Court Opinion

ID: 2997701
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:38:21.417367+00
Date Added: 2024-06-11T09:35:41.976060
License: Public Domain

In the
 United States Court of Appeals
                For the Seventh Circuit
                         ____________

No. 04-1537
R. D. LOTTIE,
                                            Plaintiff-Appellant,
                               v.

WEST AMERICAN INSURANCE
COMPANY, of the Ohio Casualty
Group of Insurance Companies,
                                            Defendant-Appellee.
                         ____________
       Appeal from the United States District Court for the
       Northern District of Indiana, South Bend Division.
             No. 01 C 582—William C. Lee, Judge.
                         ____________
   ARGUED DECEMBER 2, 2004—DECIDED MAY 26, 2005
                  ____________

 Before BAUER, POSNER and ROVNER, Circuit Judges.
  ROVNER, Circuit Judge. R. D. Lottie sued his insurer for
breach of contract, bad faith and race discrimination.
Because there is a significant evidentiary overlap between
the claims on which final judgment was granted (the bad
faith claim and the race discrimination claim) and a claim
that remains pending before the district court (the breach
of contract claim), we vacate and remand.
2                                              No. 04-1537

                            I.
  R. D. Lottie owns a number of rental properties in
Indiana, many of which are leased through a federally sub-
sidized housing program. West American provides property
insurance for Lottie’s buildings. To be eligible for the
federal subsidy, the housing units must pass an inspection
before a new tenant moves in. Lottie lives in California
but has a brother and a sister-in-law living in Indiana who
manage his properties for him, cleaning and repairing the
units as well as preparing them for inspections on an “as
needed” basis. Lottie’s claims against West American arise
from two houses he owned in South Bend, Indiana, both of
which sustained damage during arson-related fires. The first
arson loss occurred on May 16, 2000 at a house located at
226 Birdsell Street, South Bend. The house was vacant at
the time of the fire and there is some dispute over when the
tenant had moved out. The date of the vacancy turns out to
be important because the insurance policy did not cover
certain losses for properties that had been vacant for more
than thirty days. The tenant’s federal housing subsidy
ended on March 31, 2000 and Lottie originally told the
insurance adjuster that the tenant vacated the property on
April 2, 2000. Lottie’s brother was in the house on the day
of the fire, painting the interior. He had brought gasoline
with him to clean his paint brushes and he left the gasoline
in the house when he stepped out later in the day. Someone
used the gasoline to set a fire in the house, which the fire
department promptly determined was an arson fire. A West
American insurance adjuster investigated the claim and
determined that the property had been vacant for more
than thirty days at the time of the fire. West American
denied the claim in June 2000 under a policy provision
excluding coverage for malicious mischief and vandalism to
properties that had been vacant more than thirty days.
  A few months later, there was another arson fire at an-
other property owned by Lottie, this one at 1412 Linden
Avenue in South Bend. Lottie’s brother and sister-in-law
No. 04-1537                                                  3

managed this property as well, and had a key to the Linden
Avenue house. In this case, the tenant had vacated the
property only a day or two before the fire. There was no sign
of forced entry and the South Bend Fire Department
characterized this arson fire as a “remodeling fire,” that is,
a fire set to gain insurance proceeds to fund remodeling for
a badly dilapidated house. An independent “cause and ori-
gin” investigator hired by West American also determined
that the Linden Avenue fire was intentionally set and the
company then assigned another investigator to look into
both the Birdsell Street and Linden Avenue fires. That
investigator took statements from Lottie and his brother,
performed background checks, and examined documents re-
lated to the fires. The investigator concluded that there was
evidence demonstrating that Lottie’s brother may have set
the fires and may have been acting on Lottie’s behalf in
doing so.
  The policy at issue provides that any suit against the
insurer must be brought within one year from the date of
the loss. Because the investigation into the fires continued
for some time, the one-year limitations period pressed Lottie
to act. After West American granted Lottie one ninety-day
extension on this limitations period, Lottie decided to file
suit. At the time the suit was filed, West American had not
finally determined the resolution of the Linden Avenue
claim and had not, in any case, formally denied the claim.
Count I is a claim for breach of the insurance contract on
each property. Count II incorporated the breach of contract
claim and additionally stated that West American unrea-
sonably, deliberately, oppressively and maliciously delayed
the processing, handling and resolution of Lottie’s claims,
in violation of the doctrine of good faith and fair dealing and
in violation of its duty of due diligence. Count III contended
that West American’s actions against Lottie (who is African-
American) were racially motivated and constituted a
racially discriminatory practice. In particular, Lottie
4                                                No. 04-1537

