Kuehn Sf Memo Support Motion Summary Judgement

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 REPLY MEMORANDUM IN FURTHER SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT RE: APPRAISAL [63] [64]

BRYAN, NELSON, SCHROEDER, CASTIGLIOLA & BANAHAN John A. Banahan (MSB #1761) H. Benjamin Mullen (MSB #9077) 4105 Hospital Road, Suite 102-B 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

TABLE OF CONTENTS I.

Preliminary Statement ............................................................................................................ 1

II.

Pl a i n t i f f sAdmi tTh a tMr .O’ Le a r yWa sTh e i rZe a l ousa n dDi l i ge n tAdv oc a t e....................... 2

III.

As a Matter of Law, the Appraisal Clause Precludes Causation Determinations ..................... 4

IV.

Plaintiffs Cannot Show That the Scope and Conduct of the Appraisal Was Proper ................. 6

V.

Non eofPl a i n t i f f s ’Mi s di r e c t e da n dBe l a t e dEs t op pe lTh e or i e sAppl i e s................................. 9 A.

Judicial Estoppel Does Not and Cannot Apply ................................................................ 9

B.

Collateral Estoppel Does Not Apply Because No Court Has Scrutinized the Appraisal.. 11

C.

Plaintiffs Cannot Obtain the Extraordinary Remedy of Equitable Estoppel.................... 13

VI.

Pl a i n t i f f s ’Va gueAs s e r t i on sFa i lToSa t i s f yRul e56( f )........................................................ 15

VII.

Conclusion........................................................................................................................... 16

i

I.

PRELIMINARY STATEMENT Unable to refute the rank bias and partisanship of Lewis O’ Leary, Plaintiffs double-down and

embrace it, but fatally undermine the declaratory and injunctive relief they seek. Plaintiffs freely admit that Mr. O’ Leary “ zealously represented Plaintiffs’interests”and undertook “ passionate efforts on [Plaintiffs’ ] behalf during the appraisal.” [68] at 21-22. These admissions confirm 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). This Court need go no further to grant summary judgment. Nor does Plaintiffs’effort to manufacture an ambiguity in the policy withstand scrutiny. The appraisal language at issue here is substantively and judicially indistinguishable from the appraisal clause construed by the Mississippi Supreme Court in Hartford Fire Ins. Co. v. Jones, 108 So. 2d 571, 571 (Miss. 1959), which was wholly adopted by that court in Munn v. Nat’ l Fire Ins. Co. of Hartford, 115 So. 2d 54, 56 (Miss. 1959). To show ambiguity, Plaintiffs must show that “ a term or provision is susceptible to more than one reasonable meaning”without resort to any extrinsic evidence. Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 429 (5th Cir. 2007). Plaintiffs make no effort to satisfy that legal test. Thus, not only do Plaintiffs fall far short of their burden to show an ambiguity in the appraisal language, but the Mississippi Supreme Court’ s cases on the issue also preclude any such showing. Nor can Plaintiffs show that the scope and conduct of the appraisal comported with the policy and Mississippi law. It did not. In addition to the uniform testimony that the appraisers made causation and coverage determinations, even under Plaintiffs’depiction of the record, the appraisal went awry. Despite their claim that the appraisal assessed wind damage above the flood line only, even that approach is riddled with impermissible causation determinations. Summary judgment is thus warranted. Bereft of any bona fide grounds to avert summary judgment, Plaintiffs desperately and belatedly resort to equitable arguments in a scattershot discussion of estoppel theories. None avails Plaintiffs.

II.

PLAINTIFFS ADMIT THAT MR. O’ LEARY WAS THEIR ZEALOUS AND DILIGENT ADVOCATE To obtain the relief they seek, Plaintiffs must demonstrate that Mr. O’ Leary was disinterested

during the appraisal under both the policy language and governing law. Yet in their response, Plaintiffs freely admit that Mr. O’ Leary “ diligently and zealously represented Plaintiffs’interests”and undertook “ passionate efforts on [Plaintiffs’ ] behalf during the appraisal.”[68] at 21-22. It is thus undisputed, and readily confirmed, that Mr. O’ Leary was a biased, partisan advocate for Plaintiffs during the appraisal. Plaintiffs seek to excuse Mr. O’ Leary’ s blatant zealotry by arguing that to be “ disinterested,”Mr. O’ Leary merely had to have “ had no pecuniary stake in the outcome of the appraisal.” Id. at 21 (emphasis in original). Plaintiffs are wrong. As the Fifth Circuit held more than seventy-five years ago, the requirement of a “ disinterested”appraiser “ excludes not merely pecuniary interest but also bias and prejudice, and is designed to secure a tribunal acting in a quasi judicial capacity free from partisanship and seeking to do equal justice between the parties.”Davis, 67 F.2d at 825 (citation omitted). Likewise, as the court subsequently held in Lawler v. Ins. Co., 54 A.2d 685, 686 (Me. 1947), appraisers must be “ disinterested”“ not only in the narrow sense of being without relationship and pecuniary interest, but also in the broad, full sense of being competent, impartial, fair and open minded, substantially indifferent in thought and feeling between the parties, and without bias or partisanship either way.” The only support Plaintiffs cite for their notion of “ disinterested”are two inapposite case citations from Couch on Insurance. Pls. Exs. 25 [68-29] & 26 [68-30]. By its terms, the policy in the first case, Southeast Nursing Home, Inc. v. St. Paul Fire & Marine Ins. Co., 750 F.2d 1531 (11th Cir. 1985), “ did not require impartial appraisers.”Id. at 1537 & 1538 (emphasis added). Not so here. As Plaintiffs note, “ State Farm’ s policy is different.” [68] at 23 (emphasis in original). It requires the appraisers to be “ disinterested,”[63-2] at 100019, whereas Mr. O’ Leary was a zealot. [68] at 21. The second case, Linford Lounge, Inc. v. Michigan Basic Prop. Ins. Ass’ n, 259 N.W.2d 201 (Mich. Ct. App. 1977), offers no solace. The court merely held that being a former adjuster “ does not automatically disqualify the appraiser, absent a showing of prejudicial misconduct,”id. at 203, which abounds here. 2

