NOT RECOMMENDED F OR FUL L -TEXT PUB L I CATI ON File Na me: 12a0031n.06 Nos. 09-2452/09-2509 UNITED STAT ES COURT OF AP P EALS F OR THE S IXTH CIRCUIT

STATE FARM MUTUAL AUTOMOB I L E I NSURANCE COMPANY, Plaintiff - Appellee ,

v.

ACCI DENT VI CTI MS HOME HEALTH CARE SERVI CES, I

NCORPORATED, and GEORGE RATH PAI GE, Def endants - A

ppellants. ) ) ) ) ) ) ) ) ) ) ) ) ) ON APPEALFROM THE U NI TED STATES DI STRI CT COURT FOR T HE E AS T E R N DIS T R I C T OF MI CHI GAN

OPI

NI ON

Be fore : GI BB ONS, STRANCH, and ROTH Circuit J udg es. * JANE B. STRANCH, Circuit Judge

. Acc ident Victims Home Hea lth Care Service s, I nc. (AVH HC) and Geor g e Paige appea l the judgme nt enter ed in favor of State Fa rm Mutual Automobile I nsuranc e Company following a jury trial. Be cause the district c ourt err ed in a dmitti ng propensity evidenc e under Fe dera l Rule of Evidence 404(a) , we REVERSE the judgme nt and REMAND the

case for a new tria l. I. F ACTS

The Honor able Jane R. Roth, Ci rcuit Judge f or the United States Court of Appea ls f or the * Third Circuit, sitti ng by

desig nation.No. 09-2452, 09-2509 State Farm v. AVH HC Pag e 2 AVHHC provides home attendant car e supervision service s for individuals who are injured in automobile acc idents. Pursuant to Michiga n’s no-fault law, S tate Farm paid AVHHC personal injury protec tion insurance benef its for all nece ssary an d rea sonable service s for two AVHHC clients, Wendell J ackson and L uella Nea l. AVHHC also claimed benef its for a third client, J une Ely , but State Far

m refuse d to pay

benef its for her c are . AVHHC employ ees used a “Da ily Observation Report” to rec ord t h eir time and activities while providing attendant car e supervision to clients. As AVHHC’s president, Paige revie wed the

acc urac y of these repor

ts and corr ecte d any err ors befor e forwarding the repor ts to the insurance company with a re quest for pa

y ment. State Fa rm conducte d twenty -four day s of under cover surveillance , which y ielded minutes of video showing J ackson unsupe rvised on two occ asions and Ne al unsupervise d play ing a casino slot machine. I n Fe bruar

y 2007, State Fa

rm filed this diversity suit ag ainst AVHHC and Paige to

rec over all of the benef

its it had paid for J ackson and Nea l in the amount of $916,754.00. State Fa rm alleg ed that the se rvice s AVHHC provided to these two clients wer e unnec essar y or unre asonable

or, alterna tively , AVHH C submitt ed fra udulent claims. AVHHC counter claimed ag ainst State Fa rm seeking reimburse ment for service s provided to Ely

. I n Fe bruar y 2009, the district court enter ed summary judgme nt in favor of Paige and dismiss ed him f rom the suit. The case proce eded to jury trial. AVHHC filed a pretria l motion in limine to prec lude State Fa rm from introducing evidenc e about AVHHC’s billings to State Fa rm conce rning another client, Kathy Owens. The district court denied the motion and admitted the challeng ed evidenc e during State Fa rm’s questioning of Paige and Ramme l l Sanders, Owens’ s car eg iver. At the close of State Fa rm’s proof, the district courtNo. 09-2452, 09-2509 State Farm v. AVH HC Pag e 3 allowed State Fa

rm to confor

m the pleading s to the proof a nd ag ain adde d Paige as a de fenda nt in the suit. At the conclusion of the seven- day trial, the jury returne d a verdic t in favor of State Fa rm on all claims and awa

rded $528,566.24. The district court g rante d State Fa rm’s motion for prejudg ment interest on that amount and also g rante d State Fa rm’s motion for attorney fee s in t h e am o unt of $297,386.86. AVHHC and Paige soug ht a new trial under Fe dera l Rule of Civil Procedur e 59(a) and relief from judgme nt under Fe dera l Rule of Civil Procedur e 60(b). The district court denied the motion, and this appeal followed. 1 II. ANALYSIS A. Standard of

