Unpublished Disposition, 842 F.2d 1294 (9th Cir. 1986)

MEMORANDUM^* 

St. Paul Fire & Marine Insurance Co. (St. Paul) appeals from the district court's order denying its claim for attorney fees incurred in litigation assertedly caused by the negligence of La Porta Insurance Agency, Inc. (La Porta) and La Porta's breach of its agency contract with St. Paul. We vacate the district court's denial of fees and remand the case for further findings consistent with this opinion. La Porta cross-appeals from the district court's entry of a judgment in an amount higher than the jury award and alteration of the prejudgment interest calculation. We affirm the district court's entry of judgment in a higher amount, but reverse the decision to calculate interest from the time of service of the summons instead of from the time St. Paul actually indemnified the insured.

Factual Background

Acting in accordance with previous dealings, although not following the letter of its agency agreement, an insurer's agent, La Porta, orally agreed to supply insurance to Seymour Husney.¹  Before the insurer, St. Paul, received the insurance applications, Husney was involved in a serious accident, which was covered by the insurance binders. After learning of the accident, but apparently unaware of its seriousness or that the excess liability policies might cover the accident, St. Paul agreed to issue the insurance.

The injured person in the automobile accident, Edmund A. Jimenez, subsequently sued Husney in California. Upon learning of that suit, St. Paul sued Husney in the United States District Court in Las Vegas seeking rescission of the policies based upon material misrepresentations and nondisclosure of material facts. A year after the filing of this suit, La Porta moved to intervene and, pursuant to a stipulation by the parties, the court granted the motion.

St. Paul amended its complaint to include La Porta as a defendant in its first two causes of action and to assert four additional causes of action for fraud, breach of contract, negligence, and contribution. La Porta answered by asserting St. Paul's contributory negligence and counterclaimed alleging both that St. Paul had improperly interfered with the settlement of Husney's claims and that St. Paul had wrongfully terminated its agency agreement with La Porta.

St. Paul subsequently stipulated that its action against Husney be dismissed with prejudice. In the Settlement Agreement, St. Paul promised to pay Husney $64,582.34 and to extend coverage of the excess liability insurance policies to cover Husney for the liability claim involved in the California law suit. Husney agreed to make no further claims under the various policies and to participate in future depositions or testimony in the action against La Porta.

The suit between St. Paul and La Porta was submitted to a jury with special interrogatories. The jury found in favor of St. Paul on a theory of breach of agency agreement and obligation and on a theory of negligence, but not on one of fraud. In allocating the percentages of negligence applicable to both parties, the jury found La Porta 75% responsible and St. Paul 25% responsible. The jury found actual damages payable in the amount of $196,612.90.

Three weeks after the jury verdict, St. Paul proposed a judgment in its favor in the amount of $262,147.86, the amount claimed in damages at trial. In a brief supporting the proposed judgment, St. Paul argued that Fed. R. Civ. P. 49(b) empowered the court to enter the full amount where the findings of the special interrogatories are wholly consistent within themselves, but are inconsistent with the general verdict, here, the award in the reduced amount. On August 28, 1986 the district judge signed the proposed judgment.

Within ten days, La Porta filed a motion under Fed. R. Civ. P. 59(c) to amend the judgment in accordance with the jury verdict. The district judge denied the motion.

St. Paul's proposed judgment also provided for prejudgment interest "from the time when the principal amount ... became due," which would have been when St. Paul paid the insurance proceeds. The district judge entered this proposed judgment.

Almost four months later, St. Paul moved under Fed. R. Civ. P. 60(a) and 59(e) to change the prejudgment interest calculation to run from an earlier date, when La Porta first became involved in this litigation by means of its voluntary intervention. The motion was granted.

Pursuant to stipulation by counsel, St. Paul's claim for attorney fees was submitted to the court after the jury verdict. The district court denied St. Paul's claim. It noted that generally, absent a statute or a contractual provision authorizing such an award, attorney fees are not recoverable by a party to litigation. No statute authorized attorney fees in this situation. The court further held that "fees may not be awarded in a breach of contract case unless provided for under the contract." In rejecting a claim based upon St. Paul's promise to indemnify La Porta, the court held that it would not imply a reciprocal duty to indemnify. Finally the district court held that an award of attorney fees could not be justified under the "tort of another" doctrine where the defendant had not acted intentionally.

