Moses Enterprises, LLC v. Lexington Insurance Company

66 F.4th 523

• Court: Court of Appeals for the Fourth Circuit
• Decided: April 28, 2023
• Docket: 22-1373
• Status: Published

Opinion

USCA4 Appeal: 22-1373 Doc: 37 Filed: 04/28/2023 Pg: 1 of 10

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 22-1373

MOSES ENTERPRISES, LLC,

Plaintiff - Appellee,

v.

LEXINGTON INSURANCE COMPANY; AIG CLAIMS, INC.,

Defendants - Appellants.

Appeal from the United States District Court for the Southern District of West Virginia, at Huntington. Robert C. Chambers, District Judge. (3:19-cv-00477)

Argued: March 7, 2023 Decided: April 28, 2023

Before THACKER and HEYTENS, Circuit Judges, and Joseph DAWSON, III, United States District Judge for the District of South Carolina, sitting by designation.

Vacated and remanded by published opinion. Judge Heytens wrote the opinion, in which Judge Thacker and Judge Dawson joined.

ARGUED: Robert Lawrence Massie, NELSON MULLINS RILEY & SCARBOROUGH, LLP, Huntington, West Virginia, for Appellants. William Lowell Mundy, MUNDY & ASSOCIATES, Huntington, West Virginia, for Appellee. ON BRIEF: Marc E. Williams, Huntington, West Virginia, James T. Fetter, NELSON MULLINS RILEY & SCARBOROUGH, LLP, Charlotte, North Carolina, for Appellants. USCA4 Appeal: 22-1373 Doc: 37 Filed: 04/28/2023 Pg: 2 of 10

TOBY HEYTENS, Circuit Judge:

This case is about whether an award of attorneys’ fees was proper under West

Virginia law. Because the district court’s analysis omitted a required step, we vacate the

fee award and remand for further proceedings.

I.

Plaintiff Moses Enterprises, LLC, sells cars. Moses had an insurance policy issued

by defendant Lexington Insurance Company, with defendant AIG Claims, Inc. serving as

the claims administrator.

While the insurance policy was in place, Moses sold a car to someone using a fake

identity. As the reader might guess, the fraudster never paid. Luckily, the policy covered

“Trick, Device, and False Pretense.” JA 24. But AIG denied coverage. Even though Moses

filed a claim the same day it learned the purchase was a sham, AIG concluded Moses did

not provide notice of the claim within the policy’s required period.

Moses sued Lexington and AIG in federal district court. The complaint made four

claims under West Virginia law, including—as relevant here—one for breach of the

insurance contract and one for violating the State’s unfair trade practices statute. Among

other relief, Moses requested “[d]amages for attorney fees.” JA 34. 1

1 Our review revealed “a jurisdictional tangle that could have been avoided by more careful pleading.” Thompson v. Ciox Health, LLC, 52 F.4th 171, 173 n.1 (4th Cir. 2022). Moses is a limited liability company, but the complaint contains no mention of its members’ citizenships. See Central W. Va. Energy Co. v. Mountain State Carbon, LLC, 636 F.3d 101, 103 (4th Cir. 2011) (“For purposes of diversity jurisdiction, the citizenship of a limited liability company . . . is determined by the citizenship of all of its members.”). Fortunately for Moses, 28 U.S.C. § 1653 allows “[d]efective allegations of jurisdiction” to (Continued)

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Moses moved for partial summary judgment, asking the district court to hold as a

matter of law that Lexington was “obligated to pay Moses for the loss it sustained as a

result of the purchase of a 2017 Toyota by a purchaser who used a stolen identity.” D. Ct.

ECF 25, at 1. While that motion was pending, defense counsel wrote Moses a short letter.

It read, in part:

Because my clients remain committed to resolving all claims fairly and reasonably, we are issuing a check to Moses Enterprises, LLC for the purchase price of the vehicle . . . plus the . . . statutory interest rate . . . accruing from the date of the loss.