Ironically, the excerpt from Couch on Insurance that Plaintiffs attach as an exhibit, [68-29], goes on to squarely refute the assertions that they are making here and to squarely support State Farm’ s. Where loss, in case of disagreement, is to be ascertained by “ disinterested” appraisers appointed by the parties, the word “ disinterested”does not mean merely a lack of pecuniary interest, but is used in a broader sense, as meaning not only without pecuniary interest, but impartial, fair, open-minded, and without partisanship, prejudice, or bias. Conversely, an “ interested appraiser”is one who is partial, unfair, arbitrary, and dominated by bias and prejudice for or against the parties or the property in controversy, or both, or has some pecuniary interest in the result or performance of the duties of appraiser. Id. (Couch on Insurance, §50:137, “ Interest or disinterest defined” ) (citing Davis as primary authority). Mr. O’ Leary is a textbook example of an appraiser who is not “ disinterested.” From the beginning, Mr. O’ Leary plotted with Plaintiffs to “ pr e v a i l , ”t o“ n e v e rpa s sac h a n c et oc r e a t ee v e nmor e of a ne dgewh e r e v e rpos s i bl e , ”t o“ go full bore,”and to attack the “ credibility”of State Farm’ s appraiser (whomever he or she would be) in order to “ hurt him in the umpire’ s eyes,”all as part of the premeditated “ ticket we need for success.” [63-3] at 1. Plaintiffs’counsel later joined strategies with Mr. O’ Leary and assigned him to protect Plaintiffs’litigation interests during the appraisal. [63-4.] Confronted with these “ smoking gun”emails, Plaintiffs lamely attempt to spin them away as “ ‘ puffing,’ for his client.”[68] at 21. But they cannot. Mr. O’ Leary engaged in such conduct during the appraisal and Plaintiffs have admitted that Mr. O’ Leary was acting as “ an appraiser to zealously advocate [his] client’ s position,”who “ diligently and zealously represented Plaintiffs’interests in the appraisal process,”and undertook “ passionate efforts on [Plaintiffs’ ] behalf during the appraisal.” Id. at 21-22. These facts, and these admissions, establish that Mr. O’ Leary was not “ disinterested”–and not by “ State Farm’ s definition of this term,”id. at 21, but by the definition embraced by the Fifth Circuit in Davis more than seventy-five years ago and still cited as the leading case by Couch on Insurance today. Regardless of any other matters raised by Plaintiffs, the admitted zealotry of Mr. O’ Leary is dispositive of Plaintiffs’claims for declaratory and injunctive relief. Summary judgment in favor of State Farm is warranted on that ground alone. 3

III.

AS A MATTER OF LAW, THE APPRAISAL CLAUSE PRECLUDES CAUSATION DETERMINATIONS In Hartford Fire, the Mississippi Supreme Court judicially construed the identical policy

language at issue –i.e., appraisal as to “ the amount of loss”–as precluding causation or coverage determinations. See 108 So. 2d at 571. In Hartford Fire, the insurance “ policy contained the standard appraisal clause as to how the amount of loss was to be determined,”and specifically, the clause applied “ If the insured and the company fail to agree as to the amount of loss …. ”Id. (emphasis added). So, too, here. Using virtually identical language, the appraisal clause in Plaintiffs’policy applies “ If you and we fail to agree on the amount of loss …. ”[63-2] at 100019 (emphasis added). Construing this substantively and judicially indistinguishable policy language, the Hartford Fire court noted that “ appraisement is an agreed method of ascertaining value or amount of damage, stipulated in advance, ... with the object of preventing future disputes, rather than settling present ones. Liability is not fixed by means of an appraisal; there is only a finding of value, price, or amount of loss or damage.”108 So. 2d at 572 (emphasis added) (quoting 3 Am. Jur., Arbitration and Award, § 3, at pp. 830-31); accord Munn, 115 So. 2d at 56-57 (same).

