Pacific Group v. First State Ins. Co.

• Decision Date: 07 October 1993
• Docket Number: No. C-90-1624-DLJ.,C-90-1624-DLJ.
• Citation: 841 F. Supp. 922
• Parties: The PACIFIC GROUP, U.S. Hotel Properties Corporation, U.S. Hotel Properties Hotel and Resort Management Company, Wallace Smith, and Horst Osterkamp, Plaintiffs, v. FIRST STATE INSURANCE CO., Defendant.
• Court: U.S. District Court — Northern District of California

841 F. Supp. 922

The PACIFIC GROUP, U.S. Hotel Properties Corporation, U.S. Hotel Properties Hotel and Resort Management Company, Wallace Smith, and Horst Osterkamp, Plaintiffs, v. FIRST STATE INSURANCE CO., Defendant.

No. C-90-1624-DLJ.

United States District Court, N.D. California.

October 7, 1993.

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William J. Keegan of The Keegan Law Firm, San Jose, CA, for plaintiff the Pacific Group.

Brian R. Strange of Strange & Hoey, Los Angeles, CA, for plaintiffs the U.S. Hotel.

John N. Frye and Jeffrey A. Katz of Frye & Alberts, Los Angeles, CA, for defendant the First State Ins. Co.

ORDER

JENSEN, District Judge.

On May 28, 1993, the Court heard the following post-trial motions in this case: Defendant's motions for a new trial, to alter or amend the verdict; and for judgment notwithstanding the verdict; and plaintiffs' motions for compensatory damages, judgment, and attorneys' fees. Plaintiff The Pacific Group was represented by William J. Keegan of The Keegan Law Firm. The U.S. Hotel plaintiffs were represented by Brian R. Strange of Strange & Hoey. Defendant First State Insurance Company was represented by John N. Frye and Jeffrey A. Katz of Frye & Alberts.

On June 2, 1993, the Court requested supplemental briefing on certain issues. All motions were to be deemed under submission on June 24, 1993, the date on which the final supplemental papers were due. In the interim, the Court has received numerous letter briefs from the parties. Now, having considered the voluminous papers submitted, the arguments of counsel, the applicable law, and the entire record herein, the Court DENIES defendant's motion for a new trial; DENIES defendant's motion to alter or amend the verdict; DENIES IN PART and GRANTS IN PART defendant's motion for judgment notwithstanding the verdict; GRANTS plaintiffs' motion for compensatory damages and judgment; and DENIES IN PART and GRANTS IN PART plaintiffs' motion for attorneys' fees.

I. BACKGROUND

This is an action alleging breach of an insurance contract and breach of the covenant of good faith and fair dealing by defendant's failure to defend or indemnify certain U.S. Hotel plaintiffs ("the insureds") and defendant's failure to participate in settlement discussions.¹

Trial in this action commenced on February 1, 1993. On February 12, 1993, the jury returned a verdict on three issues against the defendant First State Insurance Company ("First State"). First, the jury found that defendant's failure to defend the U.S. Hotel Properties Corporation, U.S. Hotel Properties Hotel and Resort Management Company, Wallace Smith, and Horst Osterkamp ("U.S. Hotel plaintiffs") proximately caused the settlement and judgment in the underlying Hawaii lawsuit. Second, the jury found that defendant breached its duty to act fairly and in good faith with the U.S. Hotel plaintiffs. Third, the jury found that defendant acted with malice or oppression in its dealings with the U.S. Hotel plaintiffs.

On February 19, 1993, after a second phase of the trial, the jury returned a verdict finding that First State pay punitive damages to the U.S. Hotel plaintiffs in the amount of $21 million.

Following the jury's initial verdict, defendant moved for judgment as a matter of law, arguing that it was entitled to judgment on the bad faith claim and therefore the punitive damages claim as well. The Court denied the motion during a hearing on February 17, 1993.

Not surprisingly, the parties made numerous post-verdict motions. The U.S. Hotel plaintiffs have moved for attorneys' fees, for compensatory damages, and for entry of judgment. The Pacific Group submitted a memorandum in favor of the U.S. Hotel plaintiffs' proposed judgment and in opposition to any diminution of compensatory damages. Defendant, on the other hand, filed motions for a new trial and to alter or amend the verdict or for judgment notwithstanding the verdict. The Court held a hearing on these motions on May 28, 1993. On June 2, 1993, the Court requested supplemental briefing, the last of which was submitted June 24, 1993. The parties have also submitted several unsolicited letter briefs.