Review This Court revie ws for an abuse of discretion the d i s t ri ct court’s evidentiar y ruling s, the d en i al of a motion for new trial, and the denial of a motion for relief from judgme nt. See Un i t ed States v. Talley , 194 F.3d 758, 765 (6th Cir. 1999) (evide ntiary ruling s); Morgan v. New York Life Ins. Co. , 559 F.3d 425, 434 (6th Cir. 2009) (new trial motion); ACLU v. McCreary Cnty. , 607 F.3d 439, 450 (6th Cir. 2010) (Rule 60(b) motion). An abuse of discretion occur s when the district court relies on clea

rly err oneous fac tual finding s, applies the law improperly , or employ s an err oneous leg al standard. CareToLi ve v. FDA , 631 F.3d 336, 344 (6th Cir. 2011). Reversa l is war rante d if this Court is left with a “def

inite and fi rm co nviction that the trial court committed a clea r err or of

At oral arg ument, AVHHC and Paige stated they would not pursue their contention that the 1 district court s h ould have dismiss ed the complaint to sanction State Fa rm for withholding cruc ial evidenc e, such as its claims files and expert witness repor ts, until t ri al wa s well underw ay , thus depriving AVHHC and Paige of the opportunity to contra dict such evidenc e. We do not addre ss any issue conce rning State Fa rm’s discover

y abuse.No. 09-2452, 09-2509 State Farm v. AVH HC Pag e 4 judgme nt. ” N

o lan v. Mem

phis City Schs. , 589 F.3d 257, 264 (6th Cir. 2009) (interna l quotation marks omitted).

B. Rule 404 Evid ence AVHHC’s motion in limine soug ht to ex clude e vidence conce rning a Michig an state court proce eding , Owens v. State Farm . That ca se involved Kathy Owens, a n AVHHC c lient who sued State Fa rm to reco v er fi rst -par

ty no-fa ult benef its. State Fa

rm settled with Owens. AVHHC intervene d in the suit as a plaintiff to pursue a reimburse ment claim ag ainst State Fa rm for service s it provided to Owens. During trial, the state court j u d ge found that Paige had tampere d with documentar

y e vidence shortly befor e trial by fra udulently altering cer

tain AVHHC daily observa tion repor ts. As a sanction for Paige ’s conduct, the court dismiss ed AVHHC’s case ag ainst State Fa rm. I n dismiss ing, the state cour t stated on the re cord: This g oes t o the ver

y essenc e, the he art of our sy stem in terms of altering evidenc e that has bee n tampere d with, in essenc e. For someone to intentionally tamper w ith the evidenc e and make a misrepr es en t at i on and actua lly ask an employ ee to g et involved in s o m et h ing like this I think is a bad thing; in fac t, it is awf ul, and I am sorry to be a witness to something like this. I n support of the motion in limine , AVHHC arg ued under the Fe dera l Rules of Evidence that any evidenc e from or mention of Owens was not rele vant under Rule 401 and there fore inadmissible under Rule 402 beca

use the case on trial conce rned billings for J ackson, Nea l, and Ely , while Owens involved a differ ent client, differ ent billings, and differ ent issues. AVHHC also arg ued under Rule 403 that evidenc e from Owens would confuse the jury and result in unfair prejudice t o AVHHC beca use State F arm wa

nted the jury

to draw the conclusion t hat P aig e mus t have committed fra ud in the case befor e it beca use Paige had committed fra ud in Owens

. AVHHC further arg ued thatNo. 09-2452, 09-2509 State Farm v. AVH HC Pag e 5 evidenc e from Owens would be inadm i s s i b l e under Rule 608 beca use evidenc e of untruthful char acte r may be attacke d only in the form of opinion or reputa tion testimony , and not by evidenc e of spec ific instance s of conduc t. State Fa rm responde d that Michig an law permits introduction of circ umstantial evidenc e to establish fra