The Mississippi Supreme Court’ s judicial

interpretation of the effectively identical appraisal clause in Hartford Fire applies with equal force here. In Munn, the Mississippi Supreme Court adopted Hartford Fire as “ a splendid discussion of the effect of an appraisal in Mississippi.”Id. at 56. While Plaintiffs wholly ignore the policy language in Hartford Fire, and mistakenly believe that the policy language in Munn was meaningfully different based on there being “ no mention of any other definitions within the policy,”[68] at 23, the appraisal clause in Munn only allowed the appraisers to “ appraise the loss.”Munn, 115 So. 2d at 55. So does the appraisal clause here. “ [N]owhere in the standard form for submission to appraisal is any power vested in or conferred upon the appraisers to determine the cause of the loss.” Id. at 56. Nor is there here. Instead, the cause of damage must first be “ stipulated in advance,”id. at 56 (quoting Hartford Fire, 108 So. 2d at 572), or judicially determined, Jefferson Davis, 2009 WL 367688, at *2, but in no case can cause be determined by appraisal. Hartford Fire, 108 So. 2d at 572; Munn, 115 So. 2d at 55. 4

The Mississippi Supreme Court’ s holdings in Hartford Fire and Munn readily dispose of Plaintiffs’so-called “ ambiguity”claim. See [68] at 22-24. “ [T]he ‘ interpretation of a contract is a question of law, including the question whether the contract is ambiguous,’ ”Gladney v. Paul Revere Life Ins. Co., 895 F.2d 238, 241 (5th Cir. 1990), and “ Mississippi law acknowledges that the standard insurance policy is a contract, and its terms are a matter of usual contract interpretation unless some statutory imperative controls.”Lynch v. Miss. Farm Bureau Cas. Ins. Co., 880 So. 2d 1065, 1070 (Miss. Ct. App. 2004).

Moreover, “ [t]he most basic principle of contract law is that contracts must be

interpreted by objective, not substantive standards.” Cherry v. Anthony, 501 So. 2d 416, 419 (Miss. 1987). There is perhaps no more “ objective standard”for the interpretation of the appraisal clause than the Mississippi Supreme Court’ sjudicial construction of such language in its leading cases on the issue. To be sure, the “ mere fact that lawyers may disagree on the meaning of a contractual provision is not enough to constitute ambiguity,”Stinnett v. Colo. Interstate Gas Co., 227 F.3d 247, 254 (5th Cir. 2000), just as “ [t]he mere fact that the parties disagree about the meaning of a provision of a contract does not make the contract ambiguous as a matter of law.”Leonard, 499 F.3d at 429. Whether, in an effort to stave off summary judgment, Plaintiffs claim to misunderstand the appraisal clause is of no legal moment. Their subjective and extrinsic interpretation does not affect this Court’ s analysis. Id. “ [A] court must refrain from altering or changing a policy where terms are unambiguous, despite resulting hardship on the insured.”Titan Indem. Co. v. Estes, 825 So. 2d 651, 656 (Miss. 2002); accord Farmland Mut. Ins. Co. v. Scruggs, 886 So. 2d 714, 717 (Miss. 2004). “ No rule of construction requires or permits [Mississippi courts] to make a contract differing from that made by the parties themselves, or to enlarge an insurance company’ s obligations where the provisions of its policy are clear.” Leonard, 499 F.3d at 429 (alteration in original). Plaintiffs satisfy none of the legal requirements of showing an ambiguity in the policy.

5

IV.

PLAINTIFFS CANNOT SHOW THAT THE SCOPE AND CONDUCT OF THE APPRAISAL WAS PROPER Under Mississippi law, appraisers are powerless to determine the cause of damage for any loss,

see, e.g., Hartford Fire, 108 So. 2d 571; Munn, 115 So. 2d 54, as this Court has repeatedly recognized. See Kuehn v. State Farm Fire & Cas. Co., No. 1:06-cv-723-LTS-RHW, 2007 WL 184647, at *1 (S.D. Miss. Jan. 19, 2007) (Senter, J.) (“ Kuehn I” ); accord Mar. 31, 2009 Order [62] at 1. Indeed, as recently applied in a Hurricane Katrina case that Plaintiffs fail to distinguish, “ [i]t is clear that under Mississippi law that the purpose of an appraisal is not to determine the cause of loss or coverage under an insurance policy; rather, it is ‘ limited to the function of determining the money value of the property’at issue.” Jefferson Davis County Sch. Dist. v. RSUI Indemn. Co., 2009 WL 367688, at *2 (S.D. Miss. Feb. 11, 2009) (emphasis added) (quoting Munn, 115 So. 2d at 55; citing Kuehn I, 2007 WL 184647, at *1). Plaintiffs pay lip service to these fundamental principles but fatally misapprehend them. Plaintiffs labor under the misimpression that by appraising all damage above the flood line, the appraisal panel limited its inquiry to the value of covered damage. [68] at 18-19. Plaintiffs are wrong on multiple levels, any one of which renders the appraisal award unsound as a matter of law. First, to conclude that all damage above a flood line is caused by “ wind only,”as opposed to any other force, is itself a causation determination. The same is true for “ apprais[ing] wind only”anywhere in the house, [68] at 18, which requires determining what parts of the house were damaged by wind and not by any other force. Even Plaintiffs’suggested rubric of valuing only damage above a flood line requires causation and coverage determinations. Under any of these methods, the appraisers determined the cause and coverage of the damage, which is forbidden by the policy and Mississippi law. “ [A]ppraisers have no power to determine the cause of the damage.” Munn, 115 So. 2d at 55. By determining the cause of damage, the appraisal panel deprived State Farm of its “ constitutional rights to have determined in a court of justice the liability of an insurer.”Id. The appraisal award cannot stand. Second, Plaintiffs’argument is divorced from reality because the appraisal panel did not limit its inquiry to damage above a flood line. Mr. O’ Leary planned from the beginning to argue causation, [636

