American Family Mutual Insurance Company v. Cara Clancy, wife, Trustee of the Palmieri Trust, trustee of the PC Family Trust

This disposition is not appropriate for publication and is not precedent*
except as provided by 9th Cir. R. 36-3.
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
AMERICAN FAMILY MUTUAL
INSURANCE COMPANY,
Plaintiff-counter-defendant -
Appellee,
v.
CARA CLANCY, wife, Trustee of the
Palmieri Trust, trustee of the PC Family
Trust; JON PALMIERI, husband, Trustee
of the Palmieri Trust, trustee of the PC
Family Trust,
Defendants-counter-claimants
- Appellants.
No. 11-16270
D.C. No. CV-09-01077-PHX-ROS
MEMORANDUM*
Appeal from the United States District Court
for the District of Arizona
Roslyn O. Silver, Chief District Judge, Presiding
Argued & Submitted December 3, 2012
San Francisco, California
FILED
MAR 12 2013
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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The Honorable Richard D. Cudahy, Senior Circuit Judge for the U.S.**
Court of Appeals for the Seventh Circuit, sitting by designation.
2
Before: CUDAHY, TROTT, and RAWLINSON, Circuit Judges.**
Clara Clancy and Jon Palmieri build and sell homes. Clancy was a licensed
general contractor, and was responsible for building the Phoenix, Arizona home at
issue in the underlying suit. Clancy lived in the home until it was sold. During
that time, Clancy and Palmieri became aware of several significant defects with the
home, including a leaky roof, “breached” windows and the presence of mold.
Despite their knowledge of these and other problems, Clancy and Palmieri
concealed these problems when they sold the house to Barry and Kristine Shapiro.
The Shapiros sued in Arizona and a bench trial was held in Maricopa County
Superior Court. The trial court issued findings of fact and conclusions of law
adverse to the defendants. However, the parties settled before a final judgment was
announced.
American Family Mutual is the insurer for Clancy and Palmieri. American
Family filed for declaratory relief alleging that its insurance policies do not provide
coverage for the claims alleged in the Shapiro suit. It argued that the trial court’s
findings of fact collaterally estopped Clancy and Palmieri from re-litigating this
issue. The district court agreed. Clancy and Palmieri appeal.

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3
There is no merit to the argument that American Family’s conduct during
the underlying trial provided preclusion of policy defenses. The district court
correctly concluded there was no Parsons violation. However, the district court
erred in holding that collateral estoppel prevents Clancy and Palmieri from
rearguing the application of exclusionary provisions in their liability coverage from
American Family.
I.
The district court properly concluded that there was no Parsons violation at
issue. Parsons involved an insurance company that hired an attorney to represent
the insured in an action for liability for assaulting a neighbor. Parsons v. Cont’l
Nat’l Am. Group, 550 P.2d 94 (Ariz. 1976). The basis for the Parsons holding,
was that the attorney, in representing both sides and using privileged information
in doing so, had breached his duty of loyalty. Id. at 98.
Parsons is inapposite to the facts here. Steve Beeghley, Clancy and Palmieri’s
counsel, was only retained by American Family shortly before trial, when
American Family learned of the suit. Clancy and Palmieri allege that the
information known to their counsel with respect to the underlying case, Cuevas, an
employee of American Family, was wrongly used as the basis for American
Family’s refusal to indemnify Clancy and Palmieri. But, the information shared

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4
between Beeghley and Cuevas was information typically shared between an
insured’s attorney and the insurance company. It was not confidential information.
Beeghley himself testified that there was nothing exceptional about the information
exchanged between himself and Cuevas. He further testified that the only interest
he had in coverage was his hope that American Family would pay for some of the
damages assessed against his clients.
II.
An offensive use of collateral estoppel “occurs when the party making a claim
attempts to assert against its opponent findings made in a prior judgment to which
it was not a party.” Wetzel v. Ariz. State Real Estate Dep’t, 727 P.2d 825, 828
(Ariz. Ct. App. 1986). Collateral estoppel applies when (1) the issue is actually
litigated in the previous proceeding; (2) there is a full and fair opportunity to
litigate the issue; (3) resolution of such issue is essential to the decision; (4) there is
a final and valid decision on the merits; and (5) there is a common identity of the
parties. Hawkins v. State, Dep’t of Econ. Sec., 900 P.2d 1236, 1239 (Ariz. Ct. App.
1995).

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5
The primary dispute between the parties lies with factors four and five. The
parties also dispute whether or not offensive collateral estoppel is even available in
Arizona.
Clancy and Palmieri contend that Standage Ventures, Inc. v. State, 562 P.2d 360
(Ariz. 1977), is the final word on offensive collateral estoppel, prohibiting its use.
While this is correct, American Family points out that subsequent state case law
seems to support the use of the doctrine. In Wetzel v. Arizona State Real Estate
Department, 727 P.2d 825 (Ariz. Ct. App. 1986), the court recognized that it was
departing from case law, but noted that the basis for the rule against offensive
collateral estoppel was the Restatement (First) of Judgments, which had been
“eroded by the adoption of the Restatement (Second) of Judgments.” Id. at 829.
Ultimately, we believe the law concerning offensive collateral estoppel in Arizona
is unsettled. This Court, in Davis v. Metro Productions, Inc. recognized that there
may be a shift in Arizona courts from the First Restatement view to the Second,
thereby allowing the use of offensive collateral estoppel, but that that transition
was incomplete. 885 F.2d 515, 519 (9th Cir. 1989). This Court is hesitant to
conclude that Arizona courts approve of offensive collateral estoppel.
In any event, the findings of the trial court are not sufficiently final to allow for
collateral estoppel. Clancy and Palmieri emphasize that the findings of fact and

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6
conclusions of law reached during the underlying hearing were not reduced to a
final judgment. The case that Clancy and Palmieri rely upon, Campbell v. SZL
Properties, Ltd., 62 P.3d 966 (Ariz. Ct. App. 2003), is illuminating. The court in
Campbell stated that for the purpose of collateral estoppel, a final judgment
includes “any prior adjudication of an issue in another action that is determined to
be sufficiently firm to be accorded conclusive effect.” Id. at 969 (internal
quotation marks omitted). In this case, the trial court judge could have altered his
findings as they were not set down in a final judgment. Accordingly these findings
cannot be considered sufficiently firm for the purposes of estoppel.
AFFIRMED IN PART AND REVERSED IN PART. Each party shall bear
their own costs on appeal.

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American Family Mutual v. Clancy, Case No. 11-16270
Rawlinson, Circuit Judge, concurring:
I concur in the result.
FILED
MAR 12 2013
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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