Court Opinion

ID: 161333
Source: CourtListenerOpinion
Date Created: 2010-08-14 07:05:25+00
Date Added: 2024-06-11T17:16:15.924178
License: Public Domain

F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                           JUL 17 2001
                            FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                               Clerk

    NORMAN and GAIL LATHAM,
    husband and wife,

                Plaintiffs-Appellees,

    v.                                                   No. 00-5222
                                                   (D.C. No. 99-CV-1029-H)
    FIRST MARINE INSURANCE                               (N.D. Okla.)
    COMPANY, a corporation,

                Defendant-Appellant.

                            ORDER AND JUDGMENT            *

Before HENRY , ANDERSON , and MURPHY , Circuit Judges.

         After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore

ordered submitted without oral argument.

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      This is an appeal from a ruling by the     district court awarding attorneys’

fees. We exercise jurisdiction under 28 U.S.C. § 1291.

                                I. Factual Background

      Plaintiffs Gail and Norman Latham own a large motor-boat, which they

moor at a marina on Grand Lake in Oklahoma. In 1998 the boat was damaged in

an accident; the Lathams filed a claim with their insurer, First Marine Insurance

Company.

      Dissatisfied with the offer to settle their claim, the Lathams sued First

Marine in Oklahoma state court, alleging breach of contract. An amended

complaint added a tort claim–bad faith–and named an additional defendant,

First Marine Financial Services, Inc., or FMFS. FMFS is a holding company that

owns 100% of First Marine’s issued and outstanding stock. After the Lathams

filed their amended complaint, First Marine, invoking the district court’s diversity

jurisdiction, removed the action to federal court.

      The parties engaged in a protracted and contentious discovery process.

The defendants resisted discovery requests directed at establishing both the bad

faith claim and the necessary factual basis for including FMFS in the lawsuit.

The Lathams filed a motion to compel, which was briefed and then heard by

the magistrate judge. The magistrate judge’s decision was for the most part

favorable to the Lathams. First Marine filed an objection with the     district court ,

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accompanied by a lengthy brief. While its appeal was pending, First Marine

extended to the Lathams an offer to allow judgment pursuant to Fed. R. Civ. P.

68. The offer of judgment totaled $50,005. The Lathams accepted. They later

stipulated to the dismissal of FMFS from the lawsuit. The record indicates that

in addition to the motion to compel, also pending before the        district court at the

time the Lathams accepted the offer of judgment were summary judgment motions

filed by both First Marine and FMFS.

      The offer of judgment did not include attorneys’ fees. But in documents

submitted to the court, First Marine acknowledged that the Lathams were entitled

to reasonable attorneys’ fees under a state statute, Okla. Stat. tit. 36, § 3629(B),

which awards fees to the prevailing party in any action between an insurance

company and an insured.

                              II. Attorneys’ Fee Hearing

      The Lathams filed an initial fee petition with the       district court , seeking

more than $46,000 in attorneys’ fees. The petition was deficient in that it omitted

the lawyers’ hourly rates. The Lathams submitted an amended petition, which

contained the proper billing rates. The   district court held a hearing, at which it

heard argument from the parties but did not receive evidence.

      Following the hearing, the court reduced the fee petition in two respects.

It agreed with First Marine’s contention that the $185 per hour charged by the

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Lathams’ lead lawyer was excessive, and reduced the rate to $150 per hour.

The court also slashed 25% from the compensable attorney time devoted to

prosecuting the bad faith claim and adding a second defendant, FMFS, to the

lawsuit. In total, the court awarded attorneys’ fees to the Lathams in the amount

of $37,235, plus prejudgment and postjudgment interest. First Marine appeals

from that ruling.

                                 III. Standard of Review

       Our role in reviewing the district court’s fee award is quite limited.

“We customarily defer to the District Court’s judgment because an appellate

court is not well suited to assess the course of litigation and the quality of

counsel.” Mares v. Credit Bureau of Raton          , 801 F.2d 1197, 1200-01 (10th Cir.

1986) (quotation omitted). We did not see “the attorneys’ work first hand,”

and thus are not as well situated as the district court, which “has far better means

of knowing what is just and reasonable than an appellate court.”         Id. at 1201

(quotation omitted). “Accordingly, an attorneys’ fee award by the district court

will be upset on appeal only if it represents an abuse of discretion.”      Id.