Discussion

Standard of ReviewThe issues presented on appeal are questions of law and are reviewed de novo. United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984).

Attorney Fees

St. Paul argues that it is entitled to three types of attorney fees: potential attorney fees to be paid to Granite State for Husney's defense in the California litigation² ; the amount paid to Husney for his attorney fees incurred in the declaratory relief action; and attorney fees incurred by St. Paul in prosecution of its rescission action.

In diversity actions, federal courts must apply state law in determining whether to allow attorney fees. Schulz v. Lamb, 591 F.2d 1268, 1272 (9th Cir. 1978); Swallow Ranches, Inc. v. Bidart, 525 F.2d 995, 999 (9th Cir. 1975).

This court has previously noted that through statutory enactment, Nevada has "severely restricted the discretion of the court in granting attorney's fees." Swallow Ranches, 525 F.2d at 999. "Attorney's fees are not recoverable in Nevada unless authorized by statute, rule or agreement between the parties." First Interstate Bank v. Green, 101 Nev. 113, 116, 694 P.2d 496, 498 (1986). Accord Guild, Hagen & Clark, Ltd. v. First Nat'l Bank, 95 Nev. 621, 622, 600 P.2d 238, 239 (1979).

St. Paul does not argue that its claim for attorney fees is supported by Nevada statute³  or by the agency agreement. St. Paul asserts that it is entitled to recover under a theory of indemnification and under the "wrongful act of another" exception to the American Rule, which generally prohibits recovery of attorney fees as damages.⁴ 

The district court held that St. Paul was not entitled to recovery under either theory as a matter of law. The district court reasoned that Nevada precedent would not imply a reciprocal duty of indemnification in a contract case. Cf. Piedmont Equipment Co. v. Eberhard Manufacturing Co., 99 Nev. 523 (1983). We believe this conclusion of the district court was sound.

The district court also held that St. Paul was not entitled to prevail under the "wrongful act of another" exception, even if Nevada were to recognize that rule, because the exception, even if Nevada were to recognize that rule, because the exception would not apply in the absence of some intentional wrong by the defendant. However, the usual formulation of the "wrongful act of another" exception does not distinguish between intentional and negligent torts. E.g., Restatement (Second) of Torts Sec. 914(2) ("One who through the tort of another has been required to act in the protection of his interests by bringing of defending an action against a third person is entitled to recover" attorney fees.) The courts of Nevada have similarly spoken of the rule as applying "where defendant's conduct caused the litigation," without distinguishing between intentional and negligent conduct. Lowden Investment Co. v. General Electric Credit Co., 103 Nev. 374, 741 P.2d 806, 809 (1987). The rationale of the district court does not provide an adequate basis for refusing to apply the "wrongful act of another" exception to La Porta.

If the "wrongful act of another" exception is to be applied at all, it must be because La Porta's wrongful conduct cause St. Paul to sue Husney. See 22 Am.Jur.2d Damages Sec. 166 at 235 (fees recoverable "where the natural and proximate consequences of the defendant's wrongful act causes plaintiff to become involved in litigation."); see also Lowden, supra, 741 P.2d at 809 (fees recoverable where litigation "attributable" to defendant's wrong).

Because of its conclusion of law, the district court did not make a factual finding with regard to the causation element of the "wrongful act of another" exception. That element is disputed by the parties to this appeal. We therefore remand this issue to the district court for findings of fact regarding LaPorta's role, if any, in causing St. Paul to pursue the suit against Husney. If LaPorta did not cause St. Paul to pursue the suit, St. Paul will not be entitled to recover attorney fees from LaPorta. If LaPorta did cause the suit, the court must determine whether Nevada recognizes the "wrongful act of another" exception to the American rule.

Judgment in Amount Higher than Jury Award

On its cross-appeal, La Porta argues that the district court erred by entering judgment in the amount of $262,147.86, the amount claimed in damages at trial.⁵  It asserts that the court had no authority under Fed. R. Civ. P. 49(b) to increase the amount of damages over the jury award of $196,610.90.

