Crist v. Dickson Welding, Inc. ( 1992 )

United States Court of Appeals,
Fifth Circuit.
No. 90–3448.
LEWIS R. CRIST, Director, Division of Insurance, Department of
Economic Development, State of Missouri, Acting as a Domiciliary
Receiver of Transit Casualty Company in Liquidation,
Plaintiff–Appellant,
v.
DICKSON WELDING, INC., et al., Defendants–Appellees.
April 10, 1992.
Appeal from the United States District Court for the Eastern
District of Louisiana.
Before REYNALDO G. GARZA, GARWOOD, and DUHÉ, Circuit Judges.
DUHÉ, Circuit Judge:
Plaintiff brought this diversity suit as receiver for an
insolvent insurance carrier, Transit Casualty Company, against a
Transit insured, Dickson Welding, Inc., for additional premiums
allegedly earned under two policies. Dickson Welding denied that
more premiums were due asserting several defenses and,
alternatively, impleaded its broker, Alexander & Alexander ("A &
A"). The jury found Transit barred from recovering additional
premiums. The district court entered judgment for Dickson Welding
and dismissed all third-party claims. Transit appeals, and A & A
moves to dismiss the appeal as to A & A. For the following
reasons, we reverse the judgment on the jury verdict and grant A &
A's motion.
I. THE CLAIMS, DEFENSES, AND ASSIGNED ERRORS
The Transit policies provide for an advance premium based on
estimated exposures and for an adjustment of premium based on
actual exposures as determined from an audit after the policy
period. Although Dickson Welding willingly paid the advance
premiums, it refused to pay additional premiums claimed pursuant to
audits. Transit's receiver brought this suit against Dickson
Welding for the additional premiums.
The issues on this appeal concern Dickson Welding's defenses.
Maddox, an agent working for Dickson Welding's broker, A & A,
allegedly promised Dickson Welding coverage under policies with a
fixed premium, not subject to adjustment or audit. Dickson
Welding's first defense was reformation: Dickson Welding argued
that the policies should be reformed to reflect the flat-rate
premiums promised by Maddox and A & A. Reformation was a bench
issue, and the court rejected the defense: it would not rewrite
the policy to reflect a flat-rate because it found neither mutual
mistake nor mistake by one party and fraud by the other.
Dickson Welding asserted three other defenses that went to the
jury: equitable estoppel, apparent authority, and in pari delicto.
In the estoppel defense, Dickson Welding asserts that it
justifiably relied in good faith on some representation of Transit
or Transit's agent, Miro and Associates, and that Dickson Welding
acted to its detriment because of that reliance. Transit moved for
a directed verdict on Dickson Welding's estoppel defense, but the
court denied the motion. The apparent-authority defense concerns
whether Transit is bound by the actions of its "apparent" agent,
Miro: Dickson Welding asserts that because it was justified in
assuming that Miro had the authority to perform acts to bind
Transit, Transit is bound by Miro's acts. The defense of in pari
delicto, meaning "of equal fault," bars a plaintiff from recovering
damages if his losses are substantially caused by activities which
the law forbids him to do.
Transit assigns as errors the denial of its motions for
directed verdict, for a judgment notwithstanding the verdict, and
for a new trial. Transit also asks us to consider whether the
verdict was erroneous and unreasonable.1 Transit also claims that
the jury was improperly instructed regarding reasonable reliance,
which is an essential element of both the estoppel and apparent
authority defenses.
II. THE MOTIONS TO TAKE THE CASE FROM THE JURY
A. Estoppel.
At the close of Transit's evidence against Dickson Welding,
Transit moved for a directed verdict on estoppel and waiver, urging
that neither could be a defense, apparently because of the lack of
evidence of the element of reasonable reliance.2 The court
1
This issue was raised before the district court in a motion
for new trial. 6 Rawle 1442. We do not review verdicts directly.
Coughlin v. Capitol Cement Co., 571 F.2d 290, 297 (5th Cir.1978).
Accordingly, we consider this challenge to the verdict as part of
the motion for new trial.