       Under the abuse of discretion standard, our task is not to independently

assess the merits of each attorney’s performance and fine-tune individual fee

awards. Instead, our job is to determine whether the district court “made a clear

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error of judgment or exceeded the bounds of permissible choice in the

circumstances.”   Cummins v. Campbell , 44 F.3d 847, 854 (10th Cir. 1994).

                                 IV. Legal Analysis

      First Marine points to what it says are six errors in the district court’s

ruling.

A.    Compensation for the Bad Faith Claim

      First Marine claims initially that the fee awarded to the Lathams is

unreasonable because it includes compensation for the bad faith claim. First

Marine does not contend the text of the underlying offer of judgment supports its

position. Indeed, the offer of judgment neither limits nor excludes the claims on

which judgment is confessed. Perhaps recognizing this, First Marine urges

instead that the Lathams’ bad faith allegation was unfounded and should never

have been brought in the first place. Stripping any compensation from the claim,

First Marine suggests, would appropriately sanction the Lathams.

      We need not address the considerable difficulties this court would

encounter, on a rather limited record, were we to reassess the Lathams’ bad faith

claim. This much we know: At the time it awarded the Lathams attorneys’ fees,

the district court had before it not only First Marine’s motion for summary

judgment on the merits of the bad faith claim, it also had the very contention that

First Marine presses here, namely that the bad faith claim was wholly

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unwarranted and should never have been part of this suit. Still the district court

rejected First Marine’s position.

      Despite reducing the compensable time devoted to the bad faith claim, the

court expressly stated, “I believe that some allocable share . . . with respect to the

bad faith claim is appropriate because it [the ultimate disposition of the claim] is

not clear one way or the other.” Appellant’s App., Vol. II at 382. Whatever else

this signals, it hardly reflects a belief on the part of the court that the Lathams’

bad faith claim was as unfounded as First Marine insists. No doubt the district

court viewed the claim from a better vantage point than we.

      For its part, First Marine has not persuaded us that the district court’s

finding regarding the potential merit of the bad faith claim is clearly erroneous.

Nor, to the extent the district court’s factual finding rested on matters of law, has

First Marine convinced us that the court’s legal analysis was incorrect. Given

our limited role in reviewing an award of attorneys’ fees, we are unable to say the

court made a clear error of judgment or exceeded the bounds of permissible

choice. We find no abuse of discretion.   1

1
       We note that in an earlier hearing, the district court referred to certain
“unsubstantiated motions” brought by First Marine. Appellant’s App., Vol. II at
366. The court did not specifically identify which motions it had in mind, though
it appears from the record that only two were pending: First Marine’s summary
judgment motion and its appeal from the magistrate judge’s discovery ruling.

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B.     Compensation for FMFS

       First Marine next argues that the fee award is unreasonable because it

includes compensation for time billed as part of the Lathams’ effort to bring

second defendant FMFS into the lawsuit. First Marine tells us that “FMFS

should never have been a party to this case,” since it is merely a holding

company. Appellant’s Br. at 14. Again, we defer to the district court.

       At the attorneys’ fee hearing, the court repeated its view that, like the

Lathams’ bad faith claim, the potential liability of FMFS “is not clear one way

or the other.” Appellant’s App., Vol. II at 382. “[T]here is,” the district court

found, “a basis for including the second defendant.”      Id. at 388.

       We note too, as stated earlier, that FMFS and First Marine each had

pending before the district court motions for summary judgment at the time First

Marine extended and the Lathams accepted the offer of judgment. By securing

the dismissal of the lawsuit before the motions were decided, both First Marine

and FMFS tactically avoided the uncertainty of an unfavorable decision from the

district court . Under these circumstances, we will not disturb the     district court ’s

conclusion that the Lathams were entitled to some compensation for efforts

directed at holding FMFS liable.

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C.     Size of Fee Award

       First Marine also argues that the $37,235 fee award is unreasonable given

the size of the $50,005 judgment. But as the     district court observed, this

judgment was significantly more than the initial offer to settle the Lathams’

insurance claim. Said the court to First Marine’s lawyer: “You offered $10,000

for the longest time and then you upped that by five times and settled it; right?”

Id. at 379. The intervening variable between the initial offer and the judgment,

of course, was the litigation, from which, as even First Marine concedes, the

Lathams emerged as the prevailing party.

