Rhone v. State Auto Mut. Ins. Co.

• Decision Date: 27 October 1988
• Docket Number: No. 87-8564,87-8564
• Citation: 858 F.2d 1507
• Parties: 7 UCC Rep.Serv.2d 357 Shirley J. RHONE, et al., Plaintiffs-Appellants, v. STATE AUTO MUTUAL INSURANCE CO., Defendant-Third Party Plaintiff-Appellee, F. William Allen, Third-Party Defendant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1507

858 F.2d 1507

7 UCC Rep.Serv.2d 357

Shirley J. RHONE, et al., Plaintiffs-Appellants, v. STATE AUTO MUTUAL INSURANCE CO., Defendant-Third Party

Plaintiff-Appellee,

F. William Allen, Third-Party Defendant.

No. 87-8564.

United States Court of Appeals, Eleventh Circuit.

Oct. 27, 1988.

John T. McKnight, R. Michael Souther, Brunswick, Ga., for plaintiffs-appellants.

Charles Gowen Spalding, Fendig, McLemore, Taylor & Whitworth, David T. Whitworth, Brunswick, Ga., for defendant-third party plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Georgia.

Before VANCE and HATCHETT, Circuit Judges, and NESBITT ^*, District Judge.

HATCHETT, Circuit Judge:

In this diversity jurisdiction case, we affirm the district court's ruling that the acceptance of an insurance draft during a dispute regarding the amount due for services constitutes an accord and satisfaction under Georgia law.

The appellants, Shirley Rhone, her minor daughter, and another passenger suffered injuries when a truck struck the vehicle in which they were riding. State Auto Mutual Insurance Co. (State Auto), the appellee, provided personal injury coverage under an insurance policy. Dr. F. William Allen, a chiropractor, provided treatment to Rhone and the other two passengers injured in the accident.

Rhone, her daughter, and the passenger visited Dr. Allen between thirty-two and thirty-four times over a three-month period. For each patient, Dr. Allen billed State Auto three times. After paying the first two billings in full, State Auto expressed concern about whether Dr. Allen's charges for treatments were excessive. On April 28, 1986, William Massey, State Auto's independent claims adjuster, advised Dr. Allen that his charges were higher than those prevailing in the industry. To support this assertion, State Auto hired Chiropractic Consultants, Inc. to evaluate Dr. Allen's billings. In a report dated June 5, 1986, the consulting firm advised State Auto that Dr. Allen's billings were excessive. In a telephone conversation with Dr. Allen, Massey reiterated State Auto's belief that Dr. Allen's billings were excessive and offered partial payment to settle the account. After this conversation, Massey issued a draft for $864 payable to Dr. Allen. On the face of the draft, State Auto noted the total amount allocated to each claim, and typed on the draft "settlement in full." On the reverse side, the draft expressed language of settlement and release. ¹

Upon receipt of the draft, Dr. Allen conferred with a lawyer regarding the effect of the "settlement in full" language. Thereafter, Dr. Allen, in negotiating the draft, struck out the word "full," where it modified the word "settlement," and added a restrictive endorsement, to wit: "Accepted as partial payment only." Dr. Allen then sought payment from the appellants totaling $895.

PROCEDURAL HISTORY

Rhone and the other injured passengers filed three separate actions against State Auto in the United States District Court for the Southern District of Georgia, Brunswick Division. Each action sought damages from State Auto to recover medical expenses incurred for treatment, and punitive damages for alleged bad faith refusal to pay pursuant to the Georgia Motor Vehicle Accident Reparations Act. Ga.Code Ann. Sec. 33-34-6 (1982). In its answer to each complaint, State Auto denied that additional benefits were due under the policy, and pleaded the affirmative defense of accord and satisfaction. The district court granted State Auto's motion for leave to add Dr. Allen as a third party defendant in each of the cases. State Auto then filed its third party complaint against Dr. Allen and The issues are: (1) whether the district court correctly found that Dr. Allen's restrictive endorsement on the reverse side of the draft does not constitute a reservation of rights under Georgia law; and (2) whether the district court correctly granted State Auto's motion for summary judgment based upon the defense of accord and satisfaction.

moved the district court to consolidate the three actions. Finding that common questions of fact and law were present in all three cases, the district court granted State Auto's motion to consolidate. Thereafter, State Auto filed a motion for summary judgment contending that Dr. Allen's acceptance of the draft fulfilled its obligations to the appellants under the policy. Finding that the debt had been satisfied, the district court entered summary judgment in favor of State Auto. 664 F.Supp. 1431.

