AAA v. Patterson et al

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE AAA FULL TRANSPORTATION SYSTEM dba AAA CAB SERVICES, INC., an Arizona corporation, ) ) ) ) Plaintiff/Appellant/ ) Appellee, ) ) v. ) ) JOSEPH PATTERSON; RUSSELL WILSON, ) ) Defendants/Appellees, ) ) AMERICAN TRANSPORT INSURANCE ) CORPORATION; ROBERT OSMUNDSEN, ) ) Defendants/Appellants. ) __________________________________) DIVISION ONE FILED: 04-22-2010 PHILIP G. URRY,CLERK BY: GH No. 1 CA-CV 09-0204 DEPARTMENT E MEMORANDUM DECISION Not for Publication (Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. CV 2006-011153 The Honorable Douglas L. Rayes, Judge AFFIRMED The Elardo Law Firm PC By John A. Elardo Christopher W. Schuette Attorneys for Plaintiff/Appellant/Appellee AAA Law Office of John W. Hollis By John W. Hollis Attorneys for Defendant/Appellee Patterson J. Douglas McVay Attorney at Law By J. Douglas McVay Phoenix Vail Phoenix and Thomas C. Barron Attorney at Law Dallas, TX By Thomas C. Barron Attorneys for Appellee Wilson, Appellants ATIC, et al. G E M M I L L, Judge ¶1 Following a jury trial, the trial court entered a $4.3 million judgment in favor ( AAA ). AAA argues judgment the as a of AAA trial matter of Full court law Transportation erred when ( JMOL ) in it System entered favor of Defendants/Appellees Russell Wilson and Joseph Patterson before it submitted to the jury the claims against them and when it denied AAA s motion for a new trial. Defendant/Appellant Robert Osmundsen cross-appeals from the trial court s denial of his motion for a new trial. For the following reasons, we affirm. FACTS AND PROCEDURAL HISTORY ¶2 AAA operates a large taxicab service in Arizona. December 2002, policy for Corporation ( SIR ). it its purchased fleet ( ATIC ), a from with a one million American $100,000 dollar Transport self-insured It renewed the policy in December 2003. In insurance Insurance retention Osmundsen was a director of ATIC, which at that time was not authorized to write one million dollar insurance policies. ¶3 In February 2004, AAA was named as a defendant in a lawsuit ( the Way claim ). AAA notified ATIC of the action and 2 requested defense and indemnification. In a letter dated March 9, 2004, ATIC s Reassurance insurer, Limited and Continental administrator. which attorney he informed ( UGRL ) instructed Exchange -- AAA that United and to Limited submit the ( TCE ), AAA not ATIC -- a Guarantee was SIR AAA s to Tri- third-party AAA submitted the SIR later that month to TCE, apparently forwarded the claim to another third-party administrator, L & W Claims Management, LLC. ¶4 Patterson was a claims adjustor for L & W Claims. In March he began to investigate the Way claim; he met with a representative of AAA, reviewed the police and medical reports, inspected the accident scene, and obtained information about how AAA conducts its business. He then prepared a report of his findings. ¶5 In September 2004, AAA was advised by ATIC s attorney that AAA would not be provided a defense or indemnification because TCE s assets had been seized by the government of Saint Vincent. several According to the affidavit of an FBI special agent, companies, including TCE complex insurance fraud scheme. and UGRL, were part of a The affidavit stated that an individual named Robert Brown, in addition to others, had sold worthless insurance policies using these companies by falsely representing that the policies legitimate insurance companies. 3 were backed by a pool of ¶6 AAA filed a complaint in July 2006 that named ATIC, Osmundsen, L defendants. & W Claims, and Patterson, inter alia, The complaint also named defendant/appellee Russell Wilson, who had become a director of ATIC in June 2004. complaint alleged, fraudulent as inter alia, misrepresentation, negligent constructive The misrepresentation, fraud, breach of covenant of good faith and fair dealing ( bad faith ), and civil RICO violations, and it asserted the defendants had been acting in concert. ¶7 On the eighth day of trial the court entered judgment as a matter of law in favor of Wilson on all counts. It also entered judgment as a matter of law in favor of Patterson on AAA s bad faith claim. At the conclusion of the trial, the jury found ATIC liable for negligent and fraudulent misrepresentation and constructive fraud, Osmundsen liable for violations of the RICO statutes, other defendants liable for these and other torts, and it