JA 213. The check—which was mailed separately—listed its “reason for payment” as

“case 3:19-cv-00477,” this suit’s number on the district court’s docket. JA 215. Moses

returned the check without cashing it. In a letter, Moses’s counsel explained: “As I

informed you prior to you sending this check, I did not agree to accept this check and that

I would return it.” JA 216.

The district court granted partial summary judgment for Moses on the breach of

contract claim but resolved only liability—not damages. Nearly a year later, the court

denied the defendants’ motion for summary judgment, which argued Moses’s

compensatory damages were zero because Moses rejected the check the defendants had

sent. In the district court’s view, “[i]t borders on absurd to argue that mailing opposing

counsel an unwanted check is sufficient to settle or moot a claim,” particularly where

“be amended” on appeal, and Moses has provided information showing its members are all West Virginia citizens. Because neither defendant is a citizen of West Virginia and the amount in controversy exceeds $75,000, the district court had subject matter jurisdiction under 28 U.S.C. § 1332(a).

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“Defense Counsel was told before the check was sent that [Moses] would not settle for the

amount proposed by the Defendants.” JA 95. The court further concluded “a material

question of fact remain[ed] as to what damages [Moses] [was] entitled to as a result of

Defendants’ breach of contract.” JA 94.

“Litigation continued.” JA 261. By the eve of trial, the dispute had narrowed to two

claims—the claim for violating West Virginia’s unfair trade practices statute and damages

on the breach of contract claim.

The day before trial, the parties settled both claims, but continued to disagree about

the amount of attorneys’ fees to which Moses was entitled. Six months later, the district

court awarded Moses “$293,135.45 in attorney’s fees and costs,” representing “the entire

amount of attorney’s fees incurred until the final resolution of the case.” JA 265, 267.

We review an award of attorneys’ fees for abuse of discretion. See Colorado

Bankers Life Ins. Co. v. Academy Fin. Assets, LLC, 60 F.4th 148, 153 (4th Cir. 2023). In

so doing, we review any underlying factual findings for clear error, see Andrews v.

America’s Living Ctrs., LLC, 827 F.3d 306, 312 (4th Cir. 2016), while reviewing any “legal

determinations”—including “the proper interpretation of ” state law—de novo. Colorado

Bankers, 60 F.4th at 153. We look to decisions of “the State’s highest court” for “the final

word about what . . . state law means.” Id.

II.

As a general matter, West Virginia follows the “American rule that both sides of a

civil controversy must pay their own attorneys’ fees—win, lose, or draw.” Hayseeds, Inc.

v. State Farm Fire & Cas., 352 S.E.2d 73, 78 (W. Va. 1986). But West Virginia’s highest

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court has abrogated that rule for “prevailing claimants in property damage insurance

cases.” Id. at 79. “[W]henever a policyholder must sue his own insurance company over

any property damage claim, and the policyholder substantially prevails in the action,” West

Virginia law makes the insurance company “liable for the payment of the policyholder’s

reasonable attorneys’ fees.” Id. at 80.

The parties agree the policy at issue was one for property damage and that Moses

substantially prevailed. See Jordan v. National Grange Mut. Ins. Co., 393 SE.2d 647, 650

(W. Va. 1990) (holding a policyholder may “substantially prevail[ ] in the litigation as a

result of a settlement or as the result of a jury verdict”). There is thus no dispute Moses

“may recover some amount of attorney’s fees.” JA 262. The question is: How much and

for what?

A.

We reject the defendants’ argument that Moses is not entitled to any fees for work

done after Moses returned the defendants’ check or after the district court granted partial

summary judgment on the contract claim. True, West Virginia law allows fee-shifting only

for work “necessary to obtain payment of the insurance proceeds.” Jordan, 393 S.E.2d at

652. But the district court made no reversible error in rejecting the view that any work done

after those dates inherently flunks the “necessary to obtain payment” test.

