Medical Protective Company v. Herman Pang

Filing

FILED ORDER AND OPINION (A. WALLACE TASHIMA, JAY S. BYBEE and KIMBA M. WOOD) Defendant-Appellant s request for publication is granted. The Memorandum filed June 26, 2013, and appearing at 2013 WL 3213349, is withdrawn and the authored Opinion filed concurrently with this order is substituted in its stead. Each party shall bear its or his own costs on appeal. AFFIRMED IN PART, VACATED AND REMANDED IN PART. Judge: KMW Authoring. FILED AND ENTERED JUDGMENT. [8836952]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

MEDICAL PROTECTIVE COMPANY,
a foreign corporation,
Plaintiff-Appellee,

No. 11-17384
D.C. No.
2:05-cv-02924-JAT

v.
HERMAN PANG, M.D.,
Defendant-Appellant.

ORDER AND
OPINION

Appeal from the United States District Court
for the District of Arizona
James A. Teilborg, District Judge, Presiding
Argued and Submitted
June 14, 2013—San Francisco, California
Filed October 25, 2013
Before: A. Wallace Tashima and Jay S. Bybee, Circuit
Judges, and Kimba M. Wood, Senior District Judge.*
Order;
Opinion by Judge Wood

*

The Honorable Kimba M. Wood, Senior District Judge for the U.S.
District Court for the Southern District of New York, sitting by
designation.

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MEDICAL PROTECTIVE CO. V. PANG
SUMMARY**

Attorneys’ Fees
The panel granted appellant’s request for publication,
affirmed the district court’s denial of appellant’s motion for
costs, and vacated the district court’s denial of motions for
attorneys’ fees, arising from a settlement in a medical
malpractice coverage action.
The panel held that the district court properly denied
appellant’s motion for costs under District of Arizona Local
Rule 54.1(d). The panel also held that the district court
abused its discretion by failing to apply the correct standard
under Arizona law when it held that appellant was not entitled
to attorneys’ fees as the “successful party.” The panel
remanded for the district court to determine if appellant was
the “successful party,” and whether attorneys’ fees should be
awarded.

COUNSEL
Timothy Kasparek, Goodyear, Arizona, for DefendantAppellant.
Steven Plitt, Joshua D. Rogers, and John K. Wittwer, Kunz
Plitt Hyland & Demlong PC, Phoenix, Arizona, for PlaintiffAppellee.

**

This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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ORDER
Defendant-Appellant’s request for publication is granted.
The Memorandum filed June 26, 2013, and appearing at
2013 WL 3213349, is withdrawn and the authored Opinion
filed concurrently with this order is substituted in its stead.

OPINION
WOOD, Senior District Judge:
Dr. Herman Pang appeals from the district court’s denial
of his motion for costs pursuant to Federal Rule of Civil
Procedure 54(d) (“Rule 54(d)”), and his two motions for
attorney’s fees pursuant to Ariz. Rev. Stat. § 12-341.01
(“Section 12-341.01”). Rule 54(d) mandates the award of
costs to the “prevailing party.” Section 12-341.01 provides
district courts with discretion to award attorney’s fees to the
“successful party” in actions arising from contract. Pang
argues that he is entitled to costs as the “prevailing party”
under Rule 54(d), and entitled to attorney’s fees as the
“successful party” under Section 12-341.01.
We conclude that the district court properly denied Pang’s
motion for costs under District of Arizona Local Rule
54.1(d), but that the court abused its discretion by failing to
apply the correct standard under Arizona law when it held
that Pang was not entitled to attorney’s fees as the “successful
party.” Accordingly, we affirm the district court’s decision
denying Pang’s request for costs, but vacate both of the
district court’s orders denying Pang’s motions for attorney’s
fees. We remand for the district court to determine (1)

