Hollybrook Cottonseed Proc LLC v. Carver, Incorpor , 772 F.3d 1031 ( 2014 )


Menu:
  •      Case: 14-30054    Document: 00512850499      Page: 1   Date Filed: 11/26/2014
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT
    No. 14-30054                    United States Court of Appeals
    Fifth Circuit
    FILED
    HOLLYBROOK COTTONSEED PROCESSING, L.L.C.,                        November 26, 2014
    Lyle W. Cayce
    Plaintiff - Appellant Cross-Appellee                        Clerk
    v.
    AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY,
    Defendant - Appellee Cross-Appellant
    Appeals from the United States District Court
    for the Western District of Louisiana
    Before REAVLEY, SMITH, and SOUTHWICK, Circuit Judges.
    REAVLEY, Circuit Judge:
    In this appeal involving an insurance dispute both the plaintiff and
    defendant appeal rulings by the district court. We conclude that there was no
    error in the district court’s order granting a new trial, or its determination that
    the jury’s damage award was covered under the applicable insurance policy,
    but we conclude that the district court incorrectly determined that the
    plaintiff’s attorney’s fees were not covered by the policy. We therefore AFFIRM
    in part and REVERSE in part the district court’s judgment and REMAND for
    further proceedings.
    Case: 14-30054    Document: 00512850499     Page: 2   Date Filed: 11/26/2014
    No. 14-30054
    I.
    Plaintiff Hollybrook Cottonseed Processing, L.L.C. (“Hollybrook”)
    contracted with Carver, Inc. for certain cotton processing equipment as part of
    its operation of a cotton mill in Louisiana.      Carver’s equipment suffered
    repeated mechanical breakdowns, causing Hollybrook to experience significant
    downtime of its entire plant and to lose the use of other non-Carver
    downstream equipment. Hollybrook sued Carver in state court for breach of
    contract and redhibition.    It also sued Carver’s primary insurer, Sentry
    Insurance Company, and its excess insurer, Defendant American Guarantee &
    Liability Insurance Company (“American”), under Louisiana’s direct action
    statute. After the defendants removed the case to federal court, Hollybrook
    settled its claims against Carver and Sentry and proceeded against American.
    Prior to trial, the district court held on summary judgment that American’s
    policy provided coverage for Hollybrook’s claims.
    On the next-to-last day of an eleven-day trial, American’s counsel elicited
    testimony from a Carver employee that Hollybrook had demanded that Carver
    give it new equipment and $750,000. This testimony violated the district
    court’s pre-trial order on a motion in limine that precluded the parties from
    disclosing information about offers of settlement and statements made during
    settlement negotiations. Hollybrook immediately objected and moved for a
    mistrial.   The district court determined that counsel’s conduct had been
    intentional and later sanctioned counsel, but it deferred ruling on the motion
    for a mistrial. The court gave an immediate curative instruction and polled
    the jury for assurance that the jurors could ignore the improper settlement
    evidence. On the next day of the trial the jury returned a verdict in favor of
    Hollybrook, awarding damages of $1,750,000, which was far below the amount
    of damages Hollybrook claimed that it had suffered.
    2
    Case: 14-30054    Document: 00512850499     Page: 3   Date Filed: 11/26/2014
    No. 14-30054
    Hollybrook moved for a new trial on the ground that defense counsel’s
    misconduct had tainted the jury. The district court granted the motion, finding
    that counsel’s intentional misconduct and the close fit between the jury’s
    damages award and the settlement offer left it with no fair assurance that the
    jury had ignored the inadmissible evidence. The court therefore ordered a new
    trial as to damages only.
    The second trial was conducted before a different district court judge.
    The second jury also returned a verdict in favor of Hollybrook but awarded
    damages of over $6 million. The award consisted of lost profits of $3.5 million,
    the purchase price of the Carver equipment of $381,042 (the amount of which
    had been stipulated by the parties), and “other compensatory damages” of $2.5
    million. In post-trial briefing, American again challenged the district court’s
    insurance coverage determination made on summary judgment, while
    Hollybrook additionally sought to recover its attorney’s fees as damages
    allowed by Louisiana’s redhibition statute. The district court reaffirmed the
    initial coverage determination but it also determined that Hollybrook’s
    attorney’s fees were not damages covered by the relevant policy.