claimed that West American’s breach of contract and bad
faith actions were racially motivated. Lottie requested com-
pensatory and punitive damages for all three counts.
  In the district court, West American moved for partial
summary judgment on the bad faith and race discrimina-
tion claims as well as for judgment on any claims for puni-
tive damages on all three counts. The district court found
that the undisputed facts demonstrated that West American
handled the claims reasonably under the circumstances.
According to the district court, the insurer had a reasonable
basis to deny the Birdsell Street claim and to continue to
investigate the Linden Avenue claim. The parties disputed
the date the tenant vacated the Birdsell Street property.
Lottie himself had told the insurer that the tenant vacated
on April 2, 2000, and the housing authority set the date at
March 31, 2000. Neighbors set the date somewhat later,
claiming they saw a moving van at the property on April 28,
2000, which would mean the property was vacant less than
thirty days before the fire. In any case, the court found that
the insurer acted reasonably in taking the insured at his
own word and concluding the property was vacant more than
thirty days. The court also found that the insurer reason-
ably characterized an arson fire as “vandalism and mali-
cious mischief” and thus reasonably excluded the Birdsell
Street loss from coverage under the policy. With the bad
faith claims out of the picture, the court further found that
Lottie was not entitled to punitive damages for his contract
claim under Indiana law.
  On the race discrimination claim, the district court noted
that Lottie provided no direct evidence of race discrimina-
tion and failed to make out a prima facie case under the
McDonnell Douglas burden-shifting method. See McDonnell
Douglas Corp. v. Green, 411 U.S. 792 (1973). In particular,
Lottie failed to identify any persons outside the protected
class who were treated more favorably than Lottie. The
court therefore entered judgment on behalf of West American
No. 04-1537                                                 5

and against Lottie on the bad faith and race discrimination
claims as well as Lottie’s claims for punitive damages in all
three counts. Lottie moved for reconsideration of the
judgment on the bad faith and punitive damages claims,
and the court reaffirmed its earlier ruling.
   West American then moved for entry of partial final judg-
ment under Federal Rule of Civil Procedure 54(b). The
insurer argued that these claims were separate and distinct
from the remaining breach of contract claim. West American
contended that permitting appellate review of those claims
immediately would eliminate the possibility of having to con-
duct two trials. The company did not wish to accept any risk
that the court’s partial summary judgment rulings would be
overturned on appeal, forcing a second trial. The company
also sought final judgment on the ruling to further facilitate
settlement discussions. Lottie opposed the entry of partial
final judgment, arguing that the claims were not separate
and distinct for Rule 54(b) purposes. The court found that
each claim had a separate measure of recovery and each
could exist as stand-alone litigation. Thus, the court found
it was permissible to enter a Rule 54(b) final judgment. The
court then considered whether there was any just reason for
delay and concluded there was none. The court therefore
entered final judgment on the partial summary judgment
previously entered. Lottie appeals.

                             II.
  In his appeal, Lottie contests whether the Rule 54(b)
motion was appropriately granted and also disputes the
merits of the district court’s decision. Because we are re-
solving the appeal on the Rule 54(b) issue, we will not
address the merits of the district court’s partial summary
judgment, and no part of our opinion should be construed as
resolving the merits of the case. “Rule 54(b) permits entry
of a partial final judgment only when all of one party’s
6                                                 No. 04-1537

claims or rights have been fully adjudicated, or when a
distinct claim has been fully resolved with respect to all
parties.” Factory Mut. Ins. Co. v. Bobst Group USA, Inc.,
392 F.3d 922, 924 (7th Cir. 2004). See also Continental Cas.
Co. v. Anderson Excavating & Wrecking Co., 189 F.3d 512,
516 (7th Cir. 1999).
  Here, the district court entered a Rule 54(b) partial final
judgment on what it characterized as distinct claims, the
bad faith claim and the race discrimination claim. We have
insisted that Rule 54(b) be employed only when the subjects
of the partial judgment do not overlap with those remaining
in the district court. Factory Mut., 392 F.3d at 924. The
breach of contract claim is the only claim remaining in the
district court at this point in the proceedings. We must there-
fore determine whether the bad faith and race discrimination
claims overlap as a practical matter with the remaining
breach of contract claim. See Newman v. State of Indiana,
129 F.3d 937, 940 (7th Cir. 1997) (whether the retained
claims are separate from the dismissed ones depends on
whether in the practical sense there is minimal factual
overlap). Rule 54(b) is not intended to provide an option to
the district court to certify issues for interlocutory appeal.
Factory Mutual, 392 F.3d at 924. Rather, Rule 54(b) allows
appeal without delay of claims that are truly separate and
distinct from those that remain pending in the district
court, where “separate” means having minimal factual
overlap. Continental Cas., 189 F.3d at 516. See also Ty, Inc.
v. Publications Int’l Ltd., 292 F.3d 512, 515 (7th Cir. 2002),
cert. denied, 537 U.S. 1110 (2003) (“separate” in the Rule 54(b)
context does not mean arising under a different statute or
legal doctrine but rather means involving different facts);
Horwitz v. Alloy Auto. Co., 957 F.2d 1431, 1434 (7th Cir.
1992) (if there is a great deal of factual or legal overlap
between counts, they are considered the same claim for
Rule 54(b) purposes).
No. 04-1537                                                    7