3] at 1, knowing that he “ would definitely be addressing causation.” [63-5] at 84:20-86:1. Mr. Minor testified that was precisely what took place when Mr. O’ Leary “ would want to argue the windows on the first floor and say that wind got there before the flood.” [63-6] at 120:13-121:1. Mr. Voelpel also confirmed that the panel did not limit their inquiry to damage above a flood line. [63-7] at 36:13-18. Further, the panel’ sa ppr a i s a lapproach also commingled any alleged wind and flood damage to the second floor in one computation. The appraisal panel did not independently compute the so-called “ wi nddamage. ”Instead, it computed the damage to the entire second floor and decided that 75% of all the second-floor damage was from wind, id. at 25:16-26:11; 29:10-21; 33:6-13; 93:15-94:1 –a simplistic methodology that Mr. Voelpel could not recall using in any other appraisals. Id. at 103:10-16. Nor ,a sPl a i n t i f f sa s s e r t ,di dSt a t eFa r m“ a gr e e ”dur i n gt h e30( b )(6) deposition of Rick Moore “ t h a tda ma gea b ov et h ewa t e r l i nef r om Hu r r i c a n eKa t r i n awa sduet owi n d. ”[ 68]a t3,18 .Mr .Moor e s a i dn os uc ht hi n g.I nf a c t ,h eonl yt e s t i f i e dt h a tda ma gea b ov et h ewa t e rl i newa sn ot“ don eb ywa t e r . ” Q. And do you take the position that the damage done above the water line in the Kuehn house was done by water as opposed to wind? A. No. [68-25] at 101:6-9. Yet the appraisal panel improperly concluded that damage above the flood line was caused by wind and awarded damaget o“ h e a vys t r uc t u r a lf r a mi ngoft h eh ome ,whi c hwa snot affected by the wind. ”Id. at 15:19-16:13; accord id. at 16:21-17:3. In any event, whether there was actual wind da ma get oa nyofPl a i n t i f f s ’pr ope r t ywa sn otat opi cf ort h e30( b ) ( 6)de p os i t i on . See [44]. Issues r e l a t e dt oPl a i n t i f f s ’a c t ua lda ma ge sorSt a t eFa r m’ sa dj us t me n toft h ec l a i ma r eout s i det hi sph a s eoft h e bifurcated discovery, which is exclusively directed to the validity of appraisal. Jan. 5, 2009 Order [15] at 2, a f f ’ d , Mar. 31, 2009 Order [62]. Third, Plaintiffs completely ignore that the appraisal award even went beyond structural damage to Plaintiffs’house. The appraisal panel also made determinations and awards for personal property, law and ordinance, and ALE coverages. [63-18.] Going beyond any adherence to a flood line, the panel 7

purportedly computed damage to items that were submerged in flood water. [63-6] at 83:4-84:9. The appraisal panel also independently decided which personal property items were moved to the second floor before the storm, ignored and went beyond the parties’list of damaged items, and independently determined the cause to be wind. See [63-5] at 41:16-25; 54:19-22; 61:24-62:16; [63-7] at 45:22-46:3. As a matter of law, none of those causation or coverage determinations is permissible. Plaintiffs also ignore the fact that the appraisal panel made causation determinations for the law and ordinance and ALE awards, despite any flood line –a n dPl a i n t i f f s ’r e l i a n c eonon e . The panel decided that 31% of the law and ordinance coverage and the ALE expenses were due to wind damage. [63-7] at 40:25-12; [63-19]at 5. Mr. Voelpel cannot explain how the appraisers attributed this 31% to wind damage, [63-7] at 40:25-41:16, but he confirmed that 31% was intended to be the “ [p]ercentage of damage caused by wind ”for the “ [i]ncrease[d] cost of construction due to code caused by wind.”[6320] (emphasis added). To be sure, no award for law and ordinance or ALE would be possible without specific findings of causation and coverage, as reflected in the policy itself. [63-2] at 100009, 100029. Forth, Plaintiffs completely ignore the deposition testimony from both appraisers and the umpire, all showing that the appraisal panel sought to determine the cause of damage on their own. All members of the appraisal panel uniformly testified that they independently determined the cause of damage to Plaintiffs’property in their appraisal award. [64] at 13-18. Indeed, Plaintiffs’advocate, Mr. O’ Leary, freely admitted that he “ would definitely be addressing causation in my consideration, absolutely,”[635] at 84:20-86:1, which, he testified, is exactly what was done in this case but “ in a grander scale”for Plaintiffs’entire claim. Id. at 86:2-4. So, too, Mr. Voelpel recognized that the appraisal was improperly “ wading in deeper”into making “ coverage”determinations, [63-17], and that the appraisal panel “ took a proportion of the square footage and attributed it to wind and a portion of the square footage and attributed it to water.”[63-7] at 25:16-26:11. To determine which parts of the house were damaged by wind is to determine the cause of damage –a function that rests in a court, not an appraisal panel.

