UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1163
M&S PARTNERS, a New York Partnership,
Plaintiff - Appellant,
v.
SCOTTSDALE INSURANCE COMPANY, an Ohio corporation,
Defendant - Appellee.
Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. John T. Copenhaver, Jr.,
District Judge. (2:04-cv-01221)
Argued: January 30, 2008 Decided: May 9, 2008
Before WILKINSON and GREGORY, Circuit Judges, and Patrick Michael
DUFFY, United States District Judge for the District of South
Carolina, sitting by designation.
Affirmed by unpublished opinion. Judge Gregory wrote the opinion,
in which Judge Wilkinson and Judge Duffy joined.
ARGUED: Kristin A. Boggs, GOODWIN & GOODWIN, LLP, Charleston, West
Virginia, for Appellant. James Daniel McQueen, Jr., FROST, BROWN
& TODD, LLC, Charleston, West Virginia, for Appellee. ON BRIEF:
Raymond S. Franks, II, GOODWIN & GOODWIN, LLP, Charleston, West
Virginia, for Appellant. Amanda J. Davis, FROST, BROWN & TODD,
LLC, Charleston, West Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
GREGORY, Circuit Judge:
The Appellant, M&S Partners (“M&S”), a New York partnership,
filed suit in West Virginia state court against the Appellee,
Arizona-based Scottsdale Insurance Company (“Scottsdale”), an Ohio
corporation, to recover a default judgment (“insurance coverage
claim”) it had previously obtained against an insured of
Scottsdale, Sandcastle Corporation d/b/a Southern Security Systems
(“Sandcastle”), a Virginia corporation. M&S also filed a third
party claim against Scottsdale for bad faith insurance settlement
practices, in violation of the West Virginia Unfair Trade Practices
Act (“UTPA”), W. VA. Code § 33-11-4(9). Scottsdale removed this
case to federal court. After reviewing the parties’ submissions,
the district court granted Scottsdale’s motion for application of
Virginia law and its motion for partial summary judgment as to the
UTPA claim. Shortly thereafter, the district court granted
Scottsdale’s motion for summary judgment as to the remaining
insurance coverage claim. M&S appeals the district court’s
decisions to us. For the reasons below, we affirm the district
court’s determinations.
I.
On October 19, 2000, M&S filed a civil suit (“the underlying
action”) against Sandcastle and P.K. Spencer (“Spencer”), a
principal with Sandstone, alleging fraud and breach of the parties’
2
Residential Monitoring Receivable Financing Agreements.1 On July
17, 2001, M&S amended its complaint to assert two additional causes
of action - negligent misrepresentation and negligent supervision -
against Spencer and two additional Sandcastle principals.2
On June 6, 2002, M&S moved for a default judgment against
Sandcastle. Because no representative for Sandcastle appeared on
the day of the trial, the district court conducted a hearing on
M&S’s default motion. The default hearing focused solely on M&S’s
breach of contract claim and the resultant damages. On October 3,
2003, the district court granted M&S’s motion for default judgment
and awarded damages in the amount of $508,054.93.
On October 1, 2004, M&S filed a civil action in West Virginia
state court against Sandcastle’s insurer, Scottsdale, to recover
the default judgment award.3 In addition, M&S alleged that
Scottsdale’s actions violated West Virginia’s UTPA. After
Scottsdale removed the claims to federal district court, the
parties contested whether West Virginia law or Virginia law should
1
According to the Amended Complaint, these agreements “provide
financing secured by contracts owned, acquired, or originated by
[Sandcastle] for alarm monitoring services provided or arranged by
[Sandcastle].” (J.A. 26 at ¶10.)
2
All of the defendants, with the exception of Sandstone, were
voluntarily dismissed or not properly served.
3
Sandcastle and Spencer tendered the underlying action to
Scottsdale. Scottsdale refused to accept the tender because the
claims involved actions that were “deliberate or willful in nature”
and thus not covered under the parties’ Commercial General
Liability (CGL) policy. (J.A. 328-29.)
