Scott Ayotte v. American Economy Insurance Company

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SCOTT AYOTTE,
Plaintiff - Appellant,
v.
AMERICAN ECONOMY INSURANCE
COMPANY,
Defendant - Appellee.
No. 13-35012
D.C. No. 2:09-cv-00057-RFC
MEMORANDUM*
Appeal from the United States District Court
for the District of Montana
Richard F. Cebull, Senior District Judge, Presiding
Argued and Submitted May 14, 2014
Seattle, Washington
Before: O’SCANNLAIN, KLEINFELD, and BERZON, Circuit Judges.
The district court granted summary judgment in favor of American
Economy Insurance Company (“American Economy”) on Ayotte’s claims for
advance medical payments under Ridley v. Guaranty National Insurance Co.,
FILED
JUN 10 2014
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

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951 P.2d 987 (Mont. 1997) and common law bad faith. Ridley holds that under a
Montana statute, a liability insurer may not defer payment of an injured third
party’s medical expenses until final settlement, if liability is “reasonably clear,”
and it is “reasonably clear that the expense is causally related to the accident in
question.” Id. at 992. The district court ruled against Ayotte’s entitlement to these
payments because the liability of American Economy’s insured was not
“reasonably clear.” For the same reason, the court ruled that American Economy
did not commit common law bad faith by not making the payments.
Though Ayotte appealed, the appeal was never adjudicated. While the
appeal was pending, American Economy’s insured confessed judgment for an
amount in excess of what American Economy claims is the policy limit. Ayotte
then moved to dismiss his appeal as moot and to vacate the summary judgment.
In a separate action, Ayotte is now suing American Economy on various
theories of bad faith. He seeks vacatur of the district court’s decision that the
liability of American Economy for the interim medical payments was not
“reasonably clear,” because of the possible collateral estoppel or other adverse
impact that determination may have upon his pending bad faith claims.
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We dismissed Ayotte’s appeal as moot and remanded to the district court to
determine whether vacatur should be granted. The district court denied vacatur
and Ayotte appeals.
A district court’s decision to deny vacatur is reviewed for abuse of
discretion. Nat’l Union Fire Ins. Co. v. Seafirst Corp., 891 F.2d 762, 765 (9th Cir.
1989). We treat the district court’s application of an erroneous legal standard as an
abuse of discretion. Bateman v. U.S. Postal Serv., 231 F.3d 1220, 1223 (9th Cir.
2000).
When this case came before us on the interim medical payments issue, we
remanded the case to the district court to determine whether vacatur should be
granted, citing U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S.
18, 29 (1994) and Allard v. DeLorean, 884 F.2d 464, 467 (9th Cir. 1989). Bonner
Mall addresses whether a court of appeals may vacate a district court judgment that
was mooted by settlement as opposed to “happenstance.” Bonner Mall, 513 U.S.
at 25. The Supreme Court held that “mootness by reason of settlement does not
justify vacatur of a judgment under review” absent “exceptional circumstances.”
Id. at 29. But the Court explained that “a court of appeals presented with a request
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for vacatur of a district court judgment may remand the case” “even in the absence
of, or before considering the existence of, extraordinary circumstances.” Id. We
considered this language in American Games, Inc. v. Trade Products, Inc., 142
F.3d 1164, 1167–69 (9th Cir. 1998), and held that the Bonner Mall rule requiring
“exceptional circumstances” for vacatur applies only to appellate courts.
Accordingly, American Games holds that Bonner Mall did not overrule this
court’s “established procedure” of remanding a vacatur request so that the district
court can apply an “equitable balancing test.” Id. at 1168. American Games sets
out various considerations that a district court should consider. The considerations
include, but are not limited to, “the consequences and attendant hardships of
dismissal or refusal to dismiss,” the “competing values of finality of judgment and
right to relitigation of unreviewed disputes,” the “motives of the party whose
voluntary action mooted the case,” and the public policy against allowing a losing
party to “buy an eraser for the public record.” Id. at 1168, 1170.
Our remand order followed our “established procedure” as described in
American Games. It cited the language in Bonner Mall allowing a court of appeals
to remand for the district court to consider whether vacatur is appropriate. It also
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cited Allard, 884 F.2d at 467, where we remanded an appeal mooted by the
appellant’s settlement with a third party so that the district court could determine
whether to vacate its decision after considering the same equitable factors
discussed in American Games.
