Court Opinion

ID: 1025670
Source: CourtListenerOpinion
Date Created: 2013-07-05 06:53:38.115046+00
Date Added: 2024-06-11T12:28:10.378811
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 07-1163

M&S PARTNERS, a New York Partnership,

                Plaintiff - Appellant,

           v.

SCOTTSDALE INSURANCE COMPANY, an Ohio corporation,

                Defendant - Appellee.

Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. John T. Copenhaver, Jr.,
District Judge. (2:04-cv-01221)

Argued:   January 30, 2008                  Decided:   May 9, 2008

Before WILKINSON and GREGORY, Circuit Judges, and Patrick Michael
DUFFY, United States District Judge for the District of South
Carolina, sitting by designation.

Affirmed by unpublished opinion. Judge Gregory wrote the opinion,
in which Judge Wilkinson and Judge Duffy joined.

ARGUED: Kristin A. Boggs, GOODWIN & GOODWIN, LLP, Charleston, West
Virginia, for Appellant. James Daniel McQueen, Jr., FROST, BROWN
& TODD, LLC, Charleston, West Virginia, for Appellee. ON BRIEF:
Raymond S. Franks, II, GOODWIN & GOODWIN, LLP, Charleston, West
Virginia, for Appellant. Amanda J. Davis, FROST, BROWN & TODD,
LLC, Charleston, West Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
GREGORY, Circuit Judge:

       The Appellant, M&S Partners (“M&S”), a New York partnership,

filed suit in West Virginia state court against the Appellee,

Arizona-based Scottsdale Insurance Company (“Scottsdale”), an Ohio

corporation, to recover a default judgment (“insurance coverage

claim”)     it   had   previously   obtained     against    an   insured   of

Scottsdale, Sandcastle Corporation d/b/a Southern Security Systems

(“Sandcastle”), a Virginia corporation.             M&S also filed a third

party claim against Scottsdale for bad faith insurance settlement

practices, in violation of the West Virginia Unfair Trade Practices

Act (“UTPA”), W. VA. Code § 33-11-4(9).             Scottsdale removed this

case to federal court.      After reviewing the parties’ submissions,

the district court granted Scottsdale’s motion for application of

Virginia law and its motion for partial summary judgment as to the

UTPA   claim.     Shortly   thereafter,    the   district    court    granted

Scottsdale’s motion for summary judgment as to the remaining

insurance    coverage    claim.     M&S   appeals    the   district   court’s

decisions to us.       For the reasons below, we affirm the district

court’s determinations.

                                     I.

       On October 19, 2000, M&S filed a civil suit (“the underlying

action”)    against    Sandcastle   and   P.K.   Spencer    (“Spencer”),   a

principal with Sandstone, alleging fraud and breach of the parties’

                                      2
Residential Monitoring Receivable Financing Agreements.1                 On July

17, 2001, M&S amended its complaint to assert two additional causes

of action - negligent misrepresentation and negligent supervision -

against Spencer and two additional Sandcastle principals.2

      On June 6, 2002, M&S moved for a default judgment against

Sandcastle.     Because no representative for Sandcastle appeared on

the day of the trial, the district court conducted a hearing on

M&S’s default motion.      The default hearing focused solely on M&S’s

breach of contract claim and the resultant damages.               On October 3,

2003, the district court granted M&S’s motion for default judgment

and awarded damages in the amount of $508,054.93.

      On October 1, 2004, M&S filed a civil action in West Virginia

state court against Sandcastle’s insurer, Scottsdale, to recover

the   default   judgment   award.3        In   addition,   M&S    alleged   that

Scottsdale’s    actions    violated   West       Virginia’s      UTPA.      After

Scottsdale removed the claims to federal district court, the

parties contested whether West Virginia law or Virginia law should

      1
      According to the Amended Complaint, these agreements “provide
financing secured by contracts owned, acquired, or originated by
[Sandcastle] for alarm monitoring services provided or arranged by
[Sandcastle].” (J.A. 26 at ¶10.)
      2
      All of the defendants, with the exception of Sandstone, were
voluntarily dismissed or not properly served.
      3
      Sandcastle and Spencer tendered the underlying action to
Scottsdale. Scottsdale refused to accept the tender because the
claims involved actions that were “deliberate or willful in nature”
and thus not covered under the parties’ Commercial General
Liability (CGL) policy. (J.A. 328-29.)