3
apply to the claims. The district court, in a memorandum opinion
and order, granted Scottsdale’s motion for application of Virginia
law and its motion for partial summary judgment, which resulted in
the dismissal of M&S’s UTPA claim. Subsequently, the district
court granted Scottsdale’s motion for summary judgment as to the
remaining insurance coverage claim. M&S appeals both of these
decisions to us.
II.
We review the district court’s decision to grant Scottsdale’s
motions for summary judgment de novo, viewing the facts in the
light most favorable to M&S. Volvo Trademark Holding Aktiebolaget
v. Clark Machinery Co., 510 F.3d 474, 481 (4th Cir. 2007). “An
award of summary judgment may be appropriately made only “‘if the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the moving party
is entitled to summary judgment as a matter of law.’” Id. at 481-
82 (citing Fed. R. Civ. P. 56(c)). We now address M&S’s claims
seriatim.
A.
Scottsdale argues that Virginia law should apply to both the
insurance coverage and UTPA claims, while M&S contends that West
Virginia law is applicable since the events underlying the default
4
judgment took place in West Virginia. Using West Virginia choice
of law rules, the district court held that Virginia law applied to
the parties’ claims. M&S posits that the district court did not
properly apply West Virginia’s choice of law rules, and that West
Virginia law should regulate the claims between the parties.
i.
As the district court in the instant case sits in West
Virginia, West Virginia’s choice of law rules provide the
appropriate framework for this inquiry. See Klaxon Co. v. Stentor
Electric Mfg. Co., Inc., 313 U.S. 487 (1941). West Virginia courts
generally use lex loci deliciti to resolve choice of law conflicts,
but for “particularly thorny conflicts problems”, see e.g., Oakes
v. Oxygen Therapy Services, 178 W. Va. 543, 544 (1987), the West
Virginia Supreme Court of Appeals has relied on the Restatement
(Second) of Conflict of Laws (1971), Sections 64 and 1455, to
4
Section 6 sets out the following factors to consider in
determining which forum’s choice of law is appropriate:
• the needs of the interstate and international systems;
• the relevant policies of the forum;
• the relevant policies of other interested states and the
relative interests of those states in the determination
of the particular issue;
• the protection of justified expectations;
• the basic policies underlying the particular field of
law;
• certainty, predictability, and uniformity of result; and
• ease in the determination and application of the law to
be applied.
5
Section 145 provides that when applying Section 6, the
following additional factors should be taken into account in the
5
provide the framework for determining the applicable law. When
reviewing complex contracts, see e.g., New v. Tac&C Energy, Inc.,
177 W. Va. 648 (1987) and “parasitic” torts - i.e., torts dependent
upon an underlying breach of contract claim, see e.g., Oakes, 178
W. Va. at 544 - West Virginia courts have resorted to using the
Restatement.
The district court separately analyzed the choice of law issue
in the context of the UTPA claim and the insurance coverage claim.6
With respect to the UTPA claim, the district court held that the
facts in this case were sufficiently thorny to justify utilizing
the Restatement (Second) of Conflict of Laws because “tangible
injuries” were not present and due to the “esoteric nature of the
harm here along with the locus of where it was inflicted.” (J.A.
335.) We agree with the district court’s decision to use the
Restatement, in part, because the central thrust of this case is a
breach of contract claim. While the negligence claims are not
technically dependent upon the breach of contract claim, the action
choice of law analysis:
• the place where the injury occurred;
• the place where the conduct causing the injury occurred;
• the domicile, residence, nationality, place of
incorporation, and place of business of the parties;
• the place where the relationship, if any, between the
parties is conferred.
6
It is unclear whether the district court actually used the
Restatement analysis in its choice of law analysis for the
insurance coverage claim.
6
underlying the torts - i.e., Sandcastle’s false representation that
it was not involved in a civil action involving more than $10,000 -
was a necessary precursor to M&S’s decision to sign the financing
agreements.