determined that the defendants found liable had been acting in concert. of the counts. Patterson was not found liable on any The trial court entered judgment in AAA s favor, awarding $1.3 million in compensatory damages and $3 million in punitive damages. ¶8 AAA filed a motion for a new trial on the issue of Patterson s liability for negligent misrepresentation. Osmundsen filed a motion for a new trial on the grounds AAA s 4 counsel committed misconduct during his closing argument, there was insufficient evidence the defendants were acting in concert, there was insufficient evidence to support liability for RICO violations, and the finding of RICO violations failed to comply with statutory motions. requirements. The trial court denied AAA and Osmundsen both filed timely appeals. jurisdiction pursuant to Arizona Revised Statutes both We have ( A.R.S. ) section 12-2101(B) (2003). ANALYSIS I. AAA s Appeal Motion for New Trial ¶9 AAA first challenges the trial court s denial of its motion for a new trial. It contends the verdict in favor of Patterson on AAA s negligent misrepresentation claim was against the weight of the evidence. We review for an abuse of discretion the denial of a motion for a new trial on the ground the verdict is against the weight of the evidence. Dawson v. Withycombe, 216 Ariz. 84, 95, ¶ 25, 163 P.3d 1034, 1045 (App. 2007). We view the evidence in the light most favorable to affirming the verdict. Hutcherson v. City of Phoenix, 192 Ariz. 51, 53, ¶ 13, 961 P.2d 449, 451 (1998). ¶10 According to AAA, the evidence at trial showed that Patterson created the false impression that the [Way] claim was being handled, and it claims he acted improperly when he 5 failed to disclose to AAA that the Way claim had not been received by the insurer. AAA argues Patterson created this impression when he contacted AAA about the Way claim, met with an AAA representative, and conducted his investigation. It also asserts that Patterson gave the false impression the claim was being accepted when he personally received the $100,000 SIR that AAA paid to TCE. It argues Patterson would have been found liable for negligent misrepresentation based on these facts had the jury not been confused. ¶11 Negligent misrepresentation occurs when a person negligently provides false information to another in the course of his business or employment and the other party, justifiably relying on this false information, incurs damages. See PLM Tax Certificate Program 1991-92, L.P. v. Schweikert, 216 Ariz. 47, 50, ¶ 18, 162 P.3d 1267, 1270 (App. 2007). Disclosing some facts convey while impression failing that misrepresentation. 1115, 1118-19 provide becomes others the can legal equivalent a false of a Hill v. Jones, 151 Ariz. 81, 84-85, 725 P.2d (App. misrepresentation, to 1986). the To person be liable charged for with negligent negligent misrepresentation must have owed a duty to the injured party. See PLM Tax, 216 Ariz. at 50, ¶ 18, 162 P.3d at 1270. ¶12 Here, the evidence showed Patterson was an employee of L & W Claims and he investigated the Way claim. 6 The jury could have reasonably found this investigation was an attempt fulfill the insurer s legal duty to investigate the claim. to See Zilisch v. State Farm Mutual Auto. Ins. Co., 196 Ariz. 234, 238, ¶ 21, 995 P.2d 276, 280 (2000) (stating insurer has obligation to conduct an adequate investigation). Patterson testified that he made no representations to AAA about whether the claim would ultimately be authority for covered the by the insurer, proposition that and AAA Patterson has had inform AAA whether its claim would be covered. cited no duty to a We cannot say that Patterson, by accepting the SIR, necessarily misrepresented to AAA that the claim would be covered. And Patterson testified he did not have the authority to decide coverage issues. This issue was properly submitted to the jury and the trial court did not err in denying AAA s motion. JMOL on AAA s Bad Faith Claim ¶13 AAA next argues the trial court erred by entering JMOL in favor of Patterson and Wilson on AAA s bad faith claim. review de novo the trial court s decision to enter JMOL. We Shoen v. Shoen, 191 Ariz. 64, 65, 952 P.2d 302, 303 (App. 1997). A trial court should enter JMOL only if the facts presented in support of a claim have so little probative reasonable people could not find for the claimant. ¶14 A bad faith claim arises from the value that Id. breach