8

Beyond any genuine dispute, time and again, the record establishes that the appraisal panel determined the cause of damage to Plaintiffs’property and assigned coverage liability for the structure, contents, law and ordinance, and ALE provisions, all of which is prohibited by Mississippi law and the policy. Under the policy and Mississippi law, “ the appraisers were without authority”to make those determinations. Munn, 115 So. 2d at 58. Plaintiffs cannot meet their burden to show otherwise. State Farm is thus entitled to summary judgment on Plaintiffs’claim for declaratory and injunctive relief. V.

NONE OF PLAINTIFFS’MISDIRECTED AND BELATED ESTOPPEL THEORIES APPLIES Seeking to divert attention away from the fatal flaws in the appraisal process, Plaintiffs engage in

a campaign of misdirection by belatedly attempting to raise several estoppel doctrines. None applies. Nor have Plaintiffs sought any affirmative relief under any of their estoppel theories, and Plaintiffs have waived the right to do so by allowing the deadline to lapse on April 14, 2009. Feb. 13, 2009 Text Order. Plaintiffs’estoppel arguments ask this Court to turn a blind eye to the dispositive information revealed in discovery –i.e., Mr. O’ Leary is an admittedly biased and partisan zealot who advocated on Plaintiffs’behalf during the appraisal, and the appraisal panel impermissibly made causation and coverage determinations. By invoking estoppel, Plaintiffs seek to enforce an appraisal award that violates the policy and Mississippi law. None of Plaintiffs’contrived estoppel theories survives review, and none of them can cure Plaintiffs’inability to carry their burden to obtain the relief they seek. A.

Judicial Estoppel Does Not and Cannot Apply

Plaintiffs assert that State Farm is judicially estopped from contesting the legal validity of the appraisal based on statements in “ remand-related discovery”and in an email during settlement negotiations between the parties. [68] at 17-18, Pls. Ex. 17 [68-18]. Plaintiffs bear the burden of satisfying the requirements of judicial estoppel, see McBride v. Bilberry Family Ltd. P’ ship, 2008 WL 4286532, at *3 (S.D. Miss. Sept. 16, 2008); LOL Fin. Co. v. Delta Pride Catfish, Inc., 2006 WL 3469619, at *2 (N.D. Miss. Nov. 30, 2006), but they neither acknowledge nor satisfy such requirements.

9

The only support Plaintiffs cite for their argument is Edwards v. Aetna Life Ins. Co., 690 F.2d 595 (6th Cir. 1982), which held that judicial estoppel was not applicable. See [68] at 18. In Edwards, the Sixth Circuit held that a district court improperly applied judicial estoppel because the party’ s previous position was never adopted by a judicial tribunal. 690 F.2d at 599-600. “ In light of the policies underpinning judicial estoppel, the rule can not be applied in a subsequent proceeding unless a party has successfully asserted an inconsistent position in a prior proceeding,”and the party must have been “ successful in getting the first court to accept the position.”Id. at 599. Since the parties resolved their dispute without the need for a judicial tribunal accepting any position, judicial estoppel did not apply in Edwards. Id. at 599-600. Nor does it here. The Fifth Circuit imposes the same requirement. To invoke judicial estoppel, a “ previous court must have accepted the party’ s earlier position.”Hopkins v. Cornerstone Am., 545 F.3d 338, 349 (5th Cir. 2008) (citation omitted); accord GP Plastics Corp. v. Interboro Packaging Corp., 108 F. App’ x 832, 835 (5th Cir. 2004). The doctrine requires that “ a court has ‘ necessarily accepted and relied on’a party’ s position in making a determination,”which Plaintiffs must show to invoke judicial estoppel. GP Plastics Corp., 108 F. App’ x at 835. Indeed, “ judicial estoppel is designed to protect the judicial system, not the litigants.”In re Superior Crewboats, Inc., 374 F.3d 330, 334 (5th Cir. 2004). Plaintiffs make no such showing here, nor can they. The Mississippi Chancery Court had no opportunity to adjudicate the validity of the appraisal, if any, because the appraisal had not yet occurred. See [23-5] at 1-2. As reflected in its order, the sole issue before the Chancery Court was whether to conduct an appraisal at all, not whether the appraisal was properly conducted. Id. No court has yet addressed the propriety of the scope and conduct of the appraisal (though State Farm asks this Court to do so now). Thus, any contention that the appraisal was legally unsound could never have been accepted by any court, which precludes judicial estoppel. Hopkins, 545 F.3d at 349. Plaintiffs cannot backfill the Chancery Court’ s order with new and unaddressed issues. And while Plaintiffs breathlessly