    The test for separate claims under the rule is whether
    the claim that is contended to be separate so overlaps
    the claim or claims that have been retained for trial
    that if the latter were to give rise to a separate appeal
    at the end of the case the court would have to go over the
    same ground that it had covered in the first appeal.
Lawyers Title Ins. Corp. v. Dearborn Title Corp., 118 F.3d
1157, 1162 (7th Cir. 1997). See also Ty, 292 F.3d at 516 (if
the court did not require that claims be separate in the
sense of involving different facts, the appellate court would
be forced to go over the same ground a second time when the
judgment terminating the entire case was appealed). Thus,
different theories of relief or different legal characterizations
of the same facts are not separate claims for Rule 54(b)
purposes. Production and Maintenance Employees’ Local 504
v. Roadmaster Corp., 954 F.2d 1397, 1402 (7th Cir. 1992).
  We turn then to the facts of the claims on which final
judgment has been granted and the claim that remains be-
fore the district court. Lottie has framed his case in three
parts. He claims first that in denying his insurance claims,
West American has breached the insurance contract. In
particular, Lottie claims that West American breached the
insurance contract by including arson in its definition of
malicious mischief and vandalism, thereby altering the
terms of the contract and then denying the Birdsell claim
on that basis. He complains that failing to pay on both the
Birdsell Street and Linden Avenue claims breached the
insurance contract. Lottie then claims that characterizing
arson as malicious mischief and vandalism in order to deny
his claim was so egregious that it constituted bad faith. He
also contends that the delay in handling the Linden Avenue
claim constituted bad faith. Finally, Lottie claims that West
American breached the contract and engaged in this bad
faith conduct because he is African-American. His race
discrimination claim, as he has framed it, is therefore
entirely dependent on the other two claims.
8                                               No. 04-1537

   At oral argument, we suggested that West American’s
strategy was unusual. The company asks us to decide first
if a breach of contract was so egregious that it equaled bad
faith and then, presumably in a second appeal, decide
whether there was a breach at all. It is equally unusual to
decide whether West American was motivated by race when
it breached a contract and engaged in bad faith before any
court determines whether West American ever breached the
contract or engaged in bad faith at all. In each instance, we
would be considering whether West American’s actions
amounted to a breach of contract, and in the latter two
counts we would also be considering West American’s
motive in taking the actions that Lottie claims it took. Al-
though the evidence for these three claims is not identical,
there is a significant evidentiary overlap that renders the
Rule 54(b) judgment inappropriate. We would be treading
the same evidentiary ground in the second appeal from the
judgment on the contract claim that we would confront here
if we were to consider the merits of Lottie’s appeal of the
partial summary judgment. Moreover, we might never have
to consider at all the bad faith and race discrimination
claims if the contract claim is resolved in favor of West
American. There would be no reason to consider whether
the insurer’s breach was so egregious that it amounted to
bad faith if there was no breach. Likewise, there would be no
reason to consider whether West American breached the
contract on account of race if West American did not in fact
breach the contract. See Horn v. Transcon Lines, Inc., 898
F.2d 589, 592 (7th Cir. 1990) (the possibility that develop-
ments in the litigation may moot a claim suggests that
appellate resolution be deferred).
  West American’s characterization of the case brings the
problem into sharp focus. According to West American,
whether its determination of insurance coverage was rea-
sonable goes to the issue of bad faith; whether its determi-
nation was correct goes to the issue of breach of contract.
No. 04-1537                                                 9

West American is trying to use Rule 54(b) to sew up the
district court’s ruling on reasonableness before the jury ever
hears the evidence on the correctness of the decision. West
American may fear (as any defendant might) that the
evidence might show a clear breach of contract, one that is
outrageous and for which there is no excuse. Lottie could
then petition the district court to reconsider its original
ruling on bad faith. West American fears, in other words,
that because the breach of contract and bad faith claims are
so intertwined by the overlap of evidence, that if the
company does not appeal now and resolve the bad faith
claim, the district court might reconsider its decision. The
risk to the defendant of proceeding to trial after a partial
summary judgment has been entered is not a reason to
grant a Rule 54(b) judgment. West American’s rationale for
appealing now is actually a powerful argument to have the
district court decide the entire case in the first instance so
that the parties can take one appeal. To avoid time-con-
suming duplicative appeals, the norm in litigation is one
appeal per case. United States v. Ettrick Wood Products,
Inc., 916 F.2d 1211, 1218 (7th Cir. 1990).
  This appeal puts at least two carts before the horse. Un-
der the circumstances, a Rule 54(b) partial final judgment
was inappropriate. We vacate and remand so that the
district court may resolve the case in its entirety before
either party may take an appeal.
                                  VACATED AND REMANDED.
10                                        No. 04-1537

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit

               USCA-02-C-0072—5-26-05