of an insurer s implied covenant of good faith and fair dealing, which 7 imposes a duty on the insurer to act in good faith in dealing with the insured on a claim. Noble v. Nat l Am. Life Ins. Co., 128 Ariz. 188, 190, 624 P.2d 866, 867 (1981). Bad faith occurs when the insurer intentionally denies, fails to process or pay a claim without a reasonable basis. Zilisch, 196 Ariz. at 237, ¶ 20, 995 P.2d at 279 (quoting Noble, 128 Ariz. at 190, 624 P.2d at 868). Mere mistake and inadvertence are not sufficient to establish a bad faith claim. Miel v. State Farm Mut. Auto. Ins. Co., 185 Ariz. 104, 110, 912 P.2d 1333, 1339 (App. 1995). If an insurer acts honestly and does not place paramount importance on its own interests, it should not be held liable. Rawlings v. Apodaca, 151 Ariz. 149, 157, 726 P.2d 565, 573 (1986). a. Bad Faith Claim Against Patterson ¶15 AAA argues there was sufficient evidence for the jury to find Patterson liable for bad faith because Patterson failed to adequately and promptly investigate the claim. It also contends there was evidence from which the jury could have found him liable for bad faith because he was the alter ego of L & W Claims. ¶16 The trial court properly entered JMOL in Patterson s favor. when Under Arizona law, insurers are liable for bad faith they breach their dealing with an insured. implied duty of good faith and fair There was no evidence Patterson was 8 himself an insurer. He testified he worked as a claims adjuster for L & W Claims, a third party administrator. AAA has not presented evidence to support its claim that Patterson was the alter ego of L & W Claims. And indepencent claims adjustors generally do not have sufficient contractual privity with or duty to claim. insureds See 14 to be individually Lee R. Russ & liable Thomas F. for a Segalla, bad faith Couch on Insurance § 208:10 (3d ed. West 2009); cf. Gatecliff v. Great Republic Life Ins. Co., 170 Ariz. 34, 39-40, 821 P.2d 725, 73031 (1991) (contractual privity not required to hold inter- related corporations liable for bad faith). b. Bad Faith Claim Against Wilson ¶17 AAA next asserts there was evidence for the jury to find Wilson liable for bad faith because Wilson was responsible for issuing ATIC s checks to cover insureds claims and because he testified that he believed ATIC was liable to AAA for at least $50,000 but did not issue AAA any money. AAA also argues JMOL was improper because the jury could have found that ATIC was Wilson s alter ego. ¶18 was As with Patterson, there was no evidence that Wilson himself an insurer. Wilson director of ATIC in June 2004. testified that he became a AAA has cited no evidence that Wilson was ATIC s alter ego and should therefore be personally liable for ATIC s actions. See generally 14 Lee R. Russ & 9 Thomas F. Segalla, Couch on Insurance § 198:17 (3d ed. West 2009) (insurer s agents generally may not be held personally liable to insured for bad faith). AAA asserts that it failed to present evidence supporting Wilson s alter ego status because Wilson was not in front of the jury for any count. Had Wilson been in front of the jury and been found to have acted in bad faith, the next step would be to evaluate Wilson s liability as an individual or alter ego of ATIC. This never happened. We are unconvinced by this argument; to defeat a motion for JMOL, there must be some evidence from which the jurors could have found in AAA s favor. We find no evidence Wilson was ATIC s alter ego, and the court did not err by entering JMOL in favor of Wilson on this claim. JMOL on AAA s Constructive Fraud Claim ¶19 Last, AAA argues the court erred by entering JMOL in favor of Wilson on AAA s constructive fraud claim. To establish a claim for constructive fraud, one must prove the existence of a legal or equitable duty the breach of which, regardless of the intent of the party charged, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests. Taeger v. Catholic Family and Community Services, 196 Ariz. 285, 294, ¶ 27, 995 P.2d 721, 730 (App. 1999). 