Stanley v. Trinchard

• Decision Date: 13 September 2007
• Docket Number: No. 06-30120.,No. 06-30299.,06-30120.,06-30299.
• Citation: 500 F.3d 411
• Parties: H.S. STANLEY, Jr., in his capacity as Trustee of the Bankruptcy Estate of Gary Eugene Hale, Plaintiff-Appellant, v. Clare W. TRINCHARD, etc., et al., Defendants, Clare W. Trinchard, Esq., Trinchard & Trinchard LLC, Leigh Ann Schell; Clarendon National Insurance Co., Defendants-Appellees. H.S. Stanley, Jr., in his capacity as Trustee of the Bankruptcy Estate of Gary Eugene Hale, Plaintiff-Appellant, v. Clare W. Trinchard, etc., et al., Defendants, Northwestern National Insurance Company of Milwaukee, Wisconsin, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

500 F.3d 411

H.S. STANLEY, Jr., in his capacity as Trustee of the Bankruptcy Estate of Gary Eugene Hale, Plaintiff-Appellant, v. Clare W. TRINCHARD, etc., et al., Defendants, Clare W. Trinchard, Esq., Trinchard & Trinchard LLC, Leigh Ann Schell; Clarendon National Insurance Co., Defendants-Appellees.

H.S. Stanley, Jr., in his capacity as Trustee of the Bankruptcy Estate of Gary Eugene Hale, Plaintiff-Appellant, v. Clare W. Trinchard, etc., et al., Defendants, Northwestern National Insurance Company of Milwaukee, Wisconsin, Defendant-Appellee.

No. 06-30120.

No. 06-30299.

United States Court of Appeals, Fifth Circuit.

September 13, 2007.

Bruce A. Cranner (argued), Michael H. Pinkerton, Frilot LLC, New Orleans, LA, for Stanley.

Gustave A. Fritchie, III (argued), McDonald Gustin Provosty, Irwin, Fritchie, Urquhart & Moore, James Lee Trinchard, Trinchard & Trinchard, New Orleans, LA, for Defendants-Appellees.

Nancy Jane Marshall (argued), Deutsch, Kerrigan & Stiles, New Orleans, LA, for Northwestern Nat. Ins. Co. of Milwaukee, WS.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before KING, WIENER, and OWEN, Circuit Judges.

WIENER, Circuit Judge:

Plaintiff-Appellant H.S. Stanley, trustee for the bankruptcy estate of Gary Eugene Hale, appeals from separate orders of the district court granting summary judgments (1) for Defendants-Appellees Clare Trinchard, Trinchard & Trinchard LLC, and their errors and omissions insurer, Clarendon National Insurance Company ("the Trinchard defendants"), on the estate's legal malpractice claim, and (2) for Hale's erstwhile liability insurer, Defendant-Appellee Northwestern National Insurance Company (NNIC), on the estate's claim for breach of the duty of good faith and fair dealing. Stanley contends that the district court erred in ruling that (1) Hale's bankruptcy discharge eliminated any compensable damages that may have resulted from the Trinchard defendants' alleged malpractice, and (2) Stanley failed to allege conduct by NNIC that would constitute a breach of an insurer's duty of good faith and fair dealing under Louisiana law. We reverse and remand for proceedings consistent with this opinion.

I. FACTS & PROCEEDINGS

A. Background

The instant case stems from the criminal investigation and prosecution of Gerald Burge for the murder of Douglas Frierson in 1980. Burge was indicted for and convicted of Frierson's murder based in part on an investigation conducted by Hale when he was a detective in the St. Tammany Parish (Louisiana) Sheriff's Office ("the Sheriff's Office").¹ Several years after Burge was convicted, however, potentially exculpatory evidence was discovered (specifically, several of Hale's investigative reports) that had not been disclosed to the defense at or before Burge's trial. Burge was granted a new trial, which resulted in his acquittal on all charges.

While awaiting his new trial, Burge had filed a § 1983 civil suit ("the Burge litigation") against (1) the Sheriff's Office, (2) the St. Tammany Parish District Attorney's Office, and (3) various individuals within each agency, including Detective Hale, for conspiring to deprive Burge of his right to a fair trial by suppressing exculpatory evidence.² Burge later added NNIC as a defendant for its role as the liability insurer of the Sheriff's Office during the first few years of the Frierson murder investigation.

