Maddox v. St Paul Fire , 70 F. App'x 77 ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
7-22-2003
Maddox v. St Paul Fire
Precedential or Non-Precedential: Non-Precedential
Docket No. 02-2828
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 02-2828
WALTER L. MADDOX, III,
Appellant
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY;
UNITED STATES FIDELITY AND GUARANTY COMPANY
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 01-cv-01264)
District Judge: Hon. D. Brooks Smith
Argued June 26, 2003
Before: SLOVITER and AMBRO, Circuit Judges, and
PETRESE B. TUCKER*, District Judge
(Filed: July 22, 2003)
Leland P. Schermer (Argued)
Leland Schermer & Associates
11 Stanwix Street, 7th Floor
Pittsburgh, PA 15222
Attorney for Appellant
* Hon. Petrese B. Tucker, United States District Court for the Eastern District of
Pennsylvania, sitting by designation.
Alan S. Miller (Argued)
Picadio McCall Miller & Norton
4710 U.S. Steel Tower
600 Grant Street
Pittsburgh, PA 15219
OPINION OF THE COURT
SLOVITER, Circuit Judge.
We must decide whether we have jurisdiction over this interlocutory appeal filed
by appellant Walter L. Maddox, III from the order of the District Court denying
Maddox’s Motion to Continue with Counsel and granting in part and denying in part the
Motion of defendant United States Fidelity and Guaranty Company (“USF& G”) to
Proceed with Defense of M addox. Maddox v. St. Paul Fire & Marine Ins. Co., Civ. A.
No. 01-1264 (W.D. Pa. May 29, 2002). The order also denied USF& G’s motion to
substitute its proffered counsel and ordered Maddox to select new, qualified, and
independent counsel, subject to USF&G’s reasonable approval. We will dismiss this
appeal for lack of jurisdiction.
I.
FACTS AND PROCEDURAL BACKGROUND
On January 11, 2001, Sunny James Cvetnic filed a civil suit against Maddox for
trademark infringement and other claims in the United States District Court for the
Western District of Pennsylvania. Cvetnic claimed that Maddox, a musician, infringed on
2
Cvetnic’s trademark by performing under the name “The Marcels.”
Maddox has purchased annual general liability insurance policies from USF&G
and St. Paul Fire and Marine Insurance Company (“St. Paul”) since September 1992. The
policies provide coverage to Maddox for claims by third parties asserting “Advertising
Injuries.” See, e.g., Supp. App. at 352. The policies also provide USF&G and St. Paul
the right and duty to defend Maddox in any suit seeking damages based on such injuries.
Upon notice of the suit, Maddox’s retained counsel, Metz Schermer & Lewis, sent
a letter to St. Paul. The letter provided notice of the Cvetnic action and demanded
complete defense and indemnity in that lawsuit under the “Advertising Injuries” coverage
provision. On April 3, 2001, Maddox’s counsel filed an Answer in the Cvetnic action.
On April 27, 2001, Daria Fitzgerald, a St. Paul employee, left a voice message with
Maddox’s counsel stating that St. Paul would provide a defense for Maddox under a
reservation of rights and expressing its willingness to allow M etz Schermer & Lewis to
represent Maddox in the Cvetnic action.
On May 15, 2001, slightly less than a month later, USF&G and St. Paul issued a
reservation of rights letter to Maddox, reserving the right to deny coverage, withdraw
from Maddox’s defense, seek reimbursement from Maddox for uncovered claims, and
deny indemnification. On June 20, 2001, USF&G notified Maddox’s counsel by letter
3
that it was withdrawing from providing Maddox’s defense.1 USF&G based its decision
on information acquired from papers filed in a prior 1981 action between The Marcels
and their record label, Knauss, et al. v. Colpix Records, No. 80 Civ. 2255 (S.D.N.Y.
1981).
Maddox filed suit against USF&G and St. Paul in the Court of Common Pleas of
Allegheny County on July 9, 2001. Maddox’s Complaint sought declaration of
USF&G/St. Paul’s duty to defend Maddox in the Cvetnic action, as well as relief for other
claims, including breach of contract and bad faith. USF&G and St. Paul removed the
action to the District Court for the Western District of Pennsylvania. Maddox filed a
motion for a temporary restraining order, pending a preliminary injunction, to enjoin
USF&G and St. Paul from withdrawing their defense and requiring them to pay
Maddox’s counsel fees.
The District Court granted the motion by the insurance companies to sever the
declaratory judgment count concerning the issue of their duty to defend M addox.
