Milton Hambrice v. State Farm ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 96-2985
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Milton Hambrice, Inc., *
*
Plaintiff/Appellee, *
* Appeal from the United States
v. * District Court for the
* Western District of Arkansas.
State Farm Fire & Casualty *
Company, *
*
Defendant/Appellant. *
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Submitted: April 14, 1997
Filed: May 23, 1997
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Before RICHARD S. ARNOLD, Chief Judge, FAGG and MURPHY, Circuit Judges.
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MURPHY, Circuit Judge.
State Farm Fire and Casualty Company (State Farm) appeals from a
judgment awarding Milton Hambrice, Inc. compensatory and punitive damages
for a claim of malicious prosecution. Hambrice, a contractor on a
restaurant remodeling project, was sued by State Farm in a subrogation
action after a fire extensively damaged the restaurant during the
remodeling. After State Farm later voluntarily dismissed its action,
Hambrice brought this case. A jury returned a verdict for Hambrice,
awarding it $312,000 in compensatory damages and $7,500,000 in punitive
damages. The district court denied State Farm’s post-trial motions, and
judgment was entered in the amount of the verdict. We reverse and remand.
In the summer of 1991 Hambrice was hired by Jack Daugherty, the owner
and a State Farm insured, to act as general contractor for the remodeling
of a Western Sizzlin’ restaurant in Magnolia, Arkansas. Daugherty later
reassumed some of the work, including roofing and electrical work, but
Hambrice continued to assist Daugherty on it. Hambrice estimated the
amount of roofing material required and ordered those materials for
Daugherty, checked the roofer’s work on two occasions, and suggested to
Daugherty that the perimeter neon lighting be removed after noticing that
it could be damaged by the shingle removal. When the lighting was removed,
the wires which supplied electricity to the lights were left exposed and
dangling along the side of the building.
Shortly before the fire in the restaurant occurred, customers
reported arcing and sparks from the exposed wires to two restaurant
managers, Brian Daugherty (Jack’s son) and Leigh Bass. On both occasions,
David Arrington, the restaurant’s regular electrician, was called to the
scene. Arrington told Bass that the sparking was a danger and that the
wires could be a fire hazard unless the circuit was left off. Power
continued to be applied to the circuit every night, however, until the fire
on September 18, 1991, which resulted in extensive damage to the
restaurant.
State Farm paid Daugherty’s claim and hired a fire investigator and
an electrical engineer to look into the cause of the fire. They determined
that hanging wires from the removed neon lights were the cause, and the
fire investigator reported that “the neon tubes had been removed by Mr.
Milton Hambrice . . . and David Arrington, an electrical contractor” so
that new siding could be installed. A State Farm claims adjuster, Mike
Tucker, also interviewed Daugherty and his son, Brian. The Daughertys told
the adjustor that Hambrice was the general contractor on the remodeling
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job and that an employee under Hambrice’s supervision had removed the
lights. In its investigation State Farm did not uncover the fact that
Arrington had on two occasions warned Bass about the danger from the
exposed wires and told him to make sure that power was not applied to the
cables.
After receiving this information, Tucker sent letters to Hambrice and
Arrington, which stated: “Our investigation indicates that you are
responsible for this damage and we are therefore looking to you for
reimbursement.” When Hambrice received the letter, he called Tucker and
denied responsibility for the fire. Arrington, who was also insured by
State Farm, called his agent and told him that he had not removed the neon
lights and had only been called to the restaurant about sparking of other
cables in a different location from the fire’s origin. Daugherty confirmed
the facts in Arrington’s statement, and State Farm did not pursue a claim
against Arrington. State Farm then forwarded the case file to Mike
Huckabay, an attorney who had extensive experience handling subrogation
claims, for recommendations on whether to file suit against Hambrice.
Huckabay responded that he “strongly recommended” suing Hambrice, and he
filed a complaint in February 1992, alleging that Hambrice’s negligence
caused the fire at the restaurant.
State Farm and its attorneys remained unaware of Arrington’s warnings
about the wires until May 1993, when a State Farm attorney interviewed
Bass. Bass told the attorney about Arrington’s visits and warnings, and
Arrington was deposed and affirmed that he had made strong warnings about
fire danger from the exposed wires. After discovering this evidence,
Huckabay recommended that State Farm voluntarily dismiss the lawsuit
because Daugherty would probably be found to be more than fifty percent at
fault, thus
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precluding recovery under Arkansas comparative negligence law. State Farm
dismissed the suit without prejudice in June 1993.
Hambrice then sued State Farm for malicious prosecution, and after
a jury trial, judgment was entered against State Farm. On appeal, State
Farm argues that Hambrice did not establish its malicious prosecution
claim, that the district court made errors in admitting evidence and in the
jury instructions, that Hambrice did not prove compensatory or punitive
damages, and that excessive damages were awarded.
In order to establish malicious prosecution under Arkansas law, a
plaintiff must show: (1) a proceeding brought or maintained by the
defendant against the plaintiff, (2) termination of the proceeding in favor
of the plaintiff, (3) absence of probable cause for the proceeding, (4)
malice on the part of the defendant, and (5) damages. Harold McLaughlin
Reliable Truck Brokers, Inc. v. Cox, 922 S.W.2d 327, 331 (Ark. 1996). A
jury verdict will be upheld if the evidence, viewed in the light most
favorable to the prevailing party, is sufficient for a reasonable jury to
have found for that party. Feibelman v. Worthen Nat’l Bank, N.A., 20 F.3d
835, 837 (8th Cir. 1994).
