Tennenbaum v. Ariz. City Sanitary Dist.

• Decision Date: 01 December 2015
• Docket Number: No. CV-10-02137-PHX-GMS,CV-10-02137-PHX-GMS
• Parties: Michael E. Tennenbaum, Plaintiff, v. Arizona City Sanitary District, et al., Defendants.
• Court: U.S. District Court — District of Arizona

Michael E. Tennenbaum, Plaintiff,
v.
Arizona City Sanitary District, et al., Defendants.

No. CV-10-02137-PHX-GMS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

December 1, 2015

ORDER

Pending before the Court are the Objections to the Magistrate Judge's Recommended Disposition of the Cross-Motions for Summary Judgment on Insurance Coverage by Plaintiff Michael Tennenbaum. (Doc. 243.) For the following reasons, the Court grants the motion in part and denies the motion in part. The Court orders that the "Order" entered by Magistrate Judge Mark E. Aspey (Doc. 242) shall be designated a Report and Recommendation (R & R). The Court adopts the R & R in part and rejects it in part.

BACKGROUND

Plaintiff Michael Tennenbaum sued Defendants Arizona City Sanitary District, Francis J. Slavin PC, Francis J. Slavin, and Carol J. Slavin for libel, slander, and false light invasion of privacy. (Doc. 1.) American Guarantee & Liability Insurance Company ("American Guarantee"), which insured Francis J. Slavin PC and Francis J. Slavin (hereafter, collectively, "Slavin"), defended the lawsuit under a reservation of rights. (Doc. 222, Exh. 3 at 1, 8). Slavin's attorney informed American Guarantee that if it did

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not settle the case, Slavin and Tennenbaum planned to enter a Morris agreement¹ to settle the case and stipulate to the judgment. (Id., Exh. 3 at 2, 25). American Guarantee did not settle. Slavin and Tennenbaum entered a Morris agreement pursuant to which the Court entered judgment against Slavin for $900,000 and Tennenbaum agreed not to collect any part of the judgment from Slavin, but rather to "attempt to recover and collect the Judgment solely and exclusively against American Guarantee." (Doc. 208.)

Tennenbaum filed an application for a writ of garnishment and summons to American Guarantee (Doc. 209), which the Court issued. (Doc. 210.) The Court held a status conference and referred the matter to Magistrate Judge Mark E. Aspey "for all further proceedings." (Doc. 220.) Tennenbaum and American Guarantee filed cross-motions for summary judgment, Tennenbaum seeking to enforce the judgment against American Guarantee, and American Guarantee denying liability as a matter of law under the terms of its contract with Slavin. The magistrate judge held oral argument (Doc. 239) and entered an order denying both parties' motions. (Doc. 242.) Tennenbaum timely filed an objection to what he termed the magistrate judge's "recommended disposition of the cross-motions for summary judgment." (Doc. 243.)

This Court has jurisdiction pursuant to 28 U.S.C. § 636(b).

DISCUSSION

I. Legal Standard

The Federal Magistrates Act, 28 U.S.C. § 631 et seq., "distinguishes between nondispositive matters under 28 U.S.C. § 636(b)(1)(A) and dispositive matters heard pursuant to 28 U.S.C. § 636(b)(1)(B)." United States v. Abonce-Barrera, 257 F.3d 959, 968 (9th Cir. 2001). "Under 28 U.S.C. § 636(b)(1)(A), a district judge may designate a magistrate judge to hear any nondispositive pretrial matter pending before the court." Estate of Connors v. O'Connor, 6 F.3d 656, 658 (9th Cir. 1993) (emphasis in original). Regarding pretrial matters heard by a magistrate judge, the Federal Magistrate Act

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provides, in pertinent part:

[A] judge may designate a magistrate to hear and determine any pretrial matter pending before the court, except a motion for injunctive relief, for judgment on the pleadings, for summary judgment, . . . to dismiss for failure to state a claim upon which relief can be granted, and to involuntarily dismiss an action.

