T hi s di s pos i t i on i s notappr opr i a t e f orpubl i c a t i on and i s notpr e c e de nt * e xc e pta s pr ovi de d by 9th C i r . R . 36- 3.

* * Th e H o n o r ab l e M a tth e w F. K e n n e l l y , D i s tr i c tJ u d g e f o rth e U . S. D i s tr i c tC ourtf

orN orthe rn I l l i noi s , C hi c a go, s i tt i ng by de s i gna t i on.

NOT F OR P UB L I CAT I ON UN I TE D STATE S C OU RT OF APPE ALS FOR T HE NI NTH CI RC UI T M ETRO PO LI TA N BU SI N ESS M A N A G E M E N T , I N C ., aC a lif o rn ia c o rp o r a tio n ; J O H N K H A K I , a n in d iv id u a l, P l ai n t i ffs - A p p el l an t s, v. AL L S T AT E I NS UR AN C E C OMP AN Y, a n I l l i noi s c orpor a t i on, D ef

endant- A pp el l ee . N o. 09- 57002 D . C. N o . 2 : 0 5 - c v - 0 8 3 0 6 - CA S- CW ME MOR AN DU M *

M ETRO PO LI TA N BU SI N ESS M A N A G E M E N T , I N C ., aC a lif o rn ia c o rp o r a tio n ; J O H N K H A K I , a n in d iv id u a l, P l ai n t i ffs - A p p el l an t s - C ro ss - A p p el l ees, v. AL L S T AT E I NS UR AN C E C OMP AN Y, a n I l l i noi s c orpor a t i on, N o. 09- 57008 D . C. N o . 2 : 0 5 - c v - 0 8 3 0 6 - CA S- CW



# FI LED AU G 18 2011 M OLLY C. DW Y ER, CLERK U . S. C O U R T OF APPE ALS2

D efen d an t- A p p el l ee - C ro ss - A p p e lla n t. A pp ea l fr om the U ni t ed S t at es D i stri ctC ou rt

f o rth e C e n tr a l D is tr ic t o f C a lif o rn ia C hr i s t i naA . S ny de r , D i s tr i c tJ udge , P r e s i di ng A r gue d a nd S ubm i tt e d A ugus t3, 2011 P a s a d e n a , C a lif

o rn ia B ef ore: R E IN H A R D T and B E R Z O N , C i rc ui tJudg es , and K E N N E L L Y , D i stri ct Judg e. ** P la in tif f s - A p p e llan ts - C r o s s - A p p e lle e s M e tr o p o lita n B u s in e s s M a n a g e m e n t, I nc . ( “ M B M ” ) a nd J ohn K ha ki ha ve appe a l e d the di s tr i c tc ourt ’ s or de r s de ny i ng the i rr e que s tf

ora tt orne y ’ s f

e e s pur s ua ntt o B ra n d t

v. Su p eri o r C o u rt , 37 C a l . 3d 81 3 (19 85 ), and reduci ng thei r aw ar d o f pun i t i ve dam ages . D ef endant -A pp el l ee C r os s - A ppe l l a ntA l l s t a t e I ns ur a nc e C om pa ny s e e ks r e ve r s a l a nd e ntry of j udgm e nt i n i t s f a v o r . Th e d i s tr i c tc o u rt ’ s o r d e r s f o l l o w e d aj u ry v e r d i c ti n f a v o ro f M BM and K haki on thei r bre ac h o f c on tra ctand b ad fa i th cl ai m s. T he di stri ctcourt tr e a t e d the j ury ’ s ve r di c ta s a dvi s ory on M B M a nd K ha ki ’ s de c l a r a t ory j udgm e nt c la im , w h ic h th e c o u rt r e s o lv e d in f a v o ro f M B M a n d K h a k i. See Fe d . R. Ci v . P. 3 9 ( c ) . W e h a v e j u r i s d i c t i o n u n d e r2 8 U . S. C. § 1 2 9 1 , a n d w e a f f i rm. T h e d i stri ctco u rtd i d n o terr i n d en yi n g A l l st at e’ s m o t i o n s fo r j u d g m en tas a m a tt e rof l a w . W e r e vi e w the di s tr i c tc ourt ’ s de ni a l of the s e m ot i ons de novo,3

