Kirkland v. Legion Ins. Co., 02-35490.

• Decision Date: 12 September 2003
• Docket Number: No. 02-35490.,No. 02-35592.,02-35490.,02-35592.
• Citation: 343 F.3d 1135
• Parties: Gary KIRKLAND; David B. Andersen; Bradley D. Eagleston; Diana Johnston; Michael McCoy; Claire Collins; Joan B. Stanford; Richard Oare; James E. Sullivan, Plaintiffs-Appellees, v. LEGION INSURANCE COMPANY, a Pennsylvania corporation, Defendant-Appellant. Gary Kirkland; David B. Andersen; Bradley D. Eagleston; Diana Johnston; Michael McCoy; Claire Collins; Joan B. Stanford; Richard Oare; James E. Sullivan, Plaintiffs-Appellees, v. Legion Insurance Company, a Pennsylvania corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

343 F.3d 1135

Gary KIRKLAND; David B. Andersen; Bradley D. Eagleston; Diana Johnston; Michael McCoy; Claire Collins; Joan B. Stanford; Richard Oare; James E. Sullivan, Plaintiffs-Appellees, v. LEGION INSURANCE COMPANY, a Pennsylvania corporation, Defendant-Appellant.

Gary Kirkland; David B. Andersen; Bradley D. Eagleston; Diana Johnston; Michael McCoy; Claire Collins; Joan B. Stanford; Richard Oare; James E. Sullivan, Plaintiffs-Appellees, v. Legion Insurance Company, a Pennsylvania corporation, Defendant-Appellant.

No. 02-35490.

No. 02-35592.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 7, 2003 — Seattle, Washington.

Filed September 12, 2003.

COPYRIGHT MATERIAL OMITTED

Richard A. Lee, Bodyfelt Mount Stroup & Chamberlain LLP, Portland, Oregon, and Richard M. Layne, Layne & Lewis, LLP, Portland, Oregon, for the defendant-appellant.

Michael E. Farnell, Hagen Hirschy Dilorenzo & Grein, PC, Portland, Oregon, for the plaintiffs-appellees.

Appeals from the United States District Court for the District of Oregon; Garr M. King, District Judge, Presiding. D.C. Nos. CV-01-00317-GMK, CV-01-00317-KI.

Before: J. Clifford WALLACE, Stephen S. TROTT, and A. Wallace TASHIMA, Circuit Judges.

OPINION

WALLACE, Senior Circuit Judge.

Legion Insurance Company (Legion) appeals from two orders issued by the district court: 1) an order dated March 29, 2002, directing it to pay over $9.5 million into the court's registry to provide funds for three settlement agreements, and 2) an order dated May 24, 2002, holding Legion in contempt for failure to pay the money into the court's registry and directing Legion to pay an additional $5,000 a day until the full amount is deposited with the court. We consolidated the appeals and have jurisdiction over these orders pursuant to 28 U.S.C. § 1291 and 1292(a)(1), and we reverse.

I.

The plaintiffs-appellees (Schultz trustees) are trustees of a health and welfare trust plan. Plan beneficiaries sued the Schultz trustees in an underlying class action, alleging that they mismanaged the investment of the plan funds. Schultz v. Kirkland, No. CV-00-1377-HA (D. Or. filed Oct. 10, 2000). The parties to the class action wished to settle. Requisite to doing so was payment by the Schultz trustees' insurance provider, Legion, on a policy covering their management of the trust plan. The Schultz trustees filed a complaint against Legion seeking a declaratory judgment that the effective limit of the policy held by the Schultz trustees with respect to the potential losses incurred in the underlying Schultz class action was $5,000,000. The trustees also sought a declaratory judgment that Legion was obligated to pay their attorneys' fees.

After the complaint and answer were filed, the Schultz trustees and Legion agreed to settle the insurance coverage dispute. The proposed settlement provided that the Schultz trustees would dismiss the coverage dispute action, conditioned on the dismissal of the underlying Schultz class action, in exchange for Legion's payment of $478,000 to satisfy its obligations on the policy and payment of $100,000 for attorneys' fees. Legion agreed to pay the $578,000 by April 1, 2002.

The settlement agreement was neither presented to the district court nor ever approved by the district court, and no order was entered dismissing the coverage action. However, on March 29, 2002, the Schultz trustees filed a motion in this action asking the district court to enforce the settlement agreement between the Schultz trustees and Legion because Legion could not confirm that it would pay the agreed amount by April 1, 2002.

On the day the Schultz trustees' motion to enforce the settlement agreement was filed, the district court held a hearing. Although not parties to either the motion or to the action out of which it arose, trustees being sued in two different but similar class actions appeared: Eidem v. Plumbers Local 290, No. CV-00-1446-HA (D. Or. filed Oct. 26, 2000), and McPherson v. Eighth District Electrical, No. CV-00-1445-HA (D. Or. filed Oct. 26, 2000). They informed the district judge that Legion was also their insurer and that they also had reached settlement agreements with Legion regarding the amounts Legion would pay on the policies held by the Eidem and McPherson trustees as well as attorneys' fees.

