Court Opinion

ID: 799208
Source: CourtListenerOpinion
Date Created: 2012-05-02 20:24:39+00
Date Added: 2024-06-11T17:59:48.030598
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                MAY 02 2012

                                                                          MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

MIKE KREIDLER, Insurance                         No. 11-35095
Commissioner for the State of Washington
and as Receiver for Cascade National             D.C. No. 2:06-cv-00697-RSL
Insurance Company in Liquidation,

              Plaintiff - Appellee,              MEMORANDUM*

  v.

DANNY L. PIXLER,

              Defendant,

  and

ANTHONY HUFF; SHERI HUFF,
individually and their marital community;
MIDWEST MERGER MANAGEMENT
LLC, a Kentucky Limited Liability
Company,

              Defendants - Appellants.

MIKE KREIDLER, Insurance                         No. 11-35148
Commissioner for the State of Washington
and as Receiver for Cascade National             D.C. No. 2:06-cv-00697-RSL
Insurance Company in Liquidation,

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
              Plaintiff - Appellant,

  v.

DANNY L. PIXLER,

              Defendant,

  and

ANTHONY HUFF; SHERI HUFF,
individually and their marital community;
MIDWEST MERGER MANAGEMENT
LLC, a Kentucky Limited Liability
Company,

              Defendants - Appellees.

                    Appeal from the United States District Court
                      for the Western District of Washington
                     Robert S. Lasnik, District Judge, Presiding

                        Argued and Submitted April 9, 2012
                               Seattle, Washington

Before: HUG, TASHIMA, and CALLAHAN, Circuit Judges.

        Defendants-Appellants Anthony Huff, Sheri Huff, and Midwest Merger

Management LLC (“Midwest”) appeal from the district court’s judgment,

following a jury trial in this diversity case, in favor of Plaintiff-Appellee Mike

Kreidler, the Insurance Commissioner for the State of Washington and the receiver

for Cascade National Insurance Company (“Cascade”). The court awarded

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Kreidler $19.3 million, which represented the amount due and unpaid for workers’

compensation claims paid by Cascade for over 15,000 California workers. We

have jurisdiction under 28 U.S.C. § 1291, and we affirm.1

                                  I. Background2

      Anthony Huff and co-defendant Danny Pixler used Midwest, a Kentucky

company, to serve as an intermediary between Cascade, the insurance carrier, and a

professional employer organization (“PEO”), the entity that serves as the

policyholder for workers and their employers. Ordinarily the carrier pays workers’

compensation insurance claims while the PEO collects premiums and pays the

carrier for the policy. Here, however, all payments went through Midwest before

Cascade was paid. In the process, Huff, his wife Sheri, and others siphoned

millions of dollars for personal use and Midwest fell behind in its payments to

Cascade. Cascade became aware of Midwest’s and Huff’s unusual involvement

only after it began providing coverage, but by then it was too late. Once Cascade

processed all of the claims at issue, Midwest had paid Cascade less than a third of

what Cascade was owed, and Cascade was forced into receivership.

      1
        Because we affirm the district court, we do not reach Kreidler’s protective
cross-appeal.
      2
        We restate the facts and procedural history only as necessary to explain our
decision.

                                         3
      Based on the evidence, the jury found the defendants variously liable for

civil conspiracy, negligent misrepresentation, fraud, misappropriation, breach of

contract, and violations of Washington’s Consumer Protection Act, Rev. Code

Wash. § 19.86.010 et seq., and Criminal Profiteering Act, id. § 9A.92.010 et seq.

The district court denied the defendants’ motion for judgment as a matter of law

and/or a new trial. The Huffs and Midwest appeal on grounds of insufficient

evidence, improper jury instructions, inconsistent or improper decisions by the

jury, and Kreidler’s standing under the Bankruptcy Code.

                              II. Standards of Review

      We review de novo the district court’s denial of a motion for judgment as a

matter of law, upholding the verdict if it is supported by substantial evidence and

viewing the evidence in favor of the non-movant. First Nat’l Mortg. Co. v. Fed.

Realty Inv. Trust, 631 F.3d 1058, 1067 (9th Cir. 2011). We review for abuse of

discretion the district court’s formulation of the jury instructions. Louis Vuitton

Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936, 941 (9th Cir. 2011).

Finally, we review de novo the district court’s grant of summary judgment. Bravo

v. City of Santa Maria, 665 F.3d 1076, 1083 (9th Cir. 2011).

                                          4
                                  III. Discussion

      1.     Substantial evidence supports the jury’s verdicts against Anthony and

Sheri Huff. Substantial evidence shows that Anthony Huff misrepresented

material facts that induced Cascade to do business with him and Midwest, such as

concealing his and Pixler’s control over Midwest as well as Midwest’s role as an

intermediary between the PEO and Cascade. There also is substantial and

unrebutted evidence that Anthony Huff and Midwest misappropriated funds from

Cascade in the amount of $3.35 million.3 The jury’s verdicts against Anthony Huff

and Midwest for civil conspiracy and for violations of the Consumer Protection

Act and Criminal Profiteering Act were supported by these misrepresentations and

misappropriations, as well as by other unlawful acts.

