Resie's Chicken & Waffles Rest, et al v. Acceptance Indemnity Company, et al

Filing

UNPUBLISHED OPINION FILED. [16-20680 Affirmed, Reversed and Remanded] Judge: JES , Judge: PRO , Judge: SAH Mandate issue date is 04/30/2018; granting Motion for partial dismissal of appeal filed by Appellants Cross-Appellees Acceptance Indemnity Company and IAT Group Investigative Services Unit [8465025-2] [16-20680]

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Date Filed: 04/06/2018

IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
No. 16-20680

April 6, 2018
Lyle W. Cayce
Clerk

CHARESE FOREMAN; RESIE’S CHICKEN & WAFFLES RESTAURANT,
Plaintiffs–Appellees Cross–Appellants,
v.
ACCEPTANCE INDEMNITY COMPANY; IAT GROUP INVESTIGATIVE
SERVICES UNIT,
Defendants–Appellants Cross–Appellees.

Appeals from the United States District Court
for the Southern District of Texas
USDC No. 4:13-CV-1890
Before SMITH, OWEN, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Acceptance Indemnity Company (AIC) denied Resie’s Chicken & Waffles
Restaurant’s (Resie’s) insurance claim for property damage that resulted from
a fire on its premises. Resie’s sued, alleging breach of contract and extracontractual claims. At the conclusion of a trial on the breach of contract claim,
the jury found that Resie’s had failed to provide requested financial

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
*

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information to AIC and that AIC was prejudiced by that failure. The district
court held that insufficient evidence supported these findings and entered
judgment as a matter of law for Resie’s. The court then denied Resie’s motion
for judgment as a matter of law and motion for a new trial on various damages
theories and the extra-contractual claims. AIC has appealed the entry of
judgment as a matter of law on the contract claim and Resie’s has crossappealed. We affirm the district court’s judgment as to the extra-contractual
claims, reverse the district court’s judgment as to the contract claim, and
remand with instructions to reinstate the jury verdict.
I
Charese Foreman, the owner of Resie’s, obtained an insurance policy
from AIC in the amount of $100,000 covering commercial property damage,
general liability, liquor liability, and equipment breakdown.

