Beaudry v. Farmers Ins. Exch.

• Decision Date: 22 January 2018
• Docket Number: NO. S-1-SC-36181,S-1-SC-36181
• Citation: 412 P.3d 1100
• Parties: Craig BEAUDRY, Plaintiff-Respondent, v. FARMERS INSURANCE EXCHANGE, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, Farmers New World Life Insurance Company, Farmers Insurance Company of Arizona, Lance Carroll, and Craig Allin, Defendants-Petitioners.
• Court: New Mexico Supreme Court

412 P.3d 1100

Craig BEAUDRY, Plaintiff-Respondent,

v.FARMERS INSURANCE EXCHANGE, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, Farmers New World Life Insurance Company, Farmers Insurance Company of Arizona, Lance Carroll, and Craig Allin, Defendants-Petitioners.

NO. S-1-SC-36181

Supreme Court of New Mexico.

Filing Date: January 22, 2018

Lewis Roca Rothgerber Christie LLP, Ross L. Crown, Albuquerque, NM, Steven J. Hulsman, Kristina N. Holmstrom, Phoenix, AZ, Skadden, Arps, Slate, Meagher & Flom LLP, Raoul Kennedy, James P. Schaefer, Palo Alto, CA, for Petitioners.

Law Office of Jane B. Yohalem, Jane B. Yohalem, Santa Fe, NM, O'Friel and Levy, P.C., Pierre Levy, Aimee S. Bevan, Santa Fe, NM, Law Office of Barry Green, Barry Green, Santa Fe, NM, for Respondent.

Jarmie & Associates, Mark D. Standridge, Las Cruces, NM, for Amicus Curiae New Mexico Defense Lawyers Association.

Brownstein Hyatt Farber Schreck, LLP, Eric R. Burris, Nury H. Yoo, Albuquerque, NM, for Amicus Curiae Association of Commerce & Industry of New Mexico.

David J. Stout, Michael B. Browde, Albuquerque, NM, for Amicus Curiae New Mexico Trial Lawyers Association.

CHÁVEZ, Justice.

{1} Plaintiff and the corporate Defendants freely negotiated and entered into a clear and unambiguous contract for Plaintiff to sell their insurance policies. In the contract, Plaintiff consented to a provision allowing Defendants to immediately terminate the contract if he breached it in any one of five different specified ways. Plaintiff breached the contract in one of the specified ways, and Defendants exercised their right to terminate. Plaintiff sued Defendants under numerous theories of liability for terminating the contract, including under the doctrine of prima facie tort, asserting that Defendants had nefarious reasons for terminating the contract. We hold that when a contract is clear, unambiguous, and freely entered into, the public policy favoring freedom of contract precludes a cause of action for prima facie tort when the gravamen of the allegedly tortious action was the defendant's exercise of a contractual right. In this case, Defendants had the right to terminate the contract because of Plaintiff's breach.

I. BACKGROUND

{2} On December 16, 2000, Plaintiff entered into an agent appointment agreement (Agreement) with Defendant insurance companies to sell their insurance policies. Defendant Lance Carroll was the District Manager for the territory that included Plaintiff's agency. Defendant Craig Allin was the New Mexico Executive Director.

{3} The Agreement required Plaintiff to "submit to the Companies every request or application for insurance for the classes and lines underwritten by the Companies and eligible in accordance with their published Rules and Manuals." In the event of a breach, the Agreement provided that it "may be terminated by the [non-breaching] party on thirty (30) days written notice." In addition, Defendants could immediately terminate the Agreement for five enumerated types of breach, including "[s]witching insurance from the Companies to another carrier."

{4} In September 2010, Plaintiff's employee cancelled an insurance policy with Farmers, a defendant company, and switched the insured's service to a rival insurance carrier. Plaintiff does not dispute that the switching of the insurance policy occurred. However, Plaintiff argues that the breach did not cause any significant damage to Farmers; that the employee who switched the policy was new and acted without his authorization; and that at the time of the breach Plaintiff's wife, who normally served as the office operations manager, was seriously ill. In February 2011, Defendants notified Plaintiff that they were exercising their right to terminate the Agreement because of the breach.

{5} Plaintiff asserts that his firing was orchestrated by Defendants Allin and Carroll as retaliation for his decision to go "up the chain of command" after they provided unsatisfactory responses to his allegations that a new Farmers agent, Tom Gutierrez, was "poaching" his clients. Plaintiff also claims that Defendant Carroll benefitted from Plaintiff's termination because his termination allowed Carroll to reassign half of Plaintiff's clients to Gutierrez. According to Plaintiff, if Gutierrez did not meet his quotas, while on probation, Carroll would have had to personally reimburse Farmers for "a portion of the subsidies fronted to Gutierrez."