10

and repeatedly state that State Farm’ s appraisal provision applies only to “ covered”losses, [68] at 13 & n.4, 16, 18-19, 22-24, recognizing the obvious does not invoke estoppel or avert summary judgment. Further, beyond inappropriately distorting comments made by counsel by taking them out of context and by disingenuously mixing and matching them with other statements in a contrived fashion, none of which are “ admissions by State Farm,”a sPl a i n t i f f spos i t ,see, e.g., [68] at 12, any statements made during settlement negotiations are inadmissible. “ Rule 56 states that a court may consider only admissible evidence in ruling on a summary judgment motion.”Mersch v. City of Dallas, 207 F.3d 732, 734-35 (5th Cir. 2000). So, too, “ statements made in compromise negotiations regarding the claim”are “ n ota dmi s s i bl eonb e h a l fofa nypa r t y ,wh e n ,of f e r e dt op r ov el i a bi l i t yf or… ac l a i mt h a twa s disputed.”Fed. R. Evid. 408(a)(2). “ The purpose of this rule is to encourage settlements which would be discouraged if such evidence were admissions.”Fed. R. Evid. 408 advisory committee’ s note. The broad exclusions contained in Rule 408 are “ designed to encourage settlements by fostering free and full discussion of the issues.”Ramada Develop. Corp. v. Rauch, 644 F.2d 1097, 1106 (5th Cir. 1981). Here, Plaintiffs improperly rely on statements made during settlement negotiations between the parties, Pls. Ex. 17 [68-18], which are inadmissible for these purposes. B.

Collateral Estoppel Does Not Apply Because No Court Has Scrutinized the Appraisal

Plaintiffs contend that State Farm is collaterally estopped from contesting the legal validity of the appraisal. [68] at 15-16. Collateral estoppel “ ‘ applies only to questions actually litigated in a prior suit, and not to question which might have been litigated.’ ” Lange v. City of Batesville, 92 So. 2d 11, 22 (Miss. Ct. App. 2008) (emphasis added; quoting Dunaway v. W.H. Hopper & Assoc., 422 So. 2d 749, 751 (Miss. 1982)). Though not even an implied holding in a prior suit between the parties is enough to collaterally estop subsequent litigation, id. at 22-23, here, there was no prior holding by a court – implied or express –as to the propriety or effect of appraisal. Collateral estoppel does not apply. The Mississippi Chancery Court did not address the propriety of the scope or conduct of the appraisal because the appraisal had not yet happened. See [23-5] at 1-2. The propriety of the scope or 11

conduct of the appraisal “ has not been actually litigated and determined”by the Chancery Court, and its order “ cannot now be utilized upon the basis of collateral estoppel.”Johnson v. Bagby, 171 So. 2d 327, 331 (Miss. 1965). Any resolution of disputes over the propriety of the scope or conduct of the appraisal was left for another day. [23-5] at 2. Only now, after the appraisal, Plaintiffs seek declaratory and injunctive relief “ to enforce the appraisal [a]ward as a binding amount to be paid.”Am. Compl. [67] ¶ 44. This is the first time that the scope, conduct, and validity of the appraisal has been at issue. Plaintiffs cite no authority from Mississippi or anywhere else that would deprive State Farm the right to raise defenses to the appraisal where the legal validity of the appraisal has not been judicially scrutinized. The only collateral estoppel case cited by Plaintiffs, Hollis v. Hollis, 650 So. 2d 1371 (Miss. 1995), is inapposite. See [68] at 15 n.5. In Hollis, the parties to a divorce previously litigated the division of property set forth in an antenuptual agreement. 650 So. 2d at 1377-78. Though the plaintiff ostensibly moved to modify the original judgment, “ only a small part of it could truly be characterized as an actual request for modification. The rest is a plea … to retry matters which were effectively settled in the original divorce proceeding and its appeal.”Id. at 1377. In the previous case, the parties “ asked that their property and contract rights be adjudicated and the Final Judgment shows that they were so adjudicated.”Id. Not so here. Unlike Hollis, the Chancery Court was not asked to adjudicate the merits or enter judgment on an appraisal because it had not yet happened. Instead, those issues are raised for the first time in this Court. Plaintiffs’other cases –Loui sGar de nsofEnc i noHome owne r sAs s ’ nv .Tr uc kI ns .Ex c hange , 82 Cal. App. 4th 648 (Cal. Ct. App. 2000) (California law), and FDL, Inc. v. Cincinnati Ins. Co., 135 F.3d 503 (7th Cir. 1998) (Indiana law) –do not discuss collateral estoppel and are grossly inapposite. See [68] at 16 & n.6. As explained in Louis Gardens, California law equates arbitration and appraisal, 82 Cal. App. 4th at 658, but Mississippi law strictly distinguishes them. Hartford Fire, 108 So. 2d at 572. Further, California has a statutory scheme under which “ the court must confirm the [appraisal] award, unless it either vacates or corrects it”within 100 days. Louis Gardens, 82 Cal. App. 4th at 658-59 12

(emphasis in original; applying Cal. Ins. Code § 1286). None of those California statutes applies here. In the second case, FDL, the insured disputed whether the appraisers should measure the replacement value of its inventory using market value or manufacturing costs. 135 F.3d at 503-04. There was no dispute over the bias and partisanship of the appraisers or over determinations as to cause of loss. Such a“ basis for setting aside the appraisal award”was not even alleged. Id. at 505. Here, such a basis has not only been raised, but it has also been robustly demonstrated by the record developed in discovery. C.

