Warfield v. Ledbetter Law Firm PLC
| Decision Date | 21 November 2019 |
| Docket Number | No. 1 CA-CV 18-0636,1 CA-CV 18-0636 |
| Parties | LAWRENCE WARFIELD, Trustee for the Cheryl Sam and Carleen Sam Bankruptcy Estates, Plaintiff/Appellant, v. THE LEDBETTER LAW FIRM PLC, an Arizona professional limited liability company; STATE FARM FIRE AND CASUALTY COMPANY, an Illinois corporation, Defendants/Appellees. |
| Court | Arizona Court of Appeals |
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
Appeal from the Superior Court in Yavapai County
The Honorable Christopher L. Kottke, Judge Pro Tempore
AFFIRMED IN PART AND REVERSED IN PART
Ahwatukee Legal Office PC, Phoenix
By David L. Abney
The McClellan Law Firm PLC, Phoenix
By Matthew L. McClellan
Plattner Verderame PC, Phoenix
By Richard S. Plattner
Co-counsel for Plaintiff/Appellant
Snell & Wilmer LLP, Phoenix
By Don Bivens, Andrew M. Jacobs, Amanda Z. Weaver
Christian Dichter & Sluga PC, Phoenix
By David M. Bell, Cara Lynn Christian
Presiding Judge Randall M. Howe delivered the decision of the Court, in which Judge David D. Weinzweig and Judge Maurice Portley1 joined.
¶1 Lawrence Warfield, trustee for Cheryl Sam's and Carleen Sam's bankruptcy estates, appeals the trial court's ruling granting State Farm's motion to dismiss and The Ledbetter Law Firm's motion to dismiss, motion for summary judgment, and motion for change of venue. Warfield also appeals the trial court's ruling denying his request to file a second amended complaint. For the following reasons, we affirm in part, reverse in part, and remand for further proceedings.2
¶2 In October 2009, Carleen Sam borrowed Cheryl Sam's car (collectively, the "Sams"), and was in a car accident on Navajo tribal land with the Tabaha family, who sustained injuries. The Arizona Health Care Cost Containment System ("AHCCCS") paid the medical bills incurred to treat the Tabaha family and AHCCCS acquired a lien against any tort recovery for the amount of those medical bills. In October 2011, the Tabaha family filed a personal injury tort action against the Sams in the Navajo Nation District Court. The Sams were insured by State Farm, which retained The Ledbetter Law Firm ("Ledbetter") to represent them. TheTabaha family made multiple offers to settle the case for the policy limits but none of them assured a release of AHCCCS's liens on any damages the Tabaha family might receive. This was important to Ledbetter because it believed that the Sams would remain liable for AHCCCS's medical liens. To address this concern, Ledbetter submitted a settlement offer to the Tabaha family for the $30,000 policy limits in January 2014 that required AHCCCS to release the liens. The Tabaha family rejected Ledbetter's settlement offer. In October 2014, State Farm submitted a separate settlement offer to the Tabaha family for the $30,000 policy limits, which was also rejected by the Tabaha family.
¶3 Shortly thereafter, the Tabaha family offered to settle the case for the $30,000 policy limits if the Sams would pursue litigation against their attorneys. Ledbetter interpreted the condition of the settlement offer as an allegation that it had a conflict of interest and that it had committed legal malpractice and moved to continue trial so the Sams and it could review and respond to the Tabaha family's allegations. The Navajo Nation District Court granted the motion and required Ledbetter to consult with its clients about any misconduct and inform the court of the outcome. Ledbetter hired independent counsel, who submitted a written opinion to the court stating that no conflict of interest existed and that Ledbetter's settlement actions were reasonable. Without deciding whether Ledbetter committed legal malpractice, the court permitted Ledbetter to continue representing the Sams.
¶4 In November 2015, days before trial, Ledbetter recommended that the Sams declare bankruptcy. Ledbetter contacted a firm to represent the Sams in filing an emergency bankruptcy petition. The Sams traveled to Flagstaff, filed their bankruptcy petitions, and obtained a stay in the trial with the Tabaha family. Because of the bankruptcy filings, the Navajo Nation District Court vacated the trial. The Tabaha family's claims against the Sams were listed on the Sams' bankruptcy schedules as creditor claims. The bankruptcy court discharged the Sams' personal liability for pre-bankruptcy debts. The parties disagreed on the effect of the orders of discharge. Warfield claimed the orders of discharge enjoined the Tabaha family from collecting any debt from the Sams' post-petition assets, while Ledbetter claimed the orders discharged any personal injury liability to the Tabaha family.