       The district court also stated that First Marine was at least partially

responsible for the “contentiousness” of the pretrial discovery, and, referring

directly to counsel for First Marine, warned of its “lack of enthusiasm for your

recalcitrance in this case.”   Id. at 380-81, 366. Counsel for First Marine insists

he was merely protecting the interests of his client. This may be so, but the

client cannot escape the consequences of tactics that undeniably drive up the cost

of litigation, even if such tactics amount to no more than aggressive advocacy.

See City of Riverside v. Rivera   , 477 U.S. 561, 580 n.11 (1986) (defendant

“cannot litigate tenaciously and then be heard to complain about the time

necessarily spent by the plaintiff in response”) (quotation omitted) .

                                           -8-
D.    Simplicity of Breach of Contract Claim

      Accusing the Lathams’ lawyers of overworking the case, First Marine

claims that the relative simplicity of the underlying breach of contract claim

renders the fee award unreasonable. Whether we could ever agree that any

breach of contract case is as simple as First Marine believes this one to be is

beside the point. Our earlier conclusion to accept the district court’s finding that

the pursuit of the bad faith claim by the Lathams was not inappropriate requires

that we reject First Marine’s contention. We are similarly guided by our

determination that the district court did not err in awarding at least some fees to

the Lathams for their efforts to hold FMFS liable as a additional defendant.

E.    Constitutionality of Prejudgment Interest Statute

      First Marine next turns its gaze to the constitutionality of the statute under

which the district court granted prejudgment interest to the Lathams. First Marine

maintains that the statute, Okla. Stat. Ann. tit. 36, § 3629(B), violates the Equal

Protection Clause of the Fourteenth Amendment.

      That statute requires an insurer to submit a written offer of settlement or

rejection of the claim to the insured within ninety days of receiving proof of the

loss. In the event the insured refuses the offer and litigation ensues, the statute

states that attorneys’ fees shall be awarded to the prevailing party. The statute

declares that the insured is the prevailing party, as here, when the judgment

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exceeds the initial offer of settlement. First Marine challenges the next provision

of the statute:

       If the insured is the prevailing party, the court in rendering judgment
       shall add interest on the verdict at the rate of fifteen percent (15%)
       per year from the date the loss was payable pursuant to the provisions
       of the contract to the date of the verdict.

Id. First Marine argues this provision is unconstitutional because it imposes what

the company says is a excessive rate of interest upon only one industry, the

insurance industry. According to First Marine, the constitution prevents the

legislature from targeting a single industry in this manner.

       First Marine did not raise its constitutional challenge in its Rule 68 offer of

judgment. Nor did it mention any such objection during the course of the parties’

correspondence clarifying and defining the precise terms of the offer. And

finally, the company did not signal its disagreement with the court’s entry of

judgment, which it “approved as to form and content” and which provided for

prejudgment interest under § 3629. Appellant’s App., Vol. I at 195, 207-08;

Vol. II at 280-81.

       It was not until two months after judgment had entered, during the hearing

on attorneys’ fees, that First Marine first mentioned on the record its “continuing

objection to the constitutionality of 3629.”          Id. at 390. The order later signed by

the district court granting attorneys’ fees and interest to the Lathams reflects

First Marine’s “objection to the constitutionality” of the statute, as well as the

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Lathams’ contention that First Marine has waived any such objection.        Id. at 285.

A handwritten note in the margin indicates that “the court finds for plaintiff and

against defendant on this claim.”   Id.

      We are tempted to agree with the Lathams, as well as the       district court, that

First Marine has waived its constitutional challenge to the statute. We question

whether objecting to a final judgment nearly two months after judgment has

entered adequately preserves the objection for appeal.       But because we can easily

resolve the merits of what is a pure question of law, we will excuse any possible

waiver committed by First Marine.     See Petrini v. Howard , 918 F.2d 1482, 1483

n.4 (10th Cir. 1990) (exercising discretion to hear issues for the first time on

appeal, in part because proper resolution of the issue was beyond doubt).

      Ordinary economic and commercial regulations are subject only to rational

basis scrutiny under the Equal Protection Clause.        FCC v. Beach

Communications, Inc. , 508 U.S. 307, 313-14 (1993). The Supreme Court has

admonished that rational-basis review in equal protection analysis “is not a

license for courts to judge the wisdom, fairness, or logic of legislative choices.”