Rule 49(b) states in relevant part:

When the general verdict and the answers [to interrogatories submitted to the jury] are harmonious, the appropriate judgment upon the verdict and answers shall be entered pursuant to Rule 58. When the answers are consistent with each other but one or more is inconsistent with the general verdict, judgment may be entered pursuant to Rule 58 in accordance with the answers, notwithstanding the general verdict, or the court may return the jury for further consideration of its answers and verdict or may order a new trial. When the answers are inconsistent with each other and one or more is likewise inconsistent with the general verdict, judgment shall not be entered, but the court shall return the jury for further consideration of its answers and verdict or shall order a new trial.

As an award set in a conclusory term, section (c) of the verdict constitutes a general verdict. By contrast, the specific theories of recovery and the determination of the comparative negligence constitute specific interrogatories. See Cunningham v. M-G Transport Services, Inc., 527 F.2d 760, 762 (4th Cir. 1975).

The court found that the finding of breach of contract conflicted with the general verdict awarding $196,610.90. La Porta argues that this finding was unwarranted. Furthermore, La Porta argues that if there was a conflict, the court should have resubmitted the determination of damages to the jury. La Porta's argument and reliance on United Air Lines, Inc. v. Wiener, 335 F.2d 379 (9th Cir.), cert. dismissed, 379 U.S. 951 (1964), stem from the notion that the jury had some basis for reaching its damage verdict.

The record, however, indicates that the parties had agreed that the damages were $262,147.86 and that if the jury found a breach of contract, St. Paul would be entitled to the full amount. Moreover, the amount the jury awarded coincided with the amount reached after reducing the damages by the percent of St. Paul's comparative negligence.

La Porta is not entitled to assert that the court should have resubmitted the determination to the jury. In his discussion of the jury verdicts, the district judge stated several times that the jury had inaccurately determined the amount of damages and that he would enter an award in the full amount of the damages sought. La Porta raised no objection to the judge's decision.

La Porta also claims that the award was substantively incorrect because the alleged breach of contract was based on negligence and should have been subjected to a reduction for comparative negligence. La Porta asserts that Instruction 12 confused contractual theories based upon the Agency Agreement with duties created in tort.⁶  Its argument is that where an obligation can arise under a contract and can also be imposed as a duty in tort, concepts of tort, such as comparative negligence, should apply. The argument is unpersuasive. The court correctly determined that La Porta could be guilty of breach of contract and tortious misconduct for the same action and that the corresponding legal principles would apply.

Prejudgment-Interest

La Porta challenges the district court's decision to change the prejudgment interest calculation to run from the time of the service of summons and complaint as set forth in Nev.Rev.Stat. Sec. 17.130(2) (1987). It argues that the motion to make the change was untimely under Fed. R. Civ. P. 59 and does not sound under Fed. R. Civ. P. 60(a). Neither procedural objection was made before the district court and this court declines to address arguments which were not raised below. Villar v. Crowley Maritime Corp., 782 F.2d 1478, 1483 (9th Cir. 1986); Rainbow Pioneer No. 44-18-04A v. Hawaii-Nevada Inv. Corp., 711 F.2d 902, 905 (9th Cir. 1983).

La Porta also asserts that the award under Nev.Rev.Stat. Sec. 17.130(2) was incorrect because the more proper basis for the award was under Nev.Rev.Stat. Sec. 99.040. The district court concluded that the essence of St. Paul's action sounded in tort and that Sec. 17.130 was applicable because Sec. 99.040 applied to claims arising solely in contract. The court relied on Wilson v. Pacific Maxon, Inc., 2 Nev.Adv.Op. 15, 714 P.2d 1001 (1986) and BHY Trucking, Inc. v. Hicks, 102 Nev.Adv.Op. 75, 720 P.2d 1229, cert. denied, 107 S. Ct. 597 (1986), for the proposition that section 17.130 applies where an action arises from negligence.

The prejudgment interest statutes are designed to compensate the injured party for "use by defendant of money to which plaintiff is entitled...." Ramada Inns, Inc. v. Sharp, 101 Nev. 824, 826, 711 P.2d 1, 2 (1985) (interpreting section 17.130). Accord First Interstate Bank v. Green, 101 Nev. 113, 115, 694 P.2d 496, 497-98 (1985) (interpreting section 99.040). St. Paul was not deprived of its funds until it actually indemnified the insured. Consequently interest should run from "the time it becomes due." Nev.Rev.Stat. Sec. 99.040. The order awarding damages should be amended to accord with this conclusion.

AFFIRMED IN PART AND REVERSED IN PART AND REMANDED. Costs are to be borne by each party equally.