State Farm argues that Hambrice did not show that it lacked probable
cause when it filed the subrogation suit. Probable cause is “based upon
the existence of facts or credible information” that would cause a person
of ordinary caution to believe the defendant is liable. Hollingsworth v.
First Nat’l Bank & Trust Co., 846 S.W.2d 176, 178 (Ark. 1993). The facts
and circumstances surrounding the commencement and continuation of the suit
are considered in determining whether probable cause existed. Cordes v.
Outdoor Living Ctr., Inc., 781 S.W.2d 31, 33 (Ark. 1989).
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Probable cause is a question of law only when “the facts relied upon to
create probable cause and the reasonable inferences to be drawn from the
facts are undisputed.” Cox v. McLaughlin, 867 S.W.2d 460, 464 (Ark. 1993).
The undisputed evidence at trial shows that at the time State Farm
sued Hambrice it had information from the fire investigation that the fire
had been caused by wires hanging from where neon lights had been removed
and that Hambrice had been involved in removing the lights, was responsible
for work which required the light removal, and had been working in the area
where the fire started. The fire investigator had reported that Hambrice
had been involved in removing the neon lights and that they had been
removed to accommodate the installation of new siding on the restaurant,
a job for which Hambrice was responsible. In interviews with Tucker, the
Daughertys had identified Hambrice as the general contractor responsible
for the remodeling of the restaurant and said that the neon lights were
removed under Hambrice’s supervision. Based on this undisputed evidence
concerning the facts State Farm had when deciding to sue Hambrice, it was
reasonable for State Farm to believe that Hambrice was responsible for the
fire, and it therefore did not lack probable cause.
Hambrice argues that this evidence does not establish probable cause
because if State Farm had conducted a more thorough investigation, it would
have discovered evidence of Daugherty’s negligence and the fact that
Hambrice was no longer the general contractor for the remodeling project.
Under Arkansas law, however, a plaintiff is not required to uncover all
facts relating to a claim before filing suit unless the plaintiff is aware
of contradictory facts giving rise to a duty to investigate further.
Kansas & Texas Coal Co. v. Galloway, 74 S.W. 521, 525 (Ark. 1903).
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In this case, there do not appear to be any facts giving rise to a
duty to investigate further, but even if there were, the additional
evidence which Hambrice claims State Farm should have uncovered does not
necessarily negate State Farm’s evidence of Hambrice’s negligence. State
Farm had evidence indicating that Hambrice was directly responsible for the
fire, including evidence that Hambrice was working in the area where the
fire started and was involved in removing the lights, and it did not need
to rely on a theory that Hambrice was liable as a general contractor.
Moreover, uncovering evidence of Daugherty’s negligence would not have
vitiated State Farm’s probable cause concerning Hambrice’s negligence.
State Farm could still have had a submissible case in the subrogation
action since under Arkansas law issues of comparative negligence are for
the jury to decide. Lockett v. International Paper Co., 871 F.2d 82, 84
(8th Cir. 1989). Hambrice thus did not show that State Farm lacked
probable cause to sue him for subrogation.
Even if probable cause had been lacking, Hambrice was also required
to make a separate showing of malice in order to establish his malicious
prosecution claim. Arkansas law defines malice as “any improper or
sinister motive for instituting the suit.” Hollingsworth, 846 S.W.2d at
178 (quoting Cordes, 781 S.W.2d at 33). Malice can sometimes be inferred
from a lack of probable cause when the surrounding circumstances indicate
a sinister motive. Cordes, 781 S.W.2d at 34; see, e.g., Farm Serv. Coop.,
Inc. v. Goshen Farms, Inc., 590 S.W.2d 861, 866 (Ark. 1979) (malice can be
inferred when a company repeatedly sues another while lacking probable
cause). Malice does not flow as a legal presumption from a lack of
probable cause, however. Cordes, 781 S.W.2d at 33; Rogers v. General Elec.
Co., 341 F. Supp. 971, 976 (W.D. Ark. 1972) (consider all facts disclosed
in determining
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whether malice can be inferred from a lack of probable cause) (quoting
Kable v. Clark, 204 S.W. 748, 750 (Ark. 1918)).
Hambrice argues there is an inference of malice because of the lack
of probable cause and State Farm's practice of pursuing subrogation claims.
Undisputed evidence at trial showed that State Farm had credible facts on
which it based its decision to sue Hambrice for subrogation, however.
State Farm consulted a well-respected lawyer who had extensive experience
in subrogation litigation, presented to him the facts it had uncovered in
its investigation, and only sued after the lawyer strongly recommended it.
Moreover, once State Farm discovered evidence of Daugherty’s negligence,
it dismissed its action, even though under Arkansas law its case could
probably still have been submitted to a jury. See Lockett, 871 F.2d at 84.
These facts do not indicate any improper motive in bringing or pursuing the
subrogation claim, and Hambrice did not make a sufficient showing of malice
to withstand a motion for judgment as a matter of law.
Since Hambrice did not establish the elements of malicious
prosecution, State Farm was entitled to judgment as a matter of law.1 The
judgment of the district court is reversed, and the case is remanded with
instructions to enter judgment in favor of State Farm.
1
It is therefore unnecessary to discuss the arguments raised
by State Farm related to the jury instructions, evidentiary
rulings, and damages.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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