Scottsdale Ins. Co. v. Knapp

• Decision Date: 30 April 2015
• Docket Number: Case No. 13 C 988
• Court: U.S. District Court — Northern District of Illinois
• Parties: SCOTTSDALE INSURANCE CO., Plaintiff, v. MOYENDA M. KNAPP, JUANITA B. RODRIGUEZ, and JOHNSON & BELL, LTD. Defendants.

SCOTTSDALE INSURANCE CO., Plaintiff, v. MOYENDA M. KNAPP, JUANITA B. RODRIGUEZ, and JOHNSON & BELL, LTD. Defendants.

Case No. 13 C 988

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

April 30, 2015

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

Scottsdale Insurance Co. has sued Moyenda Knapp, Juanita Rodriguez, and Johnson & Bell, Ltd. for legal malpractice under Illinois law. The case is in federal court based on diversity of citizenship. Defendants have moved for summary judgment on the ground that Scottsdale is not subrogated to the rights of defendants' former client and therefore lacks standing to sue. Scottsdale has cross-moved for entry of summary judgment in its favor on its legal malpractice claim and defendants' affirmative defenses. Scottsdale has also separately moved to strike two of defendants' expert disclosures. For the reasons stated below, the Court partly grants and partly denies Scottsdale's motion for summary judgment, denies defendants' motion for summary judgment, and denies Scottsdale's motion to strike without prejudice.

Background

In 2005, the City of Markham brought criminal charges against Terrance White, a Markham police officer who had obtained secondary employment as a bank securityguard. Markham alleged that White committed theft by working shifts for the police department while clocked in at the bank. A jury found White not guilty on October 3, 2007.

In 2008, White sued Markham for malicious prosecution in Illinois state court. Upon being served with a summons, Markham tendered the defense of the case to Scottsdale pursuant to a liability insurance policy it had purchased from Scottsdale. Markham also sought indemnification. In May 2008, Scottsdale declined coverage for both defense and indemnification on the ground that the White case fell within the insurance policy's "employment policies or practices" exclusion. In October 2010, Markham again requested a defense and indemnification in connection with White's case. Scottsdale again declined coverage that same month.

Markham retained Johnson & Bell to defend the White case. The case went to trial in February 2011, and a jury returned a $2,253,273 verdict in favor of White. Johnson & Bell then filed a post-trial motion seeking judgment notwithstanding the verdict or, in the alternative, a new trial. The state trial court denied the motion.

A month before filing the post-trial motion, Markham made a third demand on Scottsdale for a defense and indemnification in the White case. In April 2011—four days after the post-trial motion was filed—Scottsdale reversed its previous decisions and agreed to defend and indemnify Markham. Scottsdale then terminated Johnson & Bell, retained Rory Dunne to represent Markham for the remaining proceedings, and ultimately settled the case for $1.7 million.

While the malicious prosecution case was ongoing, another proceeding regarding White's employment was taking place before the Markham Board of Policeand Fire Commissioners. In June 2011, the Board terminated White for violating Markham's secondary employment policy. Two years later, an Illinois circuit court judge reversed the Board's decision, finding that it was against the manifest weight of the evidence. Markham timely appealed the circuit court's decision, but it settled with White before the appeal was heard. Pursuant to the settlement agreement, the police department reinstated White and credited his pension for the years that he had been suspended.

Scottsdale, as subrogee of Markham, sued defendants—Johnson & Bell and two attorneys with that firm—for legal malpractice in early February 2013. Scottsdale claims that, before it took over the defense of White's malicious prosecution case, defendants were negligent in their representation of Markham.

Discussion

Defendants have moved for summary judgment on the ground that Scottsdale is not a subrogee and therefore lacked standing to sue. Scottsdale has cross-moved for summary judgment on its legal malpractice claim and on defendants' affirmative defenses.

A party is entitled to summary judgment if it shows that there is no genuine issue of material fact and it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). On a motion for summary judgment, the Court views the evidence in the light most favorable to the non-moving party and draws all reasonable inferences in that party's favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Srail v. Vill. of Lisle, 588 F.3d 940, 943 (7th Cir. 2009). Summary judgment is inappropriate "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."Anderson, 477 U.S. at 248. On cross-motions for summary judgment, the court assesses whether each movant has satisfied the requirements of Rule 56. See Cont'l Cas. Co. v. Nw. Nat'l Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005).