2
After the district court ruled against Dickson Welding on
the bench issue of reformation, Dickson Welding's attorney asked
whether the ruling encompassed the waiver or estoppel issue. The
initially granted the motion for directed verdict, rejecting waiver
and finding a different essential element of estoppel lacking: the
good faith of Dickson Welding (through its president, Marcus
Dickson). Both the good faith of the party seeking to invoke the
doctrine of equitable estoppel and reasonable reliance on the
representation are required for application of the defense. See
Wilkinson v. Wilkinson, 323 So. 2d 120, 126 (La.1975); Westenberger
v. Louisiana Dep't of Educ., 333 So. 2d 264, 271 (La.Ct.App.1976).
The trial judge was evidently not impressed with the suggestion
that there was no evidence of reasonable reliance, as he did not
mention reasonable reliance in his ruling.
After a recess, the district judge rescinded his ruling in
order to consider the evidence in Dickson Welding's cross-claim
motion on estoppel was raised in the following exchange:
THE COURT: Well, to the extent that [estoppel or
waiver] may be a jury issue, it seems ... Mr. Christy
... that you are moving for a directed verdict on the
issue of estoppel.
MR. CHRISTY: No.
THE COURT: Mr. de Klerk [Transit's attorney], are you
moving for a directed verdict?
MR. DE KLERK: Yes, Your Honor.
THE COURT: Now, tell me why.
MR. DE KLERK: ... [T]he estoppel and the waiver
argument is not something that can be used as a defense
under the circumstances of this case and bearing in
mind the evidence that's been heard.
THE COURT: ... Did you have something else?
MR. DE KLERK: Your Honor, I just wanted to mention the
concept of reasonable reliance once again.
against A & A. At the close of all the evidence, the court assumed
that all motions were renewed and denied Transit's motion for
directed verdict on the estoppel question. Transit later moved for
a judgment notwithstanding the verdict, reiterating its argument on
estoppel and adding an argument on apparent authority.
We review the rulings on the motions for directed verdict and
judgment notwithstanding the verdict de novo, under the same
standard applied by the district court: under either motion, "[i]f
the facts and inferences point so strongly and overwhelmingly in
favor of one party that the Court believes that reasonable men
could not arrive at a contrary verdict," then the motion should be
granted. Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir.1969).
As to the defense of estoppel, we agree with the district
court that reasonable people could indeed differ on the question of
estoppel, particularly the good faith of Dickson Welding (as
represented by Mr. Dickson), which was the basis of the court's
initial ruling. For example, Maddox of A & A testified that he
relied on representations of Miro employees that Transit policies
were being sold with fixed-rate premiums, and Mr. Dickson testified
that he relied on Maddox. The jury no doubt resolved the question
of Dickson Welding's good faith by assessing Mr. Dickson's demeanor
and credibility. Additionally, an expert testified that audits
were not mandatory and could be waived, although there was
conflicting testimony. Finally, some evidence showed Miro often
waived audits notwithstanding standard-form language requiring an
audit.
Because reasonable persons could differ regarding Dickson
Welding's good faith and the reasonableness of its reliance, the
trial court correctly allowed the defense of estoppel to go to the
jury.
B. Apparent Authority.
Transit did not move for a directed verdict in its favor on
Dickson Welding's defense of apparent authority, but did move for
a judgment n.o.v. on that defense. In its motion for judgment
n.o.v. and on this appeal, Transit attempts to tie the
apparent-authority defense to the estoppel defense, on which it did
move for directed verdict: Transit urges that the facts mandate a
judgment notwithstanding the verdict whether the issue is
"justifiable reliance" for estoppel or "reasonable reliance" for
apparent authority.