    American now appeals the district court’s grant of a new trial and the
    court’s coverage determination made on summary judgment. Hollybrook also
    appeals, arguing that the district court erroneously denied it recovery of its
    attorney’s fees.
    II.
    American argues that the district court erroneously granted a new trial
    and that the first jury verdict should be reinstated because it was not against
    the great weight of the evidence. We review the district court’s decision on a
    motion for a new trial for an abuse of discretion. Carr v. Wal-Mart Stores, Inc.,
    
    312 F.3d 667
    , 670 (5th Cir. 2002). An order granting a new trial is reviewed
    more broadly than an order denying one, but an abuse of discretion remains
    3
    Case: 14-30054       Document: 00512850499         Page: 4    Date Filed: 11/26/2014
    No. 14-30054
    necessary for reversal. Carson v. Polley, 
    689 F.2d 562
    , 570 (5th Cir. 1982). If
    “the issues are complex, the evidence is controverted, or the conduct of the trial
    was tainted, ‘we will affirm a new trial order even if on our own review of the
    “cold record” we are not convinced that the jury verdict was against the great
    weight of the evidence.’” Smith v. Transworld Drilling Co., 
    773 F.2d 610
    , 613
    (5th Cir. 1985) (citation omitted).
    When, as here, the district court is faced with a motion for a mistrial
    based on the submission of prejudicial information to the jury, the district court
    must decide whether the error is harmless by assessing whether “‘the error did
    not influence the jury, or had but very slight effect.’” O’Rear v. Fruehauf Corp.,
    
    554 F.2d 1304
    , 1308 (5th Cir. 1977) (quoting Kotteakos v. United States, 
    328 U.S. 750
    , 764, 
    66 S. Ct. 1239
    , 1248 (1946)). We find no abuse of discretion in
    the district court’s determination of this question.               As noted above, the
    improper testimony about the settlement offer came shortly before the case
    was submitted to the jury, and it therefore would have been somewhat fresh
    in the jurors’ minds. Furthermore, there is no discernable basis for the jury’s
    award apparent from the evidence presented on damages, and American offers
    no explanation for how the jury might have arrived at its verdict. 1 Instead, the
    jury’s award of $1,750,000 is exactly $1 million more than the settlement offer
    about which it heard. Moreover, the jury also indicated during the course of
    its deliberations that it was deadlocked on an unspecified matter, yet it
    returned its verdict soon after receiving additional instructions. All of these
    circumstances raise questions about how the jury arrived at its verdict and
    suggest that the jury simply added $1 million to the amount it believed
    Hollybrook had been willing to accept.
    1Although Hollybrook claimed at trial that its damages ranged from $5.9 million to
    over $15 million, it is unclear how the jury calculated its damages amount despite finding in
    Hollybrook’s favor as to liability.
    4
    Case: 14-30054     Document: 00512850499      Page: 5    Date Filed: 11/26/2014
    No. 14-30054
    American argues that because the improper testimony was brief and did
    not permeate the trial, it did not influence the jury. However, “[t]he trial judge
    is ‘of necessity, clothed with a great deal of discretion in determining whether
    an objectionable question is so prejudicial as to require a retrial, . . . (and he)
    is in a far better position to measure the effect of an improper question on the
    jury than an appellate court which reviews only the cold record.’” 
    O’Rear, 554 F.2d at 1308
    (citation omitted). In light of the totality of the circumstances, we
    find no abuse of discretion in the district court’s conclusion that it had no fair
    assurance the jury was not influenced by the inadmissible settlement
    testimony. See 
    id. (“‘[I]f one
    cannot say, with fair assurance, after pondering
    all that happened without stripping the erroneous action from the whole, that
    the judgment was not substantially swayed by the error, it is impossible to
    conclude that substantial rights were not affected.’” (citation omitted)).
    III.
    American next argues that policy exclusions for the insured’s work
    product should have precluded coverage for the jury’s damages award rendered
    at the second trial. We affirm the district court’s judgment, however, for the
    same reasons articulated by the district court.
    The “work product” provisions in the policy precluded coverage for
    “‘[p]roperty damage’ to ‘your product’ arising out of it or any part of it” and for
    “‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it and included
    in the ‘products-completed operations hazard.’”         American contends that
    because all of Hollybrook’s damages arose from the injury to the Carver
    equipment, the work product exclusion applies to preclude coverage.
