Kuehn Memo In Support Mtr Order

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF MISSISSIPPI SOUTHERN DIVISION HENRY KUEHN and JUNE P. KUEHN

PLAINTIFFS

VERSUS

No. 1:08-cv-577-LTS-RHW

STATE FARM FIRE & CASUALTY COMPANY, et al.

DEFENDANTS

STATE FARM’S MEMORANDUM IN SUPPORT OF ITS MOTION FOR RECONSIDERATION OF THIS COURT’S JUNE 19, 2009 ORDER [72] LIMITED TO THE ISSUE OF DISINTERESTEDNESS EXPEDITED BRIEFING RESPECTFULLY REQUESTED

BRYAN, N ELSON, SCHROEDER, CASTIGLIOLA & BANAHAN John A. Banahan (MSB #1731) H. Benjamin Mullen (MSB #9077) 1103 Jackson Avenue Pascagoula, Mississippi 39567 (228) 762-6631

HICKMAN , GOZA & SPRAGINS , PLLC H. Scot Spragins (MSB # 7748) Post Office Drawer 668 Oxford, Mississippi 38655-0668 (662) 234-4000

Attorneys for Defendant State Farm Fire and Casualty Company

I.

THE ISSUE OF DISINTERESTEDNESS IS PROPERLY BEFORE THIS COURT State Farm, on this urgent and necessitous matter and for good cause shown, respectfully submits

this memorandum in support of its motion for reconsideration of this Court’s June 19, 2009 Order [72] 1

limited to the requirement that the appraisers be disinterested, pursuant to Fed. R. Civ. P. 59(e), and for expedited briefing, pursuant to Local Rule 7.2(H). In that Order, the Court denied State Farm’s motion for summary judgment on Plaintiffs’ claim for declaratory and injunctive relief on the issue of appraisal. Id. at 2. This Court correctly held that “[t]he key issue is whether the appraisal comports with the policy provisions and with state law.” Id. at 1. But the Court overlooked a fundamental policy provision that requires Plaintiffs’ appraiser, Lewis O’Leary, to be “disinterested.”

[63-2] at 100019.

Plaintiffs

effectively conceded that Mr. O’Leary was not disinterested and admitted that he “zealously represented Plaintiffs’ interests” and undertook “passionate efforts on [Plaintiffs’] behalf during the appraisal.” [68] at 21-22. On this basis alone, State Farm is entitled to summary judgment on Plaintiffs’ claim. Yet the Court, without citing any discernable legal principle and without reaching the merits of the issue, held that this essential element of Plaintiffs’ claim should be raised in state court, not here. [72] at 2. This holding is erroneous and should be reconsidered “to correct a clear error of law” and “prevent manifest injustice.” See, e.g., In re Benjamin Moore & Co., 318 F.3d 626, 629 (5th Cir. 2002). The requirement that Mr. O’Leary be disinterested is a policy requirement, [63-2] at 100019, as this Court previously and correctly recognized. Kuehn v. State Farm Fire & Cas. Co., 2007 WL 184647, at *1 (S.D. Miss. Jan. 19, 2007) (Senter, J.) (Kuehn I) (quoting policy). This action – i.e., Kuehn II – was originally filed by Plaintiffs in this Court, [1], and the issue of whether Mr. O’Leary was

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By limiting its motion for reconsideration to the issues concerning this Court’s holding that “the issue of whether the appraiser appointed by the Plaintiffs was truly disinterested … is an issue properly raised in [State] Court,” [72] at 2, State Farm is not intending to waive, and is not waiving, any other issues it may have with the Court’s June 19, 2009 Order [72].

disinterested is no less in issue before this Court than any other policy requirement for appraisal, such as whether the appraisal improperly made causation determinations. To hold otherwise is clear error. With Plaintiffs having invoked this Court’s diversity jurisdiction, and thus with this Court sitting in diversity, this Court is required to apply the same substantive law as would a state court. Erie R.R. v. Tompkins, 304 U.S. 64 (1938). Nor can the Court carve up the appraisal provision and only address and enforce some of it. Under Mississippi law, this Court is “bound to enforce contract language as written.” Miss. Farm Bureau Cas. Ins. Co. v. Britt, 826 So. 2d 1261, 1266 (Miss. 2002) (en banc). By holding that “the issue of whether the appraiser appointed by the Plaintiffs was truly disinterested … is an issue properly raised in [State] Court,” [72] at 2, and by scheduling an evidentiary hearing to determine the validity of the appraisal, the Court has greatly magnified the effect of this error. This Court’s ruling that the issue of disinterestedness is properly raised in state court and not here runs counter to this Court’s mandate under Erie and it threatens to work a manifest injustice upon State Farm, as well as violate its right to due process, by depriving it of summary judgment on what is tantamount to a confessed point, and by depriving it of the ability to raise the essential element of disinterestedness as a dispositive defense at the evidentiary hearing, if one is necessary. Given Plaintiffs’ admissions that Mr. O’Leary was a partisan advocate for Plaintiffs during the appraisal, the need for an evidentiary hearing – through the issuance of summary judgment – is obviated. Yet even if the Court were to determine that there is an issue requiring resolution by a fact-finder (which there is not), this Court’s ruling obliges State Farm to defend itself against Plaintiffs’ claim with one hand tied behind its back.