If a party has not moved for a directed verdict on an issue
yet seeks judgment n.o.v. on that issue, our review is extremely
limited. Seidman v. American Airlines, 923 F.2d 1134, 1138 (5th
Cir.1991); see also Fed.R.Civ.P. 50(b).3 In such cases "our
inquiry is restricted to whether there was any evidence to support
3
The Rule in effect at the time of trial provided that "a
party who has moved for a directed verdict may move to have the
verdict and any judgment entered thereon set aside and to have
judgment entered in accordance with the party's motion for a
directed verdict." Fed.R.Civ.P. 50(b) (amended 1991).
the jury's verdict, irrespective of its sufficiency, or whether
plain error was committed which, if not noticed, would result in
manifest miscarriage of justice." Seidman, 923 F.2d at 1138
(citing Hinojosa v. City of Terrell, Tex., 834 F.2d 1223, 1228 (5th
Cir.1988), cert. denied, 493 U.S. 822, 110 S. Ct. 80, 107 L. Ed. 2d 46
(1989)) (emphasis in original).
Apparent authority is a judicially created concept of
estoppel which operates in favor of a third party (Dickson Welding)
seeking to bind a principal (Transit) for the unauthorized act of
an apparent agent (Miro). See Boulos v. Morrison, 503 So. 2d 1, 3
(La.1987). For the doctrine of apparent authority to apply, the
principal must first act to manifest to an innocent third party the
alleged agent's authority. Second, the third party must rely
reasonably on the manifested authority of the agent. Id. The
testimony that audits could be waived and that Miro often waived
audits in spite of contractual language requiring audits
constitutes evidence that would support a finding that Dickson
Welding's or Maddox's reliance on a representation that the audits
were waived was reasonable. Accordingly, the motion for directed
verdict on the issue of apparent authority was also properly
denied.
III. THE JURY CHARGE ERROR
Transit next asserts that the court improperly charged the
jury about reasonable reliance, an element of both the estoppel and
apparent-authority defenses. Dickson Welding urges that we need
not consider this assigned error because the jury may well have
based its judgment on the in pari delicto defense. Thus, Dickson
Welding argues, because an independent basis for the verdict
supports the judgment, we need not consider the errors assigned by
Transit with respect to the other two defenses.
A. The Verdict and Scope of Our Review.
The jury interrogatory did not distinguish among the three
defenses, providing simply:
Is Transit barred from recovering additional premiums from
Dickson [Welding] even though the insurance policies in
question provided for an adjustment of premiums by audit?
YES T
NO
When two or more claims are submitted to a jury in a single
interrogatory, a new trial may be required if one of the claims was
submitted erroneously, because " "there is no way to know that the
invalid claim ... was not the sole basis for the verdict.' " Braun
v. Flynt, 731 F.2d 1205, 1206 (5th Cir.1984) (quoting United N.Y.
& N.J. Sandy Hook Pilot Ass'n v. Halecki, 358 U.S. 613, 619, 79
S. Ct. 517, 520, 3 L. Ed. 2d 541 (1959); see also Smith v. Southern
Airways, 556 F.2d 1347 (5th Cir.1977) (general verdict cannot stand
if one of three alternative theories of recovery is not supported
by evidence); Ratner v. Sioux Natural Gas Corp., 770 F.2d 512, 518
(5th Cir.1985) (general verdict possibly resting upon a theory that
lacks adequate support in the record must be set aside). Because
the trial court did not ask the jury to answer a special
interrogatory on each theory of defense, we cannot determine on
which defense Dickson Welding succeeded. Accordingly, we must
verify that the jury was properly charged as to the
apparent-authority and estoppel defenses, because either one might
have been the sole basis for the verdict.
B. Preservation of Error and the Standard of Review.
The next questions are whether Transit preserved its right to
appeal the jury charge issue by timely objection and, if so, under
what standard of review we examine the alleged error. "No party
may assign as error ... the failure to give an instruction unless
that party objects thereto before the jury retires to consider its
verdict, stating distinctly the matter objected to and the grounds
of the objection." Fed.R.Civ.P. 51. Because the purpose of this
rule is to enable the trial court to correct any error it may have
made before the jury begins its deliberations, the objection and
grounds generally must be stated after the charge and before the
jury retires. Lang v. Texas & Pac. Ry., 624 F.2d 1275, 1279 (5th
Cir.1980). In this case, Transit did not object to the charge
about reasonable reliance after the jury was charged.