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whether Pang was the “successful party” as defined by
Arizona law, and (2) if so, whether the district court should
exercise its discretion to award attorney’s fees.
I
Pang bought medical malpractice insurance from the
Medical Protective Company (“Medical Protective”). In June
2002, Pang applied for a substantial increase in his
malpractice coverage, and disclaimed that he had knowledge
of any claims or potential claims against him. Medical
Protective approved the coverage increase on July 3, 2002.
On July 25, 2002, Pang received notice that a patient,
Kymberli Williamson, was suing him for malpractice in
Arizona state court (the “Williamson suit”).
On September 21, 2005, Medical Protective filed this
action in the District of Arizona seeking rescission of the
coverage increase on the ground that Pang allegedly knew of,
but failed to disclose, Williamson’s pending malpractice
claim when he applied for the increase. Pang filed a
counterclaim against Medical Protective for bad faith. Both
Medical Protective and Pang moved for summary judgment,
and the district court granted each party’s motion in part. The
court identified six unresolved issues—relating to both
Medical Protective’s rescission claim and Pang’s
counterclaim—that remained for trial.
Before the trial in the federal action, Pang obtained a
favorable jury verdict in the Williamson suit. Williamson
then appealed the verdict to the Arizona Court of Appeals.
On March 25, 2008, while Williamson’s appeal was pending,
Pang and Medical Protective alerted the district court that
they had reached a settlement in their coverage dispute.

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According to the terms of the settlement, both Medical
Protective’s rescission claim and Pang’s bad faith
counterclaim would be dismissed without prejudice.
Depending on the outcome of Williamson’s appeal, the
parties were permitted either to reopen the action or to
dismiss it with prejudice.
At the parties’ request, the district court entered an order
on March 26, 2008, dismissing both claims without prejudice
(the “March 26 Order”). The March 26 Order specified that,
no later than thirty days after the Arizona Court of Appeals
issued its mandate in the Williamson suit,
one of the parties herein shall file a motion in
this action requesting: (1) that the Court enter
a final order dismissing this action with
prejudice; or (2) requesting that this action be
re-opened for final pre-trial conference and
trial; or (3) requesting that the non-final order
of dismissal without prejudice and the Court’s
jurisdiction continue until after re-trial of the
Williamson case and termination of all
appeals therefrom; or (4) such other orders as
may be appropriate.
If neither party filed such a motion, the March 26 Order
would “automatically become a self-executing final order of
dismissal with prejudice thirty-one (31) days after the filing
of such mandate.”
Williamson eventually succeeded on her appeal. The
Arizona Court of Appeals overturned the jury verdict in favor

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of Pang and remanded the case for a new trial.1 The Arizona
Supreme Court subsequently denied Pang’s petition for
review. As a result, on February 25, 2010, the Arizona Court
of Appeals issued its mandate in the Williamson suit.
Neither Pang nor Medical Protective moved to re-open
the federal action within thirty days after the issuance of the
mandate. As a consequence, the March 26 Order became
final according to its terms, and the action was dismissed with
prejudice.
The parties filed four post-judgment motions following
the final order of dismissal. First, Pang moved for
$126,590.93 in attorney’s fees pursuant to Section 12-341.01,
a statute granting courts discretion to award attorney’s fees to
the “successful party” in suits arising from contract. The
district court denied Pang’s fee motion, holding that there was
“no ‘successful party’ within the meaning of Section 12341.01” because the court had “never resolved the merits of
either party’s claims.” Med. Protective Co. v. Pang,
271 F.R.D. 624, 628 (D. Ariz. 2010). The court determined
that the case had been dismissed with prejudice based on a
voluntary settlement agreement, and held that “[s]uch a result
does not produce a ‘successful party’ within the meaning of
Section 12-341.01.” Id.
Second, Pang sought $9,000.76 in costs. After the Clerk
of the Court refused to award costs because no final judgment
had been issued in the case, the district court denied Pang’s
motion to “revise” the Clerk’s denial of its Bill of Costs,
reasoning that Local Rule 54.1(d) governed Pang’s request,
1

Medical Protective ultimately settled the Williamson suit on Pang’s
behalf.