                                      3
apply to the claims.   The district court, in a memorandum opinion

and order, granted Scottsdale’s motion for application of Virginia

law and its motion for partial summary judgment, which resulted in

the dismissal of M&S’s UTPA claim.      Subsequently, the district

court granted Scottsdale’s motion for summary judgment as to the

remaining insurance coverage claim.     M&S appeals both of these

decisions to us.

                                II.

     We review the district court’s decision to grant Scottsdale’s

motions for summary judgment de novo, viewing the facts in the

light most favorable to M&S.   Volvo Trademark Holding Aktiebolaget

v. Clark Machinery Co., 510 F.3d 474, 481 (4th Cir. 2007).     “An

award of summary judgment may be appropriately made only “‘if the

pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that there is

no genuine issue as to any material fact and that the moving party

is entitled to summary judgment as a matter of law.’”   Id. at 481-

82 (citing Fed. R. Civ. P. 56(c)).     We now address M&S’s claims

seriatim.

                                 A.

     Scottsdale argues that Virginia law should apply to both the

insurance coverage and UTPA claims, while M&S contends that West

Virginia law is applicable since the events underlying the default

                                 4
judgment took place in West Virginia.      Using West Virginia choice

of law rules, the district court held that Virginia law applied to

the parties’ claims.     M&S posits that the district court did not

properly apply West Virginia’s choice of law rules, and that West

Virginia law should regulate the claims between the parties.

                                   i.

     As the district court in the instant case sits in West

Virginia,    West   Virginia’s   choice   of   law   rules   provide   the

appropriate framework for this inquiry.        See Klaxon Co. v. Stentor

Electric Mfg. Co., Inc., 313 U.S. 487 (1941). West Virginia courts

generally use lex loci deliciti to resolve choice of law conflicts,

but for “particularly thorny conflicts problems”, see e.g., Oakes

v. Oxygen Therapy Services, 178 W. Va. 543, 544 (1987), the West

Virginia Supreme Court of Appeals has relied on the Restatement

(Second) of Conflict of Laws (1971), Sections 64 and 1455, to

     4
      Section 6 sets out the following factors to consider in
determining which forum’s choice of law is appropriate:

     •      the needs of the interstate and international systems;
     •      the relevant policies of the forum;
     •      the relevant policies of other interested states and the
            relative interests of those states in the determination
            of the particular issue;
     •      the protection of justified expectations;
     •      the basic policies underlying the particular field of
            law;
     •      certainty, predictability, and uniformity of result; and
     •      ease in the determination and application of the law to
            be applied.
     5
      Section 145 provides that when applying Section 6, the
following additional factors should be taken into account in the

                                    5
provide the framework for determining the applicable law.     When

reviewing complex contracts, see e.g., New v. Tac&C Energy, Inc.,

177 W. Va. 648 (1987) and “parasitic” torts - i.e., torts dependent

upon an underlying breach of contract claim, see e.g., Oakes, 178

W. Va. at 544 - West Virginia courts have resorted to using the

Restatement.

     The district court separately analyzed the choice of law issue

in the context of the UTPA claim and the insurance coverage claim.6

With respect to the UTPA claim, the district court held that the

facts in this case were sufficiently thorny to justify utilizing

the Restatement (Second) of Conflict of Laws because “tangible

injuries” were not present and due to the “esoteric nature of the

harm here along with the locus of where it was inflicted.”   (J.A.

335.)    We agree with the district court’s decision to use the

Restatement, in part, because the central thrust of this case is a

breach of contract claim.    While the negligence claims are not

technically dependent upon the breach of contract claim, the action

choice of law analysis:

     •     the place where the injury occurred;
     •     the place where the conduct causing the injury occurred;
     •     the   domicile,   residence,   nationality,   place   of
           incorporation, and place of business of the parties;
     •     the place where the relationship, if any, between the
           parties is conferred.
     6
      It is unclear whether the district court actually used the
Restatement analysis in its choice of law analysis for the
insurance coverage claim.

