Riggs v. Bank of America, N.A., No. 2:2007cv01855 - Document 83 (D. Ariz. 2009)

Court Description: ORDER granting Riggs' 73 motion for summary judgment on the counterclaim. DENYING Bank of America's motion for summary judgment on the counterclaim and on Riggs' claim for breach of the duty of good faith and fair dealing (in contract), AND GRANTING Bank of America's 60 motion for summary judgment on Riggs' claim for tort and punitive damages. Signed by Judge Frederick J Martone on 01/28/09.(ESL)
Download PDF
Riggs v. Bank of America, N.A. 1 Doc. 83 WO 2 3 4 5 NOT FOR PUBLICATION 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 16 17 18 19 Carol Riggs, ) ) Plaintiff, ) ) vs. ) ) Bank of America, N.A., ) ) Defendant. ) ) _________________________________ ) ) Bank of America, N.A., ) ) Counterclaimant, ) ) vs. ) ) Carol Riggs, ) ) Counterdefendant. ) ) No. CV-07-1855-PHX-FJM ORDER 20 21 The court has before it defendant Bank of America, N.A.’s (“BofA”) motion for 22 summary judgment (doc. 60), plaintiff Riggs’ response and cross-motion for summary 23 judgment on BofA’s counterclaim1 (doc. 73), BofA’s response and reply (doc. 79), and 24 Riggs’ reply (doc. 81). 25 26 27 28 1 We note that Riggs’ cross-motion for summary judgment was filed outside the deadline for dispositive motions established by our Rule 16 scheduling order (doc. 16). We nevertheless allow the late filing given that BofA has fully responded to the motion, and because consideration of all claims at this juncture will promote judicial economy. Dockets.Justia.com 1 I. Background 2 Riggs is a former employee of defendant BofA and is a participant in the Bank of 3 America Group Benefits Program (the “Plan”). BofA is a wholly owned subsidiary of Bank 4 of America Corporation (“Corporate Parent”). The Corporate Parent is the Plan sponsor. 5 Riggs took a medical leave of absence from BofA in October 1998. She never returned to 6 work. In 1999, she filed a constructive discharge lawsuit against BofA in state court. The 7 parties entered into a settlement agreement in December 2002 (“settlement agreement”) 8 resolving the dispute. The settlement agreement provided for, among other things, Riggs’ 9 entitlement to continued health care benefits under the Plan. A dispute has arisen over those 10 benefits. Riggs claims that she is entitled to the same benefits as an active employee. BofA 11 contends that she is eligible only for supplemental Medicare benefits. 12 Notwithstanding the dispute, BofA has consistently provided Riggs with active 13 employee benefits since entering into the settlement agreement. On February 22, 2006, 14 however, BofA formally notified Riggs that she was no longer entitled to active employee 15 benefits. BofA advised Riggs of her right to appeal that decision to the Bank of America 16 Appeals Committee (“Appeals Committee”), the fiduciary charged with discretionary 17 authority by the Corporate Parent to construe the terms of the Plan and resolve all questions 18 relating to claims for benefits under the Plan. 19 The Appeals Committee denied Riggs’ appeal, concluding that under the terms of the 20 settlement agreement, she is only eligible for supplemental Medicare benefits. Nevertheless, 21 the Appeals Committee delayed the implementation of its decision pending its pursuit of a 22 declaratory judgment action in federal court, in order to confirm that its decision was correct. 23 This court dismissed the action for lack of jurisdiction, concluding that there was no federal 24 question jurisdiction because this was not an action under ERISA, but a dispute involving 25 a private settlement agreement, and there was no diversity jurisdiction because the amount 26 in controversy did not exceed the jurisdictional minimum. Bank of America Group Benefits 27 Program v. Riggs, No. 06-CV-2805 (D. Ariz. June 28, 2007). Following dismissal, Riggs 28 commenced this action, alleging bad faith breach of the implied covenant of good faith and -2- 1 fair dealing. At the same time, the Appeals Committee, which is not a party here, filed an 2 action the Superior Court of Arizona in Maricopa County, seeking a declaration that it did 3 not abuse its discretion in denying Riggs’ appeal and that its decision would not constitute 4 a breach of the settlement agreement. DSOF ¶ 40. 