Marathon Financial Ins., Inc., Rrg v. Ford Motor Co.
| Decision Date | 18 December 2009 |
| Docket Number | No. 09-40164.,09-40164. |
| Citation | 591 F.3d 458 |
| Parties | MARATHON FINANCIAL INSURANCE, INC., RRG, Plaintiff-Appellant, v. FORD MOTOR CO., Ford Motor Credit Co., Primus Financial Services, Ford Extended Service Plan, Ford Motor Service Company, Automobile Protection Corporation, American Road Insurance Company, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeal from the United States District Court for the Eastern District of Texas.
Before HIGGINBOTHAM and STEWART, Circuit Judges, and ENGELHARDT, District Judge.*
Marathon Financial Insurance Company, Inc. ("Marathon") insures vehicle service contracts sold by Automotive Professionals, Inc. ("API"), which were sold at the dealerships of Ford Motor Company.1 In 2004, Ford changed its policy and would no longer finance purchases of vehicle service contracts unless the insurer had a stability rating of A- or better. Marathon did not have an A- or better rating. Marathon filed suit against Ford, bringing claims of tortious interference with contract and tortious interference with prospective business relations. In March 2006 the district court dismissed the latter claim under Rule 12(b)(6). More than two years later, Marathon filed motions to amend to reassert tortious interference with prospective business relations and to reopen discovery. The motions were denied and the district court later granted summary judgment in favor of Ford. Marathon appeals on the grounds that, under Illinois law, the district court erred by placing the burden of proof on Marathon to show lack of justification for Ford's alleged tortious interference with contract, and by concluding that Ford's conduct was justified as a matter of law, and that the court abused its discretion by denying Marathon additional discovery and denying Marathon leave to file its Fifth Amended Complaint.
Marathon is a Risk Retention Group ("RRG") insurer that insures payment for repairs on vehicle service contracts ("VSCs"), also known as extended service contracts. VSCs are contracts that cover the cost of repairs after the original manufacturer's warranty on a vehicle expires; Marathon provides coverage in the event that the contract's seller cannot meet its obligations. Marathon insured VSCs sold by API. API's VSCs, and Marathon's accompanying insurance, were sold at dealerships marketing various vehicle brands, including Ford's brands. Ford also sold insured VSCs, in competition with API and Marathon.
Ford finances transactions involving combined purchases of Ford-brand vehicles and VSCs, which could be from Ford, API, or other providers. These financing transactions do not take the form of a direct loan of cash to consumers. Rather, Ford purchases retail installment sales contracts from dealers. Once it purchases the contract, Ford pays the dealer and then bears the risk of collecting the payments from the vehicle purchaser.
Before January 1, 2005, Ford regularly financed vehicle purchases that included the sale of a VSC if the VSC in question was backed by an insurance company with an A.M. Best rating of A- or better, or if the insurer of the contract was backed by a reinsurer with an A.M. Best rating of A- or better. A.M. Best is a recognized insurance rating agency, and its ratings are widely used to assess the financial strength and stability of insurance companies. Under that policy, Ford regularly financed vehicle purchases that included the sale of API VSCs insured by Marathon.
Ford claims that events in 2003 forced it to reevaluate its financing standards. National Warranty Insurance Company ("NWIC"), another RRG that wrote insurance for third-party sellers of VSCs, filed for bankruptcy protection in the Cayman Islands. The NWIC bankruptcy left many consumers with essentially worthless VSCs. The bankruptcy impacted Ford and its dealers because consumers who had purchased NWIC-backed VSCs from Ford dealers looked to the dealers to satisfy the obligations of those contracts. Many dealers were concerned about the effect on their reputations, and chose to bear the cost of the repairs themselves, or sought assistance from Ford, in order to keep their customers happy. Ford effectively assumed responsibility for the liability on numerous NWIC-backed contracts.