Plaintiffs Cannot Obtain the Extraordinary Remedy of Equitable Estoppel

Plaintiffs claim that State Farm is equitably estopped from challenging the validity of the appraisal. [68] at 16-17. Plaintiffs assert that because “ State Farm did not actually complain or allege any impropriety in the process”until Plaintiffs filed suit, State Farm should be estopped from defending against Plaintiffs’suit. Id. at 17. Plaintiffs demonstrate no entitlement to equitable estoppel. To the extent Plaintiffs invoke equitable estoppel to obtain coverage contrary to the policy language, “ estoppel can have a field of operation only when the subject matter is within the terms of the policy.… [E]stoppel cannot operate so as to bring within the coverage of the policy property, or a loss, or a risk, which by the terms of the policy is expressly excepted or otherwise excluded.”Employers Fire Ins. Co. v. Speed, 133 So. 2d 627, 629 (Miss. 1961).

This is the “ ‘ long-settled rule of law in

Mississippi.” Provident Life & Accident Ins. Co. v. Goel, 274 F.3d 984, 996 (5th Cir. 2001) (citation omitted); accord Pongetti v. First Cont’ l Life & Accident Co., 688 F. Supp. 245, 248 (N.D. Miss. 1988) (Senter, J.). Thus, Plaintiffs cannot invoke equitable estoppel to side step State Farm’ s policy defenses. No matter how Plaintiffs frame their request, “ [e]quitable estoppel is an extraordinary remedy and should only be invoked to prevent unconscionable results.” Harrison Enters., Inc. v. Trilogy Comms. Inc., 818 So. 2d 1088, 1095 (Miss. 2002). As “ [t]he law does not regard estoppels with favor,” the doctrine is “ applied cautiously and only when equity clearly requires it.” Id. (citations omitted); accord Turner v. Terry, 799 So. 2d 25, 37-38 (Miss. 2001). To invoke this extraordinary remedy, Plaintiffs must show that they reasonably and detrimentally relied on an alleged representation. Miss. 13

Dep’ t of Public Safety v. Stringer, 748 So. 2d 662, 665 (Miss. 1999); Lynch v. Miss. Farm Bureau Cas. Ins. Co., 88 So. 2d 1065, 1072 (Miss. Ct. App. 2004). Among other elements, “ equitable estoppel requires an ‘ intent’that a misrepresentation or silence be relied upon,”and without proof of such intent, equitable estoppel does not apply. Smith v. Chrysler Corp., 2002 WL 1899615, at *3 (5th Cir. July 11, 2002). Plaintiffs show none of these requirements. Plaintiffs cannot show any detrimental reliance. Plaintiffs did not sit idly on their hands after the appraisal award was issued. Quite to the contrary, after the appraisal panel issued an award on March 7, 2008, [63-18]; [63-21], Plaintiffs engaged in a course of conduct to actively pursue their interests.  On April 26, 2008, Plaintiffs wrote a letter to State Farm to learn how it would treat the appraisal award. See Apr. 26, 2008 letter from Kuehn to Foster (attached as Ex. V)).  Plaintiffs maintained “ records”to keep track of the time since the appraisal award issued. Id.  From May 30, 2008 to June 9, 2008, Plaintiffs’counsel attempted to negotiate settlement of the appraisal award and solicited payment of the award. See Pls. Ex. 17 [68-18].  On June 4, 2008, Plaintiffs asked Mr. O’ Leary for a “ supplement”to the appraisal award to “ clarify the wording.”June 4, 2008 email from Kuehn to O’ Leary (attached as Ex. W) at 2.  Between June 10 and 13, 2008, the appraisal panel annotated their prior award, specifying that the amounts were for damage caused by “ wind only.”[63-18.]  On August 29, 2008, Plaintiffs filed this suit. [1]. Plaintiffs can thus show no detrimental reliance after the appraisal award. Though they claim they “ forbore litigation,”they identify no prejudice from any delay, [68] at 17, and filed suit in short order. [1]. Indeed, even before the appraisal took place, Plaintiffs planned to sue State Farm. [63-4]. Nor do Plaintiffs show any reasonable reliance. In fact, Plaintiffs knew State Farm’ s objections to the appraisal award from their correspondence with State Farm and settlement negotiations with its counsel. So, too, Plaintiffs knew the policy requirements for appraisal, see, e.g., Leonard, 499 F.3d at 438, including the requirement that Mr. O’ Leary be disinterested. Plaintiffs knew Mr. O’ Leary was not disinterested, [63-3], as did Plaintiffs’counsel. [63-4]. Such a blatant violation of the policy refutes any pretense of reasonable reliance. 14

Even the sole authority Plaintiffs cite for their equitable estoppel theory, Thomas v. Bailey, 375 So. 2d 1049 (Miss. 1979), undermines their position. See [68] at 16. “ In order to establish equitable estoppel, a party must show a change of position in reliance upon the conduct of another and detriment caused thereby. In the case sub judice, there was no change in position by the appellant in reliance upon appellees’conduct nor has the appellant suffered any detriment or injury,”which precludes any equitable estoppel claim. Thomas, 375 So. 2d at 1052 (citation omitted). So, too, here. VI.

