PUBLIC ENTITY POOL FOR LIABILITY, (PEPL), Plaintiff and Appellee, v. David SCORE, Individually and as Personal Representative of the Estate of Gina Score, Defendant, and Tamara Wagaman, Individually, and in her Capacity as an Employee of the State of South Dakota, Defendant and Appellant.
Nos. 22250, 22251, 22301
Supreme Court of South Dakota.
Decided Feb. 12, 2003.
Rehearing Denied March 27, 2003.
2003 SD 17 | 658 N.W.2d 64
KONENKAMP, Justice.
[¶1.] Along with several other state employees, two juvenile facility supervisors were sued in federal court for their involvement in the death of a juvenile inmate at the State Training School. South Dakota maintains the Public Entity Pool for Liability (PEPL fund) for the defense of tort claims against state employees. While agreeing to defend the other state employees, the PEPL fund declined to defend the two supervisors and brought a declaratory judgment action, seeking a ruling that their conduct was not covered. Following a trial, the circuit court ruled that the PEPL fund was responsible for defending the two supervisors in the federal case and ordered the payment of their attorney‘s fees incurred in that suit. One supervisor also sought to recover her attorney‘s fees in the declaratory judgment action. In granting summary judgment for the PEPL fund, the circuit court ruled that the supervisor was not entitled to her attorney‘s fees in the declaratory case because the PEPL fund‘s actions in denying coverage and in seeking declaratory relief were not vexatious or unreasonable. We conclude that there is no legal authority for obtaining an award of attorney‘s fees against the PEPL fund in a declaratory action. We also uphold the circuit court‘s rulings in two discovery-related disputes.
Background
[¶2.] On July 21, 1999, Gina Score, a juvenile resident at the State Training School, collapsed during a 2.4 mile forced run-walk supervised by Tamara Wagaman and Raelene Layne. Score later died in the hospital. Criminal charges were brought against Wagaman and Layne. Both were later acquitted. In a civil complaint dated October 28, 1999, Score‘s family brought suit in federal district court against several state employees and others, including Wagaman and Layne. The PEPL fund defends and indemnifies state employees sued for negligence in the course of their employment. See
[¶3.] On November 22, 1999, the PEPL fund initiated a declaratory judgment action in circuit court, seeking a declaration that it had (1) no obligation to defend Wagaman and Layne in the federal lawsuit, and (2) no obligation to pay any damages award against them. Wagaman counterclaimed, alleging bad faith and breach of contract in failing to pay her legal expenses in the federal lawsuit and in bringing the declaratory judgment action.
[¶4.] Attorney Abourezk deposed a number of people, including Governor William Janklow. During that deposition, the Governor refused to answer certain questions, asserting attorney-client privilege. Abourezk then sought a court order to compel answers to these questions. In addition, he attempted to subpoena the Governor to appear at the hearing. The circuit court quashed the subpoena. At the hearing, Abourezk indicated that he wanted to discover the content of the discussions the Governor had with the administrator of the PEPL fund and its attorney concerning the federal lawsuit. Although the court ruled that Janklow prematurely asserted the attorney-client privilege because the questions he refused to answer were preliminary, the court ruled that the content of these conversations were privileged. Abourezk never attempted a follow-up deposition of the Governor. The court refused to grant financial terms
[¶5.] Ultimately, the circuit court ruled that the PEPL fund was responsible for (1) defending Wagaman and Layne in the federal lawsuit and (2) paying all reasonable legal fees the two had previously incurred in that suit.1 Shortly thereafter, a dispute arose concerning what were reasonable fees for Wagaman‘s defense. Because the attorneys defending the other employees on behalf of the PEPL fund were charging $110 per hour, the fund did not want to pay Abourezk a higher hourly rate. However, Abourezk‘s agreement with Wagaman was for $125 per hour. To support his claim for his fees, Abourezk subpoenaed the billing records and the partnership agreement of the Johnson, Heidepriem, Miner, Marlow and Janklow law firm, the firm hired to represent the other state employees. The subpoena commanded the partners to produce all their billing records in the federal lawsuit and to produce the documents showing how all money received by the firm is split between the partners. The court granted the Johnson law firm‘s motion to quash and awarded financial terms against Abourezk for abuse of the subpoena process.
