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Residences at Olde Town Square Association v. Travelers Casualty Insurance Co. of America

United States District Court, D. Colorado

September 12, 2019




         This matter is before the Court on United States Magistrate Judge Nina Y. Wang's Recommendation dated March 8, 2019 (the “Recommendation”; ECF No. 58), which recommended that this Court deny Plaintiff's Motion to Amend Complaint to Add Claim for Exemplary Damages (“Motion to Amend”) (ECF No. 42). The Recommendation is incorporated herein by reference. See 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b).

         Plaintiff and Defendant each filed a timely objection to different portions of the Recommendation (ECF Nos. 59 (Plaintiff) and 60 (Defendant)), and each responded to the other's objection (ECF Nos. 64 (Plaintiff) and 65 (Defendant)). Defendant's objection challenges only the Recommendation's reasoning, not its result. In essence, Defendant asks the Court to modify the Recommendation but preserve its result.

         For the reasons set forth below, the Court generally agrees with Defendant's objection, although the Court views the matter somewhat differently than both Defendant and the Magistrate Judge. The Recommendation is therefore adopted as modified, Plaintiff's objection is overruled, Defendant's objection is sustained, and Plaintiff's Motion to Amend is denied.


         When a magistrate judge issues a recommendation on a dispositive matter, Federal Rule of Civil Procedure 72(b)(3) requires that the district judge “determine de novo any part of the magistrate judge's [recommendation] that has been properly objected to.” An objection to a recommendation is properly made if it is both timely and specific. United States v. 2121 East 30th St., 73 F.3d 1057, 1059-60 (10th Cir. 1996). An objection is sufficiently specific if it “enables the district judge to focus attention on those issues-factual and legal-that are at the heart of the parties' dispute.” Id. at 1059. In conducting its review, “[t]he district judge may accept, reject, or modify the [recommendation]; receive further evidence; or return the matter to the magistrate judge with instructions.” Fed.R.Civ.P. 72(b)(3).

         However, if a magistrate judge's ruling is nondispositive, the Court must affirm the ruling unless it finds that the ruling is “clearly erroneous or contrary to law.” Fed.R.Civ.P. 72(a); 28 U.S.C. § 636(b)(1)(A); Ariza v. U.S. West Commc'ns, Inc., 167 F.R.D. 131, 133 (D. Colo. 1996). The clearly erroneous standard “requires that the reviewing court affirm unless it on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th Cir. 1988) (internal quotation marks omitted). The “contrary to law” standard permits “plenary review as to matters of law, ” see 12 Charles Alan Wright et al., Federal Practice & Procedure § 3069 (2d ed., Apr. 2016 update), but the Court will set aside a magistrate judge's order only if it applied the wrong legal standard or applied the appropriate legal standard incorrectly, see Wyoming v. U.S. Dep't of Agric., 239 F.Supp.2d 1219, 1236 (D. Wyo. 2002). In short, “[b]ecause a magistrate judge is afforded broad discretion in the resolution of non-dispositive . . . disputes, the court will overrule the magistrate judge's determination only if his discretion is abused.” Ariza, 167 F.R.D. at 133.

         Judges in this District remain split whether a magistrate judge's ruling on a motion to amend to add a claim for exemplary damages is dispositive or nondispositive. See Sunflower Condo. Ass'n, Inc. v. Owners Ins. Co., 2018 WL 1755784, at *1 (D. Colo. Apr. 12, 2018); Grabau v. Target Corp., 2008 WL 179442, at *5 (D. Colo. Jan. 17, 2008). The Magistrate Judge treated the matter here as dispositive. (See ECF No. 58.) Plaintiff has followed suit. (See ECF No. 59 at 3-4.) Defendant, however, briefly asserts the standard of review for nondispositive rulings, without explaining why the Magistrate Judge was wrong to treat the issue as dispositive. (See ECF No. 60 at 2.)

         Under the circumstances, the Court will give Plaintiff the maximum benefit of the doubt and review the matter as if dispositive (or never referred to the Magistrate Judge in the first place). Thus, the Court reviews the matter de novo.


         Plaintiff is a homeowners association that manages a condominium complex in Arvada, Colorado. (ECF No. 1 ¶ 2.) Defendant was Plaintiff's property and casualty insurer as of May 8, 2017, the date on which a hailstorm damaged the condominiums. (Id. ¶¶ 3-4, 31, 75.) Plaintiff and Defendant have been unable to agree on the amount Defendant owes to Plaintiff for repairs. (See generally id.) Plaintiff thus sues Defendant for breach of contract and unreasonable delay or denial of insurance benefits in violation of Colorado Revised Statutes §§ 10-4-1115 and -1116. (Id. at 12-15.) Plaintiff's complaint announces that Plaintiff “reserves its right to add a claim for exemplary damages if permitted to do so and appropriate.” (Id. at 15.) Plaintiff did not plead exemplary damages in the first instance because Colorado does not allow it: “A claim for exemplary damages . . . may be allowed by amendment to the pleadings only after the exchange of initial disclosures pursuant to rule 26 of the Colorado rules of civil procedure and the plaintiff establishes prima facie proof of a triable issue.” Colo. Rev. Stat. § 13-21-102(1.5)(a).[1]

         About nine months into the case, Plaintiff filed its Motion to Amend, arguing that discovery had uncovered a basis for finding that Defendant had behaved with knowing dishonesty during the adjustment of the claim. (ECF No. 42.) Defendant responded that amendment would be futile because exemplary damages are not available on either of Plaintiff's causes of action; and, in any event, Plaintiff had not presented a prima facie case. (ECF No. 52.)

         As to Defendant's first argument, the Magistrate Judge agreed to the extent exemplary damages were tied to breach of contract, but not to the extent they were tied to unreasonable delay or denial of insurance benefits. (ECF No. 58 at 6-9.) In other words, the Magistrate Judge reasoned that unreasonable delay/denial is a proper anchor for an exemplary damages claim, assuming the plaintiff has stated a prima facie case. But, as to Defendant's second argument, the Magistrate Judge agreed with Defendant that Plaintiff had not stated a prima facie case. (Id. at 9-13.) For that reason, the Magistrate Judge recommended denial of the Motion to Amend.

         Plaintiff's objection does not challenge the Magistrate Judge's reasoning regarding the availability (or not) of exemplary damages as a remedy for breach of contract or unreasonable delay/denial of insurance benefits. (See ECF No. 59.) Plaintiff argues only that the Magistrate Judge erred in finding a lack of a prima facie case.

         Defendant's objection argues that the Magistrate Judge erred in finding that exemplary damages are available for an unreasonable delay/denial claim. (ECF No. 60.) But Defendant otherwise supports the Magistrate Judge's recommended outcome. (See ECF No. 65.)

         III. ANALYSIS

         Whether punitive or exemplary damages (Colorado law uses those terms interchangeably) are an available remedy for the unreasonable delay/denial cause of action created by Colorado Revised Statutes §§ 10-3-1115 and -1116 is a question of Colorado law. “It is the duty of the federal . . . trial court[] to ascertain and apply the state law where . . . it controls [the] decision.” Huddleston v. Dwyer, 322 U.S. 232, 236 (1944). “Where no controlling state decision exists, ” this Court must engage in the “ventriloquial function” of “predict[ing] what the state's highest court would do.” Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003).

         No Colorado state-court decision answers whether punitive damages are an available remedy for an unreasonable delay/denial claim. This Court therefore must predict how the Colorado Supreme Court would rule on the question.

         A. The ...

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