                                 6
underlying the torts - i.e., Sandcastle’s false representation that

it was not involved in a civil action involving more than $10,000 -

was a necessary precursor to M&S’s decision to sign the financing

agreements.

     In addition, it is difficult to pinpoint the precise location

of the injury in this case because of its exclusively financial

nature.     Finally, since this dispute involved actions taken by

three parties in at least four states, lex loci deliciti is ill-

equipped to resolve this choice of law dilemma and as such, it is

appropriate to review the additional factors set out in Sections 6

and 145 of the Conflict of Laws Restatement (Second).

     Applying the Restatement to the facts of this case, the

district court held that Virginia law applied to the UTPA claim for

several reasons, including:      (1) M&S (a partnership based in New

York) and Scottsdale (an Ohio citizen with its principal place of

business in Arizona) were only related through their contact with

Sandstone, a company based in Virginia; (2) the financial injury

alleged by Sandstone had its “roots in a Virginia commercial

transaction”    (J.A.     339-340);   (3)    the   relationship     between

Sandcastle and Scottsdale was centered in Virginia; (4) Scottsdale

had no expectation of being hauled into court under West Virginia’s

UTPA; and (5) due to the centrality of Sandcastle’s role in this

conflict,    Virginia’s   policies    for   insurer   malfeasance   have   a

significant role in this dispute.

                                      7
     While the contacts between M&S, Sandcastle, and West Virginia

were substantial - e.g., the operations financed via the loan

agreements occurred in West Virginia - we ultimately agree with the

district court’s decision to apply Virginia law to the UTPA claim.

The heart of M&S’s UTPA claim alleges that Scottsdale “engaged in

unfair claim settlement practices” as defined by UTPA, during the

underlying action.         However, there is little connection between

Scottsdale’s actions (or lack of action) in declining to accept

Sandstone’s      tender    and   the    state   of    West    Virginia.          Since

Scottsdale has no corporate operations in West Virginia, its

decision    to   forego    representing       Sandstone      must   have   occurred

outside of West Virginia.         Sandcastle’s relationship with both M&S

and Scottsdale serves as the litigating parties’ sole connection to

each other in the instant case.           As evidenced by the underwriting

papers,    Sandcastle’s      business     operations    were    concentrated        in

Maryland and Virginia, and as such, Scottsdale could not have

envisioned being hauled into a West Virginia court.

     Finally,     the     fact   that   M&S   and    Sandcastle     are    not    West

Virginia residents and have extremely limited commercial contacts

with West Virginia favors the view that West Virginia insurer

malfeasance law will not be undermined in any material manner if it

is not applied in this case.            On the other hand, as Sandcastle is

a Virginia citizen, Virginia has an interest in ensuring that

Virginia law regulates how insurance companies defend its insured’s

                                          8
claims.     Thus, based on the litigating parties’ limited contacts

with West Virginia, we find that the district court correctly

determined that Virginia law should be applied to the UTPA claim.

Since Virginia does not have a statute analogous to West Virginia’s

UTPA, M&S’s UTPA claim is not viable and as such, the district

court’s decision to apply Virginia law and grant Scottsdale’s

motion for partial summary judgment as to M&S’s UTPA claim is

affirmed.

                                     ii.

      With respect to the insurance coverage claim, the district

court held that Virginia law was applicable because (1) the CGL

policy was formed and entered into in Virginia with the assistance

of Sandcastle’s insurance agent and (2) delivered to Sandcastle in

Virginia, where it was domiciled and (3) Sandcastle never informed

Scottsdale that it was doing business in West Virginia.

      The West Virginia state courts have often addressed choice of

law issues in the context of interpreting insurance policies, and

in   particular,   motor   vehicle   policies.   They   have   generally

concluded that the law of the state where the policy is issued will

apply to judicial proceedings involving the interpretation of that

policy.   Howe v. Howe, 218 W. Va. 638, 644 (W. Va. 2005).     However,

the West Virginia state courts have set out an exception to that

general rule when “the risk insured was principally located where

                                      9
another   state   has   a   more   significant   relationship    to     the

transaction and the parties.”      Id.

