Manzanita Park, Inc. v. Insurance Co. of North America
| Decision Date | 13 September 1988 |
| Docket Number | No. 87-1787,87-1787 |
| Citation | 857 F.2d 549 |
| Parties | MANZANITA PARK, INC., an Arizona corporation, Plaintiff-Counter-Claim-Defendant/Appellant, v. INSURANCE COMPANY OF NORTH AMERICA; Land Speed Insurers Agency, Inc.; Haas & Wilkerson, and Jack Jordan, Defendants-Counter-Claimants/Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Joseph A. Schenk and Paula S. Bickett, Beus, Gilbert, Wake & Morrill, Phoenix, Ariz., for plaintiff-counter-claim-defendant/appellant Manzanita Park, Inc.
Michael K. Kennedy and Kevin E. O'Malley, Gallagher & Kennedy, Phoenix, Ariz., for defendant-counter-claimant/appellee Ins. Co. of North America.
John A. Miller and Janet Napolitano, Lewis and Roca, Phoenix, Ariz., for defendants-counter-claimant/appellees Land Speed Insurers Agency, Inc., Haas & Wilkerson, and Jack Jordan.
Appeal from the United States District Court for the District of Arizona.
Before GOODWIN and FLETCHER, Circuit Judges and KING, * District Judge.
I. BACKGROUND
In this diversity action, Manzanita Park, Inc., the owner of Manzanita Park Speedway in Phoenix, Arizona, appeals from a grant of summary judgment in favor of defendants Insurance Company of North America ("INA"), Land Speed Insurers Agency, Inc. ("Land Speed"), Haas & Wilkerson, and Jack Jordan. We affirm in part, reverse in part and remand for further proceedings consistent with this opinion.
In 1970, INA began providing Keith Hall, Manzanita's president and sole shareholder, with racetrack insurance. Around that time, Hall asked INA representative Jack Jordan to provide coverage for Manzanita's potential liability to racetrack officials who might be hurt during a racing event. Jordan told Hall that such coverage was available under a special participants' coverage endorsement for an additional premium, and Hall agreed to pay for it. In 1975, INA issued policy No. ALB 55489, effective February 18, 1975 to April 1, 1976. The coverage provided by this policy is at the core of the dispute now before us.
Under the special participants' endorsement, coverage was provided to "all persons taking part in a racing meet including but not limited to, drivers, pit crew, and race officials." However, the policy also contained an exclusionary clause which said:
This insurance does not apply:
....
(g) to bodily injury to an employee of the insured arising out of or in the course of his employment by the insured.
Neither Hall nor any other person at Manzanita was aware of the employee exclusion. No one at Manzanita had read the policy, and INA did not bring the exclusionary clause to Manzanita's attention.
On March 12, 1976, a race flagman named Norman Zeeman was struck and injured by a racing automobile at Manzanita Speedway. Anticipating that Zeeman would sue Manzanita, INA warned Manzanita in a January, 1978 reservation of rights letter that the employee exclusion rendered coverage questionable. Following subsequent investigation, INA became satisfied that Zeeman was not an employee and in an April, 1978 letter explained that there were no coverage issues. The letter instructed Manzanita to contact INA in the event a suit was initiated.
In May of 1978, Zeeman filed a complaint against Manzanita in Arizona state court framing two alternative claims: (1) Manzanita was liable to Zeeman as his employer under Ariz.Rev.Stat. Sec. 23-907 for failing to provide him with workers' compensation coverage; and (2) Zeeman was an independent contractor entitled to recover against the racetrack for its negligence. Manzanita tendered the defense of the lawsuit to INA.
After reviewing the complaint, on July 14, 1978 INA wrote Manzanita a second reservation of rights letter. That letter explained that it was INA's position that Zeeman was not an employee and that INA would provide Manzanita with a defense, but that INA would not indemnify Manzanita if the trial court determined Zeeman to be an employee. Furthermore, the letter warned that "in the event such a determination is made by the trial court, you may wish to employ separate counsel at your own expense to assist you further in the defense."
INA provided Manzanita with an attorney named Ben Thomas. Thomas adopted the defense strategy of proving that Zeeman was an independent contractor rather than an employee in order to preserve the defenses of contributory negligence and assumption of risk, which were not available against the claim for failure to provide workers' compensation coverage. Thomas filed a motion on Manzanita's behalf for partial summary judgment that Zeeman was an independent contractor, which the district court denied.
