Bergeson v. Dilworth

• Decision Date: 24 October 1990
• Docket Number: Civ. A. No. 87-1578-T.
• Parties: Eldon L. BERGESON, individually and as Administrator of the Estate of Sheryl L. Bergeson, Deceased, Plaintiff, v. Edward K. DILWORTH, and Nathan O. Dilworth, Defendants, State Farm Mutual Automobile Insurance Company, Garnishee.
• Court: U.S. District Court — District of Kansas

749 F. Supp. 1555

Eldon L. BERGESON, individually and as Administrator of the Estate of Sheryl L. Bergeson, Deceased, Plaintiff, v. Edward K. DILWORTH, and Nathan O. Dilworth, Defendants, State Farm Mutual Automobile Insurance Company, Garnishee.

Civ. A. No. 87-1578-T.

United States District Court, D. Kansas.

October 24, 1990.

COPYRIGHT MATERIAL OMITTED

Donald E. Shultz, Shultz & Shultz, Dodge City, Kan., Bradley Post, Post, Syrios & Bradshaw, Wichita, Kan., for plaintiff.

Darrell L. Warta, Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., for defendants.

Kahrs, Nelson, Fanning, Hite & Kellogg, Wichita, Kan., for garnishee.

MEMORANDUM AND ORDER

THEIS, District Judge.

Presently before the court are post trial motions to stay garnishment proceedings pending appeal; to vacate sanctions imposed upon defendants' counsel by the magistrate; and to impose sanctions upon plaintiff's counsel. This matter was tried to a jury and resulted in a finding of liability against defendants for actual and punitive damages in the amount $756,795.33. The facts of the underlying lawsuit are set forth in this court's published order denying defendants' motion for remittitur, 738 F.Supp. 1361, and will be discussed here only as they relate to the present motions.

As an initial matter, the court notes that defendants have raised a question as to the effect of a bankruptcy proceeding filed by defendants in the United States Bankruptcy Court for the Eastern District of Texas. The bankruptcy judge has lifted the automatic stay of 11 U.S.C. § 362(a), and defendants have appealed this order to the Bankruptcy Appellate Panel. Defendants "notify" the court that their appeal automatically stays further action in this matter.

Defendants reliance on 11 U.S.C. § 362(a) is misplaced. Its provisions speak only to the effect of the filing of a bankruptcy petition, not the filing of a notice of appeal from an order lifting the automatic stay. Bankruptcy Rule 8005 governs the normal procedure for obtaining a stay of orders of a bankruptcy court. Under this rule, a motion for stay "pending appeal must ordinarily be made in the first instance in the bankruptcy court." Thus, the court concludes that the filing of a notice of appeal from the bankruptcy court's order lifting the automatic stay does not of itself operate to reimpose the automatic stay.

I. Garnishment

This court has authority to conduct enforcement proceedings in this action under Fed.R.Civ.P. 69(a), which directs that state rules govern the procedure on execution. The rules for Kansas garnishment proceedings are found at K.S.A. § 60-714 to -726 (1983 & Supp.1989). Pursuant to K.S.A. § 60-716, plaintiff has caused the clerk of the court to issue an order of garnishment upon State Farm. State Farm filed a timely answer in accordance with K.S.A. § 60-718(a), and has prayed that plaintiff's garnishment action be dismissed. Plaintiff has made a reply, contesting State Farm's answer, and setting forth claims against State Farm. K.S.A. § 60-718(c). Plaintiff brings this garnishment action against defendants' insurer in an attempt to satisfy a judgment that exceeds defendants' policy limits. Although coverage under defendants' automobile liability policy is $200,000, plaintiff was awarded actual and punitive damages totaling $756,795.33. Plaintiff alleges that State Farm was negligent, acted in bad faith, and breached its fiduciary duty to defendants by failing to represent defendants' best interest in this case. As a result of this alleged negligence and bad faith, plaintiff claims that State Farm is liable to plaintiff for the full amount of judgment, notwithstanding the limit of defendants' policy.

It is well established under Kansas law that "an insurer is liable for the full amount of its insured's resulting loss, even if that amount exceeds the limits of the policy, for the negligence or bad faith in defending or settling an action against the insured." Smith v. Blackwell, 14 Kan. App.2d 158, 162, 791 P.2d 1343 (1989) (citing cases); see also Insurance Co. of N. Am. v. Medical Protective Co., 768 F.2d 315, 321 (10th Cir.1985) (discussing factors relevant to Kansas action for bad faith in settling). A garnishment action is the proper procedure for determining the garnishee-insurer's indebtedness under this rule, and the plaintiff-creditor, who stands in the shoes of the defendant-debtor, may take and enforce that which the defendant-debtor could enforce against his insurer. Gilley v. Farmer, 207 Kan. 536, 544, 485 P.2d 1284 (1971); K.S.A. § 60-718(c). If a reply is filed to the garnishee's answer, "the court shall try the issues joined, the burden being upon the party filing the reply to disprove the sworn statements of the answer,...." K.S.A. § 60-718(c). In such garnishment proceedings the court may rule on motions to dismiss and, where appropriate, may enter summary judgment in favor of the moving party. Gilley, 207 Kan. at 540, 485 P.2d 1284.