The policy

imposed a number of conditions in the event of loss or damage, including that
Resie’s “must . . . . [a]s often as may be reasonably required, permit [AIC] to
inspect the property proving the loss or damage and examine [Resie’s’] books
and records” and must “[c]ooperate with [AIC] in the investigation or
settlement of the claim.”
Less than six months after Resie’s opened, a fire occurred on the
premises. At the scene, the Houston Fire Department concluded that it was
an electrical fire. Resie’s submitted a claim for damages to AIC for the loss,
and AIC sent Resie’s a letter acknowledging receipt of its claim. AIC also hired
a third-party arson investigator to conduct an independent analysis of the
incident.
Approximately nine months after the fire, AIC’s attorney sent a letter to
Resie’s acknowledging the receipt of certain documents—“Bates stamped
Numbers 1 through 219” (the Bates documents)—as well as financial and
insurance claim records release authorizations from Resie’s. These documents
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and authorizations seem to have been sent in response to a request or requests
from AIC that are not in the record. The parties dispute, however, whether
the documents AIC received were in fact the financial records it requested.
Two months later, AIC denied Resie’s claim, concluding that (1) the fire
was the result of arson, not an accidental loss; (2) Resie’s failed to maintain a
working smoke alarm; and (3) Resie’s failed to provide the financial
information requested on numerous occasions.
Resie’s brought suit against AIC in state court and AIC removed the case
to federal district court. Resie’s asserted that AIC breached its insurance
contract by failing to pay the claim under the terms of the policy, and that this
alleged breach entitled Resie’s to a prompt-payment penalty pursuant to the
Texas Insurance Code and treble damages for AIC’s knowingly wrongful
conduct pursuant to the Texas Deceptive Trade Practices Act (DTPA). Resie’s
also asserted extra-contractual claims for other alleged violations of the Texas
Insurance Code and DTPA, the intentional breach of a duty of good faith and
fair dealing, and the libel and slander of Resie’s and Foreman. AIC asserted
three affirmative defenses: arson attributable to Resie’s, a non-functioning
smoke alarm on the premises, and Resie’s failure to cooperate with AIC’s
requests for financial records. Resie’s attempted to join Foreman as a plaintiff
by adding her name to its pleadings, but the district court ultimately excluded
her from the case. Resie’s did not object to the denial of joinder and presented
only the breach of contract claim to the jury.
At trial, Foreman gave extensive and at times conflicting testimony
regarding the financial records. She stated that she “gave [AIC] everything
that [it] asked for; receipts, invoices. [It] asked me for bank statements. [It]
asked for me for tax returns. We gave [it] everything.” She also testified that
she provided her attorney with Resie’s’ accounting documents, which she
claimed to have retrieved from a computer at the restaurant that was
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undamaged by the fire. However, AIC introduced Foreman’s testimony from
her deposition in which she claimed to have never used this computer to access
any documents after the fire. Foreman also stated in her deposition that she
did not have access to the accounting documents because the computer
remained at Resie’s premises, from which she had been locked out by her
landlord. Neither the accounting documents nor the Bates documents were
introduced into evidence, but the letter acknowledging receipt of the Bates
documents and authorizations, as well as the letter denying Resie’s claim and
alleging its failure to cooperate with document requests, were admitted. The
jury also heard testimony from Foreman, AIC’s arson investigator, and an
electrical engineer regarding the arson and smoke detector issues.
The district court directed a verdict rejecting Resie’s’ claim for treble
damages, concluding that the damages were the proceeds due under the
insurance policy, and submitted special interrogatories to the jury regarding
AIC’s defenses. The jury rejected AIC’s arson and smoke detector defenses but
found that Resie’s “failed to provide financial information relating to the
business as requested” and that “such failure to provide documents to [AIC]
was prejudicial to [AIC].” AIC then moved for entry of judgment and Resie’s
moved for judgment as a matter of law on the grounds of insufficient evidence
supporting the jury’s response to the financial records interrogatories, or, in
the alternative, for a new trial only with respect to the financial records issue.
The district court denied AIC’s motion for entry of judgment and granted
Resie’s motion for a new trial, concluding that “the great weight of the evidence
[did] not support the verdict” and that Foreman’s testimony was “undisputed
and corroborated” by the AIC letter acknowledging receipt of the Bates
documents and authorizations. The court denied Resie’s motion for judgment
as a matter of law, reasoning that because Resie’s had failed to contest the
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sufficiency of the evidence at the close of evidence, it had waived the right to
bring such a motion.
After a failed attempt at mediation, the district court sua sponte
withdrew its ruling and entered judgment as a matter of law for Resie’s,
awarding it the amount due under the insurance policy, a “prompt pay” penalty
pursuant to state law, attorney’s fees, and court costs. Resie’s then moved for
judgment as a matter of law or a new trial on its additional damages theories
and extra-contractual claims, and also sought increased attorney’s fees. The
district court denied the motion, ruling that Resie’s waived those bases for
recovery by failing to include them in its prior motion for a new trial.
Subsequently and without explanation, the district court amended its
judgment to award attorney’s fees of $125,000 to both Resie’s and Foreman.
Resie’s and AIC now appeal from that judgment. AIC seeks reversal of
the judgment as a matter of law on the financial records issue and a
corresponding award of attorney’s fees. Resie’s asks this court to reverse the
judgment as to additional damages and fees and the denial of a new trial on
damages and the extra-contractual claims.
II
AIC asserts that the district court erred in granting judgment as a
matter of law for Resie’s on the breach of contract claim. We agree.
This court reviews a district court’s ruling on a motion for judgment as a
matter of law de novo. 1 When an action is tried to a jury, a motion for judgment
as a matter of law “is a challenge to the legal sufficiency of the evidence
supporting the jury’s verdict.” 2 Accordingly, this court “draw[s] all reasonable
inferences and resolv[es] all credibility determinations in the light most

1
2

Dresser-Rand Co. v. Virtual Automation Inc., 361 F.3d 831, 838 (5th Cir. 2004).
Id.

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favorable to [AIC].” 3 “Judgment as a matter of law is appropriate where there
is no legally sufficient evidence upon which the jury could find for a party on
its claim.” 4 Such a case arises “where the facts and inferences point so strongly
and overwhelmingly in favor of the moving party that reasonable jurors could
not arrive at a contrary verdict.” 5
A
The district court erred on procedural grounds in granting judgment as
a matter of law because Resie’s did not properly challenge the sufficiency of the
evidence under Federal Rule of Civil Procedure 50(a).

Resie’s moved for

judgment as a matter of law after trial under Rule 50(b), but a party must raise
a Rule 50(a) motion prior to the close of evidence in order to “renew” that
motion after the verdict. 6

Resie’s therefore waived its challenge to the

sufficiency of the evidence.
Resie’s waiver here is not excused. “Technical noncompliance with Rule
50(b) may be excused in situations in which the purposes of the rule are
satisfied” 7 —namely, alerting the court and plaintiff as “to the grounds on
which the defendant contends the evidence is insufficient prior to the
submission of the case to the jury.” 8

This exception is for “de minimis”