5 On November 28, 2008, judgment entered in the Superior Court action declaring that 6 the “dispute involves the interpretation of a routine settlement agreement between Ms. Riggs 7 and the Bank of America and not an ERISA determination.” Plaintiff’s Reply, exhibit A at 8 2-3. The court concluded that, according to the clear terms of the settlement agreement, 9 Riggs is entitled to receive active employee benefits. Id. at 3. Riggs now argues that 10 judgment is res judicata with respect to BofA’s counterclaim, in which BofA seeks a 11 declaration that it is not obligated under the settlement agreement to provide Riggs with 12 active employee benefits. Amended Answer/Counterclaim ¶ 26. II. Counterclaim 13 14 Res judicata requires (1) identity of the claims, (2) identity or privity between the 15 parties, and (3) a final judgment on the merits in the previous litigation. In re Gen. 16 Adjudication of All Rights to Use Water, 212 Ariz. 64, 69-70, 127 P.3d 882, 887-88 (2006).2 17 There is no dispute that a final judgment was entered on the same claim presented in BofA’s 18 counterclaim—namely whether the settlement agreement entitles Riggs to active employee 19 benefits. BofA argues, however, that it and the Appeals Committee are separate legal 20 entities, and because it was not a party to the state court action, the judgment has no 21 preclusive effect against it. 22 In general, “one is not bound by a judgment in personam in a litigation in which he 23 is not designated as a party.” Hansberry v. Lee, 311 U.S. 32, 40, 61 S. Ct. 115, 117 (1940). 24 Exceptions to this rule exist, however, including where a person agrees to be bound by the 25 26 27 28 2 In diversity jurisdiction cases, federal law incorporates state law rules of preclusion. Taylor v. Sturgell, 128 S. Ct. 2161, 2171 n.4 (2008). -3- 1 determination of issues in an action between others. Taylor v. Sturgell, 128 S. Ct. 2161, 2 2172-73 (2008). 3 Here, not only did BofA impliedly agree to be bound by the state court determination 4 when it delegated to the Appeals Committee the authority to review and finally rule on its 5 denial of Riggs’ claim, but through this process it also induced Riggs’ belief that it would be 6 bound by the judgment. Id.; See also Restatement (Second) of Judgments § 62 (1982). 7 Therefore, the state court judgment has preclusive effect and BofA is bound by the 8 conclusion that, according to the terms of the settlement agreement, Riggs is entitled to active 9 employee benefits.3 Therefore, BofA’s motion for summary judgment on its counterclaim 10 is denied (doc. 60), and Riggs’ cross-motion for summary judgment on the counterclaim is 11 granted (doc. 73). III. Breach of Good Faith and Fair Dealing Claim 12 13 Riggs claims that BofA breached the covenant of good faith and fair dealing arising 14 from the settlement agreement by engaging in “deceptive, unfair, dishonest and self-serving 15 conduct.” Complaint ¶ 18. She claims that as a result of the breach she has suffered 16 “significant damage to her health, as well as financial and emotional damages.” Id. ¶ 19. 17 She further claims that because a “special relationship” existed with BofA, she is entitled to 18 tort damages, including punitive damages, for BofA’s breach. 19 The covenant of good faith and fair dealing is legally implied in every contract. 20 Wagenseller v. Scottsdale Mem’l Hosp., 147 Ariz. 370, 383, 710 P.2d 1025, 1038 (1985). 21 A party may breach the implied covenant if he acts to deprive the other party of the 22 reasonably expected benefits of the agreement. Wells Fargo Bank v. Ariz. Laborers, 23 Teamsters & Cement Masons, 201 Ariz. 474, 490, 38 P.3d 12, 28 (2002). A breach of the 24 implied covenant may occur even in the absence of a breach of an express term in the 25 contract. Id. at 491, 38 P.3d at 29. 