Dodd Ins. Services, Inc. v. Royal Ins. Co. of America

• Decision Date: 11 June 1991
• Docket Number: No. 89-1368,89-1368
• Citation: 935 F.2d 1152
• Parties: DODD INSURANCE SERVICES, INC. and Tom Dodd, Jr., Plaintiffs-Appellants, v. ROYAL INSURANCE COMPANY OF AMERICA, an Illinois corporation f/k/a Royal-Globe Insurance Companies, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1152

935 F.2d 1152

19 Fed.R.Serv.3d 1292

DODD INSURANCE SERVICES, INC. and Tom Dodd, Jr., Plaintiffs-Appellants, v. ROYAL INSURANCE COMPANY OF AMERICA, an Illinois corporation f/k/a Royal-Globe Insurance Companies, Defendant-Appellee.

No. 89-1368.

United States Court of Appeals, Tenth Circuit.

June 11, 1991.

Bradley Pollock of Bell & Pollock, Littleton, Colo., for plaintiffs-appellants.

Alan Epstein (Bruce A. Menk with him, on the brief) of Hall & Evans, Denver, Colo., for defendant-appellee.

Before LOGAN, ALDISERT ^*, and SEYMOUR, Circuit Judges.

LOGAN, Circuit Judge.

The plaintiffs, Dodd Insurance Services, Inc. (Dodd Insurance) and its employee Tom Dodd, Jr., appeal a district court decision imposing Rule 11 sanctions against them. We affirm the court's decision to impose sanctions. We vacate and remand, however, for a recalculation of the amount of sanctions to be imposed.

Dodd Insurance is an independent insurance agency. Under the terms of an "Agency-Company Agreement," it sold insurance policies for Royal Insurance Company of America (Royal). When Royal attempted to terminate the agreement, plaintiffs filed suit alleging ten causes of action. Royal moved for summary judgment on seven of plaintiffs' claims. A federal magistrate judge recommended summary judgment on eight of plaintiffs' claims, and, sua sponte, recommended that Rule 11 sanctions be imposed against plaintiffs. The district court adopted the magistrate's summary judgment recommendation on seven of plaintiffs' claims. The court also adopted the magistrate's recommendation to impose Rule 11 sanctions with respect to three of the causes of action alleged, noting that plaintiffs' defamation, breach of fiduciary duty, and negligence claims had "no basis in fact or law, and plaintiffs have not presented a good faith argument for extending, modifying or reversing the existing law...." II R. tab 31 at 7. Plaintiffs now appeal, ¹ arguing that sanctions should not have been imposed because the claims were sufficient to withstand summary judgment, or, alternatively, because the claims complied with the requirements of Rule 11. They also challenge the district court's calculation of the amount of sanctions imposed and the procedures it employed in imposing sanctions. We additionally examine whether a pleading which contains several concededly nonfrivolous claims may violate Rule 11.

I

In deciding whether to impose Rule 11 sanctions, a district court must apply an objective standard; it must determine whether a reasonable and competent attorney would believe in the merit of an argument. White v. General Motors Corp., 908 F.2d 675, 680 (10th Cir.1990); Adamson v. Bowen, 855 F.2d 668, 673 (10th Cir.1988). In reviewing a district court's decision to impose Rule 11 sanctions, we apply an abuse of discretion standard to both the court's resolution of factual issues and its decision that a pleading was not warranted by existing law or a good faith argument for changing the law. Cooter & Gell v. Hartmarx Corp., --- U.S. ----, 110 S.Ct. 2447, 2457-61, 110 L.Ed.2d 359 (1990); White, 908 F.2d at 678. Although this standard of review does not preclude us from correcting a district court decision "based ... on an erroneous view of the law or on a clearly erroneous assessment of the evidence," Cooter & Gell, 110 S.Ct. at 2461, it requires that we give "[d]eference to the determination of courts on the front lines of litigation" because these courts are "best acquainted with the local bar's litigation practices and thus best situated to determine when a sanction is warranted...." Id. at 2460. According to the United States Supreme Court, "[s]uch deference will streamline the litigation process by freeing appellate courts from the duty of reweighing evidence and reconsidering facts already weighed and considered by the district court; it will also discourage litigants from pursuing marginal appeals, thus reducing the amount of satellite litigation." Id. With these admonitions in mind we consider the district court's conclusions.

A

Plaintiffs' defamation action arose after Roger Schade contacted Colorado's insurance commissioner to protest the cancellation and nonrenewal of an insurance policy issued by Royal and serviced by Dodd Insurance. Responding to Schade's protest, the Colorado Division of Insurance contacted Amye McClellan, a Royal branch manager, requesting that she provide the division and Schade with a justification for cancelling the policy. During correspondence regarding Schade's protest of cancellation, Tom Dodd, Jr. wrote McClellan a letter expressing his belief that Royal's underwriting guidelines were not part of the insurance policies sold by Dodd Insurance. In the letter, Dodd stated that "we [have never] been informed to advise the insureds of [the guidelines'] content...." I R. tab 4, ex. K. McClellan responded by sending the following allegedly defamatory letter to Tom Dodd, Jr.:

"I'm quite surprised you are unaware of your obligation to discuss more than price with a customer. I would not think you would wait for your company's [sic] to advise you of this obligation. It would seem to me to be part of your role as an independent agent to compare and contrast company rates, rules, procedures, [sic] practices in the course of counseling your customers.