{6} Plaintiff's third amended complaint is the operative pleading, where he alleged eight causes of action: tortious interference with contract, tortious interference with prospective contractual relations, breach of contract, breach of the covenant of good faith and fair dealing, conspiracy, intentional infliction of emotional distress, prima facie tort, and violations of the New Mexico Insurance Code. Plaintiff also sought punitive damages. Through several motions for summary judgment, the district court dismissed all claims except tortious interference with contract, breach of the covenant of good faith and fair dealing, conspiracy, and prima facie tort. Specifically, with respect to the breach of contract claim, the district court determined "as a matter of law that Plaintiff was responsible for the acts of [his employee] even if they were contrary to his instructions." Plaintiff did not appeal the dismissal of his contract claim. Plaintiff also decided to forego the claims of tortious interference with an existing contract and breach of the covenant of good faith and fair dealing, believing that the district court's dismissal of the breach of contract claim precluded them.

{7} After the court ruled in favor of Defendants on the breach of contract claim Defendants filed a renewed summary judgment motion on prima facie tort (Renewed Summary Judgment Motion). Defendants argued that Plaintiff's claim should be dismissed for three reasons:

First, because the Contract Companies undisputedly had the right to terminate the Agreement, Plaintiff cannot demonstrate a "legally protectable interest" in the continuation of that Agreement, as required under New Mexico law to show a legally redressable injury. Any questions as to intent to injure are, therefore, immaterial (there being no legally redressable injury). Second, allowing tort recovery for a lawful contract termination impermissibly repackages a contract claim as a tort, contrary to New Mexico law. Third, Plaintiff cannot use prima facie tort to evade the more stringent requirements of claims already dismissed.

At the hearing on Defendants' Renewed Summary Judgment Motion, the judge explained that she was denying Defendants' motion in part because it was up to the jury to determine whether Defendants' conduct was justified.

{8} Ultimately, Plaintiff was allowed to present the prima facie tort and conspiracy claims to the jury. The jury found that Craig Allin, Lance Carroll, and all corporate Defendants committed prima facie tort but that no Defendants conspired to commit prima facie tort. The jury awarded Plaintiff $1,000,000 in compensatory damages and $2,500,000 in punitive damages. The court entered judgment against Defendants. A divided Court of Appeals affirmed the jury verdict. See Beaudry v. Farmers Ins. Exch. , 2017-NMCA-016, ¶ 3, 388 P.3d 662.

II. A DE NOVO STANDARD OF REVIEW APPLIES TO DISPOSITIVE LEGAL ISSUES

{9} The dispositive legal issues in this case were presented to the district court in Defendants' Renewed Summary Judgment Motion. Generally, we will not review the denial of a summary judgment motion after the trial court has entered a final judgment on the merits of the case. Green v. Gen. Accident Ins. Co. of Am. , 1987-NMSC-111, ¶ 19, 106 N.M. 523, 746 P.2d 152. However, "[w]here a motion for summary judgment is based solely on a purely legal issue which cannot be submitted to the trier of fact, and the resolution of which is not dependent on evidence submitted to the trier of fact, ... the issue should be reviewable on appeal from the judgment." Gallegos v. State Bd. of Educ. , 1997-NMCA-040, ¶ 10, 123 N.M. 362, 940 P.2d 468. When it is appropriate to review the denial of a motion for summary judgment we will apply a de novo standard of review. Kipnis v. Jusbasche , 2017-NMSC-006, ¶ 10, 388 P.3d 654. Defendants' Renewed Summary Judgment Motion presented a purely legal basis on which the court could have granted summary judgment. As such, de novo review is the appropriate standard in this case.

III. SCOPE OF DISCUSSION

{10} In 1990, New Mexico joined a minority of other jurisdictions in recognizing a stand-alone claim for prima facie tort. See Schmitz v. Smentowski , 1990-NMSC-002, ¶ 11, 109 N.M. 386, 785 P.2d 726 (citing authority from New York and Missouri to support the elements of prima facie tort); James P. Bieg, Prima Facie Tort Comes to New Mexico: A Summary of Prima Facie Tort Law , 21 N.M. L. Rev. 327 (1991) (discussing Schmitz and reviewing the history, jurisdictional recognition, and use of prima facie tort law); Dan B. Dobbs et. al., The Law of Torts § 643 (2d ed. 2011) ("The only significant jurisprudence on the prima facie tort is found in the courts of Missouri, New Mexico and New York and in the Restatement Second of Torts."). To bring a successful prima facie tort claim a plaintiff must show "(1) an intentional and lawful act; (2) an intent to injure the plaintiff; (3) injury to the plaintiff as a result of the intentional act; (4) and the absence of sufficient justification for the injurious act." Lexington Ins. Co. v. Rummel , 1997-NMSC-043, ¶ 10, 123 N.M. 774, 945 P.2d 992.

{11} Defendants concede that the lawful act requirement is satisfied. However, Defendants argue that Plaintiff cannot meet the intent, injury, or justification element of prima facie tort and that Plaintiff is using prima facie tort to evade the stringent requirements of other established doctrines. Justification, which includes an analysis as to whether Plaintiff's prima facie...