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Riordan v. State Farm Mutual Automobile Insurance Co.

December 10, 2009


Appeal from the United States District Court for the District of Montana Donald W. Molloy, District Judge, Presiding, D.C. No. 9:07-cv-00038-DWM.

The opinion of the court was delivered by: Pregerson, Circuit Judge


Argued and Submitted July 7, 2009 -- Portland, Oregon

Before: Harry Pregerson, Pamela Ann Rymer and A. Wallace Tashima, Circuit Judges.

Opinion by Judge Pregerson; Partial Concurrence and Partial Dissent by Judge Rymer


Under the American Rule, civil litigants are generally required to pay their own attorney fees. The state of Montana, however, recognizes an exception to the American Rule in the context of insurance disputes. We consider whether the claimant here, who was forced into litigation in order to recover the full benefit of his insurance contract, may recover attorney fees incurred as a result of that litigation. We have jurisdiction under 28 U.S.C. § 1291, and we affirm the district court's award of attorney fees.


A. Riordan's Accident and Recovery of Benefits Prior to Litigation

On October 21, 2004, William Riordan was injured in a car accident. It is undisputed that the other driver was at fault. At the time of the accident, Riordan and his wife were insured under three State Farm automobile insurance policies. Each policy provided uninsured motorist ("UIM") coverage with limits of $50,000 per person and $100,000 per accident.

In January 2005 Riordan retained an attorney, Mary Kay Starin, to help him obtain benefits from State Farm. Between the end of January and August 2006, State Farm paid Riordan UIM benefits totaling $30,586.59.

B. Commencement of Litigation to Recover Benefits

Represented by new counsel, Justin Starin, Riordan filed suit against State Farm in federal district court on March 28, 2007, seeking "$150,000.00, less that which State Farm has already paid" and "for other and further relief as the Court shall deem just and proper." Riordan asserted that State Farm was required to provide $150,000.00 of UIM coverage, the "stacked" total of UIM coverage under the three policies. After being served with Riordan's Complaint but before filing an Answer, State Farm paid Riordan an additional $45,413.43 in UIM benefits. This brought the total UIM benefits paid by State Farm to $76,000, leaving $74,000 in UIM benefits remaining under the insurance policies' limits.

State Farm filed its Answer to the Complaint on June 14, 2007. In its Answer, State Farm flatly "denie[d] liability for payment of uninsured motorist benefits requested by [Riordan] on the grounds that [Riordan] has been reasonably compensated for his alleged injuries." State Farm denied that the nature, cause and extent of Riordan's damages were caused by the car accident. Further, while it did not dispute the existence of UIM coverage, State Farm asserted that Riordan was "not entitled to recover further under his underinsured motorist coverage . . . because his damages do not exceed amounts already received by him." The district court set a trial date for February 25, 2008.

Shortly before trial, on February 14, 2008, State Farm agreed to pay Riordan the approximately $74,000 in UIM benefits remaining under Riordan's insurance policies. The district court ordered the parties to brief the issue whether Riordan was entitled to attorney fees. Riordan then filed his motion for attorney fees on February 29, 2008.

C. Riordan's Motion for Attorney Fees

A magistrate judge held two hearings related to the claim for attorney fees. The first hearing on March 14, 2008 focused on the issue of State Farm's liability for fees. At State Farm's request, the magistrate judge held a second evidentiary hearing on July 15, 2008 on the issue of the value of the legal services received by Riordan. On July 16, 2008, the magistrate judge issued findings of fact and recommended that Riordan be awarded attorney fees totaling $30,759. The magistrate judge considered Riordan's recovery from State Farm in three categories: (1) UIM benefits received before Riordan filed suit; (2) UIM benefits received after Riordan filed suit but before State Farm filed its Answer; and (3) UIM benefits received on the eve of trial. The magistrate judge recommended that Riordan receive no attorney fees for the UIM benefits received before Riordan filed suit. With respect to the $45,413.43 in UIM benefits received by Riordan shortly after suit was filed, the magistrate judge found that Riordan should receive attorney fees "at an appropriate market rate for the attorney time reasonably spent" and recommended an award of $4,859. With respect to the $74,000 paid by State Farm on the eve of trial, the magistrate judge recommended an award of $25,900, an award based on the thirty-five-percent contingency fee Riordan entered into with his second attorney who represented him in the litigation.

State Farm objected to the magistrate judge's findings and recommendations and also moved to certify to the Montana Supreme Court the question whether State Farm was liable to Riordan for attorney fees. The magistrate judge responded with new findings and recommended denying the motion for certification. The magistrate judge reasoned that the state law issue was reasonably clear and provided the district court with a principled basis for its award of attorney fees. The magistrate judge also recommended that the district court decline to exercise its discretion to certify questions to the Montana Supreme Court in light of the fact that State Farm was dila-tory and waited to seek certification until after it received an adverse determination on the claim for fees.

On September 29, 2008, the district judge adopted in full the magistrate judge's findings and recommendations and declined to certify State Farm's questions to the ...

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