Public Entity Pool for Liability v. Score

• Decision Date: 12 February 2003
• Docket Number: No. 22250, No. 22301., No. 22251
• Citation: 658 N.W.2d 64,2003 SD 17
• Parties: PUBLIC ENTITY POOL FOR LIABILITY, (PEPL), Plaintiff and Appellee, v. David SCORE, Individually and as Personal Representative of the Estate of Gina Score, Defendant, and Tamara Wagaman, Individually, and in her Capacity as an Employee of the State of South Dakota, Defendant and Appellant.
• Court: South Dakota Supreme Court

658 N.W.2d 64

2003 SD 17

PUBLIC ENTITY POOL FOR LIABILITY, (PEPL), Plaintiff and Appellee, v. David SCORE, Individually and as Personal Representative of the Estate of Gina Score, Defendant, and Tamara Wagaman, Individually, and in her Capacity as an Employee of the State of South Dakota, Defendant and Appellant.

Nos. 22250, 22251, 22301.

Supreme Court of South Dakota.

Argued November 20, 2002.

Decided February 12, 2003.

Rehearing Denied March 27, 2003.

Brent A. Wilbur, Bobbi J. Benson, Pierre, South Dakota, Attorneys for plaintiff and appellee.

James G. Abourezk, Rita Allen, Sioux Falls, South Dakota, Attorneys for defendant and appellant Tamara Wagaman.

KONENKAMP, Justice.

[¶ 1.] Along with several other state employees, two juvenile facility supervisors were sued in federal court for their involvement in the death of a juvenile inmate at the State Training School. South Dakota maintains the Public Entity Pool for Liability (PEPL fund) for the defense of tort claims against state employees. While agreeing to defend the other state employees, the PEPL fund declined to defend the two supervisors and brought a declaratory judgment action, seeking a ruling that their conduct was not covered. Following a trial, the circuit court ruled that the PEPL fund was responsible for defending the two supervisors in the federal case and ordered the payment of their attorney's fees incurred in that suit. One supervisor also sought to recover her attorney's fees in the declaratory judgment action. In granting summary judgment for the PEPL fund, the circuit court ruled that the supervisor was not entitled to her attorney's fees in the declaratory case because the PEPL fund's actions in denying coverage and in seeking declaratory relief were not vexatious or unreasonable. We conclude that there is no legal authority for obtaining an award of attorney's fees against the PEPL fund in a declaratory action. We also uphold the circuit court's rulings in two discovery-related disputes.

Background

[¶ 2.] On July 21, 1999, Gina Score, a juvenile resident at the State Training School, collapsed during a 2.4 mile forced run-walk supervised by Tamara Wagaman and Raelene Layne. Score later died in the hospital. Criminal charges were brought against Wagaman and Layne. Both were later acquitted. In a civil complaint dated October 28, 1999, Score's family brought suit in federal district court against several state employees and others, including Wagaman and Layne. The PEPL fund defends and indemnifies state employees sued for negligence in the course of their employment. See SDCL Chapter 3-22. While agreeing to defend the other state employees under a reservation of rights, the PEPL fund declined to defend Wagaman and Layne. Wagaman hired attorney James G. Abourezk to represent her.

[¶ 3.] On November 22, 1999, the PEPL fund initiated a declaratory judgment action in circuit court, seeking a declaration that it had (1) no obligation to defend Wagaman and Layne in the federal lawsuit, and (2) no obligation to pay any damages award against them. Wagaman counterclaimed, alleging bad faith and breach of contract in failing to pay her legal expenses in the federal lawsuit and in bringing the declaratory judgment action.

[¶ 4.] Attorney Abourezk deposed a number of people, including Governor William Janklow. During that deposition, the Governor refused to answer certain questions, asserting attorney-client privilege. Abourezk then sought a court order to compel answers to these questions. In addition, he attempted to subpoena the Governor to appear at the hearing. The circuit court quashed the subpoena. At the hearing, Abourezk indicated that he wanted to discover the content of the discussions the Governor had with the administrator of the PEPL fund and its attorney concerning the federal lawsuit. Although the court ruled that Janklow prematurely asserted the attorney-client privilege because the questions he refused to answer were preliminary, the court ruled that the content of these conversations were privileged. Abourezk never attempted a follow-up deposition of the Governor. The court refused to grant financial terms against the PEPL fund for the Governor's refusal to answer the questions.

