Jobe v. International Ins. Co., Civ. 93-0074 PHX CAM.
| Decision Date | 07 March 1995 |
| Docket Number | No. Civ. 93-0074 PHX CAM.,Civ. 93-0074 PHX CAM. |
| Citation | 933 F. Supp. 844 |
| Parties | Emmett S. JOBE, et al., Plaintiffs, v. INTERNATIONAL INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Arizona |
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Merwin D. Grant, Kenneth B. Vaughn, Grant Williams Lake & Dangerfield P.C., Phoenix, AZ, for plaintiffs.
Edward Francis Ruberry, Jeffrey Alan Goldwater, George J. Manos, James A. Lupo, Jr., Bollinger Ruberry & Garvey, Chicago, IL, Robert J. Bruno, Phoenix, AZ, for defendant.
Having considered plaintiffs' motions for partial summary judgment and defendant International Insurance Company's motion for summary judgment, the Court concludes as follows:
Background
This case involves a dispute regarding insurance coverage under a policy issued to the law firm of Lee, Stegall and Katz LSK for malpractice claims asserted by plaintiffs Jobe. Plaintiffs sued the law firm in state court for tax advice given by a deceased partner for malpractice. The law firm settled for $3 million and assigned its rights, if any, against International to the Jobes through a Damron agreement. The Jobes subsequently filed this action against International alleging breach of contract and bad faith.
International has filed a motion for summary judgment alleging that it had no duty to defend and never prevented nor obstructed any settlement. Plaintiffs have filed to partial motions for summary judgment alleging that liability and damages cannot be relitigated. Plaintiffs have also filed a partial motion for summary judgment seeking judgment on the defendant's recision claim.
Summary judgment may be granted if the movant shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rule 56(c), Federal Rules of Civil Procedure.
The disputed fact(s) must be material. Id. Substantive law determines which facts are material. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
The dispute must also be genuine. A dispute about a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Liberty Lobby, 477 U.S. at 249, 106 S.Ct. at 2510. There is no issue for trial unless there is sufficient evidence favoring the nonmoving party. If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Liberty Lobby, 477 U.S. at 249-50, 106 S.Ct. at 2510-11. In a civil case, the question is:
whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented. The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.
Liberty Lobby, 477 U.S. at 252, 106 S.Ct. at 2512.
The moving party who has the burden of proof on the issue at trial must establish all of the essential elements of the claim or defense for the court to find that the moving party is entitled to judgment as a matter of law. Fontenot v. Upjohn, 780 F.2d 1190, 1194 (5th Cir.1986); Calderone v. United States, 799 F.2d 254, 259 (6th Cir.1986). However, the moving party need not disprove matters on which the opponent has the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Thus, summary judgment is proper if the nonmoving party fails to make a showing sufficient to establish the existence of an essential element of his case on which he will bear the burden of proof at trial. Id.
The following facts relevant to these motions are undisputed1:
I. Plaintiffs' motion for partial summary judgment regarding relitigation of damages
This is a bad faith action against an insurer arising from an underlying legal malpractice action Jobe v. Lee. SOF 1. In Jobe v. Lee, the Jobes sued for malpractice involving alleged improper tax advice. SOF 2. The Jobes sought approximately $2 million as compensation for the amount they had to pay to the federal and state tax authorities, plus other damages that caused the Jobe's claim to total approximately $4 million. SOF 3. The Jobe v. Lee case was settled by a final entry of judgment in the approximate amount of $3 million and an assignment of the insured's rights to the Jobes. SOF 4.
In this case, International contends that any tax benefits the Jobes received would diminish the Jobes' damages. SOF 5. In Jobe v. Lee, the Jobes successfully moved for summary judgment on the issue and Judge Rapp ruled that the defendants were not entitled to an offset of the Jobes' damages by the amount of any tax benefits or profits they might have realized a part of the underlying transactions. SOF 6. International's expert in this case, David Frazier, has not researched the question of whether tax benefits are considered when measuring a plaintiff's damages. SOF 7. Mr. Frazier is not an expert on the legal measure of damages. SOF 8. Mr. Frazier is of the opinion that tax benefits should be a legitimate aspect of damage calculations. SOF 9. Mr. Frazier contends any award the Jobes would have received in the Jobe v. Lee case would not be taxable income to them. SOF 10. In Jobe v. Lee, the Jobes claimed that any damages awarded would be taxable. SOF 11. The defendants in Jobe v. Lee did not argue that any damages awarded to the Jobes would not be taxable.
