In this week's Alabama Weekly Law Update, we present two cases for your review. In the first, the Supreme Court of Alabama addressed whether a trial court's denial of a motion to dismiss on conflict-of-laws grounds warranted issuance of a writ of mandamus and, if so, how to determine which state's law controls malicious-prosecution claims filed in Alabama. In the second, the Eleventh Circuit Court of Appeals considered the effect of an Alabama state court judgment in a case involving the liability of an insured and a subsequent coverage dispute in federal court between the insured and the insurance company.
Ex parte U.S. Bank National Association and U.S. Bancorp, No. 1120904 (February 7, 2014)
U.S. Bank N.A. and U.S. Bancorp (together, "US Bank") sued Sterne, Agee & Leach, Inc. ("Sterne") in federal court in Washington in connection with a securities offering. Ultimately, Sterne prevailed in the action brought by US Bank, which was affirmed on appeal by the Ninth Circuit. Upon final termination of the action against it, Sterne (headquartered in Alabama) filed a "malicious-prosecution" claim against US Bank in Alabama state court. While Alabama law recognizes a malicious-prosecution claim for financial injury, Washington law requires a party to plead "arrest" or "seizure of property" (none of which occurred here). As such, US Bank filed a motion to dismiss on "conflict-of-law" grounds, asserting that Washington (not Alabama) law governed the claim because the alleged "injury" was forcing Sterne to defend a claim in Washington. Since Washington law did not recognize the claim, US Bank argued that the case should be dismissed. On the other hand, Sterne argued that the "injury" was the financial harm in defending against the US Bank claims and, thus, the injury occurred in Alabama (the location of its corporate headquarters). The circuit court denied US Bank's motion to dismiss and further denied its motion for certification of this conflict-of-law issue for permissive appeal. Upon denial of the motion for permissive appeal, US Bank petitioned the Supreme Court of Alabama for a writ of mandamus (ordering the circuit court to dismiss the case).
The Supreme Court of Alabama first addressed whether a writ of mandamus was an appropriate method to review a denial of a motion for certification of permissive appeal on a conflict-of-law issue. After addressing other circumstances held deserving of a writ of mandamus, the court listed the general requirements for the writ of mandamus. Finding all the other elements met, the court determined that the case boiled down to one factor: whether US Bank had a "clear legal right" to an order dismissing the case. Since Washington law clearly did not recognize this type of "malicious-prosecution" claim, if Washington law applied under a "conflict-of-law" analysis, then US Bank would be entitled to an order of dismissal.
Turning to the conflict-of-laws issue, the Supreme Court of Alabama concluded that Washington law governed the lawsuit and, as a result, US Bank was entitled to an order dismissing the case. Despite the fact that an Alabama courts had not applied a conflict-of-laws analysis directly to a claim for malicious-prosecution and that it remained an unsettled legal issue in the state, the court noted that US Bank may still have a "clear" legal right to the order dismissing the case because it is the responsibility of the courts to decide the law. According to the court, the conflict-of-law rule applied in Alabama is "lex loci delicti," pursuant to which the substantive rights of an injured party are determined under the law of the state in which the injury occurred. Since Alabama follows the Restatement (First) of Conflicts of Law, the "lex loci delicti" in tort claims is the state where the last event necessary to make a party liable for an alleged tort takes place. The court held that the "injury" for the tort of malicious-prosecution occurs in the state in which the allegedly "malicious" lawsuit is finally terminated in favor of the complaining party. That is, the state in which the antecedent lawsuit was litigated will govern the subsequent claim for malicious-prosecution.
Nationwide Mutual Insurance Co. v. Sharif, ---Fed.Appx. ---, 2014 WL 407386 (C.A.11(Ala.))
The personal representative of Tawfiq Ahmed filed a lawsuit against Bashir's, Inc. (which operated a grocery store), Bashir Abdosale Mohammed (the owner/manager of Bashir's), and Moshen Musa (an employee of Bashir's) in connection with the death of Tawfiq. In January 2006, Tawfiq was killed when a pistol that Mohammed kept at the store accidentally discharged while being handled by Tawfiq and Musa. Tawfiq's personal representative asserted two claims, the first of which assumed that Tawfiq was an employee of Bashir's. Bashir's, Mohammed, and Musa (the "Appellants") sought defense and indemnification under a liability insurance policy that Bashir's purchased from Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company ("Nationwide"). Believing that Tawriq was an employee, Nationwide declined to defend the Appellants under "employment exclusion" to Brashir's liability insurance policy. Eventually, the Alabama state court dismissed the first claim against the Appellants, due to lack of evidence that Tawfiq was an employee of Bashir's. As to the second action, however, the court entered a joint-and-several judgment against the Appellants in the amount of $950,000. Appellants then sought to recover this judgment from Nationwide.
Nationwide filed an action in federal court against all parties, seeking a declaration that it owed no duty to defend or to indemnify Appellants; Appellants countered with claims for breach of contract and bad-faith. The district court ruled that Nationwide was not estopped from challenging the employment status of Tawriq in the federal court case (i.e., the state court's rulings were not given preclusive effect) because Nationwide was not a party to that lawsuit. The district court ordered a bifurcated trial. In the first, the jury found that while Nationwide breached the policies by failing to defend the Appellants, under the "employment exclusion" Nationwide owed no duty to indemnify for the Appellants for the $950,000 judgment. In the second, the jury returned a verdict in favor of Nationwide on the bad-faith claim. Appellants appealed, arguing (among other things) that Nationwide should have been bound by the Alabama state court's rulings as respects to Tawriq's employment status.
The Eleventh Circuit Court of Appeals addressed the issue of "collateral estoppel" (or "issue preclusion"), which prevents a party from challenging a prior court's findings in a subsequent proceeding before another court. The court listed the requirements for collateral estoppel under Alabama law, including a requirement that the estopped party either be a party to or be in privity with a party to the prior proceeding. In reviewing the facts, the court found that this "party or privity" requirement was not met because (1) Nationwide was not a party to the state court proceeding, and (2) Nationwide was not in privity with the Appellants because its interests were opposed to the Appellant's on the employment-status issue. The court then addressed the impact of Nationwide's wrongful-refusal to defend the Appellants in the state court proceedings and the impact of this refusal on the collateral estoppel analysis. After reviewing Alabama case law on the matter, the court found that an insurer's breach of its duty to defend in a prior proceeding would not lead to it being bound by the findings rendered in that proceeding. As such, the court affirmed the judgments from the district court.