B. NNIC's Insurance Coverage

In 1980, American Druggists' Insurance Company (ADIC) issued a liability insurance policy ("the original ADIC Policy") to the Louisiana Sheriffs Association.³ This policy was renewable for 12-month terms and (if renewed) would remain in effect until September 1, 1983. It specified a coverage limit of $100,000 per occurrence.⁴ ADIC subsequently issued an amended policy ("the amended ADIC Policy"), which restated the same terms and coverage period as the original ADIC Policy but increased the coverage limit to $1,000,000. The original ADIC Policy was marked "cancelled flat." The amended ADIC Policy indicated in a notation on the Declarations Page and in an amending endorsement that the effective date for the new $1,000,000 coverage limit was September 1, 1981, not the original commencement date of September 1, 1980. When ADIC became insolvent in 1986, its reinsurer, NNIC, assumed responsibility for any coverages under the ADIC policies pursuant to a "cut-through" reinsurance endorsement.⁵

In the Burge litigation, NNIC filed a motion for summary judgment seeking dismissal, because the ADIC policies' coverage ended on September 1, 1983, and Burge's alleged injury did not "occur" until he was indicted in November 1983, or possibly until he was convicted in 1986. NNIC also asked the court to rule that the coverage limit applicable to any misconduct by Hale was $100,000, as specified in the original ADIC Policy, because his employment with the Sheriff's Office ended in the summer of 1981, before the $1,000,000 coverage limit in the amended ADIC Policy went into effect on September 1 of that year.

The district court denied NNIC's motion, ruling that the issues raised by NNIC were "hotly disputed" and worthy of full development at trial.⁶ The coverage issue centered on whether the ADIC policies' definition of a covered "occurrence" was broad enough to encompass all conduct related to the Frierson murder investigation, including both Hale's actions while he was employed as a detective with the Sheriff's Office and his post-employment conduct during Burge's murder trial in 1986. The coverage limit issue concerned, inter alia, whether (1) marking the original ADIC Policy "cancelled flat" indicated an intention to make the terms of the amended ADIC Policy effective retroactively,⁷ or (2) the Louisiana Sheriffs Association had intended for the original ADIC Policy to provide a $1,000,000 coverage limit.⁸

C. NNIC's Settlement with Burge

NNIC initially retained attorney Clare Trinchard to determine whether the ADIC policies provided coverage for the alleged misconduct of the Sheriff and his personnel. After receiving her review of the case, NNIC retained the Trinchard firm to represent the Sheriff, Hale, and NNIC in the Burge litigation. Later, after deciding to dispute coverage under the ADIC policies, NNIC instructed the Trinchard firm to continue representing the Sheriff and Hale individually but retained separate counsel to represent NNIC's interests.

In November 2000, shortly before the Burge litigation was to be tried, the Trinchard firm and NNIC's counsel negotiated a partial settlement with Burge. In exchange for $75,000, Burge agreed to (1) release NNIC fully from all liability under the ADIC policies and (2) release the Sheriff and Hale from liability, except for punitive damages, for any conduct that occurred during the ADIC policies' coverage period (September 1, 1980 to September 1, 1983). Burge expressly reserved his right to pursue claims against the Sheriff and Hale for conduct that occurred outside of the coverage period as well as for punitive damages at any time.

In January 2001, on the advice of the Trinchard defendants, Hale consented to the Burge settlement and signed a separate "Release and Acknowledgment" absolving that firm's former client, NNIC, from "any and all liability" under the ADIC policies, including "claims for indemnification, defense, legal fees and costs, [and] bad faith." The release itself did not specify the terms of the Burge settlement, particularly Burge's reservation of his right to sue Hale for conduct occurring outside of the ADIC policies' coverage period. After obtaining Hale's release of NNIC, the Trinchard defendants terminated their representation of Hale and the Sheriff.

D. The Burge Trial and Hale's Bankruptcy Proceedings

Burge's remaining claims against the Sheriff and Hale were tried in May 2001. The Sheriff was represented by other counsel, but Hale decided to represent himself, possibly believing that the only liability he faced post-settlement was for punitive damages, which he believed to be, at most, a remote possibility. After a jury verdict for Burge, the court entered judgment against the Sheriff and Hale, awarding Burge more than $4,000,000 in compensatory damages. The Sheriff appealed to this court, and we reversed the judgment against him. Hale, still unrepresented by counsel, did not appeal. The judgment against Hale became final in September 2001.

The following month, Burge forced Hale into involuntary bankruptcy in Mississippi. As the appointed trustee of Hale's bankruptcy estate, Stanley filed the instant action against the Trinchard defendants⁹ and NNIC in the district court in April 2002, alleging that (1) the Trinchard defendants were negligent in their representation of Hale and (2) NNIC breached its fiduciary duty of good faith and fair dealing in its settlement of the Burge litigation. Hale was discharged in the bankruptcy proceeding in December 2002, and neither Stanley as trustee nor Burge as Hale's only creditor contested the discharge.

E. District Court Proceedings

The Trinchard defendants and NNIC each filed a motion for summary judgment in the district court. The court granted both motions, concluding that (1) Hale's bankruptcy discharge made it impossible for Stanley to show that any damages resulted from the Trinchard defendant's alleged malpractice and (2) Stanley did not allege conduct by NNIC that would constitute a breach of the insurer's duty of good faith and fair dealing under Louisiana law. On appeal, Stanley contends that the district court based these rulings on erroneous interpretations of the controlling law.

II. ANALYSIS

A. Legal Malpractice Claim

1. Standard of Review

We review a district court's summary judgment ruling de novo, applying the same standard as the district court.¹⁰

2. Merits

Federal bankruptcy law determines the extent of a debtor's bankruptcy estate.¹¹ Such an estate comprises all "legal or equitable...