Id. at 313. Rather, a statute survives rational-basis scrutiny “if there is a rational

relationship between the disparity of treatment and some legitimate governmental

purpose.” Heller v. Doe , 509 U.S. 312, 320 (1993). Moreover, under rational

basis review, the legislature need not actually articulate the legitimate purpose or

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rationale that supports the classification at issue. Instead, a statute “must be

upheld against equal protection challenge if there is any reasonably conceivable

state of facts that could provide a rational basis for the classification.”   Id.

(quotation omitted).

       Under this deferential standard of review, we have no difficulty in

concluding that § 3629 is constitutional. Among others, one possible rational

basis for the statute is Oklahoma’s presumed desire to encourage prompt and

efficient settlement of insurance claims. The legislature may have felt that the

insurance industry needed the threat of a high rate of prejudgment interest to

encourage the settlement of claims. Perhaps, as First Marine would no doubt

point out, the insurance industry is not solely responsible for any delay

(perceived or actual) in the settlement of claims; perhaps policy-holders and their

lawyers are to blame. This may be so, but we have never stated that a policy

aimed at correcting a social ill need solve the entire problem in one fell swoop; in

many cases it may be more prudent and efficacious to address social problems

one step at a time, so that each step may be reviewed and adapted as necessary.

See Williamson v. Lee Optical of Okla., Inc.        , 348 U.S. 483, 489 (1955) (“[T]he

reform may take one step at a time, addressing itself to the phase of the problem

which seems most acute to the legislative mind.”).

                                             -12-
F.     Postjudgment Interest

       Finally, First Marine argues that the district court erred in calculating

postjudgment interest. The court awarded postjudgment interest under a rate

provided by state law. First Marine claims the court should have employed the

lower federal rate, which is found at 28 U.S.C. § 1961. The Lathams do not

disagree. See Everaard v. Hartford Accident & Indem. Co.      , 842 F.2d 1186, 1193

(10th Cir. 1988) (holding that in diversity cases the federal rate governs).

       Instead, they maintain that First Marine has not preserved the issue on

appeal, pressing the same argument they raised with respect to the claimed

waiver of the prejudgment interest issue, namely that First Marine “approved”

a judgment that said postjudgment interest would be calculated according to the

state rate. Denying that it waived the issue, First Marine claims the parties could

not agree on a final judgment and for that reason the district court held a brief

hearing to iron out the differences; but at the hearing, according to First Marine,

the district court refused to hear any argument.

       We are dismayed at the prospect of having to decide yet another

fact-intensive waiver dispute between the parties, especially in light of our

limited role in reviewing an appeal from a attorneys’ fee award. The parties

plainly have ignored our admonition that a “request for attorney’s fees should not

result in a second major litigation.”   Homeward Bound, Inc. v. Hissom Mem’l

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Ctr. , 963 F.2d 1352, 1360 (10th Cir. 1992) (quotation omitted). We are

particularly troubled by First Marine’s role in failing to resolve this dispute by

agreement. Before any appeal was filed, counsel for the Lathams offered to

correct the postjudgment interest rate, substituting the proper federal rate in place

of the erroneous state rate. For reasons that escape us, counsel for First Marine

declined, choosing instead to burden this court with an issue that could easily

have been addressed below.

       Despite our disapproval of counsel’s conduct, we conclude that even if

First Marine did not preserve its objection to the rate of postjudgment interest,

the manifest injustice exception to the general waiver rule nonetheless compels

us to address the issue on appeal.   See Doelle v. Mountain States Tel. & Tel.   , 872

F.2d 942, 944 n.4 (10th Cir. 1989). Adhering to our clear precedent, we reiterate

that the federal rate of postjudgment interest governs diversity cases, and thus we

reverse the district court in this regard.

       However, in light of counsel’s refusal to resolve the issue by agreement,

costs attendant this appeal will be assessed to First Marine. Counsel should work

with his adversary as a professional and be cognizant of this court’s caseload.

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      We REMAND this appeal to the     district court to correct the rate of

postjudgment interest. In all other respects, the judgment of the United States

District Court for the Northern District of Oklahoma is AFFIRMED.

                                                    Entered for the Court

                                                    Robert H. Henry
                                                    Circuit Judge

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