26 27 28 3 Alternatively, if the state court judgment did not have preclusive effect, we would reach the same conclusion as did the state court. -4- 1 Riggs claims that BofA improperly denied its obligation to provide her with active 2 employee benefits that she reasonably expected to receive. BofA’s argument that it did not 3 breach the covenant of good faith and fair dealing because it had no obligation under the 4 settlement agreement to provide active employee benefits, BofA’s Motion at 7-8, is 5 foreclosed in light of the state court’s holding that the clear language of the settlement 6 agreement provides Riggs with active employee coverage. 7 The state court’s judgment, however, does not extend to other aspects of the claim for 8 breach of the duty of good faith and fair dealing. This is a fact intensive inquiry and one that 9 cannot be resolved on the briefings before us. To be sure, a jury could reasonably find that 10 BofA breached its duty of good faith and fair dealing by taking the position, for an unfair or 11 improper reason, that Riggs was not entitled to receive active employee benefits.4 See, e.g., 12 Beaudry v. Ins. Co. of the West, 203 Ariz. 86, 91, 50 P.3d 836, 841 (Ct. App. 2002). But 13 liability is only part of the inquiry. Damages is also an essential element of Riggs’ prima 14 facie claim for breach of the implied covenant of good faith and fair dealing. United 15 Dairymen of Arizona v. Schugg, 212 Ariz. 133, 139, 128 P.3d 756, 762 (Ct. App. 2006). 16 Because Riggs has consistently received what she claims she is entitled to under the contract, 17 it is unclear whether she has suffered any contract damages (over and above her fees here), 18 and thus may be unable to establish her prima facie case. Instead, it appears that the heart 19 of this matter lies in whether tort damages are available. 20 The general rule is that a plaintiff’s recovery for breach of the covenant of good faith 21 and fair dealing is limited to the amount due under the contract absent a showing of “a 22 special relationship between the parties arising from elements of public interest, adhesion, 23 and fiduciary responsibility.” Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 355, 813 P.2d 24 710, 720 (1991). These “special relationships” include “those undertaken for something 25 26 27 28 4 While the issue of bad faith was not litigated in the state court (and therefore not preclusive), we note that the state court was of the view that the Appeals Committee’s ruling was an “arbitrary and capricious repudiation of the Bank’s settlement agreement with Riggs.” Plaintiff’s Reply, exhibit A at 3. -5- 1 more than[,] or other than[,] commercial advantage, such as the procurement of service, 2 professional help, security, or other intangibles.” Id. Generally, “special relationships” in 3 the insurance context are found to exist between an insurer and the insured where the special 4 duty is appropriate because of “an unequal bargaining position between the insured and the 5 insurance company.” Noble v. Nat’l Am. Life Ins. Co., 128 Ariz. 188, 189, 624 P.2d 866, 6 867 (1981). This is not the case presented here. First, BofA is a former employer, not an 7 insurer. Second, Riggs’ entitlement to healthcare benefits arises not from an insurance 8 contract, but from a settlement agreement negotiated by parties represented by counsel. This 9 is an ordinary business contract that does not create a special relationship that would justify 10 the imposition of tort damages, including punitive damages. 11 Because Riggs is not entitled to tort damages, Riggs’ claim for breach of the covenant 12 of good faith and fair dealing depends not only on whether she can show that BofA’s conduct 13 constituted a breach of its implied duty, but also whether she suffered any contractual 14 damages as a result. These are issues that cannot be resolved on the present motions for 15 summary judgment. 16 IV. Conclusion 17 IT IS ORDERED GRANTING Riggs’ motion for summary judgment on the 18 counterclaim (doc. 73). IT IS FURTHER ORDERED DENYING BofA’s motion for 19 summary judgment on the counterclaim and on Riggs’ claim for breach of the duty of good 20 faith and fair dealing (in contract), AND GRANTING BofA’s motion for summary 21 judgment on Riggs’ claim for tort and punitive damages (doc. 60). 22 DATED this 28th day of January, 2009. 23 24 25 26 27 28 -6-