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Auto-Owners Insurance Co. v. Summit Park Townhome Association

United States Court of Appeals, Tenth Circuit

March 30, 2018

AUTO-OWNERS INSURANCE COMPANY, a Michigan corporation, Plaintiff Counter Defendant-Appellee,
v.
SUMMIT PARK TOWNHOME ASSOCIATION, a Colorado corporation, Defendant Counterclaimant. WILLIAM C. HARRIS; DAVID J. PETTINATO, Appellants. AUTO-OWNERS INSURANCE COMPANY, a Michigan corporation, Plaintiff Counter Defendant-Appellee,
v.
SUMMIT PARK TOWNHOME ASSOCIATION, a Colorado corporation, Defendant Counterclaimant - Appellant.

          Appeal from the United States District Court for the District of Colorado (D.C. No. 1:14-CV-03417-LTB) (D. Colo.)

          George A. Vaka, Vaka Law Group, Tampa, Florida (Michael L. Hutchinson and Kathleen M. Byrne, Treece Alfrey Musat, P.C., Denver, Colorado, on the briefs), for Appellants.

          Terence M. Ridley (Michael L. O'Donnell, Evan Bennett Stephenson, and Cedric D. Logan, with him on the brief), Wheeler Trigg O'Donnell LLP, Denver, Colorado, for Plaintiff Counter Defendant-Appellee.

          Before TYMKOVICH, Chief Judge, BRISCOE, and BACHARACH, Circuit Judges.

         ORDER

         These matters are before us, sua sponte, to withdraw and amend the decisions issued in these appeals originally on March 23, 2018. Those original opinions are hereby VACATED, and the attached revised opinions shall issue effective the date of this order and with a filing date of today. The Clerk is directed to issue and distribute the amended opinions accordingly.

          BACHARACH, Circuit Judge.

         Mr. William Harris and Mr. David Pettinato are two attorneys who represented Summit Park Townhome Association. While representing Summit Park against its insurer, the two attorneys were sanctioned for failing to disclose information. In this appeal, the attorneys challenge the sanctions based on five arguments:

1. The district court lacked authority to require the disclosure requirements.
2. The attorneys did not violate the court's disclosure requirements.
3. The district court awarded attorneys' fees beyond the scope of an earlier sanctions order.
4. The district court's award of attorneys' fees resulted in a deprivation of due process.
5. The amount of attorneys' fees awarded was unreasonable.

         We affirm. Regardless of whether the district court had authority to require the disclosures, the attorneys were obligated to comply. They did not, and the district court acted reasonably in issuing sanctions, determining the scope of the sanctions, and calculating the amount of the sanctions.

         I. Mr. Harris and Mr. Pettinato were sanctioned for failing to comply with the disclosure order.

         This appeal grew out of an insurance dispute. Summit Park sustained hail damage and filed a claim with its insurer, Auto-Owners Insurance Company. The parties agreed that damage had occurred but disagreed on the dollar amount of the damage. Auto-Owners sued for a declaratory judgment to decide the value.

         Summit Park retained Mr. Harris and Mr. Pettinato, who successfully moved to compel an appraisal based on the insurance policy. In the event of an appraisal, the insurance policy required:

[E]ach party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.

Appellee's Supp. App'x, vol. 1 at 123.

         Based on continuing disputes between the parties, Auto-Owners asked the district court to resolve these disputes by ordering an "appraisal agreement." The court did so and ordered disclosure of facts potentially bearing on the appraisers' impartiality:

An individual who has a known, direct, and material interest in the outcome of the appraisal proceeding or a known, existing, and substantial relationship with a party may not serve as an appraiser. Each appraiser must, after making a reasonable inquiry, disclose to all parties and any other appraiser any known facts that a reasonable person would consider likely to affect his or her impartiality, including (a) a financial or personal interest in the outcome of the appraisal; and (b) a current or previous relationship with any of the parties (including their counsel or representatives) or with any of the participants in the appraisal proceeding . . . . Each appraiser shall have a continuing obligation to disclose to the parties and to any other appraiser any facts that he or she learns after accepting appointment that a reasonable person would consider likely to affect his or her impartiality.