Id. (quoting Brown v. Bryan Cty., Okla., 219 F.3d 450, 456 (5th Cir. 2000)).
Carmona v. Sw. Airlines Co., 604 F.3d 848, 855 (5th Cir. 2010).
5 Id.
6 Flowers v. S. Reg’l Physician Servs., Inc., 247 F.3d 229, 238 (5th Cir. 2001) (“If a
party fails to move for judgment as a matter of law under Federal Rule of Civil Procedure
50(a) on an issue at the conclusion of all of the evidence, that party waives both its right to
file a renewed post-verdict Rule 50(b) motion and also its right to challenge the sufficiency of
the evidence on that issue on appeal.”); see also 9B CHARLES ALAN WRIGHT & ARTHUR R.
MILLER, FEDERAL PRACTICE & PROCEDURE § 2537 (3d ed. 2017).
7 Scottish Heritable Trust, PLC v. Peat Marwick Main & Co., 81 F.3d 606, 610 (5th
Cir. 1996).
8 Taylor Publ’g Co. v. Jostens, Inc., 216 F.3d 465, 472 (5th Cir. 2000) (quoting
Greenwood v. Societe Francaise De, 111 F.3d 1239, 1244 (5th Cir. 1997)).
3
4

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departures from Rule 50(b) 9 and applies only in limited cases where, for
example, a party makes a Rule 50(a) motion on a substantially similar issue
adequate to give notice of the perceived insufficiency 10 or objects to a proposed
jury charge on the grounds that no evidence supports the claim. 11 Resie’s did
neither, nor does the record reveal any other basis upon which the court and
AIC were put on notice of Resie’s sufficiency objection before the evidence was
submitted to the jury.
Accordingly, the district court erred in granting Resie’s motion for
judgment as a matter of law. “Where the trial court has granted judgment
notwithstanding the verdict we may, in appropriate cases where there is
sufficient evidence . . . to support a jury verdict to the contrary, order the
reinstatement of the jury verdict.” 12 Because, as discussed below, sufficient
evidence supports the jury’s answer to interrogatories 4 and 5, we reinstate the
jury verdict.
B
We must view the evidence in the light most favorable to the verdict in
determining if there is sufficient evidence upon which a reasonable juror could
find for AIC. There must be evidence not only that Resie’s failed to provide the
financial information that was requested, but also that this prejudiced AIC.
Had AIC “not been prejudiced by [Resie’s] breach, the breach [would] not [have

Id.
See Navigant Consulting, Inc. v. Wilkinson, 508 F.3d 277, 288-89 (5th Cir. 2007).
11 See id.; Bay Colony Ltd. v. Trendmaker, Inc., 121 F.3d 998, 1003 (5th Cir. 1997).
12 H.C. Blackwell Co. v. Kenworth Truck Co., 620 F.2d 104, 107 (5th Cir. 1980).
9

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been] material, and [AIC] therefore [would] not [be] excused from its obligation
to perform under the contract.” 13
The jury’s answers to interrogatories 4 and 5 were as follows:
INTERROGATORY NO. 4:
Do you find from a
preponderance of the evidence that Resie's Chicken & Waffles
Restaurant failed to provide financial information relating to the
business as requested? Answer “Yes” or “No.”
Answer:

Yes

INTERROGATORY NO. 5: Do you find that such failure to
provide documents to Acceptance was prejudicial to Acceptance?
Answer “Yes” or “No.”
Answer:

Yes

The district court concluded that “the record show[ed], undisputedly,
that the means for obtaining [Resie’s business] records [were] in [AIC’s]
hands,” regardless of whether Resie’s actually provided AIC the records. The
only reference in the record to authorizations to obtain records appears in a
letter from AIC’s counsel to Resie’s counsel, which acknowledges receipt of
authorizations for “(1) Insurance/Claim records; (2) General Release of
Information; and (3) Financial Records.” However, AIC maintains that the
financial records that it sought were Resie’s profit and loss statements, and its
balance sheets, and that these were not available from third parties and could
not reliably be recreated from information obtained from third parties, such as
bank records. Resie’s does not refute this with evidence or otherwise. Foreman

Hernandez v. Gulf Grp. Lloyds, 875 S.W.2d 691, 694 (Tex. 1994); see also Greene v.
Farmers Ins. Exch., 446 S.W.3d 761, 768 (Tex. 2014) (“If the insurer receives its reasonably
anticipated benefit despite the insured’s breach, the breach is immaterial, the insurer is not
prejudiced, and the insurer is not excused from performance.”); Prodigy Commc’ns Corp. v.
Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374, 382-83 (Tex. 2009) (“[T]he insured’s failure
to provide notice ‘as soon as practicable’ will not defeat coverage in the absence of prejudice
to the insurer.”); cf. Griggs v. State Farm Lloyds, 181 F.3d 694, 703 (5th Cir. 1999) (upholding
an insurer’s repudiation of the contract based on the insured’s failure to comply with the
“independently sufficient condition precedent to coverage” requiring proof of loss).
13

