S&S Paving v. Berkley Regional Insurance (CA1 5/12/16)

Holding that the issuer of a public payment bond can’t be sued for bad faith.

S&S was a subcontractor on a street-maintenance job for the City of Prescott. The general had obtained a payment bond, as required by the Little Miller Act (34-222), from Berkley. When S&S didn’t get paid it made a claim against the bond. Berkley asked for information and said it would investigate; its letters contained boilerplate to the effect that it was not waiving any rights. Nineteen months later, having heard nothing more, S&S sent another demand letter. But by this time – guess what? –  the statute of limitations on its claim had expired (34-223 specifically says one year) and so Berkley denied it. S&S sued for breach of contract and bad faith; the trial court dismissed both; S&S appealed the bad-faith issue.

The Court of Appeals affirms, declining to add bad faith to the statutory scheme. 34-222 says that “all liabilities on this bond shall be” determined by statute. “When a corporate surety undertakes an obligation on a bond pursuant to a specific statutory requirement, its liabilities are measured by the terms of that statute.” The statute provides an adequate remedy which S&S, by letting the statute run, failed to take advantage of. S&S had a somewhat analogous case but it involved a private performance bond, not this statute.

(Opinion: S&S v. Berkley)

In re Estates of Butwin (CA1 4/19/16)

Arizona has codified the doctrine that a murderer cannot inherit from his victim, 14-2803. Here the victims try to use the statute to inherit from the murderer.

Husband killed Wife and Children and then himself. Wrongful-death actions against his estate followed, along with an action by various creditors Husband had embezzled from. After large judgments were entered in all, the wrongful-death claimants (i.e., the victims’ estates) moved for a constructive trust on Husband’s estate under 14-2803K, which provides for a trust on a killer’s “property or estate,” effective at the time of the murder, to secure the payment of damages. The point was of course to give their judgments priority over that of the creditors, effectively barring the creditors’ claim (there wasn’t enough money to go around) and allowing them to take the whole estate via their judgment claims. The probate court denied the motion; they appeal.

The Court of Appeals affirms, on a narrow point of statutory construction. 2803F says that the fact of the required “felonious and intentional killing” can be established by a criminal conviction or the court can find it by a preponderance. But 2803K says that the trust is based on acts that “pursuant to subsection F . . . resulted in a criminal conviction.” We might have called that an ambiguity but the court says that the reference to subsection F is to the “felonious and intentional” requirement and that subsection K says specifically that in order to get a trust you can only prove that with a conviction.

There were also arguments about the statute’s effect on creditors but, having resolved the case, the court declines to reach them.

(opinion: In re Estates of Butwin)

Newman v. Specialty Select Hospital (CA1 4/7/16)

In substance this is about whether to award punitive damages but, as usual, the parties and the court spend more time and effort on costs and fees.

The plaintiff was a patient at the defendant hospital after a motorcycle accident rendered him quadriplegic. While there he developed a bedsore and sued under the Adult Protective Services Act. At trial the court granted the hospital’s motion for directed verdict (that’s what the opinion calls it, we’re happy to say; it also minimizes the use of “APSA”; maybe there’s beginning to be some pushback against the vogue for meaningless acronyms) on punitive damages. The jury returned a verdict for the plaintiff and the trial court awarded him costs and fees. He appeals the directed verdict and also the costs and fees (arguing that he didn’t get enough); the hospital appeals the fee award.

As to punitive damages the Court of Appeals reverses. The plaintiff argued that the evidence of evil mind was that the staff “had been ordered to reposition [him], clean his wound, and administer medication, and they understood the importance of these precautions and the risk of improper care of pressure sores, and yet they failed to follow these orders” over the course of a week or more. After summarizing some evidence, which basically confirms that quote, the court agrees, without explanation. Where and how did that – which seems to cover the basics of negligence – cross the line to evil mind? Maybe it’s the length of time, which the court does describe when reviewing the facts. Maybe it’s that, though the court alludes to it only in passing,  the defendant is a long-term acute-care facility, i.e., makes its money precisely by housing the bedridden after our sensitive and caring health-care overseers have decided that a longer stay in a real hospital would cost them too much. In any event, the court doesn’t say.

On attorneys’ fees the court affirms. The Protective Services statute provided for them when the accident happened but not by the time of trial. (We simplify a bit, skipping another intervening but ultimately irrelevant statutory change.) The court concludes that the right to fees is substantive and therefore accrued when the negligence occurred. From what the opinion says it appears that the hospital relied on cases for the proposition that the right to fees from an existing recovery fund doesn’t accrue until the entry of the underlying judgment, which the court has no trouble distinguishing.

The trial court awarded the 45% contingency called for in the plaintiff’s fee agreement. His attorneys wanted instead a $400 per hour ($300 for the associates) fee based on “reconstructed” or “partially reconstructed” time records and “generic” affidavits (presumably the “I do this sort of work and that’s a reasonable fee” type). The plaintiff’s lawyers argued in essence – judging, again, by what the opinion says – that it was the defendant’s or even the trial court’s burden to disprove the details of the fee claim. The opinion affirms, saying yet again that that’s wrong and upholding the trial court’s findings that the time “records” were not “reasonably contemporaneous or trustworthy,” that neither the experience of these lawyers nor the “complexity” of a bedsore case warranted $300/$400 per hour, but that the contingent figure was in this case reasonable. It couldn’t have helped that the requested hourly fee far exceeded the plaintiff’s recovery. And of course courts aren’t likely to waste much sympathy on lawyers who in this day and age still don’t keep their time properly in every case with a possible fee award. China Doll was 33 years ago.

Finally, as to costs, the Adult Protective Services statute (at 46-455(H)(4)) allows “costs of suit.” The trial court awarded taxable costs. The plaintiff argued that since the statute doesn’t say “taxable” the award should have been for all actual costs because the statute protects the sick and elderly and helpless and so should be applied broadly and liberally and remedially and etc., etc. The Court of Appeals declines to go that far. The cost statute (12-332) defines “costs in the superior court,” not a special subdivision of those costs called “taxable,” and the courts therefore look to it to it to determine – you guessed it – “costs in the superior court.”  The court finds nothing in the Protective Services statute to indicate that the legislature intended to expand on that. The lawyers apparently also tried to make some distinction between “costs of suit” and mere “costs”; the court says that “of suit” does not change the meaning of “costs” and is there because that paragraph speaks of private lawsuits whereas the next one deals with government regulatory actions. That last part is perhaps a bit of a reach but, as the court quotes from the Supreme Court, “a liberal construction is not synonymous with a generous interpretation.”

The court remands on punitive damages and awards the plaintiff his costs and fees on appeal. Presumably his lawyers won’t again need to “reconstruct” them, or can at least do so more convincingly. The parties will now argue below about the scope of the new trial, which will give them reason to bring this one back up some day for our renewed enjoyment.

(Opinion: Newman v. Select Specialty Hospital)