Yazzie v. Gov't Emps. Ins. Co.

LISA YAZZIE et al., Plaintiffs, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY et al., Defendants.

Civ. No. 16-1085 KK/LF

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

April 24, 2017

ORDER DENYING MOTION TO BIFURCATE AND MOTIONS TO DISMISS

THIS MATTER comes before the Court on: (1) Defendant Government Employees Insurance Company's ("GEICO") Motion to Bifurcate and Stay Plaintiffs' Extra-Contractual Claims (Doc. 23) ("Motion to Bifurcate"), filed December 2, 2016; (2) Defendant Michal Ellis' Motion to Dismiss (Doc. 36), filed January 3, 2017; (3) Defendant Darcell Elmore's Motion to Dismiss (Doc. 42), filed January 12, 2017; and, (4) Defendant Michal Ellis' Second Motion to Dismiss (Doc. 60), filed January 31, 2017. The Court, having reviewed the parties' submissions and the relevant law, and being otherwise fully advised, FINDS that the Motion to Bifurcate is not well taken at this time and should be DENIED WITHOUT PREJUDICE, and that the motions to dismiss are not well taken and should be DENIED.

I. Defendant GEICO's Motion to Bifurcate

A. Factual Background and Procedural History

Plaintiffs Lisa and Ernest Yazzie filed this action in the First Judicial District Court for the State of New Mexico on August 10, 2016, and filed an amended complaint in that forum on September 27, 2016. (Doc. 1 at 7; Doc. 10 at 3.) In their amended complaint, Plaintiffs allege that, on or about January 17, 2015, an unidentified driver operating an uninsured vehicle owned by Patricia Brown negligently caused an automobile accident that injured them. (Doc. 1 at 9; Doc. 29 at 1.) According to Plaintiffs, the driver of Ms. Brown's vehicle "crossed the center-line, struck the Yazzie[s'] vehicle[,] . . . fled the scene of the crash," and was intoxicated. (Doc. 29 at 1.)

At the time of the accident, Plaintiffs were named insureds on an uninsured motorist ("UM")/underinsured motorist ("UIM") policy issued by Defendant GEICO. (Doc. 1 at 9; Doc. 2 at 4.) Plaintiffs allege that, on January 13, 2016, they made a written claim for payment of UM benefits under the policy as a result of the accident, but that Defendant GEICO, acting through its employees Defendants Ellis and Elmore, rejected the claim on January 25, 2016. (Doc. 1 at 11.) Plaintiffs contend that, in the course of handling their claim, Defendants breached Defendant GEICO's insurance contract with Plaintiffs as well as the implied covenant of good faith and fair dealing, and committed fraud, misrepresentation, malicious abuse of process, and willful violations of the "Insurance Trade Practices and Frauds Act" and the "Unfair Claims Practices Act." (Id. at 13-16.) In particular, Plaintiffs claim that Defendants "chose not to investigate and process Plaintiffs['] claim in a timely manner," "misrepresent[ed]" the nature of Plaintiffs' coverage, and refused to pay Plaintiffs benefits for which Defendant GEICO's liability could not reasonably be disputed. (Id. at 10-11.)

Defendant GEICO removed the case to this Court on September 30, 2016, and filed its Motion to Bifurcate on December 2, 2016. (Docs. 1, 23.) In the Motion to Bifurcate, Defendant GEICO asks the Court to stay discovery regarding, and bifurcate the trial of, Plaintiffs' extra-contractual claims pending resolution of their breach of contract claims. (Doc. 23 at 9.) Plaintiffs filed a response in opposition to the motion on December 16, 2016, and Defendant GEICO filed a reply in support of it on December 29, 2016. (Docs. 29, 32.)

B. Legal Standards

A district court's discretion in deciding whether to sever issues for trial is "broad" and "considerable." United States ex rel. Bahrani v. ConAgra, Inc., 624 F.3d 1275, 1283 (10^th Cir. 2010) (quoting Anaeme v. Diagnostek, Inc., 164 F.3d 1275, 1285 (10^th Cir. 1999)); Angelo v. Armstrong World Indus., 11 F.3d 957, 964 (10^th Cir. 1993). Federal Rule of Civil Procedure 42, which governs bifurcation in federal civil actions, permits the Court to order a separate trial of any claim or issue "[f]or convenience, to avoid prejudice, or to expedite and economize." Fed. R. Civ. P. 42(b). "Bifurcation is not an abuse of discretion if such interests favor separation of issues and the issues are clearly separable." Angelo, 11 F.3d at 964.

"Regardless of efficiency and separability, however, bifurcation is an abuse of discretion if it is unfair or prejudicial to a party." Id. Moreover, bifurcation is to be decided "on a case-by-case basis" and should not be regarded as "routine." Marshall v. Overhead Door Corp., 131 F.R.D. 94, 97-98 (E.D. Pa. 1990). Bifurcation under Rule 42(b) is inappropriate when it will "not appreciably shorten the trial or [a]ffect the evidence offered by the parties" because claims are inextricably linked. F.D.I.C. v. Refco Group, Ltd., 184 F.R.D. 623, 629 (D. Colo. 1999). The party seeking bifurcation bears the burden of proving that it is proper "in light of the general principle that a single trial tends to lessen the delay, expense, and inconvenience." Belisle v. BNSF Ry. Co., 697 F. Supp. 2d 1233, 1250 (D. Kan. 2010).