Disinterestedness is an integral and essential element of the appraisal

provision in the policy, and the admitted lack of disinterestedness is a dispositive defense to Plaintiffs’ claims. It is properly raised before this Court. To deprive State Farm of a bona fide legal defense is contrary to State Farm’s constitutional right to due process. U.S. CONST. amend. V. Fundamental due process requires “‘an opportunity to present 2

every available defense.’” Philip Morris USA v. Williams, 549 U.S. 346, 353 (2007) (quoting Lindsey v. Normet, 405 U.S. 56, 66 (1972)). Unless modified, the June 19, 2009 Order [72] will deprive State Farm of the opportunity to raise Mr. O’Leary’s admitted partisan zealotry to defeat Plaintiffs’ claim for declaratory and injunctive relief. This Court should alter its judgment to (i) recognize that it has jurisdiction over all the policy provisions controlling appraisal, including disinterestedness, (ii) recognize that Plaintiffs freely admitted that Mr. O’Leary was their zealous advocate during the appraisal, contrary to the disinterestedness requirement of the policy, and (iii) grant State Farm’s motion for summary judgment [63]. II.

THE COURT HAS S UBJECT M ATTER JURISDICTION OVER ALL THE A PPRAISAL REQUIREMENTS This Court held that the requirement that Mr. O’Leary be disinterested is “required by the order

of the state court” and, therefore, “is an issue properly raised in that Court.” [72] at 2. This holding is erroneous and should be corrected. The requirement that Mr. O’Leary be disinterested is a policy requirement over which this Court has jurisdiction, [63-2] at 100019, not a requirement separately imposed by state court. The Mississippi Chancery Court simply ordered the parties to “proceed in accordance with the terms of the State Farm insurance policy.” [23-5] at 2. The state court’s only reference to the disinterestedness requirement is by quoting State Farm’s policy, [23-5] at 1-2, as did this Court. Kuehn I, 2007 WL 184647, at *1. That Mr. O’Leary must be disinterested is no more “required by the order of the state court,” [72] at 2, than it was required by this Court in Kuehn I, 2007 WL 184647, at *1. Beyond those orders, it is the homeowners policy and the law that require Plaintiffs to show that Mr. O’Leary was disinterested. This Court has original subject matter jurisdiction over those matters. Indeed, this Court has subject matter jurisdiction over Plaintiffs’ claim for relief regarding the appraisal, which necessarily includes adjudicating all the policy requirements for a valid appraisal. Plaintiffs filed this case as an original action in this Court pursuant to the Court’s diversity jurisdiction.

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Compl. [1] ¶ 5. Thus, as this Court is well aware, it has “original jurisdiction” over Plaintiffs’ claim, 28 U.S.C. § 1332(a), and this Court’s “judicial power … extend[s]” over this case and the elements of proof to be adjudicated in this case. U.S. CONST . art. III, § 2. Nor has the state court retained jurisdiction over the issue of Mr. O’Leary’s partisanship. The dispute over that issue did not “aris[e] in the course of the appraisal.” [23-5] at 2. State Farm did not know, nor could it have known, of Mr. O’Leary’s bias and partisanship (or of Plaintiff’s counsel’s direction to Mr. O’Leary to protect Plaintiffs’ litigation interests during the appraisal) during the course of the appraisal to contest it in the state court proceeding. Rather, the parties were ordered to engage in an appraisal pursuant to the policy terms, [23-5] at 2, which requires both parties to appoint an appraiser. The parties did so and the appraisal process ensued. State Farm had no means or procedure in state court to ascertain whether Mr. O’Leary was disinterested. The issue arose for the first time in this Court, well after the appraisal was completed, as a result of the discovery conducted in this action. The fact of Mr. O’Leary’s bias and partiality has now been laid bare and, indeed, freely admitted by Plaintiffs. It is within this Court’s jurisdiction and charge to adjudicate the issue. Under Erie, 304 U.S. at 64, with Plaintiffs having invoked this Court’s diversity jurisdiction, and thus with this Court sitting in diversity, this Court is obligated to apply the same substantive law as would a state court. “‘[U]nder Erie we cannot skirt the clear import of state decisional law solely because the result is harsh.’” Jackson v. Johns-Manville Sales Corp., 781 F.2d 394, 397 (5th Cir. 1986) (citation omitted). It is this Court’s task to adjudicate all of the elements of Plaintiffs’ claim and to apply the law on the validity of appraisal. See, e.g., id. Under the law, courts “are bound to enforce contract language as written.” Britt, 826 So. 2d at 1266; see also Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346, 353 (5th Cir. 2007); Delta Pride Catfish, Inc. v. Home Ins. Co., 697 So. 2d 400, 404 (Miss. 1997). And Mr. O’Leary’s admittedly zealous partisanship violates the policy provisions and the law.

