Millions for Defense but Not One Dime for Tribute

(The case of Gruver v. Lesman , 2007 AMC 1559,
489 F.3d 978 (9th Cir. 2007), on remand.)

By John Merriam

From the time Jeff Gruver first walked into my office more than three years before, I figured his case was only worth about $25,000. Even though my new client claimed to have been savagely beaten aboard a fishing boat, he had a criminal record longer than my arm. Liability looked good but damages were a different matter. I couldn’t expect much sympathy for a felon. Yet defense counsel was still fighting hard, even after the case was remanded for trial from the Ninth Circuit. I guessed that attorney fees for the defendant far exceeded $50,000 by that point, and thought the chances were good that the defense was going to lose some additional amount of money at trial. I wondered who was paying these kind of fees for the defendant, and why? As it turned out, that wasn’t the only unanswered question posed by this case.

Earlier developments in the case have been described in these pages. See Trial News (November 2005): “Are Punitive Damages Available When a Master Assaults a Deckhand”. The federal trial judge dismissed the case, without prejudice to re-file it in state court, ruling that there was no maritime jurisdiction for what he called, basically, a garden-variety assault. That decision was reversed on appeal. The Ninth Circuit used 14 pages to say what I told them in one sentence during oral argument: “Two seamen beating the tar out of each other, in a beef over wages and aboard a boat in navigable waters, is about as ‘maritime’ as it gets.” Gruver v. Lesman , 2007 AMC 1559, 489 F.3d 978 (9th Cir. 2007).

A brief recap of the facts: Jeff Gruver worked for Bob Lesman aboard the shrimp and crab boat F/V Sunset Charge out of Westport, Washington. There was a dispute over wages. Gruver quit and got another job as deckhand aboard a different boat, the F/V Adventurous. He left threatening messages on Lesman’s voicemail about not getting paid. In the wee hours of June 18, 2004, Lesman and another man walked down Float 3 in Westport to the F/V Adventurous, where Gruver was lying in his bunk. It is at this point that the facts are in dispute. Lesman claimed he went aboard the Adventurous by himself to write Gruver a check for his wages, while the other man waited on the dock. Gruver attacked him and Lesman won the fight. Lesman explained Gruver’s broken ribs and punctured lung by saying that Gruver must have fallen while running away. Gruver, on the other hand, swears that Lesman came aboard the Adventurous with a 380-pound deckhand named Jimmy Hoff, and that the two of them beat him within in an inch of his life. Gruver escaped, ran like hell to the end of Float 3—with one lung—and then collapsed. He crawled to a house next to the old Coast Guard station, knocked on the door and asked the man who opened it to call an ambulance.

Lesman was arrested by the Westport Police and charged with assault. After Gruver was released from the hospital and went back to work, the assault charge was dismissed while he was out fishing on another boat and didn’t show up to testify against his alleged assailant.

Gruver initially hired different lawyers to press his claim for wages and civil damages. Those lawyers filed suit in federal court, in Tacoma, and the case was assigned to Judge Robert Bryan. Shortly thereafter, Gruver fired his first lawyers and retained this practitioner. A flurry of cross-motions for partial summary judgment ensued. The outcome of one of those motions—on the wage claim, which settled immediately after it was ruled upon—is reported at Gruver v. Lesman, 2005 AMC 1434 (W.D. Wash. 2005). Judge Bryan deferred ruling until trial on the other issues—the availability of punitive damages, and an in rem claim against the first vessel, the F/V Sunset Charge—both of which hinged upon whether or not there was an employment relationship still in effect between Gruver and Lesman at the time of the alleged assault. (See previous Trial News article for discussion of these issues.)

After the wage claim was settled and dismissed from the case, Judge Bryan dismissed the assault claim for lack of maritime subject matter jurisdiction. I appealed and, to hedge my bet, filed suit in Grays Harbor County Superior Court just before the two-year limitation period for intentional torts expired.

