Mike Kreidler v. Danny Pixler , 482 F. App'x 204 ( 2012 )

FILED
NOT FOR PUBLICATION MAY 02 2012
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
MIKE KREIDLER, Insurance No. 11-35095
Commissioner for the State of Washington
and as Receiver for Cascade National D.C. No. 2:06-cv-00697-RSL
Insurance Company in Liquidation,
Plaintiff - Appellee, MEMORANDUM*
v.
DANNY L. PIXLER,
Defendant,
and
ANTHONY HUFF; SHERI HUFF,
individually and their marital community;
MIDWEST MERGER MANAGEMENT
LLC, a Kentucky Limited Liability
Company,
Defendants - Appellants.
MIKE KREIDLER, Insurance No. 11-35148
Commissioner for the State of Washington
and as Receiver for Cascade National D.C. No. 2:06-cv-00697-RSL
Insurance Company in Liquidation,
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Plaintiff - Appellant,
v.
DANNY L. PIXLER,
Defendant,
and
ANTHONY HUFF; SHERI HUFF,
individually and their marital community;
MIDWEST MERGER MANAGEMENT
LLC, a Kentucky Limited Liability
Company,
Defendants - Appellees.
Appeal from the United States District Court
for the Western District of Washington
Robert S. Lasnik, District Judge, Presiding
Argued and Submitted April 9, 2012
Seattle, Washington
Before: HUG, TASHIMA, and CALLAHAN, Circuit Judges.
Defendants-Appellants Anthony Huff, Sheri Huff, and Midwest Merger
Management LLC (“Midwest”) appeal from the district court’s judgment,
following a jury trial in this diversity case, in favor of Plaintiff-Appellee Mike
Kreidler, the Insurance Commissioner for the State of Washington and the receiver
for Cascade National Insurance Company (“Cascade”). The court awarded
2
Kreidler $19.3 million, which represented the amount due and unpaid for workers’
compensation claims paid by Cascade for over 15,000 California workers. We
have jurisdiction under 28 U.S.C. § 1291, and we affirm.1
I. Background2
Anthony Huff and co-defendant Danny Pixler used Midwest, a Kentucky
company, to serve as an intermediary between Cascade, the insurance carrier, and a
professional employer organization (“PEO”), the entity that serves as the
policyholder for workers and their employers. Ordinarily the carrier pays workers’
compensation insurance claims while the PEO collects premiums and pays the
carrier for the policy. Here, however, all payments went through Midwest before
Cascade was paid. In the process, Huff, his wife Sheri, and others siphoned
millions of dollars for personal use and Midwest fell behind in its payments to
Cascade. Cascade became aware of Midwest’s and Huff’s unusual involvement
only after it began providing coverage, but by then it was too late. Once Cascade
processed all of the claims at issue, Midwest had paid Cascade less than a third of
what Cascade was owed, and Cascade was forced into receivership.
1
Because we affirm the district court, we do not reach Kreidler’s protective
cross-appeal.
2
We restate the facts and procedural history only as necessary to explain our
decision.
3
Based on the evidence, the jury found the defendants variously liable for
civil conspiracy, negligent misrepresentation, fraud, misappropriation, breach of
contract, and violations of Washington’s Consumer Protection Act, Rev. Code
Wash. § 19.86.010 et seq., and Criminal Profiteering Act, id. § 9A.92.010 et seq.
The district court denied the defendants’ motion for judgment as a matter of law
and/or a new trial. The Huffs and Midwest appeal on grounds of insufficient
evidence, improper jury instructions, inconsistent or improper decisions by the
jury, and Kreidler’s standing under the Bankruptcy Code.
II. Standards of Review
We review de novo the district court’s denial of a motion for judgment as a
matter of law, upholding the verdict if it is supported by substantial evidence and
viewing the evidence in favor of the non-movant. First Nat’l Mortg. Co. v. Fed.
Realty Inv. Trust, 631 F.3d 1058, 1067 (9th Cir. 2011). We review for abuse of
discretion the district court’s formulation of the jury instructions. Louis Vuitton
Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936, 941 (9th Cir. 2011).
Finally, we review de novo the district court’s grant of summary judgment. Bravo
v. City of Santa Maria, 665 F.3d 1076, 1083 (9th Cir. 2011).
4
III. Discussion
1. Substantial evidence supports the jury’s verdicts against Anthony and
Sheri Huff. Substantial evidence shows that Anthony Huff misrepresented
material facts that induced Cascade to do business with him and Midwest, such as
concealing his and Pixler’s control over Midwest as well as Midwest’s role as an
intermediary between the PEO and Cascade. There also is substantial and
unrebutted evidence that Anthony Huff and Midwest misappropriated funds from
Cascade in the amount of $3.35 million.3 The jury’s verdicts against Anthony Huff
and Midwest for civil conspiracy and for violations of the Consumer Protection
Act and Criminal Profiteering Act were supported by these misrepresentations and
misappropriations, as well as by other unlawful acts.