In addition, it is difficult to pinpoint the precise location
of the injury in this case because of its exclusively financial
nature. Finally, since this dispute involved actions taken by
three parties in at least four states, lex loci deliciti is ill-
equipped to resolve this choice of law dilemma and as such, it is
appropriate to review the additional factors set out in Sections 6
and 145 of the Conflict of Laws Restatement (Second).
Applying the Restatement to the facts of this case, the
district court held that Virginia law applied to the UTPA claim for
several reasons, including: (1) M&S (a partnership based in New
York) and Scottsdale (an Ohio citizen with its principal place of
business in Arizona) were only related through their contact with
Sandstone, a company based in Virginia; (2) the financial injury
alleged by Sandstone had its “roots in a Virginia commercial
transaction” (J.A. 339-340); (3) the relationship between
Sandcastle and Scottsdale was centered in Virginia; (4) Scottsdale
had no expectation of being hauled into court under West Virginia’s
UTPA; and (5) due to the centrality of Sandcastle’s role in this
conflict, Virginia’s policies for insurer malfeasance have a
significant role in this dispute.
7
While the contacts between M&S, Sandcastle, and West Virginia
were substantial - e.g., the operations financed via the loan
agreements occurred in West Virginia - we ultimately agree with the
district court’s decision to apply Virginia law to the UTPA claim.
The heart of M&S’s UTPA claim alleges that Scottsdale “engaged in
unfair claim settlement practices” as defined by UTPA, during the
underlying action. However, there is little connection between
Scottsdale’s actions (or lack of action) in declining to accept
Sandstone’s tender and the state of West Virginia. Since
Scottsdale has no corporate operations in West Virginia, its
decision to forego representing Sandstone must have occurred
outside of West Virginia. Sandcastle’s relationship with both M&S
and Scottsdale serves as the litigating parties’ sole connection to
each other in the instant case. As evidenced by the underwriting
papers, Sandcastle’s business operations were concentrated in
Maryland and Virginia, and as such, Scottsdale could not have
envisioned being hauled into a West Virginia court.
Finally, the fact that M&S and Sandcastle are not West
Virginia residents and have extremely limited commercial contacts
with West Virginia favors the view that West Virginia insurer
malfeasance law will not be undermined in any material manner if it
is not applied in this case. On the other hand, as Sandcastle is
a Virginia citizen, Virginia has an interest in ensuring that
Virginia law regulates how insurance companies defend its insured’s
8
claims. Thus, based on the litigating parties’ limited contacts
with West Virginia, we find that the district court correctly
determined that Virginia law should be applied to the UTPA claim.
Since Virginia does not have a statute analogous to West Virginia’s
UTPA, M&S’s UTPA claim is not viable and as such, the district
court’s decision to apply Virginia law and grant Scottsdale’s
motion for partial summary judgment as to M&S’s UTPA claim is
affirmed.
ii.
With respect to the insurance coverage claim, the district
court held that Virginia law was applicable because (1) the CGL
policy was formed and entered into in Virginia with the assistance
of Sandcastle’s insurance agent and (2) delivered to Sandcastle in
Virginia, where it was domiciled and (3) Sandcastle never informed
Scottsdale that it was doing business in West Virginia.
The West Virginia state courts have often addressed choice of
law issues in the context of interpreting insurance policies, and
in particular, motor vehicle policies. They have generally
concluded that the law of the state where the policy is issued will
apply to judicial proceedings involving the interpretation of that
policy. Howe v. Howe, 218 W. Va. 638, 644 (W. Va. 2005). However,
the West Virginia state courts have set out an exception to that
general rule when “the risk insured was principally located where
9
another state has a more significant relationship to the
transaction and the parties.” Id.
