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Long v. American Family Mutual Insurance Company, S.I.

United States District Court, D. Kansas

November 7, 2019

ARNOLD LONG, Plaintiff,


          Angel D. Mitchell U.S. Magistrate Judge

         This matter comes before the court on Plaintiff's Motion for Attorneys' Fees and Costs, and Order for Second Mediation (ECF No. 15). Plaintiff Arnold Long seeks an award of fees and expenses and an order directing a second mediation because he contends that Defendant American Family Mutual Insurance Company, S.I. did not act in good faith when it sent only its attorney to mediation and that attorney lacked the authority to meet Mr. Long's settlement demand. For the reasons stated below, the court finds that there is insufficient information to determine whether American Family's representative had full settlement authority to meet any reasonable settlement demand by Mr. Long. However, the court grants Mr. Long's motion and awards the requested sanctions because American Family has not met its burden to show that it meaningfully participated in mediation when it sent only its attorney of record to attend the mediation.

         I. BACKGROUND

         Mr. Long's complaint alleges that he purchased a property insurance policy from American Family that provided $224, 100 for dwelling coverage and $224, 100 for personal property coverage. (ECF No. 1 ¶ 6.) After a grease fire caused significant damage to Mr. Long's home and personal property, he made a claim for the policy limits. (Id. ¶ 10.) At the time, Mr. Long was in the process of purchasing the home from his brother pursuant to a contract for deed. (Id. ¶ 7.) American Family tendered payment to Mr. Long's brother for property damage to the house, but it denied coverage for Mr. Long's personal property on the basis that Mr. Long lied on his policy application by failing to disclose that he had a 20-year-old conviction for possession of marijuana. (Id. ¶ 12.) American Family's answer also asserts other policy exclusions. Mr. Long asserts a breach of contract claim and also seeks an award of attorneys' fees and costs pursuant to Kan. Stat. Ann. § 40-256. (Id. ¶ 19.)

         The scheduling order required the parties to mediate by November 1, 2019. (ECF No. 10, at 3.) The parties scheduled mediation with Timothy J. Finnerty on September 20, 2019. In advance of the mediation, Mr. Finnerty reminded the parties that both they “and their counsel with authority to settle the case will be present unless specifically released from that obligation by the parties' agreement.” (ECF No. 15-1, at 2.) He further reminded the parties that D. Kan. Rule 16.3 applies to mediation of cases pending in federal district court in the District of Kansas. (Id.) The parties met at Mr. Finnerty's office. Mr. Long attended personally along with counsel and a law clerk working at counsel's firm. No. representative of American Family attended in person other than its counsel of record. According to Mr. Long, defense counsel only had authority to settle the case for $20, 000, which was far less than Mr. Long's demand of $320, 000. Mr. Long argues that defense counsel lacked full settlement authority and that sending only counsel to mediation was insufficient.

         American Family contends that defense counsel had full settlement authority because $20, 000 represents significantly more than the value of the case. American Family points to various policy exclusions to argue that the policy is void, including the “concealment or fraud” exclusion. American Family notes that the contract for deed between Mr. Long and his brother provided a purchase price of $225, 000 for the property, which, according to American Family, was assessed by the county taxing authority as having a value of only $33, 000. American Family also states that the contract for deed provides for repaying the $225, 000 in monthly installments of $800, which would result in a 23-year repayment period. American Family also disputes Mr. Long's property damage calculation. The insurer appears to suggest that Mr. Long's 22-page non-exhaustive list of personal property destroyed in the fire is not credible. The list includes losses for, among other things, 100 pairs of jeans valued at $8, 000, 40 pairs of dress pants and 40 dress shirts valued at $4, 000, 50 hooded sweatshirts valued at $2, 000, 45 tank tops valued at $1, 575, and 48 washcloths valued at $600. (ECF No. 16, at 4.)

         II. ANALYSIS

         When a scheduling order requires mediation, a party that fails to comply with D. Kan. Rule 16.3 may face sanctions under Fed.R.Civ.P. 16(f). See D. Kan. Rule 16.3(c)(5) (providing for sanctions under Fed.R.Civ.P. 16(f)); Fed.R.Civ.P. 16(f)(1)(C) (providing for sanctions for failing to obey a scheduling order); Turner v. Young, 205 F.R.D. 592, 595 (D. Kan. 2002) (finding that failing to send a representative with settlement authority exhibits “a lack of good faith, and could warrant sanctions under Fed.R.Civ.P. 16(f)”); see also Reed v. Bennett, 312 F.3d 1190, 1195 (10th Cir. 2002) (“A district court undoubtedly has discretion to sanction a party for failing to prosecute or defend a case, or for failing to comply with local or federal procedural rules.”). Mr. Long moves for sanctions on two grounds: (1) he contends that defense counsel lacked meaningful settlement authority under D. Kan. Rule 16.3 and Turner v. Young, 205 F.R.D. 592, 595 (D. Kan. 2002); and (2) he also argues that defense counsel's participation alone was insufficient under Inter-Ocean Seafood Trader, Inc. v. RF Int'l, Ltd., No. 12-2268-KGG, 2013 WL 441065, at *2 (D. Kan. Feb. 5, 2013). The court addresses each of these issues.

