James River Insurance Company v. Rapid Funding, LLC
Filing
305
ORDER. James Rivers Motion in Limine to Limit Scope of Retrial 292 is GRANTED in part, and DENIED in part, consistent with this order. The parties are directed to contact chambers jointly to set a trial date. By Judge R. Brooke Jackson on 5/29/2012.(sahsl, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Honorable R. Brooke Jackson
Civil Action No. 07-cv-1146-RBJ-BNB
JAMES RIVER INSURANCE COMPANY,
Plaintiff.
v.
RAPID FUNDING LLC,
Defendant.
ORDER
This matter is before the Court on James River Insurance Company’s (“James River”)
Motion in Limine to Limit the Scope of Retrial [Doc. #294]. Rapid Funding filed a brief in
opposition [#294] and James River filed a reply [#294]. On April 5, 2012 Judge Christine
Arguello held a hearing on the motion [#300]. Shortly thereafter, however, Judge Arguello
disqualified herself from further participation in the case based upon her former association with
the law firm that had become plaintiff’s counsel. The matter is ripe for review.
PROCEDURAL HISTORY
This dispute arises out of a fire that destroyed part of an apartment building located in
Wyoming, Michigan. The apartment complex, Amsterdam Gardens, consisted of two buildings:
the North Building and the South Building. In 2003, the City of Wyoming condemned
Amsterdam Gardens for building code violations. In 2004, Robert Rice and Robert Niebauer
paid $2.6 million for the complex, and borrowed $2.08 million from Rapid Funding on a
mortgage loan payable in one year. Mr. Rice later sold his interest in the property to Mr.
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Niebauer but remained jointly and severally liable for the debt. Mr. Niebauer defaulted on the
loan, and Rapid Funding filed for foreclosure. Rapid Funding took out a $3 million policy with
James River and then purchased Amsterdam Gardens at the sheriff’s foreclosure sale for $1.8
million.
On January 24, 2007 an arson fire destroyed the North Building. Upon order from the
City of Wyoming, Rapid Funding demolished both the North and South Building. Rapid
Funding submitted an insurance claim for the full $3 million and submitted two “proofs of loss”
indicating that the “actual cash value” of the North Building before the fire was $4.489 million.
James River denied the claim after determining that the building’s pre-fire value was less than
zero.
On May 31, 2007 James River initiated this action seeking a declaratory judgment that:
(1) the burned building had a pre-fire actual cash value of zero or less than zero, and (2) Rapid
Funding’s insurable interest in the burned building was equitably limited. Rapid Funding filed
counterclaims for breach of insurance contract and breach of the covenant of good faith and fair
dealing. The case went to trial in Judge Christine Arguello’s court on July 8, 2010. At the close
of a six day trial the jury found James River liable for breach of insurance contract and bad faith
breach of an insurance contract. The jury awarded Rapid Funding $3 million in compensatory
damages, and $2.35 million in punitive damages.
James River appealed the damages verdict on the ground that the district court should
have excluded the testimony of Andrew Miller, Rapid Funding’s principal, under Fed. R. Evid.
702. Prior to the trial, James River filed a motion in limine seeking to exclude Andrew Miller’s
testimony on the value of the North Building. The district court held an evidentiary hearing on
James River’s motion and determined that Mr. Miller was qualified to offer lay opinion
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testimony on the value of the property based on his experience in real estate. At trial, James
River renewed its objection when Mr. Miller testified. The Tenth Circuit panel described the
content of Mr. Miller’s testimony as follows:
Mr. Miller testified to the $7.145 million replacement cost estimate from the
Anderson Group, to his 40% depreciation figure, and his actual cash value
estimate of $4.489 million. The court instructed the jury that Mr. Miller was
testifying as a lay witness, not as an expert. Mr. Miller also testified that Rapid
Funding purchased the complex at the sheriff’s foreclosure sale for $1.8 million
and that, when Rapid Funding put the complex up for sale, it received offers
between $1.0 and $1.2 million. Mr. Rice testified to buying the complex for $2.6
million, and Mr. Miller testified that Rapid Funding had contracted to sell the
complex back to Mr. Rice for $1.8 million and forgive his $650,000 debt to Rapid
Funding.
James River Ins. Co. v. Rapid Funding, LLC, 658 F.3d 1207, 1211-12 (10th Cir. 2011).