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This Court has scheduled a hearing to adjudicate, among other issues, whether the appraisers improperly determined the cause of damage to Plaintiffs’ property. [72] at 1-2. The policy requirement that Mr. O’Leary be disinterested is no less in issue before this Court than whether the appraisal panel improperly made causation determinations. Both elements of proof arise out of the policy provisions and the law governing appraisal. Thus, this Court should alter its June 19, 2009 Order [72] and hold that the issue of whether Mr. O’Leary is disinterested is within the Court’s jurisdiction and properly at issue in this case. III.

MR. O’L EARY’S ZEALOUS ADVOCACY FOR PLAINTIFFS I S RIPE FOR S UMMARY JUDGMENT It is not only well within this Court’s power to adjudicate Plaintiffs’ inability to show that Mr.

O’Leary was disinterested, but that issue is also ripe for decision on summary judgment. As this Court correctly recognized in its June 19, 2009 Order, “[t]he key issue is whether the appraisal comports with the policy provisions and with state law.” [72] at 1. For Plaintiffs to obtain declaratory and injunctive relief, they must demonstrate that the appraisal fully complied with the policy provisions and with state law, including the essential requirement that Mr. O’Leary was “disinterested.” [63-2] at 100019. This case was the first opportunity for State Farm to ascertain Mr. O’Leary’s disinterestedness through discovery. That discovery revealed that Mr. O’Leary was far from being “disinterested.” On this and other fatal flaws in Plaintiffs’ claim, State Farm moved for summary judgment on the issue of appraisal. [63] & [64]. Rather than repeating those issues at length, in the interests of brevity and judicial economy, State Farm respectfully incorporates it prior briefing on the issue of disinterestedness. [63], [64] & [71]. Suffice it say that, based on the discovery taken in this case, State Farm demonstrated that there is no genuine issue of material fact that Mr. O’Leary was not disinterested. [64] at 1, 3-4, 8-10. Mr. O’Leary stated in an email that during the appraisal he would “never pass a chance to create even more of an edge wherever possible,” to “go full bore,” to attack the “credibility” of State Farm’s appraiser,

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and to “hurt him in the umpire’s eyes,” all as the premeditated “ticket we need for success” in the appraisal. Id. at 1, 3, 9-10. Discovery further revealed that Plaintiffs’ counsel assigned Mr. O’Leary to protect Plaintiffs’ litigation interests during the appraisal so that Plaintiffs could sue State Farm for bad faith no matter how the appraisal proceeded. Id. at 10. In response, Plaintiffs did not rebut or deny these facts, nor could they. Instead, they fully embraced Mr. O’Leary’s partisanship. Plaintiffs freely admitted that Mr. O’Leary “diligently and zealously represented Plaintiffs’ interests in the appraisal process” and undertook “passionate efforts on [Plaintiffs’] behalf during the appraisal.” [68] at 21-22. By their admissions, Plaintiffs effectively conceded that Mr. O’Leary was not a “disinterested” appraiser as required by the policy, [63-2] at 100019, by Fifth Circuit case law, Phoenix Assur. Co., Ltd. of London v. Davis, 67 F.2d 824, 825 (5th Cir. 1933), and as corroborated by leading commentators. 15 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 211:33 & n.17 (2008) (citing Davis as primary authority). Thus, after State Farm’s motion was fully briefed, the record precluded Plaintiffs from demonstrating a genuine question on an essential element of their claim – that Mr. O’Leary was disinterested. [71] at 1-3. Summary judgment should have therefore been entered for State Farm. Fed. R. Civ. P. 56(c). It is well-settled that “a complete failure of proof on an essential element of the nonmoving party’s case necessarily renders all other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317, 32223 (1986). Summary judgment should “be granted so long as whatever is before the district court demonstrates that the standard for the entry of summary judgment, as set forth in Rule 56(c), is satisfied. One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and we think it should be interpreted in a way that allows it to accomplish this purpose.” Id. at 323-24; see also Anderson v. Liberty Lobby, 477 U.S. 242, 250 (1986). “Summary judgment is not a discretionary remedy. If the plaintiff lacks enough evidence, summary