The Ninth Circuit reversed the order of dismissal but refused to reach the issues of punitive damages and in rem jurisdiction. 2007 AMC at 1561.

After the case was remanded for trial by the Ninth Circuit, I expected Lesman’s lawyer to ask for a settlement demand. He didn’t. In fact, Lesman’s lawyer had never asked for a settlement demand and never made an offer.

Earlier, in the summer of 2005—shortly before Judge Bryan dismissed the case, defense counsel and I stipulated to a continuance so we could engage in mediation well before trial, which was initially scheduled for September 6, 2005. Our respective clients were out fishing until just before the trial date. Defense counsel aborted mediation at the last minute by saying his client would be offering zero in settlement. By the time defense counsel made this announcement, I’d already sent my mediation memorandum to the mediator, made hotel reservations and bought a train ticket to bring Gruver up from Oregon, where he was living. I filed a motion for sanctions, claiming that my opponent had scheduled mediation and obtained a continuance by deceit, knowing ahead of time that mediation was futile because he did not intend to settle the case. Judge Bryan dismissed the case before ruling on my motion.

After remand in 2007, Judge Bryan issued another scheduling order. Trial was set for November 5th and the parties were again directed to engage in mediation. Defense counsel said again that his client would offer zero in mediation and I re-filed my motion for sanctions, citing the time and expense associated with the cancelled mediation from two years before. The main reason I re-filed the motion for sanctions was to force the defense to the bargaining table, for settlement, before it expended even more money on attorney fees. After perhaps three motions for partial summary judgment, an appeal to the Ninth Circuit, and more motion practice after remand, I imagined that someone on the defense side might be getting tired of legal expense. It didn’t work. Defense counsel fought the motion hard and threatened me with a bar complaint for daring to question his integrity.

Judge Bryan denied my re-filed motion, mainly because Lesman was allegedly fishing until just before the 2005 mediation and defense counsel might not have been able to confer with his client until immediately before the mediation date. I started to wonder who, of defense counsel’s ‘clients’—if there was still insurance coverage and he had more than one—was really calling the shots on settlement.

Gruver’s first lawyers had included a claim of ‘negligence’ for the assault in the original Complaint. I filed an Amended Complaint alleging only intentional assault because I didn’t understand how an assault could be ‘negligent’. I knew, however, that insurance policies don’t generally cover intentional acts, and my opponent was from an insurance defense firm. In fact, I’d wondered from the beginning how there could be insurance coverage for an intentional assault. But I wasn’t complaining! I figured it would be easier to settle the case or collect a judgment if the money came from an insurance company. At the beginning of my involvement in the case I’d propounded written discovery requests to the defendant, which included questions about insurance coverage and specific inquiry into the nature of any reservation of rights defense. Defense counsel answered that there was insurance but made a relevance objection to providing details. I should have pursued that with a motion to compel an answer but at the time I didn’t think it important. When I did think it important, three years later, there wasn’t enough time left before trial for a ruling on a motion to compel.

Right out of the gate in 2004, while Gruver was represented by his first lawyers, defense counsel filed a motion to dismiss the in rem claim against Lesman’s boat, the F/V Sunset Charge. Judge Bryan denied the motion, citing the need for additional facts. After I took over and filed the Amended Complaint, defense counsel asked if I would stipulate to agreed facts that would let Judge Bryan decide whether or not the court had in rem jurisdiction over the Sunset Charge. I agreed. Not only did I want to get the in rem jurisdictional issue decided, I didn’t want a dispute over the facts to prevent a ruling on my intended motion for punitive damages. The Stipulation of Facts drafted by defense counsel included “negligence”, even though I hadn’t plead it in the Amended Complaint. I signed without giving that much thought. To the extent I considered it at all, I thought that including ‘negligence’ was a good thing if it would help keep insurance coverage in the case. More motion practice ensued, until the judge dismissed and the case went to the Ninth Circuit. Defense counsel litigated vigorously, seemingly with carte blanche for running up his fees.