The court found that Mr. Miller’s valuation testimony was expert testimony based on
technical or specialized knowledge and should not have been admitted under Rule 701. Id. at
1214. Rule 701 “does not permit a lay witness to express an opinion as to matters which are
beyond the realm of common experience and which require the special skill and knowledge of an
expert witness.” Ibid. (citing Randolph v. Collectramatic, Inc., 590 F.2d 844, 846 (10th Cir.
1979)). Further, the court found that Mr. Miller’s testimony did not qualify as a lay opinion
under Rule 701. It reasoned that Mr. Miller “had to do more than calculate depreciation for a 39year old building. He also needed to account for the deterioration and neglect that caused the
North Building to be condemned. Accurately accounting for the interaction between
depreciation and damage requires professional experience and is beyond the scope of lay opinion
testimony.” Id. at 1215. Without Mr. Miller’s testimony, the court held that there was
insufficient evidence to sustain the jury’s damages verdict:
Without Mr. Miller’s valuation testimony, the jury’s damages verdict must be
overturned. Because the remaining evidence did not lend itself to a reliable
estimate of the pre-fire value of the North Building, the appropriate remedy is not
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to reduce the damages through remittitur, but to have a new trial so the parties can
introduce reliable valuation evidence and a jury can reach an accurate damage
verdict. Accordingly, we remand this case for a new trial limited to the issue of
damages.
Id. at 1221-22.
On October 25, 2011 James River filed a motion in limine requesting an order
limiting the scope of retrial to a determination of the value of the North Building [#292].
The issue was briefed and argued before, as indicated above, Judge Arguello entered an
order of recusal.
CONCLUSIONS
As an initial matter, it is worth noting that both parties are in agreement that the
evidence in the second trial will not be limited to that which was developed in the first.
The Court agrees. However, the parties vehemently disagree about the scope of the trial
on remand. The parties briefing on the scope of retrial presents two issues: (1) To what
extent the retrial will encompass punitive damages; and (2) Whether, in connection with
the Court’s ruling on the punitive damages issue, the Court should exclude certain pieces
of evidence.
Punitive Damages
In its motion, James River argues that the sole issue to be retried is the amount of
compensatory damages for breach of contract, or simply, the value of the North Building
after the fire. In contrast, Rapid Funding interprets the Tenth Circuit’s decision to
encompass all damages, including punitive damages. James River’s and Rapid Funding’s
disagreement turns upon their respective interpretations of several issues: (1) The Tenth
Circuit’s opinion; (2) Rapid Funding’s rights under the Seventh Amendment; (3)
Colorado’s damages cap for punitive damages; and (4) the admissibility of evidence
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under Federal Rules of Evidence 401 and 403. Each issue will be addressed in turn
below.
The Tenth Circuit ordered: “The damages verdict is REVERSED and the case is
REMANDED for a new trial to determine damages.” James River, 658 F.3d at 1222.
The crux of the disagreement is what the Tenth Circuit meant by its use of the term
“damages.” James River’s view is that the Tenth Circuit directed this Court to re-try
evidence regarding compensatory damages only, i.e., the value of the North building.
Rapid Funding argues that “damages” refers to all damages – punitive as a well as
compensatory.
The Tenth Circuit’s opinion primarily concerned the testimony of Mr. Miller. Mr.
Miller’s testimony centered on the value of the North Building and was the basis for
James River’s appeal. The court determined that the valuation testimony was
erroneously admitted. The remedy was “to have a new trial so the parties can introduce
reliable valuation evidence and a jury can reach an accurate damages verdict.
Accordingly, we remand this case for a new trial limited to the issue of damages.” Id. at
1221-22.
The opinion did not address punitive damages. However, James River, both in its
brief and at oral argument, conceded liability for the full amount of punitive damages that
can be awarded under Colorado law. Accordingly, there is no genuine dispute regarding
either Rapid Funding’s entitlement to punitive damages or amount of punitive damages in
the event that it obtains a verdict on compensatory damages.
Rapid Funding argues that limiting the scope of the retrial to valuation evidence
will violate its Seventh Amendment rights. The Seventh Amendment to the United States
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Constitution states: “In Suits at common law, where the value in controversy shall exceed
twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury,
shall be otherwise reexamined in any Court of the United States, than according to the
rules of common law.” The Seventh Amendment “includes the right to a jury
determination regarding the amount of punitive damages.” Jones v. United Parcel
Service, Inc., 674 F.3d 1187, 1206 (10th Cir. 2012).