On June 12, 1980, four days before trial, Zeeman's attorney and Thomas jointly stipulated that Zeeman would dismiss the independent contractor claim and proceed solely on the allegation that he was an employee of Manzanita injured in the course of his employment, pursuant to Ariz.Rev.Stat. Sec. 23-907. Zeeman's purpose in this was to preclude Manzanita from raising the defenses of contributory negligence and assumption of risk. Thomas' motivation for entering the stipulation does not appear from the record.
At trial, Thomas attempted to prove that Zeeman was not an employee so that Manzanita would not be liable for failing to provide workers' compensation coverage. However, the jury found in favor of Zeeman and awarded him $190,178.23. INA has refused to indemnify Manzanita on the ground that the policy specifically excludes employees from its coverage.
On January 26, 1984, Manzanita filed a complaint in federal district court in Arizona. Count I sought a declaration that the insurance policy issued by INA covered the Zeeman judgment. Count VI alleged bad faith refusal by INA to satisfy the judgment. Count VII alleged that INA breached its fiduciary duty to Manzanita by controlling the Zeeman litigation without informing Manzanita of a conflict of interest between INA and Manzanita.
Counts II, III and IV of Manzanita's complaint sought relief from Jordan for negligently failing to provide the coverage requested by Manzanita, breach of contract and misrepresentation. Count V alleged that two companies with whom Jordan was associated, Land Speed and Haas & Wilkerson, were vicariously liable for the acts of Jordan.
The district court granted summary judgment in favor of all of the defendants, and Manzanita now appeals.
II. DISCUSSION
We review the district court's grant of summary judgment de novo. Augustine v. McDonald, 770 F.2d 1442, 1444 (9th Cir.1985). Rule 56(c) of the Federal Rules of Civil Procedure, provides that summary judgment shall be rendered:
if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
"A 'material' fact is one that is relevant to an element of a claim or defense and whose existence might affect the outcome of the suit." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Assoc., 809 F.2d 626, 630 (9th Cir.1987). The moving party has the burden of demonstrating the absence of a genuine issue of material fact, and all permissible inferences from the evidence must be drawn in favor of the nonmoving party. National Indus. Inc. v. Republic Nat'l Life Ins. Co., 677 F.2d 1258, 1265 (9th Cir.1982).
The district court granted summary judgment for INA on Manzanita's claims that the INA policy covered the Zeeman judgment and that INA denied coverage in bad faith. Manzanita contends that there is a genuine issue as to whether Zeeman was an employee. INA argues that the district court correctly concluded that Manzanita is collaterally estopped by Zeeman from relitigating the employee issue. We agree with Manzanita.
Under Arizona law, there are five requirements for the use of collateral estoppel to preclude litigation of issues previously litigated: (1) the issue was actually litigated in a previous proceeding; (2) there was a valid and final decision on the merits; (3) resolution of the issue was essential to the decision; (4) there is common identity of the parties; and (5) there was a full and fair opportunity to litigate the issue. J.W. Hancock Enter. v. Ariz. St. Reg., 142 Ariz. 400, 690 P.2d 119, 129 (Ct.App.1984). "The application of collateral estoppel is committed to the sound discretion of the trial court." Greenblatt v. Drexel Burnham Lambert, Inc., 763 F.2d 1352, 1360 (11th Cir.1985).
The first three of these requirements are clearly satisfied by the Zeeman litigation. As to the fourth issue, common identity of the parties, Arizona applies the rule that collateral estoppel may be used defensively by a nonparty against a party to a prior proceeding. See Standage Ventures, Inc. v. State, 114 Ariz. 480, 562 P.2d 360, 364 (1977); Spettigue v. Mahoney, 8 Ariz.App. 281, 445 P.2d 557 (1968). Thus, because INA is asserting collateral estoppel defensively, it is sufficient that Manzanita was a party to the prior Zeeman proceedings.
However, problems arise in regard to the requirement of a full and fair opportunity to litigate. Manzanita argues that it was denied this opportunity because its attorney, Thomas, had a conflict of interest between defending Manzanita and insulating INA from its obligation to indemnify Manzanita were Zeeman to be adjudged an independent contractor. The district court reasoned that, because Zeeman proceeded to trial on the sole theory that he was an employee of Manzanita and Manzanita defended on the ground that Zeeman was an independent contractor, there was no conflict of interest.
We believe that the district court viewed the conflict of interest question too narrowly. Under Arizona law, a conflict of interest exists when "the injured person's claim...
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