The Court also has broad discretion to stay proceedings incident to its power to manage its docket. Clinton v. Jones, 520 U.S. 681, 706 (1997); Abdulhaseeb v. Calbone, 600 F.3d 1301, 1310 (10^th Cir. 2010). In addition, the Court may stay discovery pursuant to Federal Rule of Civil Procedure 26(c), which for good cause shown allows the Court to limit discovery to protect a party from "annoyance, embarrassment, oppression, or undue burden or expense." Fed. R. Civ.P. 26(c); Nankivil v. Lockheed Martin Corp., 216 F.R.D. 689, 692 (M.D. Fla. 2003); Johnson v. N.Y. Univ. Sch. of Educ., 205 F.R.D. 433, 434 (S.D.N.Y. 2002). The party seeking a stay bears the burden of establishing the need for it. Clinton, 520 U.S. at 708.

C. Analysis

In its Motion to Bifurcate, Defendant GEICO asks the Court to stay discovery regarding, and bifurcate the trial of, Plaintiffs' extra-contractual claims pending resolution of their breach of contract claims. (Docs. 23 at 9; Doc. 32 at 11.) Defendant GEICO first argues that it has a right to litigate Plaintiffs' contractual claims, presenting any coverage defenses as well as any defenses the UM would have had, before Plaintiffs' extra-contractual claims can proceed. (Doc. 23 at 3-5; Doc. 32 at 1-5.) According to Defendant GEICO, Plaintiffs must establish both the fact and amount of its contractual liability before they can pursue their extra-contractual claims. (Doc. 23 at 3-5.) In support of this argument, Defendant GEICO contends that it is obligated to pay benefits under Plaintiffs' UM/UIM policy only if Plaintiffs are "legally entitled to recover" damages from the UM.¹ (Id. at 3; Doc. 32 at 5.) Although Defendant GEICO acknowledges that "the dispute between the Plaintiffs and Defendant lies primarily with the value of their claims," it insists that "Plaintiffs must first establish they are legally entitled to recover damages from the UM," and the amount of those damages, "before attempting to establish liability for their bad faith allegations." (Doc. 32 at 5 (emphasis in original).)

In the particular circumstances of this case, the Court disagrees. As the court in Willis v. Government Employees Insurance Co. observed,

New Mexico statutory law on UM/UIM coverage simply requires "the insured be legally entitled to recover damages and that the negligent driver be uninsured" or underinsured. Farmers Ins. Co. of Arizona v. Sandoval, 2011-NMCA-051, ¶ 7, 149 N.M. 654, 657, 253 P.3d 944, 947 (citing Schmick v. State Farm Mut. Auto. Ins. Co., 1985-NMSC-073, ¶ 11, 103 N.M. 216 (1985)). Neither New Mexico statutes nor caselaw require the establishment of the amount of damages before an insured can be considered legally entitled to recover damages at all. An insured, therefore, can be legally entitled to recover damages even if the exact amount of damages is not yet determined. . . . GEICO has failed to convince the Court that a determination of damages is a condition precedent to the bad faith claims.

2015 WL 11181339, at *4 (D.N.M. Jun. 17, 2015). A contrary case on which Defendant GEICO relies, i.e., Aragon v. Allstate Insurance Co., 185 F. Supp. 3d 1281 (D.N.M. 2016), is plainly distinguishable. In Aragon, the plaintiff's claim was for UIM benefits; and, to recover UIM benefits, a plaintiff must prove, inter alia, "damages that exceed the tortfeasor's liability limits." Id. at 1283. Obviously, however, when a plaintiff seeks to recover UM benefits, that requirement makes no sense; even the most minimal damages will exceed the amount the plaintiff could collect from the uninsured tortfeasor's non-existent liability insurance. Ortiz, 207 F. Supp. 3d at 1220.

Defendant also relies on Hovet v. Allstate Insurance Co., 2004-NMSC-010, ¶¶ 22-23, 135 N.M. 397, 89 P.3d 69, in which the New Mexico Supreme Court held that a third-party claimant² has a right to sue an insurer for unfair settlement practices under Sections 59A-16-20(E) and 59A-16-30 of the New Mexico Statutes Annotated. (Doc. 32 at 8-9.) The Hovet court imposed "certain preconditions" on such a suit, however:

[a] third-party claimant's statutory cause of action against the insurer for unfair settlement practices must await the conclusion of the underlying negligence action between the claimant and the insured. Thus, a third-party claimant may not sue both the insured and the insurer in the same lawsuit. Not only that, the third-party claimant will not even have an action under Section 59A-16-20(E) unless and until there has been a judicial determination of the insured's fault and the amount of damages awarded in the underlying negligence action.

2004-NMSC-010 at ¶¶ 23, 26, 135 N.M. 397, 89 P.3d 69 (internal citation omitted).

The Court finds this case distinguishable from Hovet in three significant ways. First, the extra-contractual claims alleged in Plaintiffs' amended complaint are not limited to claims based on Defendant GEICO's alleged bad faith refusal to settle. (See, ...