         A. Whether Defense Counsel Had Adequate Settlement Authority

         D. Kan. Rule 16.3(c)(2) governs participants who are required to attend mediation. It requires (among other things) each “party or its representative with settlement authority” to attend the mediation along with the party's attorney responsible for resolution of the case. D. Kan. Rule 16.3(c)(2). In Turner v. Young, the Honorable James P. O'Hara, United States Magistrate Judge, decided that the requirement to send a party representative with settlement authority extends to a mediation session facilitated by a private mediator. 205 F.R.D. at 593-95. Thus, the law in this district is clearly established that American Family was required to send a party representative with settlement authority to the court-ordered mediation in this case. But that is where the facts of this case depart from those in Turner.

         In Turner, defense counsel sent a letter to plaintiff's counsel in advance of the mediation requesting permission for the claims handler with settlement authority to participate in the mediation by telephone. Id. at 593. Plaintiff's counsel objected, and the parties had no further dialogue about this in advance of the mediation. Id. Defense counsel came to mediation with Scott Glow, a claims handler who had $20, 000 in settlement authority. Id. at 593-94. As the mediation proceeded, Glow called Tony Sarchet, a claims representative at the home office, to clarify the scope of Glow's settlement authority. Id. at 594. When the parties reached an impasse that day, Plaintiff's last demand was $32, 500 and the defendant's final offer was $20, 000. Id. Magistrate Judge O'Hara explained that “attendance” under the local rule “means to appear in person and participate directly, not to stand by or participate by phone”; that “a person with settlement authority does not need to pick up the phone to call anyone else to find out whether he or she can go any higher or lower”; and that a person with settlement authority is “the” decisionmaker “who has authority to meet the other party's demand, even if he or she chooses not to do so.” Id. at 595. Magistrate Judge O'Hara determined “Glow is a paradigm example of the type of person who does not have the required settlement authority” because he had to call Sarchet to clarify the scope of his settlement authority; thus, Sarchet was the person with the required settlement authority and the defendant should have sent him to the mediation. Id. at 595.

         Here, plaintiff contends that sanctions are warranted under Turner because defense counsel's limited $20, 000 in settlement authority was not full, meaningful authority to settle a $320, 000 claim. The court disagrees. The court's decision in Turner did not turn on whether Glow's $20, 000 in settlement authority was adequate compared to the plaintiff's $32, 500 demand. To the contrary, in Turner, the defendant insurer had already decided that the most it was willing to offer to settle the plaintiff's claims was $25, 000. Id. at 595. So, it would not have mattered even if the defendant insurer had sent Sarchet to personally attend the mediation because he also would not have had authority to meet the plaintiff's $32, 000 demand. Yet the court still determined that Sarchet was “the” decisionmaker with full, meaningful settlement authority-but this was because Glow had to pick up the phone to call Sarchet to clarify the scope of his settlement authority. Thus, the court's determination of the relevant decisionmaker rested on the inability to make decisions without checking with someone else. 205 F.R.D. at 595; see also, e.g., Inter-Ocean Seafood Trader, 2013 WL 441065, at *2 (finding that a representative did not have full settlement authority when he needed to communicate with “moving parts”).

         Thus, the court rejects plaintiff's reliance on the court's statement in Turner to the effect that settlement authority means “authority to meet the other party's demand.” Id. at 595. For the reasons set forth above, the undersigned understands that statement from Turner to be dicta. But even though that statement may have been dicta in Turner, authority to meet the other party's demand could be a relevant factor in an appropriate case. But a plaintiff seeking sanctions on the basis of the party representative having inadequate settlement authority must, at a minimum, demonstrate that the plaintiff's settlement demand was reasonable and that the defendant's settlement offer was unreasonable. Here, Mr. Long has not presented any evidence suggesting that his $320, 000 demand was reasonable or that American Family's $20, 000 offer was unreasonable. On the other hand, American Family provides at least some minimal basis for its settlement offer, which Mr. Long addresses only by generally disputing the applicability of the policy exclusions. But, even setting aside whether any policy exclusions apply, the record is insufficient for the court to determine that plaintiff's $320, 00 settlement demand is reasonable. So, based on the record, the court cannot find that defense counsel lacked full, meaningful settlement authority solely because he only had $20, 000 in settlement authority. The court therefore declines to award sanctions under Turner.

         B. Defense Counsel as ...

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