II. DISCUSSION

A. Defendant's Motion for a New Trial

1. Legal Standard

Federal Rule of Civil Procedure ("Rule") 59 permits the Court to grant a new trial, stating that a "new trial may be granted to all or any of the parties and on all or part of the issues...." Fed.R.Civ.P. 59(a). A trial court may grant a new trial if the verdict is "contrary to the clear weight of the evidence, or is based upon evidence which is false, or to prevent, in the sound discretion of the trial judge, a miscarriage of justice." Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1245 (Fed.Cir.), cert. denied, 493 U.S. 853, 110 S.Ct. 154, 107 L.Ed.2d 112 (1989) (quoting Hanson v. Shell Oil Co., 541 F.2d 1352, 1359 (9th Cir.1976), cert. denied, 429 U.S. 1074, 97 S.Ct. 813, 50 L.Ed.2d 792 (1977)). A new trial may be granted when the trial court finds that the damages awarded were grossly excessive, clearly not supported by the evidence, or only based on speculation and guesswork. See Los Angeles Memorial Coliseum Comm'n v. Nat'l Football League, 791 F.2d 1356, 1360 (9th Cir. 1986), cert. denied, 484 U.S. 826, 108 S.Ct. 92, 98 L.Ed.2d 53 (1987).

Although the judge may weigh the evidence and assess the credibility of witnesses, and need not view the evidence in a light most favorable to the moving party, "a decent respect for the collective wisdom of the jury, and for the function entrusted to it in our system, certainly suggests that in most cases the judge should accept the findings of the jury, regardless of his own doubts in the matter." Landes Constr. Co. v. Royal Bank of Canada, 833 F.2d 1365, 1371 (9th Cir.1987) (quoting 11 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2806, at 49 (1973)). If, on the other hand, having given full respect to the jury's findings and having reviewed the entire evidence, the judge "is left with the definite and firm conviction that a mistake has been committed," a new trial should be granted. Id. at 1372 (quoting 11 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2806, at 49). It is insufficient that the district court would simply have reached a different verdict. Richardson, 868 F.2d at 1245.

2. Analysis

Defendant First State moves for a new trial on the following grounds: (1) Defendant claims that the contract interpretations and legal opinions by plaintiffs' expert should have been excluded; (2) Defendant argues that the Court's exclusion of Mr. Adler's testimony regarding the Unocal case was improper and prejudicial; and (3) Defendant maintains that the Court should have recognized defendant's right to equitable subrogation.

a. Testimony of Plaintiffs' Expert Ray Rosecrans

Defendant argues that the contract interpretations and legal opinions by plaintiffs' expert Ray Rosecrans should have been excluded for three reasons.

First, First State avers that Rosecrans's testimony concerning his interpretation of First State policies went beyond the proper scope of expert testimony. Rosecrans was called by plaintiffs as an expert to testify to standard claims handling practices within the insurance industry. He testified that Frank Lagana violated the industry standard by determining that First State should not drop down and defend its insureds. Defendant argues that Rosecrans exceeded his proper role of describing industry practice by testifying as to the legal effect of the insurance agreement. For example, defendant quotes Rosecrans as saying that "they are aware of the drop down problem and this has happened." Transcript, Feb. 9, 1993, at 723-24.

Plaintiffs reject defendant's arguments, noting that Rosecrans did not testify as to First State's contract, but rather to industry standard concerning the duty to drop down. This is proper ground to cover and certainly does not justify a new trial.

Second, defendant claims that Rosecrans's testimony concerning his reliance on three court opinions should not have been introduced to the jury because interpretation of judicial opinions is not admissable and the probative value was outweighed by the prejudice to First State. In particular, defendant states that Rosecrans testified that Hocker v. New Hampshire Ins. Co., 922 F.2d 1476 (10th Cir.1991); Utah Power & Light Co. v. Federal Ins. Co., 711 F.Supp. 1544 (D.Utah 1989); and Continental Casualty Co. v. Synalloy Corp., 667 F.Supp. 1523 (S.D.Ga.1983), should have given notice to Lagana of First State's duty to drop down.

The Court instructed the jury that: "You are not asked to decide whether or not those decisions or the statements or the arguments are correct statements of law for this case, so you are not to consider the evidence for that purpose. You can consider that evidence, however, for any bearing it may have on the state of mind of any of the parties who acted for First State in handling the claim of U.S. Hotels in this case." Transcript, Feb. 12, 1993, at 1214. Thus, as to the three legal opinions, the Court specifically refused to allow the cases into evidence, but instead only allowed reference to the cases to demonstrate First State's state of mind since in all three cases First State was a party.

Defendant insists, however, that the probative value was outweighed by the undue prejudice to First State under Federal Rule of Evidence 403. However, defendant did not raise a 403 objection at trial. Moreover, the evidence of the three drop down cases was highly probative as to First State's state of mind and plainly outweighed any prejudice. A new trial is thus not warranted.

Third, First State asserts that Rosecrans's opinion as to the ultimate issue was improperly premised upon inadmissable testimony. Although citing no specific testimony, defendant argues that Rosecrans...