DISCUSSION

This case arose under diversity jurisdiction, and we must apply Georgia law to determine the substantive rights of the parties. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, reh'g denied, 305 U.S. 673, 59 S.Ct. 229, 83 L.Ed. 436 (1938); Goodwin v. George Fischer Foundry Systems, Inc., 769 F.2d 708, 711 (11th Cir.1985). A federal court sitting in diversity should "reach the same result as the state court would reach in deciding the identical issue." Goodwin, 769 F.2d at 711 (citing Trimper v. Nationwide Insurance Co., 540 F.Supp. 1188, 1192 (D.S.C.1982)).

To prevail on a motion for summary judgment, the movant must establish the absence of a genuine issue of fact, such that the movant is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); American Viking Contractors, Inc. v. Scribner Equip. Co., 745 F.2d 1365, 1369 (11th Cir.1984); Mobley v. Fulton Roofing Co., 173 Ga.App. 563, 327 S.E.2d 540, 542 (1985). "Once the moving party has sufficiently supported [the] motion for summary judgment, the opposing party must come forward with significant probative evidence demonstrating the existence of a triable issue of fact." Scribner Equip. Co., 745 F.2d at 1369 (citing Ferguson v. National Broadcasting Co., Inc., 584 F.2d 111, 114 (5th Cir.1978)). ²

The Restrictive Endorsement

Dr. Allen altered the restrictive language on the draft. In Hartline-Thomas, Inc. v. H.W. Ivey Construction Co., 161 Ga.App. 91, 289 S.E.2d 296 (1982), the court noted that "erasure or alteration of the condition expressed in a check by a creditor, without notice to and assent by the debtor, will not prevent its acceptance from constituting an accord and satisfaction...." Hartline-Thomas, 289 S.E.2d at 299 (quoting Thompson v. Hecht, 110 Ga.App. 505, 139 S.E.2d 126, 128 (1964)); see also American Food Purveyors v. Lindsay Meats, 153 Ga.App. 383, 265 S.E.2d 325, 326 (1980). Under Georgia law, Dr. Allen's restrictive endorsement had no effect.

The appellants also contend that because Dr. Allen altered the condition expressed on the draft, he expressly reserved his rights against State Auto pursuant to Ga.Code Ann. Sec. 11-1-207 (1982) (U.C.C. Sec. 1-207). This section provides that:

A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as 'without prejudice,' 'under protest,' or the like are sufficient.

Georgia case authority has refused application of section 11-1-207. In American Food Purveyors, the Georgia Court of Appeals held that section 11-1-207 does not permit the reservation of rights where an accord and satisfaction has been reached through the negotiation of a full-payment check. American Food Purveyors, 265 S.E.2d at 326. Although the court in American Food Purveyors questioned the

                soundness of this doctrine, the court noted that prior precedent precluded application of section 11-1-207.   See Anderson v. Shelby Mutual Insurance Co., 237 Ga. 687, 229 S.E.2d 462, 464 (1976) (where the court upheld the traditional rule that a party who cashed a check which contained a "payment in full" condition could not circumvent an accord and satisfaction through protest or alteration of that condition). 3   As stated earlier, a federal court in a diversity case is required to apply the law of the state in which the federal court sits.  Therefore, we are required, as was the district court, to function as a Georgia court in deciding the issues presented in this case.   Goodwin, 769 F.2d at 711.  Because Georgia law precludes application of section 11-1-207, we hold that "[Allen] could not both deposit the check and reserve [his] rights ... by striking out the [instrument's] 'payment in full' notation...."  American Food Purveyors, 265 S.E.2d at 326;  Anderson, 229 S.E.2d at 464
                

Accord and Satisfaction

In Georgia, "an accord and satisfaction exists when the parties to an original agreement satisfy their obligations under that agreement by a subsequent agreement." Scribner Equip. Co., 745 F.2d at 1370. Ga.Code Ann. Sec. 13-4-103 (1982) provides in pertinent part that:

Acceptance by a creditor of a check, draft, or money order marked 'payment in full' or with language of equivalent condition, in an amount less than the total indebtedness, shall not constitute an accord and satisfaction unless:

1. a bona fide dispute or controversy exists as to the amount due; or

2. such payment is made pursuant to an independent agreement between the creditor and the debtor that such payment shall satisfy the debt. [Emphasis added.]

Ga.Code Ann. Sec. 13-4-103(b); see also Ga.Code Ann. Sec. 13-4-101 (1982); Hall v. Time Insurance Co., 854 F.2d 440, 441-42 (11th Cir.1988) (per curiam) (where this court applied the Georgia Statute construing situations to which accord and satisfaction may apply). In effect, it does not matter whether the tender be of check or cash; if the sum is accepted in full settlement of the total indebtedness, accord and satisfaction will result. Studstill v. American Oil Company, 126 Ga.App. 722, 191 S.E.2d 538, 540 (1972), aff'd, 230 Ga. 305, 196 S.E.2d 847 (1973). Georgia law requires that a bona fide dispute or controversy exist as to the amount due before the tendering of...