vi e w i ng the e vi de nc e i n the l i ghtm os tf a vor abl e t o M B M a nd K ha ki a nd dr a w i ng al l re as on abl e i nfer ence s i n thei r f avor, and m ayov erturn the rul i ng s onl y i f there w a s no l e ga l l y s uf

f i c i e ntba s i s f

orar e a s onabl e j ury t o f i nd i n f a vorof M B M a nd K h a k i. See B el l

v. C lackam as Cnt

y. , 341 F . 3d 858, 865 ( 9th C i r . 2003) . T he e vi de nc e i ntr oduc e d a ttr i a l w a s s uf f i c i e ntf orar e a s onabl e f

a c tf i nde rt o c onc l ude thati n 1 99 5, A l l st at e a dd ed M B M by nam e t o D om i ni c A nn i no ’ s pol i cyas an i nsured. Iti s und i sput ed thatA l l st at e f ai l ed t o n ot i fyM B M w hen i tre du ce d c o v e r a g e b y c h a n g in g th e p o lic y f r o m F o rm A U 9 7 0 0 to F o rm A P 5 2 9 in 1 9 9 7 . B ec ause i nsurance c om pani es ar e “ ‘ bo un d b y agrea t ercoverage i n an earl i er p o lic y w h e n ar e n e w a l p o lic y is is s u e d b u t th e in s u r e d is n o t n o tif ie d o f th e s p e c if

ic re du ct i on i n cov er age, ’ ” A l l st at e i s bou nd by the broader covera ge granti n F orm A U 9 7 0 0 . A l l

s tate I ns . C o. v . Fi bus , 855 F . 2d 660, 663 ( 9th C i r . 1988) ( quot i ng Fie ld s v . B lu e Sh ie ld

o f Ca l. , 1 6 3 C a l. A p p . 3 d 5 7 0 , 5 7 9 ( 1 9 8 5 ) ) ; cf . Kot lar v. H ar t f ord Fi r e I

ns . C o. , 83 C a l . A pp. 4th 1116, 1121 n. 3 ( 2000) ( hol di ng tha t“ the na m e d i ns ur e d” e nt i t l e d t o not i c e of c a nc e l l a t i on unde rC a l . I ns . C ode § 677. 2( b) i nc l ude s “ ‘ [ a ] ddi t i ona l na m e d i ns ur e ds ’ . . . w ho a r e a dde d a s i ns ur e ds a f t e rthe po l i cyi ss ues” ). A l l s t a t e ha d aduty t o de f e nd M B M a nd K ha ki be c aus e the c l a i m s i n the u n d e r ly in g c o m p la in t w e r e p o te n tia lly c o v e r e d b y F o rm A U 9 7 0 0 . See H orace4

M a n n I n s . Co . v . Ba r b a r a B. , 4 C al . 4th 1 07 6, 10 81 (199 3). T he j ury’ s f i nd i ng that A l l st at e’ s r ef

usal t o d ef

end M B M and K haki w as un re as on abl e, and there fore c o n s titu te d b a d f

a ith , w a s s u p p o rte d b y s u f f ic ie n t e v id e n c e . See W

i l so n v. 2 1 st C e ntur yI ns . C o. , 4 2 C a l. 4 th 7 1 3 , 7 2 3 ( 2 0 0 7 ) ; Firs t N a t’ l Mo r tg . C o . v . Fe d. R e a lty In v. T r. , 63 1 F . 3d 10 58 , 10 67 -68 (9th C i r. 20 11 ). T he di stri ctcourtl i kew i se di d n oterr i n d enyi ng A l l st at e’ s m ot i on for anew tri al base d o n the j ury’ s aw ar d o f e m ot i on al di stre ss dam ages t o K haki . K haki had s ta n d in g a s a n “in s u r e d p e r s o n ” w ith in th e m e a n in g o f F o rm A U 9 7 0 0 . Se e Se r e tti v . Supe r i orN

at ’ l I ns . C o. , 71 C a l . A pp. 4th 920, 929 ( 1999) . M or e ove r , the a m o u n t o f

