FILED

NOT FOR PUBLICATION JUN 10 2014

MOLLY C. DWYER, CLERK

UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

SCOTT AYOTTE, No. 13-35012

Plaintiff - Appellant, D.C. No. 2:09-cv-00057-RFC

v.

MEMORANDUM*

AMERICAN ECONOMY INSURANCE

COMPANY,

Defendant - Appellee.

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.,

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. 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.

2 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

3 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

4 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.

5 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.

6

FILED

Ayotte v. American Economy Insurance, No. 13-35012 JUN 10 2014

MOLLY C. DWYER, CLERK

BERZON, Circuit Judge, concurring: U.S. COURT OF APPEALS

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 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

2 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.

3