[¶6.] In February 2001, the federal lawsuit was settled, leaving only the question whether the PEPL fund would be responsible for Wagaman‘s legal fees in the declaratory action. Both sides moved for summary judgment.2 The circuit court granted summary judgment for the PEPL fund. Wagaman appeals on the following issues: (1) Whether the court erred in granting summary judgment against Wagaman and in favor of the PEPL fund on Wagaman‘s counterclaim and motion for defense expenses for the declaratory judgment action.3 (2) Whether the court abused its discretion in granting terms against Wagaman‘s counsel and in favor of the law firm from which Wagaman‘s counsel had subpoenaed partnership and fee splitting agreements. (3) Whether the court abused its discretion in denying Wagaman‘s motion for terms against the PEPL fund, when Wagaman attempted to compel the testimony of Governor Janklow.
1. Attorney‘s Fees for Defending Declaratory Action
[¶7.] Wagaman seeks to recover from the PEPL fund her attorney‘s fees incurred in this declaratory action.
[¶8.] No provision in the South Dakota‘s Declaratory Judgment Act allows for an award of attorney‘s fees to the prevailing party.6 See
In all actions or proceedings hereafter commenced against any employer who is self-insured, or insurance company, including any reciprocal or interinsurance exchange, on any policy or certificate of any type or kind of insurance, if it appears from the evidence that such company or exchange has refused to pay the full amount of such loss, and that such refusal is vexatious or without reasonable cause, ... the trial court and the appellate court, shall, if judgment or an award is rendered for plaintiff, allow the plaintiff a reasonable sum as an attorney‘s fee to be recovered and collected as a part of the costs[.]
[¶10.] Yet, we have never held the PEPL fund accountable under our insurance code. To do so would be to ignore the plain text of
[¶11.] The rationale for exempting the PEPL fund from the strictures of the insurance code is apparent. As one California appellate court explained in dealing with a similar fund:
[To subject a self-insurance pool] to the statutory requirements of the Insurance Code would place member entities in the position of having the same duties and obligations as commercial insurers.... Such an arrangement would adversely affect the pool‘s ability to provide members cost-effective liability coverage and subsequently defeat the purpose and intent of these self-insuring groups.
[¶13.] Wagaman next contends that her attorney‘s fees in this declaratory action may be awarded under the terms of the PEPL fund‘s Memorandum of Liability Coverage. Usually, the ultimate determiner in issues over coverage is the liability contract itself. Questions of coverage are properly answered by adverting to the rules of contract law that rely on the intent of the parties. The rules governing the PEPL fund are contained in
[¶14.] The contract memorialized in the Participation Agreement and attached Memorandum is between the PEPL fund and State of South Dakota. Wagaman paid no premiums in return for coverage and had no direct contractual relationship with the PEPL fund. The circuit court ruled that as a state employee covered under the PEPL fund agreement, she was entitled to “damage coverage” and “defense coverage” in the federal suit. However, the Memorandum did not authorize payment of attorney‘s fees in a declaratory judgment action. The specific language of the Memorandum refers to “defense coverage” and states that the PEPL fund will “defend any claim or suit for damages not excluded hereunder.” Within the same section, the Memorandum states that “defense costs are payable in addition to the coverage limit.” But, as detailed above, defense costs must be “generated by and related to a claim.” (Emphasis added.) A claim is “any claim or suit for damages,” not a suit for declaratory judgment.9
2. Award of Terms for Subpoena Abuse
[¶16.] Attorney Abourezk issued subpoenas, along with notices of taking depositions, to three lawyers in the Johnson firm: Steven Johnson, Matthew Tobin, and Russ Janklow. Johnson and Tobin had participated in defending the state employees in the federal lawsuit. Russ Janklow had not been involved in that case. The subpoenas commanded the attorneys to produce all “billing records and/or statements” submitted to the PEPL fund for work done on the federal case, together with “all records” showing how much was “received as payment” from the PEPL fund, and the hourly rate charged. The subpoenas also commanded the production of the “firm‘s partnership agreement and other documents which show how all monies received are split by the partners.”
[¶17.] The Johnson firm agreed to turn over its billing records, but moved to quash the subpoenas to the extent that they commanded the firm to produce other materials showing the internal distribution of funds. At the hearing, attorney Abourezk denied seeking this information for “political or publicity purposes,” as alleged by attorney Johnson. When asked by the court to explain how these partnership and fee sharing arrangements might lead to relevant evidence on the reasonableness of Abourezk‘s fees, Abourezk responded, “It‘s relevant in that there‘s a potential conflict of interest because the Governor‘s son [Russ Janklow], I believe, is receiving money from this contract with the state.” Russ Janklow denied the allegation, saying “I never worked on this case whatsoever and never billed one hour and never represented the State of South Dakota in any respect.”