PLAINTIFFS’VAGUE ASSERTIONS FAIL TO SATISFY RULE 56(F) Plaintiffs wish to delay the resolution of the instant motion to attempt to take another 30(b)(6)

deposition and to file papers related to the 30(b)(6) deposition that was taken on March 26, 2009. Seven weeks have passed since that deposition, and a month has passed since State Farm and Plaintiffs received the transcript on April 15, 2009. Yet Plaintiffs have filed nothing, the time in which to do so having long since expired. See Local R. 7.2(B)(2) (“ Discovery motions must be filed sufficiently in advance of the discovery deadline so as to not affect the deadline.” ); Feb. 13, 2009 Text Order (discovery deadline for the appraisal issue expired on March 31, 2009). Nor have Plaintiffs identified anything they may obtain in a second 30(b)(6) deposition that would raise a genuine question of material fact, as they must under Fed. R. Civ. P. 56(f). The record already establishes that Mr. O’ Leary was not a disinterested appraiser and that the appraisal panel improperly made causation and coverage determinations. Nothing from any follow-up 30(b)(6) deposition –however unwarranted –can or will change those immutable facts. Plaintiffs’request for a delay should be denied. Since Rule 56(b) permits a defendant to seek summary judgment “ at any time,”“ Rule 56 does not require that any discovery take place before summary judgment can be granted; if a party cannot adequately defend such a motion, Rule 56(f) is his remedy.”Washington v. Allstate Ins. Co., 901 F.2d 1281, 1285 (5th Cir. 1990) (emphasis added). “ [U]nder Rule 56(f), the appropriate way to raise [a claim of inadequate discovery] is for the party opposing the motion for summary judgment to file a motion for a continuance with an attached affidavit stating why the party cannot present by affidavit facts essential 15

to justify the party’ s opposition.” Access Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 720 (5th Cir. 1999). Plaintiffs’response woefully fails to satisfy the requirements of Rule 56(f). By its express terms, Rule 56(f) requires a party seeking a continuance for discovery to show “ for specified reasons, [that] it cannot present facts essential to justify its opposition.” Fed. R. Civ. P. 56(f) (emphasis added).1 Thus, a party “ may not invoke Rule 56(f) by the mere assertion that discovery is not yet complete, but must show how the additional discovery will establish a genuine issue of material fact.”Mauldin v. Fiesta Mart, 114 F.3d 1184, 1997 WL 255640, *2 (5th Cir. 1997) (table). That is, the nonmovant must show “ specific facts explaining his inability to make a substantive r e s pon s e… byspecifically demonstrating ‘ how postponement of a ruling on the motion will enable him, by discovery or other means, to rebut the movant’ s showing of the absence of a genuine issue of fact.’ ” Washington, 901 F.2d at 1285 (citations omitted). Rule 56(f) cannot be used as a “ ‘ fishing expedition’ calculated to uncover something upon which to rest the otherwise unsupported allegations in [nonmovant’ s] complaint,”Mauldin, 1997 WL 255640, at *2, and “ vague assertions that additional discovery will produce needed, but unspecified, facts”are wholly inadequate. Access Telecom, 197 F.3d at 719. Plaintiffs’request, which raises no areas of supposedly necessary discovery, utterly fails to satisfy the requirements of Rule 56(f). Plaintiffs’request for delay should be denied. VII.

CONCLUSION For the foregoing reasons, this Court should grant State Farm summary judgment [63] [64]

dismissing Plaintiffs’claims for declaratory and injunctive relief as to the validity and enforceability of the appraisal in their entirety. Am. Compl. [67] ¶¶ 36-46, 112-13.

1

Under Fifth Circuit authority, an affidavit is not necessary to support a Rule 56(f) application, nor is the invocation of the Rule itself. See, e.g., Perkins v. Nationsbank of Tex., N.A., 116 F.3d 1476, 1997 WL 304131, at *2 (5th Cir. 1997) (table); Enplanar, Inc. v. Marsh, 11 F.3d 1284, 1291-92 (5th Cir. 1994); see also Washington, 901 F.2d at 1285-86. Thus, State Farm is not opposing Pl a i n t i f f s ’r e qu e s tdue to those omissions in form. Rather, State Farm is opposing the request due to its substantive deficiencies.

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Dated: May 14, 2009 Respectfully submitted,

/s/ John A. Banahan John A. Banahan (MSB #1761) H. Benjamin Mullen (MSB #9077) BRYAN, NELSON, SCHROEDER, CASTIGLIOLA & BANAHAN 4105 Hospital Road, Suite 102-B Pascagoula, Mississippi 39567 (228) 762-6631 H. Scot Spragins (MSB # 7748) HICKMAN, 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, May 14, 2009.

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

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