10 ¶20 AAA determine argues Wilson s the jury liability should for have been constructive permitted fraud to because Wilson knew that ATIC was not authorized to write $1 million insurance policies but did not inform AAA of this fact. And AAA again points out that Wilson testified that he believed ATIC should have covered the Way claim, or at least covered $50,000 of the claim, but he did not pay AAA anything on the claim. ¶21 We disagree with AAA that these facts evidence of constructive fraud by Wilson. amount to AAA s allegations pertain to actions Wilson allegedly performed as a director of ATIC. The jury found ATIC liable for constructive fraud. But as stated above, there is no basis for finding Wilson was an alter ego of ATIC and for holding Wilson personally liable for ATIC s liabilities. The court therefore did not err in entering JMOL in favor of Wilson on the constructive fraud claim. II. Osmundsen s Cross-Appeal ¶22 Osmundsen cross-appeals from the judgment.1 He argues the trial court erred by denying his motion for a new trial because the evidence at trial was insufficient to establish his liability for RICO violations. He also asserts there was insufficient evidence to support a finding that he violated the Arizona statute proscribing the 1 unlawful transaction of Osmundsen s opening brief appears to be submitted on behalf of both Osmundsen and ATIC, but it contains arguments on behalf of Osmundsen only. 11 insurance, that his actions caused damage to AAA, and that the defendants were acting in concert. ¶23 These issues all pertain to the sufficiency of the evidence at trial and would require this court to review the entire record. Only portions of transcripts from two separate days of trial, however, are part of the record on appeal. trial itself took place over the course of ten days. The We must assume the remaining transcripts from the other eight days of trial, and the portions of the two trial days that were not provided on appeal, support the jury s verdict on these issues. See Rapp v. Olivo, 149 Ariz. 325, 330, 718 P.2d 489, 494 (App. 1986); Biddulph v. Biddulph, 147 Ariz. 571, 574, 711 P.2d 1244, 1247 (App. 1985). ¶24 Osmundsen also contends that the jury s verdicts are impermissibly inconsistent because the jury found him not liable on any counts violations. of fraud but it found him liable for RICO Osmundsen, however, should have objected to any inconsistency in the jury verdicts when they were rendered and then moved for resubmission to Arizona Rules of Civil Procedure. the jury under Rule 49(c), By failing to do so he has waived review of this issue on appeal. See Trustmark Ins. Co. v. Bank One, Arizona, NA, 202 Ariz. 535, 543, ¶ 38, 48 P.3d 485, 493 (App. 2002). 12 ¶25 Osmundsen next argues the jury did not issue particularized findings as required by A.R.S. § 13-2314.04(L), part of Arizona s RICO statutes. provides, in relevant part: Section 13-2314.04(L) A person or enterprise shall not be held liable in damages or for other relief pursuant to this section unless the fact finder makes particularized findings sufficient to permit full and complete review of the record, if any, of the conduct of the person. A.R.S. § 13-2314.04(L). Again, however, Osmundsen should have made this objection below and moved for resubmission to the jury under Rule 49(c) for proper findings. By failing to do so, he waived review of this issue on appeal. See Trustmark, 202 Ariz. at 543, ¶ 38, 48 P.3d at 493. ¶26 Osmundsen further argues Plaintiff s counsel engaged in improper conduct during his closing arguments to the jury. But we are unable to determine the merits of this assertion because we do not have a transcript of the closing arguments. And Osmundsen also contends the trial court s award of attorneys fees and costs to AAA violates A.R.S. § 13-2314.04(M) (2010), which precludes the trial court from awarding costs and fees if doing so would be unjust because of special circumstances, including the relevant economic position of the parties. Osmundsen has pointed us to no place in the record 13 that establishes the economic positions of the parties, and we therefore find no basis for relief on this issue. ¶27 Last, Osmundsen argues the verdicts were the result of passion and prejudice. But we cannot say that the verdict was without evidentiary support or is so excessive as to shock the conscience of the court. See Sheppard v. Crow-Barker Paul No. 1 Ltd. Partnership, 192 Ariz. 539, 549, ¶ 53, 968 P.2d 612, 622 (App. 1998). CONCLUSION ¶28 For the foregoing reasons, the verdicts and judgment are affirmed. _____/s/__________________________ JOHN C. GEMMILL, Judge CONCURRING: ____/s/_____________________________ SHELDON H. WEISBERG, Presiding Judge ____/s/_____________________________ PHILIP HALL, Judge 14

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