[¶18.] The circuit court concluded that Abourezk “provided no evidence in support [of his] speculation and no explanation as to how that would have any bearing on the reasonableness of the fee that Abourezk was charging Wagaman.” The court ruled that Abourezk issued the subpoena for the fee sharing arrangements and partnership agreement in “bad faith.” It granted the Johnson firm‘s motion to quash. The firm requested financial terms, and, after issuing a memorandum opinion explaining its reasoning, the court awarded terms of $350 against Abourezk.
[¶19.] On appeal, attorney Abourezk does not argue that the court lacked legal authority to impose terms, but he contends that the court abused its discretion in quashing the subpoenas and in imposing terms. Abourezk believes that he should not have been penalized “for zealously representing his client in discovery when statutes concerning discovery are to be liberally construed.” Our inquiry is two-fold: first, did the court have authority to award terms? And second, were the terms awarded by the court reasonable? Once it is determined that a court has authority to impose sanctions, abuse of discretion is the appropriate standard of review for an order imposing sanctions. Aberle v. Ringhausen, 494 N.W.2d 179, 182 (S.D.1992) (citing Chittenden & Eastman Co. v. Smith, 286 N.W.2d 314, 316 (S.D.1979)).
[¶20.]
Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in
the pending action.... It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.
When discovery efforts go beyond those subjects not “reasonably calculated to lead to the discovery of admissible evidence,” a court has authority to issue protective orders, quash subpoenas, and grant terms when appropriate.
[¶21.]
[¶22.] Having determined that the circuit court had authority to impose terms in these circumstances, we next examine whether the court abused its discretion in so ordering. We note, first, that the award of terms under
The factors to consider when determining reasonableness include: (1) reasonable hours expended multiplied by a reasonable fee, (2) the severity of the sanction weighted against the equities of the parties, including ability to pay, (3) availability of less drastic sanctions which would prevent future abuses, and (4) other factors including the offending party‘s history and degree of bad faith contributing to the violation.
[¶23.] Under these factors, we conclude that the court awarded reasonable terms. As to the question whether the subpoenas for the Johnson firm‘s internal records were substantially justified, the court found that the “conduct of counsel in this case demonstrates a level of bad faith.” That the subpoena was issued in bad faith necessarily subsumes the notion that it was not substantially justified. Attorney Abourezk could give no explanation on how this information would lead to relevant material on the question of the reasonableness of his charges to Wagaman. To the extent that “other circumstances” might make an award of expenses “unjust,” the circuit court obviously considered those circumstances when it reduced the Johnson firm‘s claim. Although the court found the firm‘s statement of 6.15 hours and a fee of $100 per hour to be reasonable, it further reduced the award to $350, when it balanced the severity of the sanction and the equities of the parties. Accordingly, we conclude that the court did not abuse its discretion in awarding terms under
3. Request for Terms for Governor‘s Refusal to Answer
[¶24.] In his defense of Wagaman, attorney Abourezk took several depo-
[¶25.]
[¶26.] Moreover, a court may deny an award of expenses if it “finds that the making of the motion [to compel] was substantially justified or that other circumstances make an award of expenses unjust.”
[¶28.] GILBERTSON, Chief Justice, and AMUNDSON, Retired Justice, and TRIMBLE, Circuit Judge, concur.
[¶29.] SABERS, Justice, concurs in part and dissents in part.
[¶30.] TRIMBLE, Circuit Judge, sitting for ZINTER, Justice, disqualified.
[¶31.] MEIERHENRY, Justice, not having been a member of the Court at the time this action was submitted to the Court, did not participate.
SABERS, Justice (concurring in part and dissenting in part).
[¶32.] I concur on Issues 2 and 3 but dissent on Issue 1 because:
- Wagaman‘s superiors used the judicial system to bully Wagaman at her expense while protecting themselves at the State‘s expense.
- Insurance principles apply even if PEPL is not insurance nor an insurance company.
- The declaratory judgment action was “generated by” and “related to” the claim and the defense of the claim and is covered under PEPL.
- Genuine issues of material fact exist as to whether the conduct of PEPL was vexatious and unreasonable.
[¶33.] 1. Wagaman‘s superiors used the judicial system to bully Wagaman at her expense while protecting themselves at the State‘s expense.