This failure to object may be disregarded, however, if
Transit's position has been previously made clear to the court and
it is plain that a further objection would have been unavailing.
See Lang, 624 F.2d at 1279. We believe the exception applies in
this case. During the charge conference Transit objected to the
estoppel and apparent-authority charges on the basis that Dickson
Welding should be bound not only by the reasonable reliance of its
president, Marcus Dickson, but also by the reasonable reliance of
Dickson Welding's agent, Paul Maddox of A & A.
Objections at the charge conference do not automatically
relieve counsel of the duty to object at the close of instructions
before the jury retires. See Little v. Green, 428 F.2d 1061, 1070
(5th Cir.), cert. denied, 400 U.S. 964, 91 S. Ct. 366, 27 L. Ed. 2d
384 (1970). Allowing objections again after counsel has heard the
entire charges is an admirable practice and gives the judge the
opportunity to modify his charge in the light of objections
informally stated at the charge conference. Id. In this case,
however, the judge articulated his desire to expedite the taking of
objections at the charge conference and intimated that this was the
only opportunity counsel would have to object to the proposed
charges.4 Under the circumstances, we believe that Transit's
4
The judge opened the charge conference instructing counsel,
"[I]n the interest of expediting this, I want to take
one by one comments and objections or recommended
improvements to the Court's intended instructions to
the jury ... then I will rule on your special requested
charges."
When Crist's attorney asked for rebuttal after hearing other
counsel's objections, the Court advised,
Once you pass, you pass. You have had adequate
opportunity to tell me what objections you had to the
charge. We don't just keep having a round-robin. If I
give you more time, then I will have to give everybody
else more time. That's the whole purpose of taking
your objections up front and your comments and your
position was previously made clear to the court, and it was plain
that a further objection would have been unavailing. Accordingly,
the assigned error is preserved for review.
In evaluating a jury charge we view the instruction as a
whole in the context of the entire case. The judge must instruct
the jurors fully and correctly on the law applicable to the case,
including defensive theories raised by the evidence. Powell v.
Rockwell Int'l Corp., 788 F.2d 279, 284 (5th Cir.1986); see also
Pierce v. Ramsey Winch Co., 753 F.2d 416, 424–25 (5th Cir.1985).
C. The Charge on Reasonable Reliance.
The court instructed the jury that for Dickson Welding to
prevail on its estoppel defense, Dickson Welding must establish
that it was acting in good faith and justifiably relied on some
representation by Transit or Transit's agent, Miro. For the
apparent authority defense, the court charged,
if you find that Dixon [sic ] Welding was justified in
assuming that Miro had the authority to act for Transit, then
you may find that Transit is bound by the acts of Miro.
You are further instructed, however, that Dickson may rely on
the acts of Miro only if you find from the evidence that it
was reasonable for Dickson to do so. If you find that
Dickson's reliance on something that Miro said or did was not
reasonable, then Transit cannot be bound by Miro. If
Dickson's reliance on something that Miro did or said wasn't
reasonable, then Transit can't be bound by something that Miro
did.
requested charges.
The charges do not mention Maddox, and he was the liaison
between Transit's agent (Miro) and Dickson Welding's president,
Marcus Dickson. Maddox, an insurance agent working for Dickson
Welding's broker, A & A, was the only party with whom Mr. Dickson
had any contact, and Mr. Dickson testified that he relied on
Maddox. Miro never discussed the policies with Mr. Dickson but
only with Maddox.