The defendants’ first proffered date rises or falls on a contention that the rejected

check was payment for “the amount due under the insurance policy.” Defs.’ Br. 4–5. But

the district court made a factual finding that the check “was a settlement offer” for the

entire litigation, JA 265, and that finding is not clearly erroneous. The defendants’ letter

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announced its purpose as “resolving all claims”—not just the breach of contract claim—

“fairly and reasonably,” JA 213 (emphasis added), and the check’s “reason for payment”

line referenced the docket number for the case as a whole, JA 215. Moses had no duty to

settle its entire case for an amount its adversaries insisted represented full compensation

for one of Moses’s discrete claims. Nor was Moses required to open itself up to an

argument it had done so by cashing the defendants’ “unsolicited” check. JA 264.

The district court’s later grant of partial summary judgment also did not obviate the

need for further work to “obtain payment of the insurance proceeds.” Jordan, 393 S.E.2d

at 652. For one thing, Moses had no way of knowing whether the defendants would appeal

the district court’s ruling. But even leaving that aside, the district court’s grant of partial

summary judgment did not fully resolve the breach of contract claim because it left open

the amount of damages. Indeed, by stating “a material question of fact remains as to what

damages the Plaintiff is entitled to as a result of Defendants’ breach of contract,” JA 94,

the district court invited further attorney time to resolve “what is actually payable under

the insurance policy,” JA 230. 2

2 It would not matter if we agreed with the defendants that “liability and damages for the contract claim were either entirely settled by, or easily mathematically determinable after, the district court’s [partial] summary judgment order.” Defs.’ Br. 17. The defendants offer no reason to believe Moses would still have been paid had its lawyers simply patted themselves on the back and stopped working. And any disputes about how much additional work was “necessary to obtain payment of the insurance proceeds” go to the amount of compensation for any post-summary judgment work, not whether such work is compensable at all. Jordan, 393 S.E.2d at 650–52 (emphasis added).

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B.

At the same time, we reject Moses’s contention that the district court committed no

legal errors in concluding Moses was entitled to “the entire amount of attorney’s fees

incurred until the final resolution of the case.” JA 265, 267. We need not—and do not—

resolve whether any particular figure could survive abuse of discretion review. Instead, we

conclude the district court’s analysis missed a step and thus vacate and remand for further

proceedings.

The parties litigated and settled two claims, but only one of them entitles Moses to

fee shifting under West Virginia law. In Count One of its complaint, Moses accused the

defendants of breaching a first-party insurance contract. That claim is eligible for fee

shifting. See Hayseeds, 352 S.E.2d at 80. In Count Two, Moses charged the defendants

with violating the West Virginia Unfair Trade Practices Act “in their handling of [Moses’s]

claim.” JA 30. That “type of action”—which West Virginia courts call a Jenkins claim—

requires showing an insurance company’s “general business practice” of “bad faith

settlement.” McCormick v. Allstate Ins. Co., 475 S.E.2d 507, 514–15, 519 (W. Va. 1996).

And West Virginia’s highest court (the Supreme Court of Appeals) has held fee shifting is

unavailable for a Jenkins claim. See Lemasters v. National Mut. Ins. Co., 751 S.E.2d 735,

742–43 (W. Va. 2013) (per curiam).

Lemasters is closely on point and largely resolves this case. In Lemasters, the

plaintiffs sought attorneys’ fees for both a breach of contract claim and a Jenkins claim.

See Lemasters, 751 S.E.2d at 738–39. The trial court denied fee shifting for work “incurred

in the prosecution of ” the Jenkins claim (id. at 738), and the plaintiffs appealed, relying on

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dicta in an earlier decision stating that “Jenkins does allow, under certain conditions, a

party to seek reasonable attorney fees.” Lemasters, 751 S.E.2d at 742 (quoting McCormick,

475 S.E.2d at 519). West Virginia’s highest court affirmed the trial court’s “conclusion that

it was without authority to award the [plaintiffs] attorney fees, costs and expenses incurred

in vindicating their Jenkins/[Unfair Trade Practices Act] claims.” Id. It also contrasted

work on a Jenkins claim with work “necessary to obtain payment of the insurance

proceeds” in “a contract-based action,” for which fee shifting is available. Id. at 742–43.