State Farm does not refute these authorities, but attempts to stay any further garnishment proceedings in this action pending appeal. As set forth in this court's previous order, defendant has not posted a supersedeas bond to stay the appeal of the underlying action. 738 F.Supp. at 1365. State Farm now moves to stay garnishment proceedings pending appeal by posting the $200,000 amount of its coverage under defendants' policy. Although this district normally requires a supersedeas bond of 125% of the judgment, D.Kan. Rule 221, State Farm relies on Kansas Supreme Court authority holding that a bond in the amount of the insurer's coverage of a defendant's liability should suffice to stay enforcement of the judgment. Cansler v. Harrington, 231 Kan. 66, 643 P.2d 110 (1982) In Cansler the court held that an insurer seeking to stay garnishment proceedings against it need only post a supersedeas bond in the amount of its policy, even if the judgment against its insured exceeds the policy limits. Id. at 73, 643 P.2d at 115.

Plaintiff opposes garnishee's attempt to stay garnishment by posting only the amount of its policy coverage. Although Fed.R.Civ.P. 69(a) requires this court to apply state rules for the "procedure on execution," it is unclear whether this rule also encompasses the procedure to stay rather than enforce a judgment. If Rule 69(a) is not read to apply to the procedure to stay execution of judgment, then D.Kan. Rule 221 should control:

A supersedeas bond staying execution of a money judgment shall, unless the court otherwise directs, be in the amount of the judgment, plus 25% of that amount to cover interest and any award of damages for delay.

(emphasis added). The court does not dwell on this distinction, however, because it believes that the rule of Cansler is supported by sound policy considerations. If State Farm were required to post a full supersedeas bond prior to any finding of liability for an amount in excess of the policy, State Farm would place at risk an amount that it has no obligation to pay at this point. Thus, even assuming that Cansler is not controlling on this court, its rule will be adopted under the discretionary authority of D.Kan. Rule 221. At this time, State Farm may stay the garnishment action against it for the amount of its policy coverage by posting $200,000 plus 25% to cover costs and interest.

The court's adoption of the rule of Cansler does not end the present inquiry. In Cansler the insurer sought "only to stay the garnishment action against it to the extent of its liability under its policy...." 231 Kan. at 73, 643 P.2d at 115. By contrast, State Farm moves to stay all garnishment proceedings in this case, including the action to determine its potential excess liability for alleged bad faith in defending. The court believes that this distinction is fatal to State Farm's attempt to stay all garnishment action against it. Although Kansas considers the proceeding for determining the garnishee-insurer's indebtedness to be a garnishment action, Gilley, 207 Kan. at 544, 485 P.2d 1284, an excess liability garnishment action is of a very different nature than that presented to the Cansler court. Cansler was concerned only with the inequity of forcing an insurer either to post bond for the full amount of judgment or to allow a successful plaintiff to garnish immediately the undisputed amount of the insured's policy. The limitation of the Cansler decision is also reflected in the language of its holding that "the garnishee may stay a garnishment action against it by posting a supersedeas bond in the amount of its liability plus costs and interest." 231 Kan. at 73, 643 P.2d at 115 (emphasis added). In the present case, the amount of State Farm's liability in excess of its policy limits is disputed and can only be determined by a trial to the court. K.S.A. § 60-718(c). The Cansler court did not address whether the posting of a supersedeas bond in the amount of the policy is sufficient to stay a garnishment action involving issues wholly unrelated to the undisputed amount covered under the policy. For these reasons, the court believes that State Farm may rely on the rule of Cansler only to the extent that it seeks to stay garnishment proceedings involving the $200,000 policy limit.

State Farm argues an additional basis independent of Cansler for staying all garnishment action against it. State Farm alleges that the garnishment action against it is not ripe for adjudication because of the possibility of reversal of the case by the court of appeals. If defendants are successful on their appeal and the judgment is vacated, State Farm would no longer have excess liability for any alleged bad faith in defending the Dilworth's interests.

Under the ripeness doctrine, "the central concern is whether the case involves uncertain or contingent future events that may not occur as anticipated, or indeed may not occur at all." 13A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3532, at 112...