      As for Sheri Huff, substantial evidence shows that she (1) repeatedly stole,

for personal expenses, money that more likely than not was owed to Cascade, thus

violating the Criminal Profiteering Act; (2) entered into an agreement with

Anthony Huff to divert funds owed to Cascade for personal use, and committed

acts to achieve that end; and (3) committed acts that deceived or had the “capacity

      3
        Kreidler’s inability to precisely trace these diversions was the result of
Midwest’s poor accounting and, in any event, is not required by Washington law.
See Gilmartin v. Stevens Inv. Co., 43 Wash. 2d 289, 294, 261 P.2d 73 (1953);
Sherrell v. Selfors, 73 Wash. App. 596, 601, 871 P.2d 168 (1994).

                                         5
to deceive” the public about Midwest’s true ownership and operation, thus

violating the Consumer Protection Act. See Hangman Ridge Training Stables, Inc.

v. Safeco Title Ins. Co., 105 Wash. 2d 778, 780, 785 719 P.2d 531 (1986); Salois v.

Mutual of Omaha Ins. Co., 90 Wash. 2d 355, 359, 581 P.2d 1349 (1978); see also

Rev. Code Wash. § 48.01.030.

      2.     The district court did not abuse its discretion in denying Sheri Huff’s

motion for a new trial due to an allegedly inconsistent jury verdict. The court must

“reconcile the jury’s special verdict responses on any reasonable theory consistent

with the evidence.” Guy v. City of San Diego, 608 F.3d 582, 586 (9th Cir. 2010);

see also Norris v. Sysco Corp., 191 F.3d 1043, 1048 (9th Cir. 1999). The jury

concluded that Sheri Huff violated the Criminal Profiteering Act but that she did

not misappropriate money from Cascade. These verdicts are consistent because the

predicate act underlying Kreidler’s criminal profiteering claim was theft, not

misappropriation, and because Kreidler’s profiteering and misappropriation claims

concerned different types of payments that Midwest owed to Cascade. The jury

understood these distinctions: it awarded $3.35 million for misappropriation,

$820,000 for criminal profiteering, and $19.3 million for other claims.

      3.     The district court did not abuse its discretion in tendering to the jury

an instruction regarding “participating in the business of insurance.” Kreidler

                                          6
claimed the defendants were liable for civil conspiracy, which required him to

prove that two or more people conspired to accomplish an illegal purpose. While

that purpose could have been misappropriation or fraud, it also could have been

participating, or permitting someone else to participate, in the business of

insurance despite that person’s ineligibility due to a prior conviction for a criminal

felony involving dishonesty or breach of trust. Anthony Huff’s prior guilty plea

and conviction thus provided a legal basis for the jury’s verdict against him. The

instruction was not unfairly prejudicial because the jury knew about Huff’s

conviction with or without the “business of insurance” instruction, and there is no

evidence the jury ignored or misconstrued other evidence because of the

instruction.

      4.       The district court did not err in submitting to the jury the question of

Cascade’s third-party beneficiary status under the Risk Allocation Agreement

between Midwest and its subsidiary, Certified Services, Inc. (“Certified”). New

York law, which governs under the parties’ agreement, requires the factfinder to

decide the meaning of an ambiguous contract. Revson v. Cinque & Cinque, P.C.,

221 F.3d 59, 66 (2d Cir. 2000). Here, ambiguity about whether Cascade was an

intended third-party beneficiary existed because there was conflicting testimony

about how the agreement worked vis-à-vis Cascade. However, even if Cascade’s

                                            7
status was not ambiguous, making it error to submit that issue to the jury, that error

was “more probably than not harmless.” Mangold v. Cal. Pub. Utils. Comm’n, 67

F.3d 1470, 1473 (9th Cir. 1995). The district court determined that it would have

reached the same conclusion as the jury—i.e., that Cascade was an intended third-

party beneficiary.4

         5.   Kreidler had standing under Bankruptcy Code to pursue private

claims against the defendants. A creditor’s claim for fraudulent conveyance of

assets is the exclusive property of the bankruptcy estate and trustee if the debtor

could have asserted it. See 11 U.S.C. § 544; In re Acequia, Inc., 34 F.3d 800, 808-

09 (9th Cir. 1994). Kreidler’s claims in this case were claims to recover funds the

defendants took from Cascade, not assets they fraudulently conveyed from

Certified, which is involved in a separate bankruptcy proceeding. The Certified

bankruptcy trustee is aware of, and made no objection to, Kreidler’s claims in this

case. The district court properly granted summary judgment to Kreidler on this

issue.

         4
        Cascade meets the definition of an intended third-party beneficiary under
New York law. See, e.g., Subaru Distribs. Corp. v. Subaru of Am., Inc., 425 F.3d
119, 124 (2d Cir. 2005) (quoting Restatement (Second) of Contracts § 302);
Flickinger v. Harold C. Brown & Co., 947 F.2d 595, 600 (2d Cir. 1991);
Internationale Nederlanden (U.S.) Capital Corp. v. Bankers Trust Co., 261 A.D.
2d 117, 123, 689 N.Y.S. 2d 455 (1999).

                                          8
    The district court’s judgment for Plaintiff-Appellee Mike Kreidler is

AFFIRMED.

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