Transit argues that in view of the facts that Maddox was
Dickson Welding's agent and that Miro's contact was with Maddox,
the court should have charged the jury on A & A's status as Dickson
Welding's agent: this way the jury would consider not only the
reasonable reliance of Dickson Welding, the more sympathetic
insurance customer, but also the reasonableness of the more
sophisticated Maddox, the insurance professional, whom the jury
would hold to a higher standard. We agree. As principal, Dickson
Welding is charged with constructive knowledge of facts pertinent
to transactions by its agent which the agent knew or could have
ascertained by reasonable diligence. See Mayer v. Ford, 12 So. 2d
618 (La.Ct.App.1943); Bank of La. v. Argonaut Ins. Co., 248 So. 2d
349, 352 (Ct.App.La.1971) (citing Culver v. Culver, 188 La. 716,
178 So. 252 (1937)). The charge given did not make it clear that
Maddox was Dickson Welding's agent, such that his knowledge would
be imputed to Dickson Welding. The charges as a whole misled the
jury because they focused solely on Mr. Dickson's reliance and did
not permit the jury to take into account Maddox's knowledge.
Because reasonable or justifiable reliance was an essential element
of both defenses and because Maddox's awareness of problems with
the policy rate was not a consideration under the charges given,
the error was not harmless.
We reverse the judgment insofar as it relates to the jury
verdict and remand for a new trial.5
IV. THE MOTION FOR NEW TRIAL
The issue of reformation, which was ruled on by the judge, has
not been appealed. The assigned errors in the ruling on the motion
for new trial relate only to jury issues and not to the reformation
issue. Ordering a new trial on the jury charge error moots
Transit's challenges to the denial of its motion for new trial.
V. ENFORCEMENT OF THE CONTRACT
Finally, Transit urges that the judge's ruling on reformation
of the contract should have been dispositive of the entire case as
a matter of law. At the close of all the evidence in Transit's
case against Dickson Welding, the court refused to reform the
insurance contracts to flat-rate policies; the other three
defenses raised by Dickson Welding were thereafter submitted to the
jury. According to Transit, however, there was nothing left for
the jury to decide once reformation was denied: the district court
should have enforced the contract as a matter of law.
5
Transit asks us to remand the entire case for a new trial,
but the reformation issue was not appealed, so it need not be
retried.
But when did Transit ask the district court to so enforce the
contract? As to this issue on appeal, Transit is vague about what
error of the trial court it wishes us to review. With the
exception of the motions discussed above, Transit did not move to
take defenses away from the jury upon the court's ruling on
reformation. We found no error with the trial judge's rulings on
those motions concerning the estoppel and apparent-authority
defenses.
As to the defense of in pari delicto, Transit is essentially
asking this Court to strike the defense for the first time on
appeal. Transit did not move to strike this defense in the
district court or move for a directed verdict on the defense.
Neither did Transit object to the judge's proposed jury charge on
in pari delicto, object to the jury charge as given, or move for a
new trial on the issue.6
"We will consider an issue raised for the first time on appeal
6
Counsel's "submit[ting] that pari delicto is not an issue
vis-a-vis me" during preliminary discussions at the charge
conference does not preserve the error for review as would an
objection, particularly in view of counsel's silence when the
court thereafter proposed a revised instruction on the defense.
The judge might have assumed that the instruction as revised was
no longer objectionable. Similarly, the trial judge's
hypothetical statement during the charge conference that he
"couldn't direct a verdict on that issue" does not create such a
motion for directed verdict by Transit, because no such motion
was ever offered.
Although counsel was apparently surprised by
application of the in pari delicto defense to Transit at the
charge conference, ample opportunity to object to the
defense at the trial level existed.
only if the issue is purely a legal issue and if consideration is
necessary to avoid a miscarriage of justice." Citizens Nat'l Bank
v. Taylor (In re Goff), 812 F.2d 931, 933 (5th Cir.1987). In view
of our remand for retrial, the issue can be addressed by the trial
court, so our consideration of the issue is not necessary to avoid
a miscarriage of justice. We note, however, that the ruling on
reformation simply determined that the contract would not be
rewritten. It did not preclude the possibility of another legal
defense applying to the claim under the policy as written.
VI. A & A's MOTION TO DISMISS
A & A moves to dismiss the appeal against it urging that no
appeal has been taken from the judgment in its favor. Dickson
Welding filed a third-party complaint against A & A seeking
recovery for any amount Dickson Welding might be adjudged liable to
pay Transit as additional premiums. As to this claim, the judgment
provided simply that "all third-party complaints and counter-claims
are hereby DISMISSED."