While West Virginia certainly had a relationship to the
parties and the underlying transaction, Virginia clearly had a more
significant relationship for the same reasons detailed in the UTPA
choice of law analysis in the previous section, in addition to the
fact that the insurance policy was issued in Virginia. Thus,
Virginia law must be applied to the insurance coverage claim.7
B.
In granting Scottsdale’s motion for summary judgment on the
insurance coverage claim, the district court held that the default
judgment only applied to M&S’s breach of contract claim because (1)
M&S’s failure to discuss its negligence claims in the pretrial
order “practically robbed the amended pleading of any further
effect” (J.A. 364) and (2) “a careful reading of the operative
pleadings in the underlying action discloses that Sandcastle was
sued only for breach of contract.” (J.A. 364.)
We first turn to the issue of the pretrial order. According
to the district court,
. . . [if] [M&S] desired to pursue any extant negligence
claims against Sandcastle after voluntarily dismissing
its individual, corporate agents who were targeted by
those claims, one would have expected the negligence
claims to appear in the all-encompassing pretrial order
7
The district court never reached the question of whether
there was actually any difference between Virginia and West
Virginia law as to the insurance coverage issue.
10
or to have at least been added by amendment of that
critical document after the last corporate agent-
defendant, Spencer, was voluntarily dismissed.
(J.A. 364-365.) M&S argues that the district court erred because
both West Virginia law8 and the local district court rules provide
that only CONTESTED issues of fact and law be set out, and the
purpose of the pretrial order was to set out the damage
calculations. Rule 16.7 of the Local Rules of the Southern
District of West Virginia states, in part, that a proposed pretrial
order must include “contested issues of law requiring a ruling
before trial” and a “single listing of the contested issues of
fact; and a single listing of the contested issues of law...”
(emphasis added). M&S argues that because Sandcastle did not
respond to its Amended Complaint, all of the facts in the Amended
Complaint were deemed admitted and uncontested.
Scottsdale responds that federal law and our precedent mandate
that a party waives its claim if it is not included in a pretrial
order. We agree with Scottsdale. The “[f]ailure to identify a
legal issue worthy of trial in the pretrial conference or pretrial
order waives the party’s right to have that issue tried.” McLean
Contracting Co v. Waterman Steamship Corp, 277 F.3d 477, 480 (4th
Cir. 2002) (citing to Fed. R. Civ. P. 16, advisory notes which
8
Since West Virginia law is inapposite to this case, there is
no need to address this argument. In addition, we find that since
this is a procedural issue, federal law is applicable. See Erie R.
Co. v. Tompkins, 304 U.S. 64 (1938).
11
state, in part, “[C]ounsel bear a substantial responsibility for
assisting the court in identifying the factual issues worthy of
trial. If counsel fails to identify an issue to the court, the
right to have the issue tried is waived.”). The purpose of the
pretrial order is to provide notice to the district court of all
issues that remain unresolved. While neither Sandcastle nor
Scottsdale responded to M&S’s Amended Complaint, and Sandcastle’s
attorney withdrew months before the trial, those events alone do
not provide incontrovertible evidence that the issues in the
Amended Complaint were true.
Nothing would have prevented Sandcastle or Scottsdale from
appearing at the trial to contest any or all of the claims in
question. Thus, M&S should have included all of its claims,
including the negligence claims, in the pretrial order. Its
failure to do so was a de facto waiver of its negligence claims
against Sandcastle and its insurer, Scottsdale. See 6A Charles A.
Wright et al., Federal Practice and Procedure Civ. 2d. § 1522
(updated through 2008) (“[T]he pretrial order is treated as
superseding the pleadings and establishing the issues to be
considered at trial.”). As such, we affirm the district court’s
decision to grant Scottsdale’s motion for summary judgment as to
the insurance coverage claim.9
9
Because M&S’s failure to include its negligence claims in its
pretrial order resolves this issue, we need not address M&S’s
remaining claims.
12
C.
For the reasons stated above, the district court’s judgments
are affirmed.
AFFIRMED
13