The district court viewed Lemasters as distinguishable because “[h]ere, unlike in

Lemasters, . . . the underlying [contract] action . . . and the bad faith action were pursued

as one singular claim, which was not resolved or paid until the [final] settlement.” JA 264.

We respectfully disagree. For one thing, West Virginia’s highest court has made clear

Moses’s breach of contract claim (for which fee shifting is available) and its Jenkins claim

(for which fee shifting is unavailable) are not “one singular claim.” To the contrary, it has

said such claims are “wholly distinct,” McCormick, 475 S.E.2d at 519, and repeatedly

“distinguished . . . the filing of an action on the insurance contract to collect benefits arising

from the insurance contract, from [an] action arising from violations of the” unfair trade

practices statute, Lemasters, 751 S.E.2d at 741.

Yes, Lemasters involved a different procedural posture. But nothing in the Supreme

Court of Appeals’ analysis suggests those distinctions make a difference. As a federal court

sitting in diversity, our role is to predict what West Virginia’s highest court would do, not

to hunt for possible bases for distinguishing this case from its past decisions. And here

Lemasters reiterated the rule from Hayseeds by stating that fee shifting is allowed only for

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an insured “vindicating its claim” “to collect benefits under [its] insurance contract,” not

for “a bad faith action.” 751 S.E.2d at 740, 743.

The district court also cited “the public policy underpinning Hayseeds” as

supporting an award of attorneys’ fees for all of Moses’s claims. JA 265. But neither Moses

nor the district court has identified how pursuing a “wholly distinct” cause of action for an

insurance company’s unfair trade practice of “bad faith settlement,” McCormick,

475 S.E.2d at 514, 519, could be “necessary” to secure “payment of the insurance

proceeds,” Jordan, 393 S.E.2d at 652. Just because two things happen at the same time—

here, pursuit of the contract claim and the Jenkins claim—does not mean one is “necessary”

to the other. Id.

Because the district court committed legal error in awarding Moses the full amount

of its requested fees without determining whether any of the work was properly attributed

only to the Jenkins claim, we vacate the fee award and remand for further proceedings. On

remand, the district court must—aided by appropriate submissions by the parties—at least

attempt to determine which portions of the requested fees were “necessary to obtain

payment of the insurance proceeds” and then award fees based on that work only.

Lemasters, 751 S.E.2d at 743.

The regime of awarding attorneys’ fees for federal civil rights litigation provides a

helpful analog for the district court’s task. Although a “prevailing party” in that context

may receive “a reasonable attorney’s fee,” 42 U.S.C. § 1988(b), a litigant is not entitled to

fees for all claims if successful “on only some . . . claims,” Hensley v. Eckerhart, 461 U.S.

424, 434 (1983). Because “no fee may be awarded for services on the unsuccessful

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claim[s]” (id. at 435), a court awarding fees under Section 1988 must attempt to separate

the compensable work on the successful claims from non-compensable work on the

unsuccessful ones. See id. at 435–37.

None of this is to prejudge the proper fee award in this case. Maybe the work

Moses’s attorneys did for the Jenkins claim was so intertwined with their work on the

breach of contract claim that some (or all) of the time cannot be disentangled. Cf. Hensley,

461 U.S. at 435; see also Pls.’ Br. 6 (so arguing). Or maybe—as Moses’s counsel asserted

at oral argument—none of the requested fees were for work done on the Jenkins claim.

See Oral Arg. 34:40–35:23. But the district court made no findings about these issues. And

because “we are a court of review, not of first view,” Cutter v. Wilkinson, 544 U.S. 709,

718 n.7 (2005), we leave to the district court the initial task of assessing which of the

requested fees were compensation for “services . . . necessary to obtain payment of the

insurance proceeds,” Lemasters, 751 S.E.2d at 743.

* * *

The judgment of the district court is vacated, and the case is remanded for further

proceedings consistent with this opinion.

SO ORDERED