Only Crist (for Transit) filed a notice of appeal, and this
appeal was "from the final judgment entered in favor of defendant,
Dickson Welding, Inc." The next question we face is whether
Dickson Welding's failure to file a notice of appeal of the
dismissal of its third-party claim precludes further review of that
dismissal.
A & A argues that the judgment dismissing the third-party
claim against it is final, because Dickson Welding did not file a
protective appeal within the time limits of Federal Rule of
Appellate Procedure, Rule 4(a)(3).7 Dickson Welding asserts that
a Rule 4(a)(3) notice of a cross-appeal or other separate appeal is
only a rule of practice which can be suspended and is not
jurisdictional, citing United States v. Tabor Court Realty Corp.,
943 F.2d 335, 342–43 (3rd Cir.1991), cert. denied, ––– U.S. ––––,
112 S. Ct. 1167, ––– L.Ed.2d –––– (1992). This Court, too, has
noted that appellate courts have the discretionary power to retain
all parties on remand in order to do justice. See Anthony v.
Petroleum Helicopters, Inc., 693 F.2d 495, 497 (5th Cir.1982).
The continued viability of the principle recognized in Anthony
is questionable, however, in view of Torres v. Oakland Scavenger
Co., 487 U.S. 312, 108 S. Ct. 2405, 101 L. Ed. 2d 285 (1988). See
Stockstill v. Petty Ray Geophysical, 888 F.2d 1493, 1496 (5th
Cir.1989) (dicta). The Stockstill panel observed that it is
doubtful in view of Torres that we have jurisdiction to review the
district court's dismissal of a third-party defendant, if no notice
of appeal was filed as to the dismissal of that third-party claim.
Stockstill, 888 F.2d at 1497 (dicta).
7
Rule 4 provides,
If a timely notice of appeal is filed by a party, any
other party may file a notice of appeal within 14 days
after the date on which the first notice of appeal was
filed, or within the time otherwise prescribed by this
Rule 4(a), whichever period last expires.
Fed.R.App.P. 4(a)(3).
Like the Stockstill panel, we need not decide whether Torres
changed the law articulated in Anthony that we may retain parties
necessary to insure an equitable resolution at trial. Even under
Anthony, the rule was that parties had to file a protective notice
of appeal, unless the appealed decision could be read as not
adverse to the party who failed to appeal. Stockstill, 888 F.2d at
1497; Anthony, 693 F.2d at 498.8
The dismissal of Dickson Welding's third-party claim against
A & A was adverse to Dickson Welding. Although Dickson Welding
initially had no reason to appeal because it received a favorable
judgment as to Transit's claims, Transit's appeal raised the
possibility of reversal. Dickson Welding was thereby put on notice
that it might be subject to adverse consequences from the dismissal
of A & A. See Anthony, 693 F.2d at 498; Stockstill, 888 F.2d at
1497. Dickson Welding does not fall within the exceptional
situation in which the appellate courts have exercised their
discretionary powers to retain parties. Dickson Welding should
have filed a protective notice of appeal, and A & A's motion is
8
Anthony recognized two other instances, neither of which
applies to this case, in which a party may be retained on remand
for equitable reasons:
when the reversal "wipes out all basis for recovery
against the nonappealing, as well as against the
appealing defendant[;]' Daniels v. Gilbreath, 668 F.2d
477 (10th Cir.1982); Kicklighter v. Nails by Jannee,
Inc., 616 F.2d 734, 742–45 (5th Cir.1980); [and] when
the failure to reverse with respect to the nonappealing
party will frustrate the execution of the judgment in
favor of the successful appellant.
Anthony, 693 F.2d at 497–98.
granted.
The judgment of the district court is REVERSED. A & A's
motion to dismiss is GRANTED. The case is REMANDED for further
proceedings consistent with this opinion.
. . . . .