ud. I n a diversity case like this one, howeve r, the Fe dera l Rules of Evidence g overn the admission of evidenc e, while state law g overns the substantive issues. See Gass v. Marriott Hote l Servs., Inc. , 558 F.3d 419, 425–26 (6th Cir. 2009); Erie R.R. Co. v. Tompkins , 304 U.S. 64 (1938). State Fa rm also arg ued that evidenc e from Owens was admissible under Rule 404(b) as evidenc e of AVHHC’s sc heme or

plan. The district cour

t denied AVH HC’s motion in limine ruling : The prior litigation unfortunate ly will have to b e admi tted. I don’t think it’s more prejudicia l than probative. It is relevant not only t o the character of the defendant but to the fact of a fraud having been committed once before, the same type of fraud, and it’s not 404(

b) evide nce. This ruling admitted the very ty pe of propensity evidenc e prohibited by Rule 404(a)

. Not only did it direc tly contra dict Rule 404(a) , but it inexpl icably ignor ed any permissible g round for admission listed in Rul e 404(b) and asse rted by State Fa rm as a ba sis for such a dmission. Rule 404(a) clea

rly provided that “[e]vidence of a pe rson’s cha rac ter or a

trait of cha

rac ter is not admissible for the purpose of proving action in confor mity there with on a particula r occa sion” 1 except as provided in three other evidentiar y rules, only one of which is rele vant here

. Rule 608(a) permits an attac k on a witness’s c redibility , but only in the form of opinion or reputa tion evidence

on t h e s u b

j ect of the witness’s char acte r for truthfulness of untruthfulness. Under Rule 608(b),

Sty listi c cha

ng es we re ma de in 2011. 1No. 09-2452, 09-2509 State Farm v. AVH HC Pag e 6 specific instances of the witness’s conduct introduced for t h e purpose of attacking the witness’s char acte r for truthfulness may not be proved by extrinsi c evidenc e, but specific instances of conduct may be inquired into on cross-e x amination of the witness if they are probative of the wi t n es s ’s char acte r for

truthfulness and the district c ourt allows such que stioning. Rule 404(b) provides i n part that “[e]vidence of other crimes, wrong s or acts is not admissible to prove the char acte r of a person i n o rd er t o show action in confor mity there with. I t may , howeve r, be admissible for other purposes, s u ch as proof of motive, opportunity , intent, prepa ration, plan, knowledg e, identity , or absenc e of mistake or acc ident[.] ” Her e, the court clea rly ruled that the evidenc e was not Rule 404(b) evidenc e, and the rec ord lacks the nece ssary Rule 404(b) analy sis: examination of eac h prior bad act proff ere d for admiss i o n ; deter mination of whether sufficie nt evidenc e supported the occur renc e of that act; consideration of whether the evidenc e was offe red for a proper purpose, and evalua tion of whether the ev i d en ce wa s more probative than prejudicia l under Rule 403. See Tschira v. W illingham , 135 F.3d 10 7 7 , 1 0 8 6 (6th Cir. 1998). Fur ther, had the dist ri ct court admitted the evidenc e under Rule 404(b), the rec ord should have contained cautionar

y instructions to the jury on the limit ed use of the Rule 404(b) evidenc e admitted. See U nited States v. Hardy , 643 F.3d 143, 153 ( 6th Cir. 2011). The rec ord reve als that the evidenc e was admitted in violation of Rule 404(a) and the resulting trial was permeat ed with the eff ect of the district court’s err oneous evidentiar y ruling s, made over the continuing objections of AVHHC and Paige

. I n openin g s t at ement, State Fa rm immediately broug ht the damaging evidenc e from Owens to the j ury ’s attention and made the us e of such evidenc e a key component o f its case throug hout the trial. On the first day of its case -inchief , State Fa rm called Paige to the stand as an adver se witness and questioned him at leng th aboutNo. 09-2452, 09-2509 State Farm v. AVH HC Pag e 7 his falsifica tion of AVHHC rec ords in Owens

. Whil e cer tain portions of State Fa

rm’s examination of Paige may have been proper impeachme nt, much of the examination prog resse d in direc t violation of Rules 404(a) and 608. The district court compounded the err or when, on the second day of trial during State Fa rm’s

re- direc t examination of Paige , the court admitted into evidenc e, over AVHHC’s objection, Ex hibit 132, a transcr ipt of the state trial court’s damag ing statements to Paige while he was on the witness stand in Owens , and Ex hibit 132a, the state trial court’s Orde r of Dismissal in Owens

