Opinion ID: 795624
Heading Depth: 5
Heading Rank: 1

Heading: Rawe's First-Party Bad-Faith Claims Based Upon Pre-Complaint Conduct are Barred by Claim Preclusion

Text: 16 As this case involves successive diversity actions, federal res judicata principles apply. J.Z.G. Res., Inc. v. Shelby Ins. Co., 84 F.3d 211, 214 (6th Cir.1996). A final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action. Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981) (emphasis added). We use a four-part test for determining whether a subsequent action is barred by the doctrine of res judicata, or to be more precise in this circumstance, claim preclusion. 5 [R]es judicata has four elements: (1) a final decision on the merits by a court of competent jurisdiction; (2) a subsequent action between the same parties or their privies; (3) an issue in the subsequent action which was litigated or which should have been litigated in the prior action; and (4) an identity of the causes of action. Kane v. Magna Mixer Co., 71 F.3d 555, 560 (6th Cir.1995). 17 Relying upon one of our unpublished decisions, Hamilton v. State Farm Fire & Cas. Co., No. 96-4141, 1997 WL 664772 (6th Cir. Oct. 23, 1997) (unpublished opinion), the district court concluded that Rawe's previous suit to enforce her rights under the UIM policy, which ended with the district court's final order recognizing the $45,000 settlement agreement, precluded this subsequent bad-faith action. J.A. at 43-45 (Order at 8-10). The facts of this case closely resemble those in Hamilton, where a plaintiff sued his homeowner insurer because the insurer failed to pay on the policy after the plaintiff's home was destroyed by fire. Id. at . After the defendant in Hamilton removed the case to federal court, the plaintiff prevailed in his action to enforce the insurance agreement, and the insurer satisfied the judgment. The plaintiff then filed a subsequent action in state court for bad faith and infliction of serious emotional distress for failing to honor the homeowner policy. This case was also removed, and the district court concluded that the claims were barred by res judicata because the court found identity between the causes of action plaintiff asserted in his second suit and that which he asserted in the first suit. Id. We affirmed, stating that claim preclusion barred the subsequent action because the causes of action all arose from the insurance policy issued to plaintiff by defendant, the fire which destroyed plaintiff's home and defendant's nonpayment of the proceeds under the policy. Id. at . 18 We agree with the district court that our reasoning in Hamilton is instructive here. As in Hamilton, the causes of action here all arose from the UIM policy issued to Rawe by Liberty Mutual, the car accident that injured Rawe, and Liberty Mutual's nonpayment of the proceeds under the policy. Similar to Hamilton, all of the asserted causes of action stemming from Liberty Mutual's alleged actions occurring before the first suit was filed in October 2003 arose from the same transaction, or series of transactions, and therefore they should have been litigated in the earlier action. Id. The fact that [Rawe] now asserts alternative theories of recovery and seeks a different remedy does not allow [her] to avoid claim preclusion, when those other theories could have been asserted and remedies could have been sought in the earlier action. Id. Rawe's allegations of bad faith based upon Liberty Mutual's alleged actions predating the filing of Rawe's first suit do not arise from entirely separate and discrete events and wrongful acts by Liberty Mutual than those asserted in her first UIM suit. Black v. Ryder/P.I.E. Nationwide, Inc., 15 F.3d 573, 582 (6th Cir.1994). We therefore affirm the district court's dismissal of plaintiff's first-party bad-faith claims under Kentucky common law and the KCPA, because those claims based upon defendant's conduct that allegedly occured before Rawe filed her complaint in October 2003 are barred by the doctrine of claim preclusion. 19 b. Rawe's First-Party Bad-Faith Claims Based Upon Post-Complaint Conduct Are Not Barred by Claim Preclusion 20 The district court did not analyze plaintiff's first-party bad-faith claims based upon Liberty Mutual's alleged conduct that occurred after Rawe filed her complaint in the first lawsuit in October 2003, but nevertheless dismissed all of her first-party bad-faith claims about the handling of the UIM policy on res judicata grounds. Upon review, we conclude that these claims are not barred by claim preclusion, and so we reverse the district court's dismissal of these claims. 21 In Count II, Rawe's common-law first-party bad-faith claim, and Count III, her first-party bad-faith claim under the KCPA, Rawe alleges that Liberty Mutual's actions after the October 2003 filing of her complaint in the first lawsuit constituted bad faith. Rawe cites primarily Liberty Mutual's failure to comply with the judgment for $45,000 that resulted from the first lawsuit until Rawe agreed to sign a release of claims extraneous to her UIM policy claim as constituting bad faith. J.A. at 28-30 (Compl. at ¶¶ 82-83, 90-91, 98); Appellant Br. at 38. Rawe argues that because she had received the judgment, no release was required and upon Liberty Mutual's refusal to pay, a cause of action arose. Appellant Br. at 38. She further argues that [u]ntil the claim is finally paid in full, the processing of the claim is not final and the transaction is still covered by Kentucky law on bad faith under the KCPA and Kentucky common law. Id. 22 We agree that Rawe's first-party bad-faith claims that are based