Childs v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 26 August 1994
• Docket Number: No. 93-3590,93-3590
• Citation: 29 F.3d 1018
• Parties: Boyce W. CHILDS, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee, v. Bruce C. WALTZER, Movant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1018

29 F.3d 1018

29 Fed.R.Serv.3d 1032

Boyce W. CHILDS, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee, v. Bruce C. WALTZER, Movant-Appellant.

No. 93-3590.

United States Court of Appeals Fifth Circuit.

Aug. 26, 1994.

Phillip A. Wittmann, Rachel W. Wisdom, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, LA, for appellant.

James P. Nader, Lobman, Carnahan & Batt, Metairie, LA, for appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JOHNSON, BARKSDALE and DeMOSS, Circuit Judges.

JOHNSON, Circuit Judge:

This action arises out of an alleged hit-and-run accident involving plaintiff, Boyce Childs. Following this alleged accident, Childs retained appellant, Bruce Waltzer, to represent him in an action seeking benefits under the uninsured-motorist provisions in an insurance policy issued by defendant/appellee, State Farm. During the course of discovery, however, State Farm amassed substantial and compelling evidence that the alleged accident was in fact deliberately staged in order to secure the benefits of the policy. Despite this evidence, attorney Waltzer conducted little to no discovery and continued to sign pleadings in prosecution of the suit. Accordingly, State Farm sought sanctions against Waltzer for violations of Rule 11 of the Federal Rules of Civil Procedure. The district court ruled in favor of State Farm and imposed sanctions in the amount of $30,000. Finding no reversible error, we AFFIRM.

I. FACTS AND PROCEDURAL HISTORY

This litigation arises from the claim of plaintiff, Boyce Childs, that he was involved in a hit-and-run accident on May 17, 1988. This alleged accident took place at 1:30 a.m. on a remote portion of Highway 11 in the Parish of Orleans in Louisiana. According to Childs, after sustaining a glancing impact from an oncoming vehicle, he swerved, lost control of the van he was driving, and ran off the road and into a tree. After the van hit the tree and Childs was able to exit the vehicle, Childs alleges that the van burst into flames and was completely consumed by fire.

Firemen and police responded to the scene of this alleged accident where they found a smoldering and dented van. Moreover, Childs was taken by ambulance to the hospital where he was treated for injuries to his face and chest. ¹

State Farm, which had issued an insurance policy covering the van, did reimburse Childs for his medical bills. However, it refused to provide any further benefits pursuant to the uninsured-motorist provisions of the policy. Accordingly, Childs retained the legal services of Bruce Waltzer to bring an action against State Farm to recover those benefits.

Waltzer brought this action, on March 12, 1990, in a Louisiana state court alleging that Childs was entitled to the benefits under the policy and that State Farm was in bad faith. State Farm removed the action to federal district court on the basis of diversity of citizenship. Moreover, in its answer to this suit, State Farm denied that any accident had occurred or that Childs' "incident" had involved a hit-and-run collision.

State Farm then began to conduct discovery to gather evidence to prove that no such accident had occurred. This discovery revealed that within the six months preceding the accident, Childs had purchased ² no less than thirteen disability policies of insurance. ³ Moreover, it came to light that the van that Childs was driving was owned by Chris Taylor and the particular State Farm policy in issue had been purchased by Robert Jenkins. Taylor and Jenkins were personal friends and business associates of Childs and between them they had been involved in ten other "phantom vehicle" accidents which occurred under strikingly similar circumstances as the alleged accident involved in the instant suit. ⁴ In each case, the accident victims were protected by multiple insurance policies, in some cases as many as twenty, purchased within days or months prior to the accidents. ⁵ Finally, State Farm discovered that Childs himself had been involved in a prior phantom vehicle accident in 1981 before which he had purchased twenty disability insurance policies within the nine months preceding the accident. ⁶

Compounding the inference of fraud to be drawn from the great number of policies purchased and the timing of their purchase, State Farm produced many of the applications by which Childs procured these policies. These applications contained numerous omissions or misrepresentations ⁷ that obscured the number of insurance carriers with which Childs had coverage. ⁸

Lastly, State Farm developed evidence through discovery which suggested that the physical evidence did not match the particulars of the accident as described by Childs. First, Officer Furlong, the officer on the scene, testified in deposition that he found no debris, such as glass or metal fragments on the highway, which he would have expected if there had been contact with another vehicle. Further, Officer Furlong stated that despite Childs' description of the severe or sharp turn made to avoid the collision, he found no tire marks, gouge marks or scrapes on the roadway. Lastly, Officer Furlong noted that he found it unusual that the van burst into flames as a result of a frontal impact with a fixed object as this had never occurred during his thirteen years of investigation.