The case didn’t qualify for the Ninth Circuit Mediation program because the defendant wouldn’t make any offer to settle.

After remand from the Court of Appeals, defense counsel again tried to torpedo mediation by saying he would offer zero, but refused to tell the judge that was the reason we would not mediate. I began to get curious why defense counsel was so strenuously resisting mediation and told him that I intended to comply with the order to mediate. The mediator agreed upon—the same one who’d been prepared for the mediation that aborted in 2005—insisted that the mediation go forward.

I’d always wondered how defense counsel was getting paid. Lesman and Gruver hated each other but I couldn’t imagine that Lesman was willing to pay unlimited amounts in attorney fees when he could have settled the case for a lot less. I also couldn’t imagine how there could still be insurance coverage for an intentional act, like assault. If, somehow, there still was insurance coverage, why hadn’t the underwriter asked for a settlement demand?

A letter sent by defense counsel regarding the re-scheduled mediation contained a notation at the bottom that copies were being sent to Bob Lesman and “Ralph Coton”. Out of curiosity I googled that name and came up with Shipowners’ Protection Ltd., an insurance underwriter in London, where Coton was a Director. So there still was insurance! But how could there be, for an assault? Then I recalled that the Stipulation of Facts drafted by defense counsel had put ‘negligence’ back in the case. ‘This guy Coton probably wasn’t born yesterday,’ I thought. ‘He must know that a reasonable settlement offer would make this claim go away. Why is he willing to pay unlimited defense costs?’ It was at that point I remembered the case of Tank v. State Farm, 105 Wn.2d 381 (1986).

I’m no expert in legal issues surrounding insurance coverage, but I am generally familiar with a reservation of rights defense, even though I’d never knowingly dealt with one before. That’s where an insurance company pays legal fees to represent a policyholder but ‘reserves its rights’ to deny coverage and, at the end of the case, can refuse to pay any judgment that results. Tank v. State Farm made clear that in situations involving a reservation of rights defense it was the insured, Lesman in this case, who was the client and not the insurance company. 105 Wn.2d at 388. ‘So, if this case is being defended under a reservation of rights,’ I thought, ‘it’s Lesman who won’t make any settlement offer. He’s probably getting a free ride on attorney fees and has no incentive to be reasonable. I wonder what his lawyer is telling him about his exposure if he loses at trial . . . ?’

Tank v. State Farm has language about a legal obligation to keep the insured informed about settlement negotiations, id., but says nothing about defense counsel’s responsibility to the insurance company who, after all, is paying the defense costs. ‘Surely,’ I thought, ‘there must be an ethical obligation to inform the insurance company of what it would take to settle the case.’ And yet defense counsel had been going out of his way to avoid mediation. There had been no settlement negotiations!

Mediation took place on September 12, 2007. Plaintiff demanded $100,000 but let the mediator know that $25,000 would settle the case. There was no offer from the defendant and the session adjourned. I gathered from the mediation that no settlement money would come from the underwriter and that I would have to look to Lesman to collect a judgment. (My suspicions about a reservation of rights defense appeared to be accurate.)

After the futile mediation, I asked defense counsel if he would stipulate to a dismissal of any claim for negligence. He wouldn’t. I then filed a motion to specifically dismiss ‘negligence’ from the lawsuit. I decided that, in this case at least, insurance money was a curse rather than a blessing. Right after I filed the motion, the case got transferred to the new federal judge in Tacoma, Benjamin Settle.

The mediator kept working on the case by telephone. He must have insisted that defense counsel inform the insurance underwriter that it should offer at least what it would have to pay to try the case because finally, for the first time, defendant made a settlement offer on September 27th: $10,000. I called my client. I told him that I didn’t think there was any insurance money and we’d have to chase Lesman to collect anything we won at trial.