     While West Virginia certainly had a relationship to the

parties and the underlying transaction, Virginia clearly had a more

significant relationship for the same reasons detailed in the UTPA

choice of law analysis in the previous section, in addition to the

fact that the insurance policy was issued in Virginia.                Thus,

Virginia law must be applied to the insurance coverage claim.7

                                   B.

     In granting Scottsdale’s motion for summary judgment on the

insurance coverage claim, the district court held that the default

judgment only applied to M&S’s breach of contract claim because (1)

M&S’s failure to discuss its negligence claims in the pretrial

order “practically robbed the amended pleading of any further

effect” (J.A. 364) and (2) “a careful reading of the operative

pleadings in the underlying action discloses that Sandcastle was

sued only for breach of contract.”       (J.A. 364.)

     We first turn to the issue of the pretrial order.          According

to the district court,

     . . . [if] [M&S] desired to pursue any extant negligence
     claims against Sandcastle after voluntarily dismissing
     its individual, corporate agents who were targeted by
     those claims, one would have expected the negligence
     claims to appear in the all-encompassing pretrial order

     7
      The district court never reached the question of whether
there was actually any difference between Virginia and West
Virginia law as to the insurance coverage issue.

                                   10
     or to have at least been added by amendment of that
     critical document after the last corporate agent-
     defendant, Spencer, was voluntarily dismissed.

(J.A. 364-365.)       M&S argues that the district court erred because

both West Virginia law8 and the local district court rules provide

that only CONTESTED issues of fact and law be set out, and the

purpose   of    the    pretrial   order   was   to   set   out   the   damage

calculations.         Rule 16.7 of the Local Rules of the Southern

District of West Virginia states, in part, that a proposed pretrial

order must include “contested issues of law requiring a ruling

before trial” and a “single listing of the contested issues of

fact; and a single listing of the contested issues of law...”

(emphasis added).        M&S argues that because Sandcastle did not

respond to its Amended Complaint, all of the facts in the Amended

Complaint were deemed admitted and uncontested.

     Scottsdale responds that federal law and our precedent mandate

that a party waives its claim if it is not included in a pretrial

order.    We agree with Scottsdale.        The “[f]ailure to identify a

legal issue worthy of trial in the pretrial conference or pretrial

order waives the party’s right to have that issue tried.”              McLean

Contracting Co v. Waterman Steamship Corp, 277 F.3d 477, 480 (4th

Cir. 2002) (citing to Fed. R. Civ. P. 16, advisory notes which

     8
      Since West Virginia law is inapposite to this case, there is
no need to address this argument. In addition, we find that since
this is a procedural issue, federal law is applicable. See Erie R.
Co. v. Tompkins, 304 U.S. 64 (1938).

                                     11
state, in part, “[C]ounsel bear a substantial responsibility for

assisting the court in identifying the factual issues worthy of

trial.     If counsel fails to identify an issue to the court, the

right to have the issue tried is waived.”).               The purpose of the

pretrial order is to provide notice to the district court of all

issues that remain unresolved.                While neither Sandcastle nor

Scottsdale responded to M&S’s Amended Complaint, and Sandcastle’s

attorney withdrew months before the trial, those events alone do

not provide incontrovertible evidence that the issues in the

Amended Complaint were true.

     Nothing would have prevented Sandcastle or Scottsdale from

appearing at the trial to contest any or all of the claims in

question.     Thus, M&S should have included all of its claims,

including the negligence claims, in the pretrial order.                         Its

failure to do so was a de facto waiver of its negligence claims

against Sandcastle and its insurer, Scottsdale.             See 6A Charles A.

Wright et al., Federal Practice and Procedure Civ. 2d. § 1522

(updated    through    2008)   (“[T]he       pretrial   order    is   treated    as

superseding    the    pleadings   and    establishing      the    issues   to    be

considered at trial.”).        As such, we affirm the district court’s

decision to grant Scottsdale’s motion for summary judgment as to

the insurance coverage claim.9

     9
      Because M&S’s failure to include its negligence claims in its
pretrial order resolves this issue, we need not address M&S’s
remaining claims.

                                        12
                              C.

    For the reasons stated above, the district court’s judgments

are affirmed.

                                                        AFFIRMED

                              13