[¶34.] The primary purpose of the youth training facility was to break these youngsters emotionally and physically and reform them into respectful, law-abiding citizens. Part of that program included these walk-runs and the “encouragement” provided by the immediate counselors. Wagaman was doing her job as it was designed and defined by her superiors. She had no control over this policy and was expected to enforce it. Failure to do that job may have resulted in her dismissal. When the policy led to the death of Gina Score, Wagaman‘s superiors, who designed the policy, were fully protected by PEPL. Wagaman, the person with the least control over that policy, was left standing alone without protection by her superiors or the fund specifically provided to defend her against this type of action.
[¶35.] Being hung out to dry was bad enough, but then Wagaman was forced to deal at her own expense not only with the civil suit in federal court, but also with the criminal case. This declaratory judgment action was the last straw. She had no choice but to defend the declaratory judgment action at her own expense or forfeit her coverage under PEPL. Wagaman‘s superiors used her as a scapegoat and used the judicial process to bully her civilly and criminally while they were protected under PEPL. This is a wrong that is not tolerated by the law and should not be tolerated by this Court.
[¶36.] 2. Insurance principles apply even if PEPL is not insurance nor an insurance company.
[¶37.] Although
[¶39.] First, by refusing to apply either contract or insurance principles to PEPL, the majority opinion leaves PEPL free of any legal repercussions for acting in bad faith against those it covers.
[¶40.] Second, the majority opinion eliminates any judicial oversight of this fund. If principles of insurance do not apply, how can the judicial system enforce such provisions as
[¶41.] Third, the majority opinion precludes any recourse for a state employee who is wrongfully denied coverage under the plan, simply because
[¶42.] The majority opinion refuses to hold PEPL accountable for its actions by stating that to do so “would adversely affect the pool‘s ability to provide members cost-effective liability coverage and subsequently defeat the purpose and intent of these self-insuring groups.” That reasoning is flawed because while one purpose of such a pool is that the coverage be “cost-effective,” the primary purpose is to provide liability coverage to State employees. With no judicial or statutory mechanism to ensure that PEPL will provide liability coverage to state employees, coverage would be at the whim of the directors of the fund even though the employee is legally entitled.
[¶43.] 3. The declaratory judgment action was “generated by” and “related to” the claim and the defense of the claim and is covered under PEPL.
[¶44.] The majority opinion unreasonably constricts the language of the Memorandum. The plain language of that document indicates that attorney‘s fees for defending a declaratory judgment action are payable. These fees are “generated by” and “related to” adjustment, defense and litigation of the claim. As noted in the majority opinion, properly payable “defense costs” are defined as, “fees and expenses generated by and related to adjustment, investigation, defense or litigation of a claim.” (emphasis supplied).
[¶45.] A different conclusion may have been reached in similar circumstances if PEPL had not brought the declaratory judgment action against Wagaman. When PEPL did so, Wagaman had to defend or forfeit her PEPL coverage. PEPL forced Wagaman to incur these related defense costs by commencing the declaratory judgment action against her. A declaratory judgment action brought to determine whether a claim must be defended is inherently “generated by” and “related to” the claim and the defense of that claim. The sole question in this declaratory judgment action was whether PEPL was obligated to defend a claim. Thus, the action was generated by and directly related to the claim and the defense of that claim and was covered under “defense costs.”
[¶46.] 4. Genuine issues of material fact exist as to whether the conduct of PEPL was vexatious and unreasonable.
[¶47.] Whether PEPL‘s refusal to pay is vexatious or without reasonable cause under
[¶49.] Second, Wagaman was performing her job according to State policy.
[¶50.] Third, PEPL defended all of Wagaman‘s superiors and the nurse for actions equally if not more culpable than hers.
[¶51.] Fourth, PEPL did not consult the Attorney General before denying coverage.
[¶52.] Whether any one of these acts rose to the level of vexatious or unreasonable refusal to pay is a question of material fact rendering the trial court‘s grant of summary judgment premature and improper. See, Department of Revenue v. Thiewes, 448 N.W.2d 1, 2 (S.D.1989) (providing, in a summary judgment action, the evidence must be viewed in a light most favorable to the nonmoving party, the burden of proof is on the movant, and reasonable doubts as to the existence of a genuine issue of material fact should be resolved against the movant); Wilson v. Great Northern Railway Co., 83 S.D. 207, 212, 157 N.W.2d 19, 21 (1968).
[¶53.] We should reverse and remand to the trial court to determine these genuine issues of material fact.