McClure v. Country Life Ins. Co., CV-15-02597-PHX-DLR

Benjamin McClure, Plaintiff, v. Country Life Insurance Company, et al., Defendants.

No. CV-15-02597-PHX-DLR

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

August 1, 2017

ORDER

Plaintiff Benjamin McClure purchased a disability insurance policy from Defendant Country Life Insurance Company ("Country Life") in 1995. In January 2013, McClure submitted a claim for benefits after suffering a traumatic brain injury. McClure alleges that Country Life and Defendant CC Services, Inc. ("CCS"), an affiliated company providing various services to Country Life, breached the insurance contract and administered his claim in bad faith.

At issue is CCS's motion for summary judgment, which is fully briefed. (Docs. 201, 231, 262.) CCS argues that it cannot be liable for breach of contract or bad faith claim administration as a matter of law because it is not a party to the insurance contract and is not a partner, principal, or agent of County Life. For the following reasons, the motion is denied.¹

I. Legal Standard

Summary judgment is appropriate when there is no genuine dispute as to any material fact and, viewing those facts in a light most favorable to the nonmoving party, the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). Facts are material if they might affect the outcome of the case under governing law, and a dispute over those facts is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary judgment may also be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

II. Local Rule of Civil Procedure 56.1

Preliminarily, CCS objects to numerous paragraphs in McClure's controverting statement of facts on grounds that they violate Local Rule of Civil Procedure 56.1. This District's Local Rules of Practice impose specific requirements on the form and content of summary judgment motions. As relevant here, "[a]ny party filing a motion for summary judgment must file a statement, separate from the motion and memorandum of law, setting forth each material fact on which the party relies in support of the motion." LRCiv 56.1(a). Each of these facts "must refer to a specific admissible portion of the record where the fact finds support (for example, affidavit, deposition, discovery response, etc.)." Id. Likewise:

Any party opposing a motion for summary judgment must file a statement, separate from that party's memorandum of law, setting forth: (1) for each paragraph of the moving party's separate statement of facts, a correspondingly numbered paragraph indicating whether the party disputes the statement of fact set forth in that paragraph and a reference to the specific admissible portion of the record supporting the party's position if the fact is disputed; and (2) any additional facts that establish a genuine issue of material fact or otherwise preclude judgment in favor of the moving party. Each additional fact must be set forth in a separately numbered paragraph and must refer to a specific admissible portion of the record where the fact finds support.

LRCiv 56.1(b).

The rule distinguishes between a separate statement of facts and a memorandum of law because the two documents serve different purposes. The court should be able to glean which facts, if any, are genuinely disputed by reviewing the parties' separate and controverting statements of facts. Working from that baseline of facts, the court then looks to the parties' memoranda of law to determine whether any genuinely disputed matters are material under governing law, or whether the movant is entitled to judgment as a matter of law. Thus, factual disputes should be aired in the parties' separate statements, while legal disputes should be addressed in their memoranda of law. The court may deem a movant's separate statement of facts to be true if the non-moving party does not comply with these rules. See Szaley v. Pima Cty., 371 Fed. App'x, 734, 735 (9th Cir. 2010).

CCS correctly notes that many paragraphs in McClure's controverting statement of facts do not comply with Rule 56.1(b) because they contain legal arguments over the significance or effect of facts, rather than disputes over the factual matter itself. (Doc. 262 at 3-4; Doc. 232 ¶¶ 2, 16-19, 21.)

The Rule requires the controverting party to provide a specific record reference supporting the party's position if a fact is disputed; it does not permit explanation and argument supporting the party's position to be included in the response to the moving party's statement of facts. Argument may be made in the response or reply brief on the motion for summary judgment, but within the page limits.

Pruett v. Arizona, 606 F. Supp. 2d 1065, 1075 (D. Ariz. 2009). CCS's objections are well-taken and, for purposes of this order, the Court "will disregard each of those paragraphs except for the word 'controverted' and the references to the record." Id.