Our guidelines are not a part of our policy. They are to guide you as an agent in the placing of new business, and for future reference on renewals. We do provide to you the Colorado Summary Disclosure forms which you should have from each of your companies, and which you should be giving to your customers. In the Summary Disclosure guides, we do discuss causes for nonrenewal. I'm sure you are aware of these disclosure guide, [sic] and that you do distribute them for all your companies, as required by the State of Colorado."

Id., ex. D. McClellan sent copies of the letter to Schade, the Colorado Division of Insurance, and a Royal underwriter.

We agree with the district court's conclusion that, as a matter of law, the letter is not defamatory. As the magistrate pointed out, the letter is composed largely of McClellan's opinions. Such statements of opinion are not actionable under Colorado law. See Simmons v. Prudential Ins. Co. of America, 641 F.Supp. 675, 686 (D.Colo.1986) (under Colorado law, statement of opinion must imply that it is based on undisclosed defamatory facts to be actionable). Nor can we construe McClellan's statement expressing surprise that Tom Dodd, Jr. was "unaware of [his] obligation to discuss more than price with a customer," to be libel per se or libel per quod. On its face, the statement is not "deplorable, derogatory, or disgraceful," Sunward Corp. v. Dun & Bradstreet, Inc., 811 F.2d 511, 517 (10th Cir.1987) (citing Bernstein v. Dun & Bradstreet, Inc., 149 Colo. 150, 368 P.2d 780, 784 (1962)), or "unmistakably recognized as injurious," McCammon & Assocs. v. McGraw-Hill Broadcasting Co., 716 P.2d 490, 492 (Colo.Ct.App.1986). Nor does it impute incompetence, dishonesty, or misconduct incompatible with the conduct of plaintiffs' business. See Bernstein, 368 P.2d at 783-84 (statement that a certified public accountant failed to respond to a request to be interviewed after preparing and submitting unaudited financial statements not libelous per se as a matter of law). Even when interpreted with the aid of extrinsic evidence, the letter "simply informs Mr. Dodd that he has a duty to fully inform the customer about the coverage under the policy." II R. tab 29 at 6 (magistrate's opinion). ²

B

Plaintiffs' breach of fiduciary duty claim essentially alleges that over the course of their business relationship, plaintiffs came to repose trust and confidence in Royal. ³ After reviewing the record on appeal, we conclude that the district court properly granted summary judgment on this claim. Plaintiffs did not undertake to act for the benefit of Royal. See Destefano v. Grabrian, 763 P.2d 275, 284 (Colo.1988). Nor did the business relationship between the parties cause plaintiffs " 'to relax the care and vigilance [they] would and should have ordinarily exercised in dealing with a stranger.' " Dolton v. Capitol Fed. Sav. & Loan Ass'n, 642 P.2d 21, 23 (Colo.Ct.App.1981) (quoting United Fire & Casualty Co. v. Nissan Motor Corp. 164 Colo. 42, 433 P.2d 769, 771 (1967)) (emphasis added). Nor were plaintiffs engaged in an employment relationship with Royal. See Jet Courier Service, Inc. v. Mulei, 771 P.2d 486, 491-98 (Colo.1989) (en banc) (addressing duty of loyalty arising from employment relationship). Royal and the plaintiffs had a strictly contractual relationship. As the magistrate stated, see II R. tab 29 at 19, plaintiffs ran an independently owned insurance agency that made all of its own business decisions and sold insurance policies for companies other than Royal. See IV R. 30. Under Colorado law, such a relationship does not give rise to a fiduciary duty.

C

Plaintiffs' negligence claim is based upon Royal allowing McClellan to draft a rehabilitation agreement that allegedly did not comport with Royal's own standards and to write and mail the allegedly defamatory letter. We agree with the district court's conclusion that plaintiffs' allegations do not state a negligence cause of action under Colorado law. "Colorado maintains a sharp distinction between tort and contract actions, defining tort as the breach of a legal duty arising by law, independent of contract." Bloomfield Fin. Corp. v. National Home Life Assurance Co., 734 F.2d 1408, 1414 (10th Cir.1984). See also Strey v. Hunt Int'l Resources Corp., 749 F.2d 1437, 1441 (10th Cir.1984) (Colorado does not recognize a tort action for breach of implied contractual duties), cert. denied, 479 U.S. 870, 107 S.Ct. 237, 93 L.Ed.2d 162 (1986).

Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo.1983), and Jet Courier Service, upon which plaintiffs rely, do not blur this distinction. In both cases, the cause of...