State Farm also retained the services of three expert witnesses. These experts all cast doubt on Childs' version of the accident. Most telling is the report of Mervin A. Stringer, an expert in pyrotechnics, who stated that the dent located in the left side of the van was post-fire damage. ⁹ Additionally, the other two experts noted that the damage on the van was too high to have been caused by a head-on collision with a mid-size car as indicated by Childs, that it is very unlikely that a fire would have been caused by a frontal collision with a stationary object and that the van had rebounded away from the tree further than would be expected from an impact as described by Childs. ¹⁰

After the development of much of this evidence, State Farm, in January of 1991, moved for leave to amend its answer to specifically allege fraud. In particular, State Farm alleged that Childs had deliberately staged the accident in an attempt to profit from the proceeds of the State Farm insurance policy. Without conducting any discovery, Waltzer opposed this motion. State Farm was granted leave, however, and did amend its answer.

The case proceeded to a trial setting in September of 1991 before Judge McNamara. On September 19, 1991, in accordance with the district judge's pre-trial notice, Waltzer and counsel for State Farm met over the course of several hours for the purpose of formulating an exhibit list for trial. During this meeting, all of the documentary evidence, including all of the many policies of insurance and the misleading application sheets, were reviewed. ¹¹ Then, on the day of the trial setting, September 23, Waltzer filed a Motion for Partial Dismissal, dismissing the claim against State Farm for bad faith. ¹² Waltzer continued to pursue the remainder of the claim, though.

The September trial did not occur. Instead, the trial was continued until April of 1992. In the interim, Waltzer again had an opportunity to conduct discovery to test the verity of State Farm's evidence. He did not avail himself of that opportunity, however.

On October 28, 1991, State Farm asserted a counterclaim against Childs seeking to recover the money it had paid to him prior to the onset of discovery. The basis for this counterclaim was that Childs had committed fraud by deliberately staging the accident. Without conducting any discovery, Waltzer signed and filed an answer to the counterclaim denying the assertion of fraud.

This case did eventually go to trial in April of 1992 before Judge Edith Brown Clement. After presentation ¹³ of the evidence, it took a jury less than two hours to find that Childs was guilty of fraud and to award State Farm damages on its counterclaim.

Following this trial, on June 18, 1992, State Farm moved for sanctions against Waltzer ¹⁴ for violations of Rule 11 of the Federal Rules of Civil Procedure. This led to a hearing on liability which took place before Judge Clement on October 21, 1992. At the end of this hearing, Judge Clement concluded that by late 1990 or early 1991, the evidence developed by State Farm had pretty well taken shape and was available to Waltzer. Judge Clement found this evidence to be overwhelming and clear. In light of this evidence, the court held that Waltzer failed to act as a reasonable attorney by failing to evaluate and recognize the clear proof of fraud in this case which led to Waltzer's failure to conduct a reasonable inquiry into his client's claims. ¹⁵ As Waltzer had not conducted a reasonable inquiry after the evidence of fraud became compelling, the court held that Waltzer had violated Rule 11 when, after this time, he signed three documents ¹⁶ that affirmed the merits of Childs' claim.

Accordingly, Judge Clement ordered Waltzer to pay, as a sanction, State Farm's attorneys' fees and costs incurred as a result of this violation beginning September 4, 1991. A separate hearing was held to quantify those fees and expenses. At that hearing, Judge Clement determined that State Farm had proved up an amount of reasonable fees and expenses totaling $46,462. However, she found that the sum of $30,000 would adequately represent an amount which would be an appropriate sanction and assessed that amount against Waltzer for his violations of Rule 11. Waltzer now appeals.

II. DISCUSSION

A. Standard of Review

We review all aspects of a district court's decision to invoke Rule 11 and accompanying sanctions under an abuse of discretion standard. American Airlines, Inc. v. Allied Pilots Association, 968 F.2d 523, 529 (5th Cir.1992). "A district court necessarily would...