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Select Comfort Corporation v. Arrowood Indemnity Co.

United States District Court, D. Minnesota

December 12, 2014

Select Comfort Corporation Plaintiff,
v.
Arrowood Indemnity Company, Defendant/Third-Party Plaintiff,
v.
American Family Mutual Insurance Company, St. Paul Mercury Insurance Company, Third-Party Defendants.

ORDER

JOAN N. ERICKSEN, District Judge.

This case is currently before the Court on two motions brought by Plaintiff Select Comfort Corporation against Defendant Arrowood Indemnity Company: first, a motion to exclude certain opinions of Arrowood's expert, John Pierce; and second, a motion for summary judgment on Arrowood's counterclaim.

For the reasons discussed below, Select Comfort's motion regarding Pierce is denied and its summary judgment motion is granted.

Background

As the Court has previously recited, see Order of Aug. 26, 2014 at 2-7, ECF No. 140, this is an insurance coverage dispute between Select Comfort, maker of the Sleep Number bed, and Arrowood, the insurance company from which it purchased two commercial general liability ("CGL") policies for the years 2001-02 and 2002-03.

The underlying case giving rise to this action, referred to here as the Stearns suit, was brought against Select Comfort as a putative class action in California in 2008. The suit included claims by several co-plaintiffs who alleged that they had suffered health problems from mold in the Sleep Number beds they had purchased over roughly the last two decades. Select Comfort tendered its defense in the matter to several insurers with whom it held liability policies during the time period implicated by the claims. Among those insurers was Arrowood, which accepted Select Comfort's tender with a reservation of rights.

Select Comfort took the position that Arrowood's reservation of rights created a conflict of interest in the defense of the Stearns action, thereby converting Arrowood's obligation to defend Select Comfort into an obligation to pay Select Comfort for the reasonable attorney's fees and costs it incurred in defending itself.[1] Accordingly, Select Comfort rebuffed Arrowood's plan to select defense counsel for the Stearns matter and retained counsel of its own choosing from the law firm of Oppenheimer Wolff & Donnelly, with attorneys from the firm of Pillsbury Winthrop Shaw Pittman serving as local counsel.

The Stearns litigation proceeded over the next several years. In those proceedings, Select Comfort successfully resisted class certification, after which a settlement was reached with the individual co-plaintiffs. During the mediation that produced the settlement, Arrowood agreed to pay 33% of the total, with Select Comfort paying the remaining 67%.

As for attorney's fees and costs, all told, Oppenheimer and Pillsbury Winthrop invoiced a total of just over $1 million for the Stearns defense. Arrowood and two other of Select Comfort's insurers paid roughly half of that amount, while Select Comfort paid the balance to the firms.

The year after the Stearns case settled, Select Comfort commenced this action against Arrowood, seeking to recover from it the approximately $500, 000 in defense costs that the insurers had left uncovered. Arrowood, in turn, asserted a counterclaim against Select Comfort for "reimbursement" of an amount that it believes it "overpaid" towards the Stearns settlement. Arrowood also asserted third-party claims against other of Select Comfort's insurers for contribution, both with respect to defense costs and indemnification.

Discussion

The Court considers Select Comfort's two motions in turn.

I. Daubert motion.

First, Select Comfort has filed a Daubert motion seeking to exclude Opinion 4-A of John Pierce. Arrowood intends to offer Pierce as an expert on the "reasonableness and necessity" of the attorney's fees and costs that Select Comfort incurred in the defense of the Stearns action, which Select Comfort claims Arrowood is obligated to pay under the terms of the two CGL policies.

As the proponent of Pierce's testimony, Arrowood bears the burden of establishing its admissibility by a preponderance of the evidence. E.g., Lauzon v. Senco Products, Inc., 270 F.3d 681, 686 (8th Cir. 2001). Federal Rule of Evidence 702 governs the admissibility of expert testimony. It reads:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.

Under this rule, the district court plays the role of "gatekeeper, " screening expert testimony to ensure that it is relevant, reliable, and offered by a witness who is "qualified to assist the finder of fact." Lauzon, 270 F.3d at 686.

Select Comfort does not contest Pierce's qualifications as an expert in the area of legal billing. It does, however, challenge the "fit" between a portion of Pierce's proposed testimony - his Opinion 4-A - and the "facts" of the case. See Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1055 (8th Cir. 2000) ("If a party believes that an expert opinion has not considered all of the relevant facts, an objection to its admission is appropriate.").

Under the heading of Opinion 4-A, Pierce opines in his report that Oppenheimer and Pillsbury Winthrop's practice of "block-billing" for certain portions of the work they did in the Stearns action resulted in those firms invoicing an unreasonable amount for the defense they provided to Select Comfort.

As Pierce explains it, block-billing is "the practice of lumping' two or more tasks into a single billing entry for which the total amount of time for all tasks is indicated." Pierce believes that the "[t]ime spent on each separate task performed by an attorney should be separately recorded" so that "[t]he client, a third party and/or the court" can assess the reasonableness of the fees on a task-by-task basis. Because the "lumping" of tasks hinders such an evaluation, Pierce

agree[s] with those California and federal courts that have found block-billing to be an inflationary billing practice warranting an across-the-board percentage reduction between 10% and 30% for block-billed fees. While I do not believe that the use of block-billing warrants a complete denial of all fees associated with block-billing, I agree that it warrants a percentage reduction. Accordingly, I have reduced the sum of all block-billed entries over one hour and not otherwise questioned by me by 25% and have thus identified a total of $93, 325.40 in Oppenheimer's legal fees [out of a total of $394, 133.75 in total block-billed fees by Oppenheimer] as unreasonable.... Correspondingly, I have given the Oppenheimer firm credit for 75% or $279, 976.21 of such billing entries. My deduction for block-billed fees for Pillsbury Winthrop is $4, 217.13 [out of a total of $22, 477.00 in block-billed fees] and I have similarly given the firm credit for 75% of their block-billed fees.

Select Comfort objects to the admissibility of this opinion on the ground that Pierce, according to his own deposition testimony, did not take into account that Arrowood paid some of the Oppenheimer and Pillsbury Winthrop invoices containing block-billing during the course of the Stearns litigation. In Select Comfort's view, the evidence that Arrowood paid those invoices - rather than, for example, rejecting them and demanding task-by-task billing - undermines the ...


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