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and that provision made costs unavailable in cases terminated
by voluntary settlement. Alternatively, the Court denied
Pang’s request for costs for the same reasons that it denied
Pang’s request for fees.
Third, one week after Pang filed his first fee motion,
Medical Protective moved to amend the judgment under
Federal Rule of Civil Procedure 59(e) or to vacate the
judgment under Federal Rule of Civil Procedure 60(b). The
district court denied Medical Protective’s motion. Id. at 627,
628.
Fourth, after the district court denied Medical Protective’s
motion, Pang filed a second motion for attorney’s fees—this
time seeking compensation for legal expenses incurred in
opposing Medical Protective’s post-judgment motion to set
aside the March 26 Order. Pang argued that, as the successful
party on the post-judgment motion, he was entitled to
attorney’s fees pursuant to Section 12-341.01. The district
court denied Pang’s second motion because it did not
“trigger[] a new action arising out of contract”; consequently,
the court’s prior holding that Pang was not the successful
party also barred Pang from recovering attorney’s fees on his
second fee motion. Med. Protective Co. v. Pang, 2011 WL
3903096, at *4 (D. Ariz. 2011).
Pang timely appealed.
II
A district court’s decision to deny attorney’s fees under
state law is reviewed for abuse of discretion. Lane v.
Residential Funding Corp., 323 F.3d 739, 742 (9th Cir.
2003). A district court abuses its discretion if its decision to

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deny fees “is based on an inaccurate view of the law or a
clearly erroneous finding of fact.”
Barrios v. Cal.
Interscholastic Fed’n, 277 F.3d 1128, 1133 (9th Cir. 2002);
see also United States v. Hinkson, 585 F.3d 1247, 1263 (9th
Cir. 2009) (en banc). However, “[a]ny elements of legal
analysis and statutory interpretation that figure in the district
court’s attorneys’ fees decision are reviewed de novo.”
Barrios, 277 F.3d at 1133; see also Kona Enters. v. Estate of
Bishop, 229 F.3d 877, 883 (9th Cir. 2000) (“We review
whether the district court properly interpreted and applied the
relevant state statute, however, de novo.”). Applying this
standard, we conclude that the district court properly denied
Pang’s motion for costs, but abused its discretion by applying
the wrong standard when it denied Pang’s motions for
attorney’s fees.
A
Federal Rule of Civil Procedure 54(d)(1) provides that
“costs–other than attorney’s fees–” should be awarded to the
“prevailing party.” In the District of Arizona, however, the
local rules provide that district courts “will not determine the
party entitled to costs in actions terminated by settlement.”
D. Ariz. Loc. R. 54.1(d). Rather, in such cases, “parties must
reach agreement on taxation of costs, or bear [their] own
costs.” Id. Local rules are valid so long as they are not
inconsistent with the Federal Rules of Civil Procedure. Fed.
R. Civ. P. 83; see also Marshall v. Gates, 44 F.3d 722, 724
(9th Cir. 1995). Local Rule 54(d) is not inconsistent with
Federal Rule 54(d)(1).

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The action was terminated based on a settlement
agreement reached by the parties.2 Accordingly, under Local
Rule 54.1(d), each party bears its own costs, unless the
parties’ agreement states otherwise.
The settlement
agreement here was silent as to costs, and thus the district
court properly denied Pang’s motion for costs.
B
Pang moved for an award of reasonable attorney’s fees
pursuant to Rule 54(d) and Section 12-341.01. Rule 54
provides a federal procedural mechanism for moving for
attorney’s fees that are due under state law. See Fed. R.
Civ. P. 54(d)(2)(B)(ii). Here, Pang moved for attorney’s fees
pursuant to Arizona law, Section 12-341.01, which provides
that, “[i]n any contested action arising out of a contract,
express or implied, the court may award the successful party
reasonable attorney fees.” Ariz. Rev. Stat. § 12-341.01(A)
(emphasis added). The district court denied Pang’s motions
for attorney’s fees because, in its view, the outcome of the
litigation—a voluntary settlement agreement dismissing the
action with prejudice—did not render either party
“successful” within the meaning of Section 12-341.01,
because the court never resolved the merits of either party’s
claims.
Contrary to this holding, however, Arizona appellate
courts have repeatedly held that “[a]n adjudication on the
merits is not a prerequisite to recovering attorney’s fees under
[Section 12-341.01].” Fulton Homes Corp. v. BBP Concrete,
155 P.3d 1090, 1096 (Ariz. Ct. App. 2007); see also Britt v.
2

Indeed, Pang acknowledges that Local Rule 54.1 “proscribes an award
of costs” for voluntary dismissals with prejudice.