In addition to its motion for summary judgment, Scottsdale has moved to strike two of defendants' expert disclosures. The Court has determined that the summary judgment motions do not turn on these reports, and thus the Court need not consider the motion to strike at this time. The motion to strike is therefore denied without prejudice to renewal as a motion in limine before trial.

A. Subrogation

Scottsdale has sued defendants as a subrogee of Markham. Subrogation is "a doctrine which allow[s] a person compelled to pay the debt or claim of another to succeed to that person's rights with respect to the debt or claim so paid." Am. Family Mut. Ins. Co. v. N. Heritage Builders, LLC, 404 Ill. App. 3d 584, 588, 937 N.E.2d 323, 326 (2010). Scottsdale contends that it is subrogated to Markham's rights because it defended and indemnified Markham in the White case pursuant to their insurance policy.

Subrogation may "arise at common law, by statute or by contract." Benge v. State Farm Mut. Auto. Ins. Co., 297 Ill. App. 3d 1062, 1071, 697 N.E.2d 914, 920 (1998). Scottsdale contends that it is both contractually and equitably subrogated to Markham. Where an insurance policy contains a subrogation provision, however, the insurer may not also assert equitable subrogation. See Am. Family Mut. Ins. Co., 404 Ill. App. 3d at 588, 937 N.E.2d at 327 ("[C]ommon law or equitable subrogation cannot stand in the face of an express contractual right of subrogation."). Thus, whetherScottsdale is subrogated to Markham turns on the insurance policy's subrogation clause.

The insurance policy's subrogation clause provides: "If the insured has rights to recover all or a part of any payment we have made under this policy, those rights are transferred to us. . . . At our request, the insured will bring 'suit' or transfer those rights to us and help us enforce them." Pl.'s LR 56.1(a) Stmt., Ex. 2 (Insurance Policy), § 14. The first sentence of this provision establishes that Scottsdale has a right to subrogation; the second sentence sets out Markham's contractual duty to transfer these rights. Arguably, based on the second sentence, the rights are not immediately transferred upon payment; rather, Scottsdale must request the rights and Markham must consent to the transfer. (Of course, if Markham refused, Scottsdale could sue Markham for breach of contract.)

On June 3, 2013, about four months after Scottsdale filed this suit, the City Attorney for Markham, Steven Miller, submitted an affidavit that stated the following:

6. [A]s liability insurer for the City of Markham, [Scottsdale] became obligated to indemnify the City of Markham for the amount of the judgment entered in the White Case.

. . .

8. By virtue of its obligation to indemnify the City of Markham and its payment to White, Scottsdale has become subrogated to the City of Markham's rights against Johnson & Bell, Ltd and its current and former attorneys who represented the City of Markham.

. . .

12. To whatever extent the City of Markham may be considered by any court to be a real party in interest in the Scottsdale Case, I hereby ratify on behalf of the City of Markham the filing and prosecution of the Scottsdale Case by Scottsdale.

Id., Ex. 54 (Miller Affidavit). This affidavit attests to the fact that Markham has transferred its rights to Scottsdale. The Court thus concludes that Scottsdale is contractually subrogated to Markham. For this reason, the Court need not consider defendants' arguments for why equitable subrogation is inappropriate under the particular circumstances of this case.

Defendants argue that Scottsdale cannot assert contractual subrogation because its complaint only alleges equitable subrogation. Although it is true that the complaint only alleges equitable subrogation, "[a] complaint need not identify legal theories, and specifying an incorrect theory is not a fatal error." Rabe v. United Air Lines, Inc., 636 F.3d 866, 872 (7th Cir. 2011); see also Ryan v. Ill. Dep't of Children & Family Servs., 185 F.3d 751, 764 (7th Cir. 1999) ("While a plaintiff may plead facts that show she has no claim, she cannot plead herself out of court by citing to the wrong legal theory or failing to cite any theory at all. It is of no moment therefore that . . . [the] complaint identified the wrong statute as the basis for [plaintiffs'] claim, as long as their allegations gave notice of a legally sufficient claim, and they brought the legal support for their claim to the district court's attention in their response to the defendants' summary judgment motion."). The complaint alleges that Scottsdale was subrogated to Markham because it paid a settlement "[p]ursuant to its duty of indemnification and on Markham's behalf . . . ." Compl. ¶ 1. That is sufficient to put defendants on notice of Scottsdale's contractual subrogation claim.

Although Scottsdale is unquestionably subrogated to Markham now, it could be argued that Scottsdale was not subrogated at the time of filing. The affidavit was obtained four months after the complaint was filed and does not state the...