[¶ 5.] Ultimately, the circuit court ruled that the PEPL fund was responsible for (1) defending Wagaman and Layne in the federal lawsuit and (2) paying all reasonable legal fees the two had previously incurred in that suit.¹ Shortly thereafter, a dispute arose concerning what were reasonable fees for Wagaman's defense. Because the attorneys defending the other employees on behalf of the PEPL fund were charging $110 per hour, the fund did not want to pay Abourezk a higher hourly rate. However, Abourezk's agreement with Wagaman was for $125 per hour. To support his claim for his fees, Abourezk subpoenaed the billing records and the partnership agreement of the Johnson, Heidepriem, Miner, Marlow and Janklow law firm, the firm hired to represent the other state employees. The subpoena commanded the partners to produce all their billing records in the federal lawsuit and to produce the documents showing how all money received by the firm is split between the partners. The court granted the Johnson law firm's motion to quash and awarded financial terms against Abourezk for abuse of the subpoena process.

[¶ 6.] In February 2001, the federal lawsuit was settled, leaving only the question whether the PEPL fund would be responsible for Wagaman's legal fees in the declaratory action. Both sides moved for summary judgment. The circuit court granted summary judgment for the PEPL fund. Wagaman appeals on the following issues: (1) Whether the court erred in granting summary judgment against Wagaman and in favor of the PEPL fund on Wagaman's counterclaim and motion for defense expenses for the declaratory judgment action.² (2) Whether the court abused its discretion in granting terms against Wagaman's counsel and in favor of the law firm from which Wagaman's counsel had subpoenaed partnership and fee splitting agreements. (3) Whether the court abused its discretion in denying Wagaman's motion for terms against the PEPL fund, when Wagaman attempted to compel the testimony of Governor Janklow.

1. Attorney's Fees for Defending Declaratory Action

[¶ 7.] Wagaman seeks to recover from the PEPL fund her attorney's fees incurred in this declaratory action.³ Under the American Rule, the rule prevailing in South Dakota, parties to litigation are required to pay their own attorney's fees, absent an agreement, statute, or rule to the contrary.⁴ SDCL 15-17-38; Boland v. City of Rapid City, 315 N.W.2d 496, 503 n. 4 (S.D.1982). In cases where insureds have sought to recover attorney's fees against commercial insurers in declaratory judgment actions, those courts applying the traditional American Rule have refused to allow recovery.⁵ In other jurisdictions, the traditional rule has been modified or abrogated, by statute or court rule. See Annotation, Jane Massey Draper, Insured's Right To Recover Attorney's Fees Incurred in Declaratory Judgment Action To Determine the Existence of Coverage Under Liability Policy, 87 ALR3d 429 (1978).

[¶ 8.] No provision in the South Dakota's Declaratory Judgment Act allows for an award of attorney's fees to the prevailing party.⁶ See SDCL ch 21-24. Wagaman asserts that § 58-12-3, a provision in our insurance code, authorizes attorney's fees when an insurer's refusal to defend its insured is vexatious and unreasonable. She also contends that the PEPL fund contract provides for attorney's fees in declaratory actions.⁷ For the reasons explained below, we conclude that she is not entitled to recover her attorney's fees in a declaratory action against the PEPL fund. [¶ 9.] The statute Wagaman cites as authority for recovering her attorney's fees provides as follows:

In all actions or proceedings hereafter commenced against any employer who is self-insured, or insurance company, including any reciprocal or interinsurance exchange, on any policy or certificate of any type or kind of insurance, if it appears from the evidence that such company or exchange has refused to pay the full amount of such loss, and that such refusal is vexatious or without reasonable cause, ... the trial court and the appellate court, shall, if judgment or an award is rendered for plaintiff, allow the plaintiff a reasonable sum as an attorney's fee to be recovered and collected as a part of the costs[.]

SDCL 58-12-3 (emphasis added). Wagaman contends that because South Dakota is a self-insured employer and because the PEPL fund vexatiously and unreasonably refused to defend her in the federal suit, she is entitled to her attorney's fees. On several occasions, this Court has characterized the PEPL fund as a liability self-insurance pool. PEPL v. Winger, 1997 SD 77, ¶ 8, 566 N.W.2d 125, 128 n. 5; Kyllo v. Panzer, 535 N.W.2d 896, 900 (S.D.1995); see generally In re Request for Opinion of Supreme Court, 379 N.W.2d 822 (S.D. 1985). Also, because the concepts are similar to insurance, we have adopted insurance law principles in cases of employee coverage questions. See PEPL v. Winger, supra. In Winger, we used those principles in interpreting the statutory provisions governing the PEPL fund to decide what acts fell within an employee's scope of employment. SDCL 3-22-2(13).

[¶ 10.] Yet, we have never held the PEPL fund accountable under our insurance code. To do so would be to ignore the plain text of § 3-22-18: "The PEPL does not constitute insurance nor may it be considered an insurance company under the laws of South Dakota nor is the PEPL under the jurisdiction of the commissioner of insurance." Thus, whatever name one might ascribe to it, the PEPL fund is not insurance—not "self-insurance," "reciprocal insurance," or "interinsurance." In creating the PEPL fund and enacting § 3-22-18, the Legislature obviously intended to distinguish between this public liability...