Maddox v. St. Paul Fire & Marine Ins. Co., Civ. A. No. 01-1264 (W.D. Pa. Aug. 8,
2001). On December 27, 2001, the District Court granted Maddox’s motion for summary
judgment in part, finding that USF&G has a duty to defend Maddox in the Cvetnic action.
Maddox v. St. Paul Fire & Marine Ins. Co., 179 F. Supp. 2d 527 (W.D. Pa. 2001).
1
Some of the letters in the Supplemental Appendix which we attribute to USF&G
appear to be written on St. Paul’s letterhead but signed by representatives of USF&G.
For purposes of our analysis, any dispute over the source of the letters is inconsequential.
4
Subsequently, USF&G sent Maddox’s counsel a letter advising him that it had
retained new counsel for his defense in the Cvetnic lawsuit. USF&G reasserted its prior
reservation of rights, except for the prior publication exclusion which the District Court
had rejected. On January 28, 2002, USF&G filed a motion to proceed with Maddox’s
defense. Maddox opposed the motion and requested retention of Metz Schermer &
Lewis.
On May 29, 2002, the District Court granted in part USF&G’s motion, finding that
it had the right to reject M etz Schermer & Lewis due to an acrimonious relationship
between counsel and USF&G caused by the litigation over Maddox’s duty to defend and
bad faith claims. It also sustained Maddox’s objection to the new counsel the insurance
company sought to retain. The District Court order granted Maddox the opportunity to
choose new, qualified counsel, subject to reasonable approval by USF&G. Maddox filed
a timely appeal.
Maddox has complied with the District Court’s order and selected alternative
counsel, although in this appeal he continues to assert his objection to the order that
required him to find new counsel. USF&G has objected to Maddox’s newly selected
counsel based solely on an inability to reach an agreement concerning a reasonable fee
rate.
II.
DISCUSSION
5
The District Court had subject matter jurisdiction over this action pursuant to 28
U.S.C. § 1332.
USF&G has agreed that it will pay for Maddox’s defense in the Cvetnic lawsuit.
Maddox argues that the District Court’s order requiring him to select new counsel for his
defense in that action deprives him of his right to be represented by the counsel of his
choice. Specifically, Maddox raises two issues: (1) whether an insurance company which
breaches its duty to defend under an insurance policy has a right to object to the insured’s
chosen independent counsel and (2) whether an insurance company’s issuance of
reservation of rights letters creates a conflict of interest with the insured that gives the
insured a right to select independent counsel. The preliminary question before us is
whether we have jurisdiction to hear M addox’s appeal. It is interlocutory because
Maddox’s breach of contract and bad faith claims are still pending before the District
Court. The Cvetnic action has been delayed pending the outcome of this appeal.
A.
Collateral Order Doctrine
Under 28 U.S.C. § 1291, our review is limited to “final decisions of the district
courts.” We, Inc. v. City of Philadelphia, 174 F.3d 322, 324 (3d Cir. 1999). It is
undisputed that the District Court’s order was a collateral order and not a final judgment.
See Maddox’s Br. at 18 (the “district court’s May 29, 2002 order is a collateral order”).
A final judgment “ends the litigation on the merits and leaves nothing for the court to do
6
but execute the judgment.” Cunningham v. Hamilton County, Ohio, 527 U.S. 198, 204
(1999). Inasmuch as the District Court still has before it Maddox’s breach of contract and
bad faith claims against USF&G and St. Paul, the order at issue is not a final decision.
In limited circumstances, a collateral order may be deemed a final decision under
28 U.S.C. § 1291. We, Inc., 174 F.3d at 324. To qualify for immediate review, the order
must: (1) “conclusively determine the disputed question;” (2) “resolve an important issue
completely separate from the merits of the action;” and (3) “be effectively unreviewable
on appeal from a final judgment.” Coopers & Lybrand v. Livesay, 437 U.S. 463, 468
(1978). “If the order at issue fails to satisfy any one of these requirements, it is not an
appealable collateral order.” We, Inc., 174 F.3d at 324.
We have stated that for purposes of the collateral order doctrine, the Supreme
Court has instructed that “‘the issue of appealability under § 1291 is to be determined for
the entire category to which a claim belongs.’” Id. at 325 (citation omitted). An analysis
by category prevents case-by-case determinations. See Richardson-Merrell Inc. v. Koller,
472 U.S. 424, 439 (1985) (“This Court, however, has expressly rejected efforts to reduce
the finality requirement of § 1291 to a case-by-case determination of whether a particular
ruling should be subject to appeal.”).