In Jones, the parties disputed both the amount of punitive damages and whether
the plaintiff was entitled to any punitive damages. Here, as indicated, there is no dispute
as to entitlement or amount. “The Seventh Amendment does not entitle parties to litigate
before a jury when there are no factual issues for a jury to resolve.” Koski v. Standex
Int’l Corp., 307 F.3d 672, 676 (7th Cir. 2002). For the same reason that granting
summary judgment against a party does not violate that party’s Seventh Amendment
jury-trial right, accepting a party’s concession that it is liable for the maximum amount of
punitive damages does not violate the opposing party’s Seventh Amendment jury-trial
right. See Plaisance v. Phelps, 845 F.2d 107 (5th Cir. 1988) (finding that the plaintiff did
not have an absolute right to a jury trial where there was no genuine issue of material
fact, since the function of the jury is to try disputed material facts).
The facts presented in Belk v. Dzierzanowski, 571 F.Supp.2d 1346 (N.D. Ga.
2008) are strikingly similar to those presented here. In that case, which concerned a
wrongful death action, the defendant offered to confess judgment for punitive damages in
the amount of $250,000, which the court noted was the statutory cap for punitive
damages in Georgia. The plaintiff opposed the confession, arguing that “only a jury can
determine the amount of punitive damage award.” Id. at 1347. The court rejected the
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plaintiff’s argument, stating that “the statute’s $250,000 cap on punitive damages renders
jury consideration unnecessary in a case where the defendant concedes liability for the
maximum possible punitive damage award.” Id. I can understand that presenting
evidence concerning punitive damages might have a tactical advantage. However,
because there is no disputed issue of fact for the jury to resolve, and the case is limited to
valuation evidence, there is no Seventh Amendment right to have the jury consider
punitive damages.
Rapid Funding also argues that even if James Rivers has conceded the maximum
statutory amount of punitive damages, the jury must still be permitted to hear evidence of
punitive damages because limiting the scope of trial will prevent Rapid Funding from
arguing that the statutory cap is unconstitutional.
Under Colo. Rev. Stat. § 13-21-102(1)(a), the jury may award reasonable
exemplary damages when the wrong committed was attended by circumstances of willful
and wanton conduct. However, “the amount of such reasonable exemplary damages shall
not exceed an amount which is equal to the amount of the actual damages awarded to the
injured party.” Colo. Rev. Stat. § 13-32-102(1)(a). Notwithstanding this limitation, the
court “may increase any award of exemplary damages, to a sum not to exceed three time
the amount of actual damages,” if certain circumstances are present. Colo. Rev. Stat. §
13-21-102(3).
Following the first trial Rapid Funding requested that the court increase the jury’s
award of $2.35 million in punitive damages to over $7 million [#216]. The Court denied
that request, finding that there was no evidence that James River had acted “willfully and
wantonly” during the pendency of the case. [#255] at 9. This is now the law of the case.
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Accordingly, the most Rapid Funding can possibly receive in punitive damages is “an
amount equal to the amount of actual damages awarded.” Colo. Rev. Stat. § 13-21102(1)(a). As James River has confessed liability to such an amount, the Court can
determine it – on a 1-to-1 ratio – as a matter of law once the jury determines actual
damages. An award of punitive damages equal to actual damages, in compliance with the
Colorado statutes, does not prohibit a constitutional challenge, nor has Rapid Funding
cited any authority for that proposition.
James River argues that any evidence of their bad faith insurance breach is
irrelevant to the question of the North Building’s pre-fire value. Under Federal Rule of
Evidence 401, “evidence is relevant if: (a) it has any tendency to make a fact more or less
probable than it would be without the evidence; and (b) the fact is of consequence in
determining the action.” Rapid Funding has failed to articulate how evidence regarding
how James River handled the insurance claim demonstrates anything about the value of
the property itself. As Judge Arguello stated during oral argument on this issue, such
evidence may be relevant to any decision by this Court on whether to treble damages, but
it is not relevant to the initial determination of the value of the North Building.