“I think Lesman sold the Sunset Charge,” Gruver told me. “Let’s get this over with. The guy put in charge of the boat I was working on down here [in Oregon] turned out to be a jerk and I just quit. I could use some money.”

“I told the mediator that I wouldn’t recommend that you go any lower than $15,000,” I said. “Let’s split the difference. How about if I say you’ll take $12,500 if you can get it quick?” He said OK and I called the mediator.

Defense counsel agreed to the $12,500 demand on October 1st, but wouldn’t say how long it would take to get the money from the underwriter in London. I responded that there was no settlement unless and until defendant stated a date certain for the tender of funds, and my client assented to that date.

In the interim, defense counsel filed a Response to my latest motion, opposing dismissal of any negligence claim. I thought it odd that a defendant would object to dismissing a claim against him. Defense counsel stated:

There are insurance issues which are implicated by the distinction
between intentional conduct, and negligent conduct.

Evidence of insurance is normally inadmissible. FRE 411. But the defendant had just ‘opened the door’ to insurance issues and I started working on my Reply memorandum. I argued that I had reason to believe that the case was being defended under a reservation of rights, with insurance money for defense costs but not to settle the case. I pointed out that the Stipulation of Facts put ‘negligence’ back into the case after no negligence was alleged in the Amended Complaint, and that the case had dragged out for three years without any serious settlement negotiations. (To avoid violation of FRE 408, prohibiting evidence of settlement offers, for this last assertion I cited to Plaintiff’s Motion for Sanctions following the aborted mediation.) I wrote:

Defendant Robert Lesman has been getting a free ride, with no incentive
to settle this case. . . . Perhaps this case should go to trial so Mr. Lesman
finally will have some financial stake in the outcome, since presumably
the insurance company won’t pay a judgment. For now, the only one who
is prospering in this extended litigation is [defense counsel]. . . . Defense
counsel is using sleight of hand to maximize billable hours at the expense
of one of his clients, the insurance underwriter.

Before the Reply memorandum was filed on October 2nd, I received an e-mail from defense counsel at 7:55 that morning: “I have no idea yet when the London underwriter can provide funds.” Defense counsel insisted that we start work on the Pretrial Order since it wasn’t known if the settlement funds would arrive fast enough for Gruver to accept them and end the case.

Plaintiff’s Reply memorandum appeared on the electronic court filing system (ECF) an hour and a half later, at 9:32 a.m. Within minutes of the transmission I received a phone call from defense counsel. He provided me with a date certain the following week for the tender of settlement funds. Defense counsel also claimed surprise that he hadn’t noticed I’d made no allegation of negligence in the Amended Complaint and said he wanted to get the case dismissed right away before Judge Settle read about his ‘oversight’. My opponent then asked me to stop making wild accusations against him that I couldn’t prove, hinting at my exposure to Rule 11 sanctions. I told him to do what he felt he had to. The conversation ended.

I learned two things from this case: First, it was important to know for sure about whether the case was being defended under a reservation of rights. When defense counsel objected to providing that information, I should have timely filed a motion to compel discovery. Second, I should have put a reasonable settlement demand in writing as soon as I realized that defense counsel was trying to avoid mediation.

I still don’t understand what responsibility defense counsel has to an insurance underwriter when defending a case under a reservation of rights. I find it hard to believe that there isn’t some sort of duty to explore settlement possibilities before billing fees that greatly exceed the amount that could resolve the case. Certainly, defense counsel must have an obligation to keep the insurance underwriter informed of settlement negotiations. My mistake in this case was in not making a reasonable settlement demand as soon as I suspected that a reservation of rights defense was involved.

John Merriam represented the plaintiff. Philip Sanford of Holmes Weddle & Barcott represented defendant. The mediator was Richard Nielsen of Nielsen Shields.

Eagle member John Merriam is a former merchant seaman, in solo practice at Fishermen’s Terminal in Seattle, where he restricts his practice to the representation of claimants for maritime wages and injury

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