         Appellants' App'x, vol. 1 at 245-46. The court warned: "Notice is given that, if the court finds that the parties and/or their counsel have not complied with this order, the court will impose sanctions against the parties and/or their counsel pursuant to the court's inherent authority." Id. at 248 (capitalization removed).

         Before the court imposed these requirements, Summit Park selected Mr. George Keys as its appraiser. This selection led Auto-Owners to express doubt about Mr. Keys's impartiality. But Auto-Owners did not object to Mr. Keys or move to compel further disclosures.

         Mr. Keys and the court-appointed umpire agreed on an appraisal award of over $10 million, which was 47% higher than Summit Park's own public adjuster had determined. Auto-Owners then launched an investigation, which culminated in an objection to Mr. Keys. In the objection, Auto-Owners argued that Mr. Keys was not impartial and that Summit Park had failed to disclose evidence bearing on his impartiality. The district court credited these arguments, disqualifying Mr. Keys and vacating the appraisal award.

         With vacatur of the appraisal award, Auto-Owners moved for sanctions against Mr. Harris and Mr. Pettinato, seeking attorneys' fees and expenses based on violation of the disclosure order. The district court granted the motion, assessing sanctions against Mr. Harris and Mr. Pettinato for $354, 350.65 in attorneys' fees and expenses.

         II. Mr. Harris and Mr. Pettinato were bound by the court's disclosure order.

         Mr. Harris and Mr. Pettinato challenge the district court's authority to enter the disclosure order. But even if the court had exceeded its authority, Mr. Harris and Mr. Pettinato would still have needed to comply with the disclosure order. If the two attorneys believed that the order had been unauthorized, they could have sought reconsideration or a writ; but they could not violate the order. See Maness v. Meyers, 419 U.S. 449, 458 (1975) ("If a person to whom a court directs an order believes that order is incorrect the remedy is to appeal, but, absent a stay, he must comply promptly with the order pending appeal.").

         There is "impressive authority for the proposition that an order issued by a court with jurisdiction over the subject matter and person must be obeyed by the parties until it is reversed by orderly and proper proceedings." United States v. United Mine Workers, 330 U.S. 258, 293 (1947). The parties agree that the district court had jurisdiction over the subject matter and parties; thus, the attorneys and parties bore an obligation to comply in the absence of an appellate challenge. See United States v. Beery, 678 F.2d 856, 866 (10th Cir. 1982) ("Since the court entering these orders had jurisdiction over both the subject matter and [the defendant], [the defendant] was bound by these orders until reversed or otherwise set aside . . . ."); see also GTE Sylvania, Inc. v. Consumers Union of U.S., Inc, 445 U.S. 375, 386 (1980) (applying "the established doctrine that persons subject to an injunctive order issued by a court with jurisdiction are expected to obey that decree until it is modified or reversed, even if they have proper grounds to object to the order"). In light of the duty to comply, violation of the order could trigger sanctions. See United Mine Workers, 330 U.S. at 294 (quoting Howat v. Kansas, 258 U.S. 181, 190 (1922)).[1]

         Regardless of whether the district court had authority to issue the disclosure order, Mr. Harris and Mr. Pettinato

• bore an obligation to comply in the absence of an appellate challenge and
• could be sanctioned for noncompliance.

         III. Mr. Harris and Mr. Pettinato violated the disclosure order.

         The district court concluded that the two attorneys had violated the disclosure order. Challenging this conclusion, Mr. Harris and Mr. Pettinato make two arguments:

1. The district court misinterpreted the term "impartial."
2. Mr. Harris and Mr. Pettinato disclosed sufficient information ...

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