II. Plaintiffs' motion for partial summary judgment regarding relitigation of liability
One defense raised in Jobe v. Lee was the statute of limitations. SOF 2. In Jobe v. Lee, the defendants filed a motion for summary judgment on the statute of limitations. SOF 3. After the motion for summary judgment was denied, the defendants in Jobe v. Lee moved for reconsideration. SOF 4. After the motion for reconsideration was denied, the defendants in Jobe v. Lee moved to bifurcate the trial on the statute of limitations issues. SOF 5.
In Jobe v. Lee, the Jobes contended that if their claim against Larry Lee was time barred, Stegall and the other lawyers at LSK committed malpractice by failing to advise the Jobes of the statute of limitations at the time Stegall told the Jobes to make a claim against Lee, and by failing to urge them to seek independent counsel immediately because of the statute of limitations issue. SOF 6.
III. Plaintiffs' motion for partial summary judgment for rescission
This action is a bad faith action against the insurance company defendant for actions arising out of the underlying malpractice action in Jobe v. Lee. SOF 1. In Jobe v. Lee, the Jobes sued for malpractice involving improper tax advice and claimed damages of approximately $4 million. SOF 2. The insured, Lee, Stegall & Katz LSK, represented the Jobes in connection with an Internal Revenue Service audit and administrative appeal of the Jobes' income tax returns from approximately 1985 through August of 1989, when the appeal was settled. SOF 3. Charles Stegall was the managing partner of LSK from January 1987 through August of 1989. SOF 4. Larry Lee, the Lee in the LSK name, died in November of 1987. SOF 5. Prior to his death, Lee represented the Jobes and structured certain transactions which were the subject of an IRS audit. SOF 6. Until his death, Lee vigorously defended his structuring of the transactions with the IRS and assured the Jobes that they had nothing to worry about. SOF 7. After Lee's death, Stegall and Michael Kempner, an LSK associate, continued the representation of the Jobes through the administrative appeal. SOF 8. LSK continued to represent the Jobes on numerous other matters and was counsel for the Jobes and their business interests in all legal matters not related to tax issues after the settlement with the IRS. SOF 9.
On or about January 20, 1989, Stegall completed an application for professional malpractice insurance for International. SOF 10. One of the questions on the application stated:
SOF 11. Stegall answered no. SOF 12. This answer is the entire basis of International's counterclaim for rescission in this action. SOF 12. International contends Stegall had notice of the Jobe v. Lee claim on January 20, 1989. SOF 14. In August of 1989, the Jobes reached as settlement with the IRS on advice of Stegall and others. SOF 15.
At the meeting where settlement with the IRS was discussion, Stegall advised Jobe that he should make a claim against LSK based on Lee's acts, including his conflict of interest and a certain indemnity letter that raised a possible fraud claim by the IRS. SOF 16. Jobe consulted with his CPA, Randy Fitzpatrick, and Fitzpatrick authored a draft of a demand letter. SOF 17. Stegall reviewed the demand letter, found it unclear and informed Fitzpatrick. Fitzpatrick then sent another letter to Stegall. SOF 18. Fitzpatrick sent the revised demand letter, dated November 20, 1989, to Stegall. SOF 19. Stegall forwarded a copy of the demand letter to his two insurers, Home Insurance Company and International. SOF 20. The Jobe v. Lee litigation commenced in January of 1990. SOF 21. The Jobes' counsel's concern about the statute of limitations prompted the filing at that time. SOF 22. The Jobe v. Lee litigation was settled in October of 1992. SOF 23.
In December of 1992, this action was commenced. SOF 24. In January of 1993, International first asserted a right to rescind the policy based on the alleged false answer to the above question. SOF 25. On June 28, 1989, Debbie Price, International's...
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