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Steffen, 205 P.3d 357, 359 (Ariz. Ct. App. 2008) (holding
defendant could be “successful” when complaint was
dismissed without prejudice for failure to prosecute); Vicari
v. Lake Havasu City, 213 P.3d 367, 373–74 (Ariz. Ct. App.
2009) (approving award of attorney’s fees where case
terminated by voluntary dismissal). “[S]uccessful parties”
are “not limited to those who have a favorable final judgment
at the conclusion of the” action. Wagenseller v. Scottsdale
Mem’l Hosp., 710 P.2d 1025, 1048 (Ariz. 1985). Rather, a
party may be successful without recovering “the full measure
of the relief it requests,” Sanborn v. Brooker & Wake Prop.
Mgmt., 874 P.2d 982, 987 (Ariz. Ct. App. 1994), and need not
“prevail on the merits of the underlying claims” in order to be
deemed a successful party under Section 12.341-01, Mark
Lighting Fixture Co. v. Gen. Elec. Supply Co., 745 P.2d 123,
128 (Ariz. Ct. App. 1986).
To determine whether a party is successful under Section
12-341.01, a court should consider “the totality of the
circumstances and the relative success of the litigants.”
McAlister v. Citibank, 829 P.2d 1253, 1262(Ariz. Ct. App.
1992). Where, as here, a case involves multiple claims and
counterclaims, “the successful party is the net winner.” Berry
v. 352 E. Va., LLC, 261 P.3d 784, 788 (Ariz. Ct. App. 2011)
(quotation marks and citation omitted). Courts may
determine the relative success of the parties by using a
“percentage of success factor” test, or by looking at the
“totality of the litigation.” Schwartz v. Farmers Ins. Co. of
Ariz., 800 P.2d 20, 25–26 (Ariz. Ct. App. 1990).3

3

If there is “no clear successful party,” such as when the jury returns a
partial verdict, it may be proper for the court to find that there was no
successful party. Bank One, Ariz. v. Rouse, 887 P.2d 566, 571 (Ariz. Ct.
App. 2008); see also Kaman Aerospace v. Ariz. Bd. of Regents, 171 P.3d

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The district court also denied Pang’s second fee motion,
reasoning that it could award attorney’s fees incurred in
opposing Medical Protective’s post-judgment motion only if
“the post-judgment motions triggered a new action arising out
of contract.” It was error for the district court to require that
there be “a new action” before considering an award of
attorney’s fees. Arizona courts have held that attorney’s fees
may be awarded at more than one point during the course of
litigating an action arising out of contract. See, e.g., Britt,
205 P.3d at 359–60 (providing for an award of attorney’s fees
when a party has prevailed only on a motion to dismiss
without prejudice); Harris v. Reserve Life Ins. Co., 762 P.2d
1334, 1339 (Ariz. Ct. App. 1998) (affirming award of costs
under Section 12-341 where an action has been dismissed
with prejudice, and noting that “[t]he fact that . . . plaintiff
can refile is not relevant”). Thus, Medical Protective’s postjudgment motion was part of an action arising out of contract,
and Pang may be eligible for an award of attorney’s fees for
successfully defending against that motion.
The district court improperly focused on the fact that it
had never resolved the merits of any of the underlying claims,
and failed to assess whether Pang was the “successful party”
as defined by Arizona law. The court’s holding rested on an
inaccurate view of the law, and thus represents an abuse of
discretion. Hinkson, 585 F.3d at 1261–62, 1263; Barrios,
277 F.3d at 1133. Accordingly, we vacate both of the district
court’s orders denying Pang’s motions for attorney’s fees and
remand for the district court to determine in the first instance
(1) whether Pang was the “successful party” as defined by
Arizona law, and (2) if so, whether the district court should
599, 609 (Ariz. Ct. App. 2007) (approving finding that neither party is
successful where “neither party prevailed on its claim at trial”).

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exercise its discretion to award attorney’s fees, and the
amount of such fees if the court exercises its discretion in
favor of an award. See Associated Indem. Corp. v. Warner,
694 P.2d 1181, 1184 (Ariz. 1985) (in banc). In making these
determinations, the district court may compare the increase in
coverage Pang received as a result of the dismissal of Medical
Protective’s rescission claim, with the benefit to Medical
Protective due to the dismissal of Pang’s bad faith claim.
III
The district court correctly denied Pang’s motion for
costs, but abused its discretion by applying the wrong legal
standard when it denied Pang’s two motions for attorney’s
fees. Each party shall bear its or his own costs on appeal.
AFFIRMED IN PART,
REMANDED IN PART.

VACATED

AND