    We agree with the district court that under Louisiana law the “work
    product” exclusion is intended “to ‘avoid the possibility that coverage under a
    CGL policy will be used to repair and replace the insured’s defective products
    and faulty workmanship.’” Supreme Servs. & Specialty Co. v. Sonny Greer,
    5
    Case: 14-30054      Document: 00512850499       Page: 6    Date Filed: 11/26/2014
    No. 14-30054
    Inc., 
    958 So. 2d 634
    , 641 (La. 2007) (citation omitted). The district court
    correctly held that while the exclusion precludes coverage for damages due to
    the repair or replacement costs of the insured’s actual equipment, it does not
    preclude coverage for loss resulting from damage to other property. See Martco
    Ltd. P’ship v. Wellons, Inc., 
    588 F.3d 864
    , 883-84 (5th Cir. 2009); see also Todd
    Shipyards Corp. v. Turbine Service, Inc., 
    674 F.2d 401
    , 421 (5th Cir. 1982)
    (holding that an “injury to work” exclusion “carves out of the policy damage to
    the particular work performed by the insured, but not the overall damage that
    the incorporation of the defective work product causes to the entire entity”);
    Bollinger Shipyards Lockport, L.L.C. v. AmClyde Engineered Prods., 
    2003 WL 21396773
    , at *6 (E.D. La. Jun. 11, 2003) (unpublished) (“The work product
    exclusion precludes recovery for damage to the product itself.              Coverage
    remains for personal injury and ‘other property’ damage.” (citation omitted)).
    Here, Hollybrook’s damages occurred not only from the injury to the
    Carver equipment but also from the loss of use of the entire plant, which the
    district court held was damage to other property under the policy and was not
    excluded by the “work product” exclusion. 2 See 
    Martco, 588 F.3d at 883
    (“[L]oss
    of use was suffered by the OSB plant as a whole. These injuries were presented
    at trial through evidence of specific instances of plant-wide downtime caused
    by the various mechanical failures of the Wellons unit.”); Todd Shipyards
    
    Corp., 674 F.2d at 423
    (holding that a “work product” exclusion precluded
    recovery of the cost to repair or replace a turbine, which the insured had
    negligently repaired, but that economic losses from the loss of use of the entire
    ship as a result of downtime were not excluded because the ship was
    “indisputably property other than the insured’s work product”). American fails
    2  No party disputes that, under the “work product” exclusion, the district court
    correctly excluded from the judgment the purchase price of the Carver equipment.
    6
    Case: 14-30054      Document: 00512850499         Page: 7    Date Filed: 11/26/2014
    No. 14-30054
    to show that the “work product” exclusion unambiguously applies to the loss of
    use of the entire plant in this case. 3 See 
    Martco, 588 F.3d at 880
    (holding that
    insurer bears the burden of proving that an exclusion to coverage
    unambiguously applies).
    IV.
    Hollybrook appeals the district court’s refusal to include its attorney’s
    fees in the judgment because the court determined that the fees were not
    “damages” covered by American’s policy. Hollybrook argues that there was
    coverage because American’s policy covered all sums that its insured, Carver,
    was legally obligated to pay as damages, and, under Louisiana law, a plaintiff’s
    attorney’s fees are an element of damages in a redhibition suit. It asserts that
    American has failed to show any policy exclusion that precludes coverage for
    the attorney’s fees. We agree with Hollybrook.
    American’s policy required it to “pay those sums that the insured
    becomes legally obligated to pay as damages because of . . . ‘property damage’
    included within the ‘products-completed operations hazard.’” The relevant
    question in this case is whether the attorney’s fees were “damages” caused by
    property damage. Because the policy does not define the word “damages” it is
    given its ordinary meaning, and any ambiguity must be resolved against the
    insurer in favor of coverage. See, e.g., Reynolds v. Select Props., Ltd., 
    634 So. 2d 1180
    , 1183 (La. 1994).