The district court, however, appears to have applied the Bonner Mall
standard and denied vacatur because the mootness did not occur by
“happenstance.” We cannot tell for sure, because the district court did not make
the reasoning for rejecting Ayotte’s equitable claims clear on the record. See
Traxler v. Multnomah Cnty., 596 F.3d 1007, 1016 (9th Cir. 2010).
American Economy conceded at oral argument and in its brief that the
district court used the Bonner Mall standard. American Economy argues that our
remand order applied Bonner Mall and directed the district court to do so as well.
Our remand order did indeed use the Bonner Mall standard, because that standard
applies to appellate courts. The order cites Bonner Mall to explain why we
remanded the case, not to prescribe a standard for the district court to use. The
district court must apply the American Games standard.
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Accordingly, we VACATE and REMAND for the district court to
determine whether vacatur is appropriate under the standard set forth in American
Games. We do not intimate a view as to whether vacatur is appropriate in this
case. Appellee shall bear the costs of this appeal.
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Ayotte v. American Economy Insurance, No. 13-35012
BERZON, Circuit Judge, concurring:
I concur in the disposition. I write to clarify that the stipulated judgment
here should not be given controlling — or even much — weight in the equitable
analysis we direct, and to point to a second consideration relevant to that analysis.
I.
The circumstances here are that the third-party litigation was going to
terminate, one way or the other — that is, through settlement or through litigation
— independently of this federal court litigation about the interim payment of
medical expenses, the so-called Ridley payments. This litigation was not settled; it
was mooted because it concerned an inherently time-limited obligation, covering
only the period during which the separate litigation between the alleged tortfeasor
and the plaintiff was pending. That time period could be longer or shorter,
depending upon whether the parties litigated or settled, but it was going to end, and
was going to do so independently of whether the insurance company was
ultimately determined to have owed Ridley payments before termination.
In other words, had the tort litigation not been settled but terminated through
litigation, the question in this case — whether Ridley payments were due pre-
termination — would still have been mooted rather than determined by an
appealable judgment. A litigated judgment in the tort case would presumably have
FILED
JUN 10 2014
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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been treated as “happenstance” as it affected this litigation. So the termination by
settlement of the third-party tort action, while not happenstance as to that action,
was tantamount to happenstance as to this one; for purposes of this action, what
mattered was the termination, not how it occurred. Yet, it is not clear to me that
the district court even recognized, or appreciated, that the stipulated judgment
involved a different case and different parties — facts of obvious relevance to the
equities analysis.
Moreover, it is absurd to suppose that the parties to the tort action would
have settled that action so as to moot out the question whether Ridley payments
should have been made. The settlement was for much more than the Ridley
payments could have been, and involved parties who had no obligation to make
Ridley payments.
II.
For me, the hard question in this case is how the district court’s denial of
Ayotte’s claim for common law breach of the insurance company’s good faith
obligation with regard to the Ridley claim affects the vacatur question. It appears
that Ayotte either did not pursue on appeal, or invited dismissal as to, that claim
the last time he was before us.
The Ridley good faith claim would appear to survive the termination of the
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underlying tort suit. That claim was for consequential damages due to the
noncompliance with the Ridley requirement to pay interim medical costs, not for
those medical payments themselves. Thus, had Ayotte pursued the appeal on the
common law bad faith claim, he would probably have avoided dismissal of — and
thereby litigated on appeal — that claim.
On the other hand, we deemed the case moot over American Economy’s
vigorous opposition, and we are not free to reconsider the correctness of our
decision. Still, Ayotte’s mistake — if that is what it was — in failing separately to
pursue on appeal a claim he probably could have litigated had he sought to do so
may have some weight in the equitable balance to be conducted on remand.
* * * *
In sum, there are two unusual circumstances in this case — the settlement
was of separate litigation only indirectly connected to this case, and this case
originally included a claim that appears to have been considered moot only because
Ayotte did not propose to continue to litigate it once the Ridley payments
themselves were out of the picture. These circumstances should be weighed by the
district court on remand, in addition to any others advanced by the parties.
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