. I n response to A VHHC’s objection to the admission of these two e x hibits, S tate F arm re minded the cour t tha t it ha d alre ady ruled on the issue when it de nied the motion in limine

. Howeve r, in light of Paige ’s express denial under oath that he committed any fra ud in Owens , both of these exhibi ts constituted extrinsi c evidence of specific in s t ance s of P aig e’s conduct which wer e not admissible under Rule 608(b). See , e.g. , United States v. Frost , 914 F.2d 756, 767 (6th Cir. 1990) (re cog nizi ng that counsel questioning an adver s e wi t n ess is “stuck with” the witness’s response and upholding under Rule 608(b) the exclusion of extrinsi c evidenc e offe red to attack cre dibilit y of witness and contra dict his testimony ). Counsel for State Fa rm rea d to Paige the state trial court’s blistering comments and asked him additional questions about t he Owens proce eding s. Fi n al l y , in closing arg ument, State Fa rm emphasized the improperly admitted evidenc e when it asked the jury to return a verdic t in its favor , and the district court did not gi v e any cautionar y instructions to the jury conce rning this evidenc e. See Hardy , 643 F.3d at 157 (“Rule 404(b) evidenc e must be car efully manag ed to avoid it becoming prec isely what it is desig ned to preve nt: propensity or char acte r evi d en ce.”); United States v. Johnson , 27 F.3d 1186, 1193 (6th Cir. 1994) (“Wh en p ri o r acts evidenc e is introduced, reg ardle ss of the stated purpose, the likelihood is very g rea t that t he jurors will use the evidenc eNo. 09-2452, 09-2509 State Farm v. AVH HC Pag e 8 prec isely for the purpose it may not be considere d[.] ”). Admission of the propensity evidenc e and lack of proper instruction to the jury cre ated prejudice to defe ndants AVHHC and Paige , it aff ecte d defe ndants’ substantial rig hts, and the evide ntiary and instructional er

rors were not harmless. See Biegas v. Quic kway Carriers, Inc. , 573 F.3d 365, 377 ( 6th Cir. 2009). We reje ct State Fa

rm’s co n t ention that evidenc e from Owens was admissible under Rule 405(b). Under that rule, when cha ra ct er evidence is introduced for a proper purpose, it may be proved only by reputa tion or opinion evidenc e; it may not be proved by specific instances of conduct unless the char acte r trait is an essential element of the claim or defe nse. See Fe d. R. Evid. 405. The district court instructed the jury that, to establish fra ud under Michig an law, State Fa rm had to prove that defe ndants: (a) made repre sentations of mater ial fac t; (b) the represe ntations wer e false when made; (c) defe ndants knew the repr esenta tions wer e fa lse when made; (d) defe ndants made the repr esenta tions with the intent that State Fa rm rely on them ; (e ) S tate Fa rm relied on the repr esenta tions; and (f) S t at e Fa rm wa s damag ed as a result of its relianc e. None of these five elements put char acte r in issue. Be cause proof of char acte r was not an element of fra ud, Rule 405(b)

was not applicable

. See United States v. Clark , 377 F. App’x 451, 460 (6t h C i r. 2 0 1 0 ) (“[ I ]n deter m i ning whether evidenc e of [t he defenda nt’s] char acte r was an ‘essential element’

. . . ‘[t] he rele vant question should be: would proof, or failure of proof, of the char acte r trait by itself actua lly satisfy an element of the char g e, claim, or defe nse? ’”) (quoting United States v. Keiser , 57 F.3d 847, 856 (9th Cir. 1995)). We have considere d State Fa rms’ ot her ar guments and find them also to be without merit. III. CONCLUSIONNo. 09-2452, 09-2509 State Farm v. AVH HC Pag e 9 Having car efully revie wed the trial rec ord, we can only conclude that the jury ’s verdic t was premised on propensity evidenc e that should not have been admitted. We conclude that the district

court abused its discretion in admitting such evidenc e and in deny ing the motion for a new trial. See Talley , 194 F.3d at 765; Morgan , 559 F.3d at 434. Acc ording ly , we REVERSE the district court’s judgme nt and REMAND for a new tria l.