    Under Louisiana law, attorney’s fees ordinarily are not recoverable
    unless specifically authorized by statute or contract. See Quealy v. Paine,
    Webber, Jackson & Curtis, Inc., 
    475 So. 2d 756
    , 763 (La. 1985); Russ Herman,
    3 We are also not persuaded by American’s argument that aside from lost profits there
    was no evidence of, and therefore no coverage for, the “other compensatory damage” awarded
    by the jury. As Hollybrook points out, there was evidence of construction costs to build out
    the plant and losses from its inability to meet forward contracts outstanding when the plant
    closed.
    7
    Case: 14-30054   Document: 00512850499      Page: 8   Date Filed: 11/26/2014
    No. 14-30054
    1 La. Prac. Pers. Inj. § 5:14 (2014). In a redhibition suit attorney’s fees are
    expressly allowed. See La. Civ. Code art. 2545. State law provides that a
    manufacturer of a defective product may be found liable to the buyer of the
    product in a redhibition action for “the return of the price with interest from
    the time it was paid, for the reimbursement of the reasonable expenses
    occasioned by the sale and those incurred for the preservation of the thing, and
    also for damages and reasonable attorney fees.” 
    Id. (emphasis added).
           American argues that attorney’s fees and damages are two separate
    remedies, and that the fees are considered to be a penalty rather than a part
    of a party’s damages. However, Louisiana courts have specifically stated about
    redhibition actions that “[t]he buyer’s reasonable attorney fees are nothing
    more than an element of the buyer’s damage.” Borne v. Mike Persia Chevrolet
    Co., 
    396 So. 2d 326
    , 330 (La. Ct. App. 1981). In Borne, the court addressed a
    constitutional challenge to the redhibition statute, stating that the statute “is
    not penal in its operation or intent” but rather “simply assigns the cost of
    contract litigation over actual defects in products” to the party responsible for
    the litigation. 
    Id. As such,
    the rule in Louisiana “is not that attorney fees are
    not an element of damage, but only that they are ordinarily not recoverable.”
    
    Id. American points
    to cases that it argues characterize attorney’s fees as a
    penalty, see, e.g., Sharbono v. Steve Lang & Son Loggers, 
    696 So. 2d 1382
    , 1386
    (La. 1997), and Devillier v. Fidelity & Deposit Co. of Maryland, 
    709 So. 2d 277
    ,
    282 (La. Ct. App. 1998), but those cases did not involve redhibition and are
    inapposite. For example, one commentator on Louisiana law has correctly
    explained that the legislative history of the redhibition article “clearly stated
    that its purpose was to include attorney fees in the liability for damages of . . .
    a seller.” Ronald J. Scalise, Jr., 
    6 La. Civ
    . L. Treatise, Law of Obligations
    § 12.22 (2d ed. 2014); see also Harris v. Bardwell, 
    373 So. 2d 777
    , 783-84 (La.
    8
    Case: 14-30054    Document: 00512850499     Page: 9      Date Filed: 11/26/2014
    No. 14-30054
    Ct. App. 1979) (“CC 2545 was designed to impose liability upon the bad faith
    seller and the manufacturer of a defective product which causes damage to a
    buyer. That liability expressly includes attorney fees.”).
    As noted above, the policy requires American to pay all “sums” that
    Carver becomes “legally obligated” to pay as “damages.” There is no dispute
    that Carver, the insured, would be legally obligated to pay Hollybrook’s
    attorney’s fees under article 2545. We conclude from the foregoing that the
    attorney’s fees in this redhibition action are properly included within
    Hollybrook’s damages and the district court erred by refusing to characterize
    them as included within the policy’s insuring agreement. American argues
    that even so, the fees are excluded by the work product exclusion of the policy.
    In a redhibition action a work product exclusion may preclude coverage of
    attorney’s fees where the consequential damages directly result from the
    alleged defective workmanship. See, e.g., Swarts v. Woodlawn, Inc., 
    610 So. 2d 888
    , 891 (La. Ct. App. 1992). As noted above, at least some of the damages
    awarded by the jury for the price of the Carver equipment were properly
    excluded from Hollybrook’s recoverable damages. We leave to the district court
    what portion, if any, of the attorney’s fees are attributable to those excluded
    damages and may therefore also fall under the exclusion. The district court’s
    judgment is therefore reversed in part and the case is remanded for further
    proceedings.
    AFFIRMED IN PART, REVERSED IN PART; REMANDED.
    9