28 U.S.C. § 636(b)(1)(A).

Pursuant to section 28 U.S.C. § 636(c), dispositive motions can be decided by a magistrate judge only "[u]pon special designation by the district court and with the consent of the parties." Estate of Connors, 6 F.3d at 658. Absent party consent, a district judge may nonetheless authorize a magistrate judge to "conduct hearings, including evidentiary hearings, and to submit to a judge of the court proposed findings of fact, and recommendations for disposition" of dispositive motions. 28 U.S.C. § 636(b)(1)(B). "The primary difference between subsections 1(A) and 1(B) is that the former allows the magistrate to 'determine' the matter (subject to the review of the district court for clear or legal error) while the latter allows the magistrate only to submit 'proposed findings and recommendations' for the district court's de novo review." Reynaga v. Cammisa, 971 F.2d 414, 416 (9th Cir. 1992).

Here, the parties did not consent to have their cross-motions for summary judgment decided by a magistrate judge. Therefore, the magistrate judge was only authorized to recommend denial of the motions, subject to this Court's de novo review. Id. at 417 ("[An] order was beyond the magistrate's authority: it was beyond his jurisdiction and was, in essence, a legal nullity.). As such, the Court regards the magistrate judge's "order" as a Report and Recommendation and conducts de novo review.

The Court grants summary judgment when the movant "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In making this determination, the Court views the evidence "in a light most favorable to the non-moving party." Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995). Where the parties have filed cross-motions

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for summary judgment, the Court "evaluate[s] each motion independently, 'giving the nonmoving party in each instance the benefit of all reasonable inferences.'" Lenz v. Universal Music Corp., 801 F.3d 1126, 1130-31 (9th Cir. 2015) (quoting ACLU v. City of Las Vegas, 333 F.3d 1092, 1097 (9th Cir. 2003)). "[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

The party opposing summary judgment "may not rest upon the mere allegations or denials of [the party's] pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995). Substantive law determines which facts are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "A fact issue is genuine 'if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving party must show that the genuine factual issues "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (quoting Anderson, 477 U.S. at 250).

II. Analysis

A. Morris Agreements

The settlement agreement between Tennenbaum and Slavin stipulates that Slavin did not act intentionally or maliciously. (Doc. 226, Exh. F at 5.) Nonetheless, this stipulated fact is not binding on American Guarantee. Quihuis v. State Farm Mut. Auto. Ins. Co., 235 Ariz. 536, 538, 334 P.3d 719, 721 (2014); United Servs. Auto. Ass'n v.

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Morris, 154 Ariz. 113, 741 P.2d 246 (1987).

In Morris, the Arizona Supreme Court held that an "insurer's insertion of a policy defense by way of reservation or nonwaiver agreement narrows the reach of the cooperation clause [in an insurance contract] and permits the insured to take reasonable measures to protect himself against the danger of personal liability," and therefore "an insured being defended under a reservation of rights may enter into [a settlement agreement establishing the insured's liability to the claimant] without breaching the cooperation clause" as long as the agreement is "made fairly, with notice to the insurer, and without fraud or collusion on the insurer." 154 Ariz. at 119.

When a claimant and an insured defendant enter a Morris agreement, "the binding effect of stipulated facts depends on whether they prove the liability of the insured or the insurer." Groth v. Owners Ins. Co., No. CV-12-1846-PHX-SMM, 2014 WL 2194801, at *3 (D. Ariz. May 27, 2014). "If a stipulated fact establishes an element of coverage, it is not binding upon the insurer if the consent judgment could be sustained without that fact." Id.; see also Morris, 154 Ariz. at 120 ("[A]ny stipulation of facts essential to establishing coverage would be worthless," and thus a claimant who enters into a Morris agreement with an insured "accept[s] the risk that the insureds' actions would be found intentional within the meaning of the exclusion, in which case he would have no source from which to recover."). "[W]hen an injured party obtains a default judgment against an insured pursuant to a Damron or Morris agreement, that judgment will bind the insurer in a coverage case as to the existence and extent of the insured's liability." Quihuis, 235 Ariz. at 546-47, 334 P.3d at 729-30. "[H]owever, the judgment will not preclude the insurer from litigating its identified basis for contesting coverage, irrespective of any fault or damages assessed against the insured." Id. at 547, 334 P.3d at 730.

Although an insurer has the right to litigate coverage, it does not have "an absolute right to relitigate all aspects of the liability case, including liability and amount of damages," as such relitigation "would destroy the purpose served by allowing insureds to enter into [Morris] agreements because claimants would never settle with insureds if they

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never could receive any...