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judgment must be granted.” Jones v. Johnson, 26 F.3d 727, 728 (7th Cir. 1994) (citing Celotex, 477 U.S. at 319; Anderson, 477 U.S. at 249-51), aff’d, 515 U.S 314 (1995). Plaintiffs openly conceded that Mr. O’Leary was their zealous, partisan advocate throughout the appraisal. This Court should, thus, alter its June 19, 2009 Order [72] to recognize that Plaintiffs freely admitted that fact, in derogation of the policy’s requirement that the appraisers be disinterested, and to grant State Farm’s motion for summary judgment. [63]. IV.

TO BAR STATE FARM FROM RAISING MR. O’LEARY ’S PARTISANSHIP VIOLATES D UE PROCESS Though Plaintiffs’ concessions warrant summary judgment for State Farm and thereby eliminate

the need for an evidentiary hearing on the validity of the appraisal, by scheduling one, this Court has magnified its error. While this Court scheduled an evidentiary hearing on “the validity of the appraisal,” it relegated an essential element of Plaintiffs’ claim to state court – whether Mr. O’Leary was disinterested. Evidence of Mr. O’Leary’s admittedly zealous partiality directly refutes and directly negates an essential element of Plaintiffs’ claim. By effectively barring that issue from being raised in this Court by relegating it to state court, the Court will omit an essential element of Plaintiffs’ claim from the summary judgment process and from the evidentiary hearing, rendering those proceedings fundamentally flawed and incomplete. It is tantamount to requiring State Farm to defend against the claim while being deprived of the ability to assert not merely all of its available defenses, but a key dispositive defense to an essential element of Plaintiffs’ claim as to which there is no genuine dispute. Thus, unless corrected, the June 19, 2009 Order will work a “manifest injustice,” see, e.g., In re Benjamin Moore & Co., 318 F.3d at 629, by depriving State Farm of its constitutional right to due process. U.S. CONST. amend. V. Fundamental due process requires “‘an opportunity to present every available defense.’” Williams, 549 U.S. at 353. The dispositive defense that Mr. O’Leary is an admittedly partisan zealot has been demonstrated by the discovery taken in this case and has been confirmed by Plaintiffs’ admissions

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in their response to State Farm’s motion for summary judgment. State Farm should be afforded every opportunity to raise that defense, including on a motion for summary judgment, which will work a quick end to the appraisal issues or, if a genuine issue of material fact on that remains (which it does not), at an evidentiary hearing to adjudicate “the validity of the appraisal.” [72] at 2. Accordingly, this Court should correct its June 19, 2009 Order [72] and permit State Farm to present every available defense in the evidentiary hearing on the validity of the appraisal, including Plaintiffs’ inability to establish, as an essential element of their claim, that Mr. O’Leary was disinterested. V.

C ONCLUSION For the foregoing reasons, this Court should grant State Farm’s motion for reconsideration in its

entirety. Further, pursuant to Local Rule 7.2(H), State Farm respectfully requests that this Court set an expedited briefing schedule on the within motion, prior to July 22, 2008, the date set for a hearing on “the issue of the validity of the appraisal.” [72]. Dated: July 1, 2009 Respectfully submitted,

/s/ John A. Banahan John A. Banahan (MSB #1731) H. Benjamin Mullen (MSB #9077) BRYAN, NELSON, S CHROEDER, CASTIGLIOLA & BANAHAN 1103 Jackson Avenue Pascagoula, Mississippi 39567 (228) 762-6631 H. Scot Spragins (MSB # 7748) H ICKMAN, GOZA & SPRAGINS, PLLC Post Office Drawer 668 Oxford, Mississippi 38655-0668 (662) 234-4000 Attorneys for Defendant State Farm Fire and Casualty Company

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CERTIFICATE OF SERVICE I, JOHN A. BANAHAN, one of the attorneys for the Defendant, STATE FARM FIRE & CASUALTY COMPANY, do hereby certify that I have on this date electronically filed the foregoing document with the Clerk of Court using the ECF system which sent notification of such filing to all counsel of record. DATED, July 1, 2009.

/s/ John A. Banahan JOHN A. BANAHAN John A. Banahan (MSB #1761) H. Benjamin Mullen (MSB #9077) BRYAN, N ELSON, SCHROEDER, CASTIGLIOLA & BANAHAN 4105 Hospital Road, Suite 102-B Pascagoula, Mississippi 39567 (228) 762-6631

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