As for Sheri Huff, substantial evidence shows that she (1) repeatedly stole,
for personal expenses, money that more likely than not was owed to Cascade, thus
violating the Criminal Profiteering Act; (2) entered into an agreement with
Anthony Huff to divert funds owed to Cascade for personal use, and committed
acts to achieve that end; and (3) committed acts that deceived or had the “capacity
3
Kreidler’s inability to precisely trace these diversions was the result of
Midwest’s poor accounting and, in any event, is not required by Washington law.
See Gilmartin v. Stevens Inv. Co., 43 Wash. 2d 289, 294, 261 P.2d 73 (1953);
Sherrell v. Selfors, 73 Wash. App. 596, 601, 871 P.2d 168 (1994).
5
to deceive” the public about Midwest’s true ownership and operation, thus
violating the Consumer Protection Act. See Hangman Ridge Training Stables, Inc.
v. Safeco Title Ins. Co., 105 Wash. 2d 778, 780, 785 719 P.2d 531 (1986); Salois v.
Mutual of Omaha Ins. Co., 90 Wash. 2d 355, 359, 581 P.2d 1349 (1978); see also
Rev. Code Wash. § 48.01.030.
2. The district court did not abuse its discretion in denying Sheri Huff’s
motion for a new trial due to an allegedly inconsistent jury verdict. The court must
“reconcile the jury’s special verdict responses on any reasonable theory consistent
with the evidence.” Guy v. City of San Diego, 608 F.3d 582, 586 (9th Cir. 2010);
see also Norris v. Sysco Corp., 191 F.3d 1043, 1048 (9th Cir. 1999). The jury
concluded that Sheri Huff violated the Criminal Profiteering Act but that she did
not misappropriate money from Cascade. These verdicts are consistent because the
predicate act underlying Kreidler’s criminal profiteering claim was theft, not
misappropriation, and because Kreidler’s profiteering and misappropriation claims
concerned different types of payments that Midwest owed to Cascade. The jury
understood these distinctions: it awarded $3.35 million for misappropriation,
$820,000 for criminal profiteering, and $19.3 million for other claims.
3. The district court did not abuse its discretion in tendering to the jury
an instruction regarding “participating in the business of insurance.” Kreidler
6
claimed the defendants were liable for civil conspiracy, which required him to
prove that two or more people conspired to accomplish an illegal purpose. While
that purpose could have been misappropriation or fraud, it also could have been
participating, or permitting someone else to participate, in the business of
insurance despite that person’s ineligibility due to a prior conviction for a criminal
felony involving dishonesty or breach of trust. Anthony Huff’s prior guilty plea
and conviction thus provided a legal basis for the jury’s verdict against him. The
instruction was not unfairly prejudicial because the jury knew about Huff’s
conviction with or without the “business of insurance” instruction, and there is no
evidence the jury ignored or misconstrued other evidence because of the
instruction.
4. The district court did not err in submitting to the jury the question of
Cascade’s third-party beneficiary status under the Risk Allocation Agreement
between Midwest and its subsidiary, Certified Services, Inc. (“Certified”). New
York law, which governs under the parties’ agreement, requires the factfinder to
decide the meaning of an ambiguous contract. Revson v. Cinque & Cinque, P.C.,
221 F.3d 59, 66 (2d Cir. 2000). Here, ambiguity about whether Cascade was an
intended third-party beneficiary existed because there was conflicting testimony
about how the agreement worked vis-à-vis Cascade. However, even if Cascade’s
7
status was not ambiguous, making it error to submit that issue to the jury, that error
was “more probably than not harmless.” Mangold v. Cal. Pub. Utils. Comm’n, 67
F.3d 1470, 1473 (9th Cir. 1995). The district court determined that it would have
reached the same conclusion as the jury—i.e., that Cascade was an intended third-
party beneficiary.4
5. Kreidler had standing under Bankruptcy Code to pursue private
claims against the defendants. A creditor’s claim for fraudulent conveyance of
assets is the exclusive property of the bankruptcy estate and trustee if the debtor
could have asserted it. See 11 U.S.C. § 544; In re Acequia, Inc., 34 F.3d 800, 808-
09 (9th Cir. 1994). Kreidler’s claims in this case were claims to recover funds the
defendants took from Cascade, not assets they fraudulently conveyed from
Certified, which is involved in a separate bankruptcy proceeding. The Certified
bankruptcy trustee is aware of, and made no objection to, Kreidler’s claims in this
case. The district court properly granted summary judgment to Kreidler on this
issue.
4
Cascade meets the definition of an intended third-party beneficiary under
New York law. See, e.g., Subaru Distribs. Corp. v. Subaru of Am., Inc., 425 F.3d
119, 124 (2d Cir. 2005) (quoting Restatement (Second) of Contracts § 302);
Flickinger v. Harold C. Brown & Co., 947 F.2d 595, 600 (2d Cir. 1991);
Internationale Nederlanden (U.S.) Capital Corp. v. Bankers Trust Co., 261 A.D.
2d 117, 123, 689 N.Y.S. 2d 455 (1999).
8
The district court’s judgment for Plaintiff-Appellee Mike Kreidler is
AFFIRMED.
9