to support its request for attorneys' fees and costs.
On September 14, 2007, R & R served its initial Rule 26 disclosures. In its disclosures, R & R disclosed that it sought $350,000 in Brandt fees and stated in a footnote that “[t]his amount is estimated at this time and will be amended at the time of trial.” R & R did not specifically state in the disclosures that it planned to use invoices to support its claim for Brandt fees. R & R also did not produce any invoices to AIG. AIG's counsel, in turn, did not ask R & R to produce documents supporting the Brandt fees claim.
The time period for conducting fact discovery expired in April 2008. In June 2008, AIG replaced its counsel and, for the first time, requested documents relating to R & R's requests for damages. Specifically, on June 18, 2008, AIG served a notice of deposition on R & R's damages expert in which it requested production by R & R of all documents relating to R & R's damage claims. Neither R & R nor the expert turned over the invoices at that time. It does not appear, however, that AIG brought this lapse to the attention of the district court by, for example, seeking to compel compliance with the deposition notice.
Nearly a year later, in April 2009, the district court issued a final pretrial schedule that instructed the parties to comply with Federal Rule of Civil Procedure 26(a)(3) and Southern District of California Civil Local Rule 16.1(f). Rule 26(a)(3) governs pretrial disclosures and includes a requirement that each party provide “an identification of each document or other exhibit” that the party may present at trial. Id. Local Rule 16.1(f) sets forth a number of disclosure requirements, including that the parties exchange or display their exhibits at least twenty-one days before the pretrial conference. The district court scheduled the pretrial conference for early July 2009. See U.S. Dist. Ct. Rules, S. Dist. Cal., Rule 16.1(f)(4)(b).
On June 15, 2009, R & R submitted a pretrial memorandum in which it stated that it would support its request for Brandt fees with exhibit 345: “Invoices reflecting attorneys fees and costs incurred by Hobie Cat.” R & R also revised its estimate of the Brandt fees to reflect a sum of more than $450,000. AIG's memorandum of contentions of fact and law, filed on the same day, noted: “R & R Sails has not provided any evidence in discovery or under Rule 26 in support of the claims for attorney's fees.”
Soon thereafter, AIG's counsel, Douglas Irvine, began requesting the invoices, to no avail: On June 17, 2009, Irvine requested the invoices, among other items, in a phone call with R & R's counsel, Thomas Ferrell. R & R delivered copies of many of its exhibits to AIG on June 23 but omitted the invoices. Irvine e-mailed Ferrell the next day, stating that he had not received the invoices and warning that AIG would “object to the introduction of any evidence not timely produced by R & R Sails in support of its claim for attorney's fees as damages under the Brandt case.” Later that day, Ferrell e-mailed Mr. Irvine that another R & R attorney was “working on the exhibits.”
On June 25, 2009, Irvine e-mailed Ferrell again regarding missing exhibits. Four days later, R & R's counsel responded by e-mail that the attorneys' fee statements “are being redacted and will be produced in due course.”
The parties then filed an amended proposed pretrial order and objections to each other's pretrial disclosures. R & R asserted that it was seeking Brandt fees “in excess of $450,000.” It also sought clarification from the court regarding “whether the request for fees will be made to the Court or the jury, at what stage of the trial, and whether redacted copies of [R & R]'s billings and costs will be sufficient for this purpose.” AIG noted in the proposed order that R & R had not yet provided any evidence in support of its claim for Brandt fees and objected to the invoices exhibit on the ground that it was “[n]ever produced.”
Even after the proposed pretrial order was filed, R & R did not promptly turn over the invoices. Ferrell later stated that R & R had wished to insert “modest redactions” that would still “have given AIG all the information it needed.” He explained that the redacted invoices were ready for delivery to AIG on June 30, 2009, but that R & R did not then deliver them to AIG because it expected to discuss the redaction issue at the pretrial conference, which was scheduled for July 8, 2009.
On June 30, 2009, just over a week before the final pretrial conference, AIG paid R & R $1,127,246 in full satisfaction of R & R's outstanding claims for benefits under the insurance policy, plus interest. In a letter notifying R & R of the payment, AIG wrote:
[W]hile the claim file reflects a wide number of genuine differences of opinion, we can understand your position that the claim could have been handled better. Our review indicates that the service provided in this instance was not consistent with the high standards to which we hold ourselves and did not meet your expectations.
The payment resolved R & R's contract claim. Because the district court had previously granted summary judgment on R & R's unfair competition claim, only R & R's bad faith tort claim, and its request for Brandt fees and punitive damages, remained in dispute.
At the final pretrial conference on July 8, 2009, the parties discussed the Brandt fees issue only briefly. The parties disagreed regarding whether R & R should submit the amount of its Brandt fees claim to the district court (R & R's position) or to the jury (AIG's position), and the district court declined to decide the issue. AIG's counsel reiterated its objection to the invoices, stating: “[W]e take the position they can't even put on a Brandt claim because they never produced any documents or any evidence, in connection with their initial disclosure, pre-trial disclosure.” R & R did not respond to the objection, nor did it seek guidance from the court regarding the redaction issue. R & R later...
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