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testified in her deposition that Resie’s’ records regarding its profits and losses
and balance sheet were maintained on a computer at the restaurant but that
she never accessed or downloaded it after the fire. This deposition testimony
was used to impeach Foreman at trial after she testified that she had given
Resie’s financial information to its counsel. Foreman also testified that she
gave Resie’s point of sale system financial information and tax returns to her
attorney to provide to AIC. But Foreman admitted that the point of sale
system does not include “profit and loss statement, balance sheet” and
“expenses.” The jury was entitled to conclude that Resie’s did not produce
information reflecting its profits and losses or it balance sheets. There is no
evidence that it was available from other sources.
There was additional evidence the jury could have credited in reaching
its conclusions. The jury could have considered the fact that Resie’s failed to
present at trial the financial records that it said had been provided in response
to requests by AIC. The jury could have looked at all of the documents in
evidence and found that none of them reflected the financial information that
had been requested, and it could have credited descriptions of the 200-plus
pages of documents that Resie’s produced but that were not introduced into
evidence. If Resie’s had produced financial records to AIC, Resie’s could have
introduced the same records into evidence at trial. Its failure to do so could be
considered by the jury. The facts and inferences do not point “so strongly and
overwhelmingly in favor” of Resie’s to warrant judgment as a matter of law. 14
The district court also reasoned that, because the jury found that any
arson was not attributable to Resie’s, AIC’s “assertion that the jury could infer
from the owner’s lack of cooperation that the owner or employees caused the
fire . . . does not logically follow,” as “the absence of hard copies of [Resie’s]

14

Carmona v. Sw. Airlines Co., 604 F.3d 848, 855 (5th Cir. 2010).

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books and records does not support nor defeat [its] property damages claim.”
This analysis conflates two independent defenses. The jury’s answer to the
arson interrogatory rejects one affirmative defense but has no bearing on the
alternate affirmative defense that Resie’s breached the cooperation clause of
the insurance contract. In any event, the jury may have concluded that there
was insufficient evidence of a motive for arson because records reflecting
Resie’s complete financial condition were not produced.
The jury’s finding that AIC was prejudiced is also supported by the
evidence, as a reasonable juror could have inferred that the failure to provide
financial information prevented AIC from presenting a clear motive for the
alleged arson. AIC specifically sought this prejudice finding in the jury charge
in order to validate its denial of coverage based on Resie’s breach of a policy
condition. However the jury’s prejudice finding affirms that AIC met this
“prejudice requirement” and indicates that Resie’s breach was material, so
AIC’s obligation to perform is excused. 15

We find sufficient evidence to

reinstate the jury’s verdict that Resie’s breached the contract by failing to
provide requested financial information and that this breach prejudiced AIC.
III
Resie’s cross appeal contends that the district court erred in failing to
award treble damages under the DTPA, in reducing the amount of attorneys’
fees, and in failing to grant a new trial on the breach of contract and extra-

See Lennar Corp. v. Markel Am. Ins. Co., 413 S.W.3d 750, 763 (Tex. 2013) (Boyd, J.,
concurring) (“[The Texas Supreme Court] imposed the prejudice requirement as a logical
result of the rule that a party’s breach of contract excuses the other party’s performance only
if the initial breach is material.”).
15

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contractual claims. Additionally, Resie’s contends that the district court erred
by excluding Foreman as a plaintiff.
In order to obtain treble damages under the DTPA, Resie’s must present
evidence that AIC knowingly engaged in wrongful conduct during its
investigation. 16 Because there was a bona fide coverage dispute between the
parties, there is no basis under Texas law for a bad faith claim.
Resie’s contends that the district court abused its discretion in denying
a new trial on the breach of contract claim. However, it argues only that a new
trial on the amount of damages was warranted. That issue, as well as Resie’s’
request for a new trial regarding the amount of attorneys’ fees awarded to
Resie’s, damages under section 542.058 of the Texas Insurance Code, breach of
a duty of good faith and fair dealing, the claim under Chapter 541 of the
Insurance Code, and Resie’s claim for damages above and beyond the amount
of coverage under the policy, is mooted by the reinstatement of the jury’s
verdict on the contract claim.
Denying a new trial based on the exclusion of Foreman was not an abuse
of discretion because she was not a party to the insurance agreement between
Resie’s and AIC. However, she is a proper party to this appeal because the
final judgment awarded her attorneys’ fees 17—an award that our vacatur of
the judgment revokes.
*

*

*

For the foregoing reasons, we REVERSE the district court judgment in
Resie’s favor on the breach of contract claim and REMAND with instructions
to reinstate the verdict of the jury. We otherwise AFFIRM the judgment.

TEX. BUS. & COM. CODE ANN. § 17.50(b)(1).
See Galveston, H. & N. Ry. Co. v. House, 102 F. 112, 114 (5th Cir. 1900) (citing Davis
v. Mercantile Tr. Co., 152 U.S. 590 (1894)).
16
17

11