The Supreme Court has held that orders disqualifying counsel are not immediately
appealable. See id. In Richardson-Merrell, the Court held that a disqualification order
was not immediately appealable because the issue of disqualification was not separate
7
from the merits of the underlying action and because it could be appealed at final
judgment. Id. at 435, 439. Similarly, in Cunningham, the Court held that an order
imposing sanctions on an attorney under Fed. R. Civ. P. 37 and disqualifying that attorney
from the case was not immediately appealable for the same reasons. 527 U.S. at 205-07.
USF&G argues that the District Court’s order here fits within the category of
disqualification orders and that orders disqualifying counsel, as a category, are not
immediately appealable. In this action, the District Court’s order effectively acts as a
disqualification order. The order bars Metz Schermer & Lewis from defending Maddox
in the Cvetnic action and requires M addox to select alternative counsel.
In ruling that Maddox’s counsel could be replaced, the District Court considered
whether an insurance company that breaches its duty to defend subsequently has the right
to reject the insured’s chosen counsel and whether USF&G waived that right when it
withdrew from providing Maddox a defense in the Cvetnic action. These questions
necessarily involve an inquiry into USF&G’s breach of the insurance contract, the extent
of the breach, and USF&G’s attempts to remedy the breach. The District Court
concluded, “because USF&G is attempting to reinstate its defense [in the Cvetnic action]
while the litigation is still ongoing, Maddox does not have an unfettered right to force
USF&G to pay future attorney fees for his current counsel.” Maddox v. St. Paul Fire &
Marine Ins. Co., Civ. A. No. 01-1264, at *7 (W.D. Pa. May 29, 2002). These
considerations overlap with Maddox’s remaining breach of contract and bad faith claims
8
in this action.
Because the issue of whether USF&G could object to Maddox’s selected counsel
is not completely separable from the merits of Maddox’s remaining breach of contract
and bad faith claims, the situation is analogous to that provided to the Court in
Richardson-Merrell and its reasoning for disallowing the collateral appeal of the counsel
disqualification order in that case is equally applicable here. Consequently, just as in
Richardson-Merrell, we do not have jurisdiction over Maddox’s interlocutory appeal.
Maddox argues that the District Court’s order will be unreviewable on appeal from
final judgment if the Cvetnic action is decided before the underlying action here. He cites
United States v. Whittaker, 268 F.3d 185 (3d Cir. 2001), where we found we had
jurisdiction over a collateral appeal of an order disqualifying a U.S. Attorney because the
government, in a criminal case, “cannot appeal from a judgment of not guilty.” Id. at
192. The situations are not comparable. While Maddox would not be able to retry the
Cvetnic action, he may be able to include any damages caused by his inability to use the
counsel of his choice as an element of his injury in the underlying action here.
Even more important, we have concluded that the District Court’s order is
effectively an attorney disqualification order, a category of orders for which the Supreme
Court has deemed collateral review inappropriate. Therefore, we have no jurisdiction
over this interlocutory appeal.
B.
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Writ of Mandamus
Maddox also requests that we exercise jurisdiction over this appeal by issuing an
extraordinary writ of mandamus. Maddox argues that by granting USF&G some control
over Maddox’s choice of counsel, the District Court necessarily determined that
USF&G’s breach of the insurance contract was immaterial, and consequently deprived
Maddox of his constitutional right to a jury trial for the resolution of disputed issues of
fact.
Writs of mandamus are extraordinary relief which should be used sparingly and
only in cases where the district court has engaged in an act amounting to a judicial
usurpation of power. Whittaker, 268 F.3d at 193. This is not one of those rare cases
where a writ of mandamus is necessary. The District Court did not make a finding on the
materiality of USF&G’s breach. Rather, the District Court determined that USF&G had
some right to control Maddox’s defense as a matter of law, apart from any breach. The
materiality of USF&G’s breach, and any resulting damages, will be determined on the
merits in Maddox’s remaining action against USF&G. Under these circumstances, a
grant of a writ of mandamus would be inappropriate.
III.
CONCLUSION
Because we do not have jurisdiction to hear this appeal, we cannot reach the
10
merits. For the reasons set forth, we dismiss Maddox’s appeal for lack of jurisdiction.2
_________________________
TO THE CLERK:
Please file the forgoing opinion.
/s/ Dolores K. Sloviter
Circuit Judge
2
We are concerned that the Cvetnic action has been awaiting resolution of this
dispute. We are confident that when this action is returned to the District Court, it will
ensure prompt resolution of the remaining issue as to the fee requested by Maddox’s
newly chosen counsel so that the Cvetnic action can proceed.