For its part, Legion notified the court that on March 28, 2002, the Commonwealth Court of Pennsylvania granted a petition to rehabilitate Legion and appointed the State's Insurance Commissioner as Rehabilitator, effective April 1, 2002. Rehabilitation is a process by which the state takes over a financially insolvent insurer so it can maintain its coverage to policyholders and avoid liquidation.

Following the hearing, the district court issued an order finding that Legion had "fail[ed] to provide adequate assurances of payment" in its settlement with the Schultz trustees. The court made the same finding with respect to the settlement agreement between Legion and the McPherson trustees, although payment was not required under the agreement until April 11, 2002. It also found Legion in breach of its settlement agreement with the Eidem trustees, which called for payment on March 21, 2002. The settlement agreements between Legion and the Eidem trustees and the McPherson trustees had never been presented to the court in either this action or the underlying class actions. The court ordered Legion to pay $9.5 million immediately, the total amount owed under all three settlement agreements.

When payment was not made, the Schultz trustees brought a motion asking the court to hold Legion in contempt. In response, the Rehabilitator requested that the court grant full faith and credit to the order of rehabilitation entered by the Pennsylvania court, which prevented the Rehabilitator from making any payments. On May 24, 2002, the district court found Legion in contempt of the March 29 order. The court stated that Legion and its Rehabilitator could purge themselves of the contempt "by paying the full amount ordered into the registry of the court by June 10th [2002]." The district court further ordered that "if the [R]ehabilitator has not paid the full amount into the court by that date, a sanction—I sanction—excuse me, I impose sanctions of $5,000 per day effective the 1st of June." The $5,000 per day in sanctions were to continue "until the full amount ordered has been paid." [Id.]

II.

We begin by determining the grounds for our appellate jurisdiction. At oral argument, neither party was able to identify a basis for appellate jurisdiction. Thus we must satisfy ourselves that these appeals are properly before us. Feldman v. Allstate Ins. Co., 322 F.3d 660, 665 (9th Cir. 2003).

A.

The March 29 order directing Legion to pay the settlement amounts into the court's registry would not ordinarily provide a basis for a direct appeal. 28 U.S.C. § 1291 gives this court jurisdiction over "all final decisions of the district courts," but the district court never entered a final judgment following the order. Moreover, a final judgment requires a "separate document," FED. R. CIV. P. 58(a)(1), which was not filed in this action.

However, we do have appellate jurisdiction. First, although no formal final judgment was rendered, the order has the characteristics of a final judgment. A final judgment is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945). The purpose of the finality requirement is to avoid piecemeal appeals. Richardson-Merrell, Inc. v. Koller, 472 U.S. 424, 430, 105 S.Ct. 2757, 86 L.Ed.2d 340 (1985); Pride Shipping Corp. v. Tafu Lumber Co., 898 F.2d 1404, 1406 (9th Cir.1990). The district court's March 29 order essentially ended the litigation in Kirkland v. Legion Insurance Co. on the merits. The agreement settled the declaratory judgment claim on the limits of the policy as well as the trustees' claim for attorneys' fees. Although the district court never formally approved the settlement agreement, the March 29 order directing Legion to pay the amount agreed upon to resolve the anticipatory repudiation claim effectively indicated its approval of the settlement.

Furthermore, despite being contingent on the settlement of the underlying Schultz class action, once the trustees moved to enforce the settlement agreement, they waived that condition. By also failing to raise the issue, Legion likewise waived it. Consequently, the March 29 order left nothing for the district court to do, except formally enter a final judgment. There was no other conceivable district court order with respect to the case's merits once the court in effect approved the settlement agreement by enforcing its terms. Even if the district court was wrong on the merits, the order should still be treated as final for purposes of the final judgment rule.

Although a final judgment requires a "separate document," FED. R. CIV. P. 58, neither the Supreme Court nor this court views satisfaction of Rule 58 as a prerequisite to appeal. Shalala v. Schaefer, 509 U.S. 292, 303, 113 S.Ct. 2625, 125 L.Ed.2d 239 (1993) ("The Secretary ... argues that a formal `separate document' of judgment is not needed for an order of a district court to become appealable. That is quite true...."); Mitchell v. Idaho, 814 F.2d 1404, 1405 (9th Cir.1987) ("[W]e would not be deprived of jurisdiction simply because the ... [] order did not comply with the separate judgment rule."). Therefore, we hold that the March 29 order has sufficient finality for us to have appellate jurisdiction pursuant to 28 U.S.C. § 1291.

B.

The appealability of the May 24 order holding Legion in contempt turns on whether we characterize it as civil or criminal contempt. "Orders of civil contempt entered against a party during the course of a pending civil action are not appealable until final judgment," SEC v....