th e a w a r d w a s n o t a g a in s t th e c le a rw e ig h t o f th e e v id e n c e o rg r o s s ly e x c e s s iv e w h e n c o m p a r e d w ith s im ila rc a s e s . Se e Mc C ol lough v . J ohns on, Ro de n b u r

g& La u i n g e r, LLC , 63 7 F . 3d 93 9, 95 7 (9th C i r. 20 11 ). I n a w a r di ng M B M a nd K ha ki puni t i ve da m a ge s , the di s tr i c tc ourtdi d not c l e a r l y e rri n f

i ndi ng tha tA l l s t a t e ’ s c onduc tc ons t i tut e d “ ‘ oppr e s s i on, f r aud, or m a lic e ’” a n d th a t o n e o f A lls ta te ’s m a n a g in g a g e n ts r a tif ie d th a t c o n d u c t. Cal . v. Al tu s Fi n a n c e S. A. , 54 0 F . 3d 99 2, 10 00 (9th C i r. 20 08 ) ( qu ot i ng C al . C i v. C od e § 3 2 9 4 ( a ) ) ; s e e al

s o C a l . C i v. C ode § 3294( b) . W e r e vi e w the c ons t i tut i ona l i ty of the $ 2 ,0 0 0 ,0 0 0 p u n itiv e d a m a g e s a w a r d d e n o v o . Al tu s Fi n a n c e S. A. , 54 0 F . 3d at 1000. C ons i de r i ng i ti n c om pa r i s on t o the j ury ’ s $612, 846. 57 a w a r d of5

c o m p e n s a to ry to rt d a m a g e s , s e e M aj orv . W . H om e I ns . C o. , 1 6 9 C a l. A p p . 4 th 1197, 1224 ( 2009) , w e c onc l ude tha tthe puni t i ve da m a ge s a w a r d i s note xc e s s i ve i n l i ghtof

the s t a nda r d a rt i c ul a t e d i n State Farm Mutual A utom obi le I

ns ur anc e C o. v . Ca m p b e ll , 5 3 8 U .S . 4 0 8 ( 2 0 0 3 ) , a n d o u rc a s e s ap p ly in g th a t s ta n d a r d . Se e , e . g. , S. U n io n C o . v . I

r v in , 563 F . 3d 788, 791- 92 (9th C i r. 20 09 ). N or di d the di stri ct co u rtcl earl y err i n d et erm i n i n g , o n reco n si d erat i o n , th atth e ev i d en ce o f reci d i v i sm w a s w e a k , w a rr a n tin g ar e d u c tio n in th e a m o u n t o f th e a w a r d . See Mendez v . Cnt y. of San B e rnardi no , 54 0 F . 3d 11 09 , 11 20 -21 (9th C i r. 20 08 ). F i n al l y, th e d i stri ctco u rtd i d n o terr i n d en yi n g M B M an d K h ak i ’ s req u est f orB r andt

f e e s . B e c au s e s u c h f

e e s a r e r e c o v e r ab le a s d a m a g e s in ab a d f a ith a c tio n , th e y m a y b e a w a r d e d o n ly “b y th e tr ie ro f f a c t u n le s s th e p a rtie s s tip u la te otherw i se . ” B randt , 37 C a l . 3d a t819. T he pa rt i e s di d note nt e ri nt o as t i pul a t i on th a t th e is s u e w o u ld b e d e c id e d b y th e d is tr ic t c o u rt. A lls ta te c le a r ly s ta te d its obj ec t i on t o d et erm i nat i on of B r a n d t f e e s b y th e c o u rt, a n d its r e s p o n s e to an o te the j ury s entaf

t eri thad st art ed del i bera t i on s di d n otam ou ntt o a st i pu l at i on that the c ourtc oul d de c i de thi s i s s ue a s the f i nde rof f a c ta f t e rno e vi de nc e on the i s s ue ha d be e n pr e s e nt e d t o the j ury . F i na l l y , be c aus e the j uryw a s the tr i e rof f a c ton the ba d f a i th c l a i m , M B M a nd K ha ki ’ s s e pa r a t e de c l a r a t ory j udgm e ntc l a i m di d not e n ab l e th e d i s tr i c tc o u rtt o a w a r d th e m B r andt fees.6

AF F I RME D.