¶5 Warfield brought an action against State Farm and Ledbetter in Maricopa County Superior Court. Warfield alleged breach of contract, breach of the implied covenant of good faith and fair dealing, aiding and abetting bad faith, legal malpractice, and punitive damages.
¶6 Ledbetter removed the case to federal court, where both State Farm and Ledbetter moved to dismiss the case for failure to state a claim upon which relief could be granted. The federal court remanded the case to Maricopa County Superior Court because it involved substantial questions of state law and comity. After the remand, Ledbetter moved for a change of venue. The trial court granted the motion and transferred the case to Yavapai County. Warfield filed a first amended complaint and moved for leave to file a second amended complaint, which the trial court denied. In April 2018, Ledbetter moved for summary judgment for lack of subject matter jurisdiction. The parties also—by stipulation—filed in the superior court the motions to dismiss that had been filed in federal court and requested that the trial court rule on them.
¶7 The trial court granted the motions, dismissing Warfield's breach of the implied covenant of good faith and fair dealing and aiding and abetting bad faith claims. The trial court also granted Ledbetter's motion for summary judgment for lack of subject matter jurisdiction, dismissing Warfield's legal malpractice claim. Following the dismissal of those claims, the trial court denied Warfield's claim for punitive damages. The parties then stipulated to dismissing the remaining breach of contract claim with prejudice.3 Warfield timely appealed.
¶8 Warfield argues that the trial court erred in granting State Farm's motion to dismiss his breach of the implied covenant of good faith and fair dealing claim. Dismissal of a complaint under Arizona Rule of Civil Procedure 12(b)(6) is reviewed de novo. Coleman v. City of Mesa, 230 Ariz. 352, 356 ¶ 8 (2012). In reviewing a trial court's decision to dismiss a complaint for failure to state a claim, we assume the facts alleged are true and will affirm the dismissal if the plaintiff would not be entitled to relief under any interpretation of the facts susceptible to proof. Fidelity Sec. Life Ins. Co. v. State Dep't of Ins., 191 Ariz. 222, 224 ¶ 4 (1998).
¶9 Because Warfield would not be entitled to relief under any interpretation of the facts, the trial court correctly granted the motion to dismiss. A third-party bad faith failure-to-settle claim does not accrue until an excess judgment against the insured becomes final and non-appealable.
Taylor v. State Farm Mut. Auto. Ins. Co., 185 Ariz. 174, 179 (1996); Uyleman v. D.S. Rentco, 194 Ariz. 300, 303 ¶ 15 (App. 1999). The complaint does not allege that the Sams faced a non-appealable judgment in excess of the policy limits. Warfield only alleges damage to credit reputation, emotional distress, humiliation, inconvenience, and anxiety. Because the Sams declared bankruptcy, the Tabaha family never secured a final judgment against the Sams in excess of the policy limits. Therefore, Warfield failed to state a claim upon which relief could be granted.
¶10 Warfield argues no excess judgment is required because this bad faith claim is premised on damage to credit reputation, emotional distress, humiliation, inconvenience, and anxiety. But an excess judgment is still required to pursue those damages. After all, a bad faith failure-to -settle claim exists to protect an insured from the added risk of liability for a judgment in excess of the policy limits. See Clearwater v. State Farm Mut. Auto. Ins. Co., 164 Ariz. 256, 259 (1990); see also Twin City Fire Ins. Co. v. Burke, 204 Ariz. 251, 255 ¶ 17 (2003) (). Further, a bad faith failure-to -settle claim is recognized in the third-party context because the insurer typically has exclusive authority to accept or reject settlement offers. Clearwater, 164 Ariz. at 259.
¶11 The damages Warfield alleged do not replace a judgment in excess of the policy limits but are instead damages that may result from the excess judgment and thus be awarded after a judgment is entered. See Revised Ariz. Jury Instructions, Bad Faith 12 ( that the plaintiff is entitled to the full amount of the judgment entered against him or her, but that the jury may also award additional damages such as emotional distress, damage to credit reputation, etc.). And while State Farm had exclusive authority to accept or reject the Tabaha family's settlement offers, the Sams had exclusive authority to accept or reject Ledbetter's and the bankruptcy attorney's advice. Had the Sams chosen not to declare bankruptcy, State Farm would have remained liable for any judgment in excess of the policy limits. The Sams' decision to declare...
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