CCS also objects to several paragraphs that include additional facts "for completeness," instead of listing these facts as separate statements as required under Rule 56.1(b)(2). (Doc. 262 at 3-4; Doc. 232 ¶¶ 9-11, 15, 20.) Although the Court agrees that these paragraphs do not strictly adhere to the Rule 56.1(b), the Court nonetheless will consider the facts (but not the arguments) included to the extent they are supported bycitations to admissible portions of the record.

Lastly, CCS objects to paragraph 20 of McClure's controverting statement of facts because it does not cite to any portion of the record for evidentiary support. (Doc. 262 at 4; Doc. 232 ¶ 20.) CCS's objection is sustained. Paragraph 20 of McClure's separate statement contains no reference to the record and, instead, advances legal arguments more appropriately made in the response memorandum. The Court therefore will not consider it for purposes of this order.

III. Discussion

The facts relevant to CCS's motion largely are undisputed. CCS and Country Life are two among many affiliated companies operating under the tradename "COUNTRY Financial." They share corporate officers and a majority shareholder, and correspond under the same COUNTRY Financial tradename and logo. Pursuant to an intercompany servicing agreement, CCS agreed to provide Country Life and other COUNTRY Financial affiliates "with services necessary to operate their business," including accounting, actuarial, billings, claims, finance, human resources, information technology, marketing, management, policy administration, and underwriting. CCS describes itself as "sort of the payroll entity" for COUNTRY Financial affiliates. Employees at the affiliates, including those who handled McClure's claim, technically are CCS employees because CCS provides payroll, benefits, and other human resources services for them. This arrangement allows employees to easily transition from one affiliate to another. The servicing agreement, however, explicitly denies the creation of "any partnership, joint venture, employment, principal-agent or other relationship" between CCS and the other COUNTRY Financial affiliates.

McClure purchased his insurance policy from Country Life. CCS was not a signatory to that contract and is not mentioned in it. Based on these undisputed facts, CCS argues that it cannot be liable for breaching the insurance contract or the covenant of good faith inherent in it. McClure, however, contends that a jury reasonably could find CCS jointly and severally liable based of its own direct involvement in theadministration of his claim, and under alter-ego or joint venture theories. The Court agrees with McClure, in part.

A. Alter Ego Liability

First, the Court doubts that alter-ego liability is implicated by the relationship between CCS and Country Life. Arizona law "allows a parent corporation to be held liable for the acts of its subsidiary when the individuality or separateness of the subsidiary has ceased[.]" Gatecliff v. Great Republic Life Ins. Co., 821 P.2d 725, 728 (Ariz. 1991). This case, however, does not involve a parent company and its subsidiary. There is no evidence that CCS is Country Life's parent company, or vice versa. Rather, the undisputed evidence is that CCS and Country Life are two among many affiliated companies all operating under the shared tradename.

Regardless, the undisputed evidence does not support McClure's alter-ego theory. To prevail on an alter-ego liability theory, a plaintiff "must prove both (1) unity of control and (2) that the observance of the corporate form would sanction a fraud or promote injustice." Id. Although the evidence would permit a reasonable jury to find for McClure as to the first element, unity of control, he has not made a sufficient showing on the second prong. The Court is not confronted here with an insurer attempting to evade liability for the actions of a third-party administrator's employees. Country Life readily admits that it is McClure's insurer and is bound by the insurance contract. Country Life also acknowledges that the CCS employees assigned to it are its agents, and therefore Country Life is responsible for the actions of those employees even though, on paper, they are employees of CCS. Country Life is not hiding behind CCS's operational services to avoid potential contractual or bad faith liability. Under the circumstances, the Court concludes that observance of the corporate form would not sanction fraud or promote injustice.

B. Joint Venture

McClure alternatively argues that a jury reasonably could find CCS jointly and severally liable for breach of contract and bad faith claim administration because itengaged in a joint venture with Country Life. The Court agrees.

Under Arizona law, privity of contract generally must exist before a party may...