NWIC, like many insurers, had been rated by A.M. Best. Although A.M. Best had downgraded NWIC's rating to a grade below A-, Ford had continued to finance transactions that included NWIC-backed VSCs because NWIC had reinsurance from an insurance carrier that had an A.M. Best rating of A- or better. When NWIC went bankrupt, however, the reinsurer did not cover NWIC's obligations on the VSCs it had insured. Instead, the reinsurance obligations flowed only to NWIC, rather than to the consumers, meaning the vehicles would not be properly serviced and consumers would be left to make claims in bankruptcy court after NWIC filed for bankruptcy protection.
Ford determined that beginning January 1, 2005, it would no longer finance the purchase of VSCs unless the contracts were backed by an insurer with an A.M. Best rating of A- or better; the A.M. Best rating of a reinsurer would no longer be sufficient.
Marathon has no A.M. Best rating of any kind and has never had or sought such a rating. Marathon sought an exemption from the A- financial stability rating requirement. Marathon claimed to Ford that despite having no rating, the VSCs it backed for API were secure. Ford extended the operative date of the A- financial stability rating requirement to Marathon-backed VSCs, but Marathon could not obtain the rating within the allotted time. Although Marathon offered to provide Ford a letter of credit securing its obligations on the VSCs that it insured, it never obtained such a letter of credit. Ultimately, the A.M. Best A- rating was impossible for Marathon to obtain.
API found an insurer rated A- or better by A.M. Best and continued its business relationship with Ford.2 Marathon lost other business as well; Marathon-backed VSCs could not be sold to other auto brands because dealerships found it too cumbersome to sell one VSC product to Ford and another to the other auto brands.
Marathon filed this action on January 26, 2005, asserting several federal antitrust claims and other state-law counts. Marathon amended its complaint on four occasions to eliminate the antitrust claims. Marathon ultimately alleged that Ford interfered with the Marathon-API contractual relationship by willfully and intentionally causing API to stop using Marathon as the insurer of its VSCs in order to increase the sales volume of Ford's competing products, and that Ford interfered with a prospective business relationship between Marathon and API. Marathon's primary contention was that Ford, having authorized the formation of competitive contracts which qualified for Ford financing, was not entitled to withdraw that authority on a blanket basis because of the obvious damage that such withdrawal would have on the business of the contracting parties. Marathon asserted that only if, on an individual basis, there was actual cause for denying approval, could withdrawal of existing approval be justified.
On March 28, 2006, the district court dismissed the tortious interference with prospective business relations claim on Ford's Motion to Dismiss under Rule 12(b)(6). The court later entered a scheduling order, setting the deadline for filing amended pleadings for September 3, 2006. On July 17, 2008, less than two months before the then-scheduled trial date and 22 months after expiration of the deadline for amending the pleadings, Marathon sought leave to amend its complaint for a fifth time. Marathon's proposed Fifth Amended Complaint sought to reassert the previously dismissed claim for tortious interference with prospective business relations. Contemporaneously filed with its Motion for Leave, Marathon also filed a Motion to Clarify, Modify, or to Set Aside In Part the Order of March 28, 2006, as well as a Motion for Continuance. The continuance motion requested time to conduct additional discovery, as the discovery cut-off passed on July 8, 2008. The district court heard oral argument on all of Marathon's motions on August 25, 2008, and later denied the Motion for Leave to File Fifth Amended Complaint and Motion for Continuance.
On August 8, 2008, Ford filed its Motion for Summary Judgment. Ford presented evidence that Marathon had in fact continued to write insurance on API-issued VSCs until API ceased business operations in April 2007. Additionally, Ford presented evidence that Marathon's own agreements with API required API to obtain insurance coverages that would cover obligations to Marathon from carriers rated with an A.M. Best rating of A- or better. Marathon's Chief Executive Officer conceded that such requirements are "pretty much established in the industry." Marathon's expert also conceded that the business decision that Ford made was not "an unrealistic decision to make."
On December 12, 2008, Marathon filed another Motion for Continuance in order to conduct additional discovery. That motion sought specific discovery that Marathon conceded had been at issue in its July 17, 2008 Motion for Continuance.
On January 27, 2009, the court denied Marathon's latest Motion for Continuance and granted Ford's Motion for Summary Judgment. The court held that Marathon failed to show good cause as to why the allegedly necessary depositions could not have taken place during the four years of litigation....
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