Further, even if the bad faith insurance breach evidence were relevant, the Court
would elect to exclude it under Federal Rule of Evidence 403. Rule 403 states: “The
court may exclude evidence if its probative value is substantially outweighed by a danger
of one or more of the following: unfair prejudice, confusing the issues, misleading the
jury, undue delay, wasting time, or needlessly presenting cumulative evidence.” Here,
any probative value of James River’s bad faith insurance breach would be substantially
outweighed by a danger of unfair prejudice. Evidence of James River’s bad faith
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handling of the claim runs the risk of inflaming the passions of the jury or of misleading
the jury, to decide on an inflated value of the North Building simply to punish James
River for its bad faith. Permitting the parties to re-litigate the issues in the bad faith claim
would also waste substantial time in a case that has now been further delayed.
Accordingly, the Court concludes that the only issue to be retried is compensatory
damages for James River’s breach of contract, which is a function of reliable valuation
evidence regarding the North Building on the date of the fire.
Exclusion of Evidence
In its motion, James River also asks that eight specific items of evidence be
excluded. Each item will be addressed in turn.
1. Claim Handling and Other Evidence of Bad Faith.
As discussed above, such evidence is irrelevant, and thus admissible, given the
scope of the retrial.
2. The Policy Limit of $3 Million.
James Rivers argues that the $3 million policy limit is not relevant to the value of
the North Building. The Court disagrees with James River’s assertion that an insurance
policy limit provides no evidence of the value of the insured property. Therefore, at this
time the Court will not exclude evidence of the $3 million policy limit.
3. The Policy Itself.
James River also contends that the policy itself is irrelevant to the valuation
question. Further, James River argues that the policy is a complex document with
numerous terms of art and is likely to confuse the jury. The policy is a complex
document, but the Court has faith that the jury is capable of carefully reading and
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understanding the insurance policy. The parties may submit jury instructions to help
clarify any confusing or potentially misleading terms of art. The policy itself will
provide necessary context for the decision the jury will be making, and therefore will not
be excluded.
4.
The Fact that James River Rejected Most of Rapid Funding’s Claim.
As discussed above, such evidence is irrelevant and thus inadmissible, given the
scope of the retrial.
5. Information about the First Trial.
James River argues that information regarding the first jury’s verdict s is
irrelevant and should not be provided to the jury. The Court will inform the new jury that
a previous trial occurred, and liability was determined in Rapid Funding’s favor. The
jury will not, however, be informed of (1) the first jury’s specific liability findings, (2)
the first jury’s decision on punitive damages, or (3) the amount of damages awarded.
Such evidence is irrelevant, and even if relevant, would be inadmissible under Rule 403.
6. Rapid Funding’s Proofs of Loss.
The Tenth Circuit has already deemed Rapid Funding’s ‘proofs of loss’ to be
irrelevant. “[A] rational jury could not rely on the Proofs of Loss to establish damages.
The Proofs of Loss were allegations of what Rapid Funding believed it could prove the
North Building was worth.” [#280] at 26. All the Proofs of Loss were meant to do was
“provide James River with the opportunity to investigate the value of Rapid Funding’s
claim and then arrive at an accurate estimate of its value.” Id. at 27.
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7. Punitive Damages Calculation.
James River contends that the first jury’s award of punitive damages and the
information that any compensatory award will be matched by an equal award of punitive
damages is irrelevant and unfairly prejudicial. For the reasons discussed in detail above,
the Court agrees with James River.
8. Testimony of Matt Baker.
Matt Baker was an employee of James River. Following the jury’s verdict, Mr.
Baker sent a congratulatory email to Rapid Funding’s counsel and said that James River’s
claims manager was “immoral and controlling,” that “they’ve steered this thing,” and that
“I wish I could have said more.” As Judge Arguello stated during the October 4, 2011
status conference, the email is ambiguous and does not indicate that there was any
perjury. [#291]. Matt Baker’s testimony would go to James River’s handling of the
claim which is irrelevant to the value of the North Building, and, thus, inadmissible.
Order
Accordingly, James River’s Motion in Limine to Limit Scope of Retrial [#292] is
GRANTED in part, and DENIED in part, consistent with this order.
The parties are directed to contact chambers jointly to set a trial date.
DATED this 29th day of May, 2012.
BY THE COURT:
___________________________________
R. Brooke Jackson
United States District Judge
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