upon Liberty Mutual's actions after she filed the first lawsuit to enforce the UIM contract cannot be barred by res judicata, because those alleged actions had not yet occurred at the time she filed the first UIM suit. The district court's dismissal of these claims on res judicata grounds was erroneous. Simply put, [Rawe] could not have asserted a claim that [she] did not have at the time. Kane, 71 F.3d at 560. Rawe argues persuasively that these claims were not yet ripe when she filed suit to enforce her rights under the UIM contract, Appellant Br. at 39-41, and she is correct that res judicata does not apply to claims that were not ripe at the time of the first suit. Katt v. Dykhouse, 983 F.2d 690, 694 (6th Cir.1992). Rawe's previous suit under the UIM policy does not prospectively immunize the defendant from liability for future actionable conduct for bad faith. 23 We also reject the argument that res judicata bars Rawe's claims based upon Liberty Mutual's alleged conduct after Rawe filed the initial complaint on the theory that Rawe could have amended her complaint to include this ongoing alleged wrongdoings. Instead, we follow the majority rule articulated by the Wright and Miller treatise that an action need include only the portions of the claim due at the time of commencing that action, because the opportunity to file a supplemental complaint is not an obligation. 18 CHARLES ALAN WRIGHT, ARTHUR R. MILLER, AND EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 4409 (2d ed.2002). See also Mitchell v. City of Moore, 218 F.3d 1190, 1202 (10th Cir.2000) ([W]e agree with those courts holding the doctrine of claim preclusion does not necessarily bar plaintiffs from litigating claims based on conduct that occurred after the initial complaint was filed.); Manning v. City of Auburn, 953 F.2d 1355, 1360 (11th Cir. 1992) ([W]e do not believe that the res judicata preclusion of claims that `could have been brought' in earlier litigation includes claims which arise after the original pleading is filed in the earlier litigation.); Spiegel v. Continental Ill. Nat'l Bank, 790 F.2d 638, 646 (7th Cir.1986) (holding that res judicata does not bar new action based on alleged acts occurring after the filing of the first law suit). 24 As we have concluded that Rawe's claims based upon Liberty Mutual's alleged conduct occurring after the filing of Rawe's October 2003 complaint in first lawsuit are not barred by claim preclusion, we now consider Liberty Mutual's argument that it is entitled to judgment on the pleadings on these claims. Whether Liberty Mutual's actions demanding that Rawe sign a release before it would comply with the judgment are sufficient to support Rawe's first-party bad-faith under Kentucky common law and the KCPA is a close question, and we can find no simple answers in Kentucky case law. Because we conclude that Liberty Mutual is not entitled to judgment as a matter of law and that issues of material fact remain, we reverse the district court's grant of judgment on the pleadings to Liberty Mutual with respect to the alleged post-complaint conduct. 25 First, Rawe's first-party bad-faith claims do not fail as a matter of law. While Liberty Mutual encourages us to conclude that failure to comply with a judgment cannot constitute bad faith, either under common law or the KCPA, it is unable to provide any legal authority to suggest that it is entitled to judgment as a matter of law on this principle. The Supreme Court of Kentucky has stated the acts complained of in a KCPA claim, like a common-law tort claim for bad faith, must be substantial wrongs, and that mere irritations injuring pride are insufficient. Capitol Cadillac Olds, Inc. v. Roberts, 813 S.W.2d 287, 291 (Ky.1991). While it is unclear whether a jury would view these actions as substantial wrongs, a reasonable jury could so view Liberty Mutual's actions. The insurance company's demand that the release be executed was certainly more than an irritation of Rawe's pride, as it stood in the way of her clearly protected interest[s] and rights under the court's judgment and required her, through her attorney, to take further action to collect under the judgment. Id. 26 Furthermore, the Supreme Court of Kentucky appears to view the question of whether an insurer's actions rise to the level of unlawful conduct under the KCPA to be a question of fact, therefore rending the inquiry inappropriate for resolution on a Rule 12(c) motion. See Paskvan, 946 F.2d at 1235. In Stevens v. Motorists Mutual Insurance Co., which established that a first-party bad-faith claim against an insurer is actionable under the KCPA, the Supreme Court of Kentucky reversed a directed verdict on a KCPA claim for the insurer, stating that when the evidence creates an issue of fact, that any particular action is unfair, false, misleading or deceptive it is to be decided by a jury. Stevens, 759 S.W.2d at 820. Similarly, here it seems that the Supreme Court of Kentucky would view the question of whether Liberty Mutual's actions — its failure to comply with the judgment, its demand that Rawe sign a complete release of all potential claims, and its compliance with the judgment only after Rawe sought a writ to enforce the judgment — constituted unfair conduct under the KCPA to be a question of fact. As this material issue of fact remains, we reverse the grant of judgment on the pleadings to Liberty Mutual on plaintiff's first-party bad-faith claims based upon Liberty Mutual's alleged actions occurring after the filing of the first lawsuit in October 2003, and remand these claims to the district court for further consideration. 27