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R & R Sails, Inc., Dba v. Insurance Company

March 21, 2012

R & R SAILS, INC., DBA HOBIE CAT COMPANY, PLAINTIFF-APPELLANT,
v.
INSURANCE COMPANY OF THESTATE OF PENNSYLVANIA, DEFENDANT-APPELLEE. R & R SAILS, INC., DBA HOBIE CAT COMPANY, PLAINTIFF-APPELLANT,
v.
INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Southern District of California Michael M. Anello, District Judge, Presiding D.C. No. 3:07-cv-00998- MMA-POR , D.C. No. 3:07-cv-00998- MMA-POR

The opinion of the court was delivered by: Kennelly, District Judge:

FOR PUBLICATION

Argued and Submitted August 3, 2011-Pasadena, California

OPINION

Before: Stephen Reinhardt and Marsha S. Berzon, Circuit Judges, and Matthew F. Kennelly, District Judge.*fn1

Opinion by Judge Kennelly

OPINION

Insured R&R Sails, Inc. ("R&R") sued The Insurance Company of Pennsylvania, a subsidiary of the American International Group, Inc. ("AIG"), for breach of contract, unfair competition, and tortious bad faith denial of an insurance claim. The district court granted summary judgment on R&R's unfair competition claim. AIG then sent an unsolicited payment to R&R for the remaining policy benefits provided in the insurance policy, plus interest, resolving R&R's contract claim. These actions left in dispute only R&R's bad faith tort claim. On that claim, R&R sought to recover attorneys' fees and costs incurred to obtain its policy benefits, pursuant to Brandt v. Superior Court, 37 Cal. 3d 813 (Cal. 1985) ("Brandt fees"), and punitive damages.

During the litigation, the district court determined that R&R had violated the disclosure requirements of Federal Rules of Civil Procedure 26(a) and 26(e) and, as a sanction, precluded R&R from presenting its Brandt fees evidence. The district court then granted judgment as a matter of law on R&R's bad faith tort claim. It reasoned that R&R could not recover Brandt fees because of the preclusion sanction and that R&R therefore could present no evidence of compensatory damages in order to support an award of punitive damages, as required by California Civil Code § 3294. After entering judgment in AIG's favor, the district court awarded AIG costs in the amount of $24,254.18.

In No. 10-55115, R&R appeals from the district court's grant of judgment as a matter of law on its bad faith tort claim. It contends that the district court erred in holding that it had violated Rules 26(a) and 26(e); in precluding its Brandt fees evidence as a sanction for the violations; and in granting judgment in AIG's favor on its punitive damage claim. In No. 10-55888, R&R appeals from the district court's grant of costs in favor of AIG. We have jurisdiction pursuant to 28 U.S.C. § 1291 and reverse and remand.

I

R&R owns Hobie Cat Australasia Pty. Ltd., an Australian corporation in the business of manufacturing and distributing watercraft. A December 2001 wildfire damaged Hobie Cat's manufacturing and sales facility in Woolamia, Australia. At the time of the wildfire, R&R held an insurance policy from AIG protecting against loss by fire at the facility. R&R submitted a claim for the losses; AIG paid some portions of the claim and declined to pay others.

R&R sued AIG, asserting breach of contract, unfair competition, and tortious bad faith denial of an insurance claim. On its bad faith claim, R&R sought to recover punitive damages and Brandt fees. The central dispute on appeal concerns the invoices that R&R planned to use to support its request for attorneys' fees and costs.

On September 14, 2007, R&R served its initial Rule 26 disclosures. In its disclosures, R&R disclosed that it sought $350,000 in Brandt fees and stated in a footnote that "[t]his amount is estimated at this time and will be amended at the time of trial." R&R did not specifically state in the disclosures that it planned to use invoices to support its claim for Brandt fees. R&R also did not produce any ...


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