AMENDED SUMMARY ORDER
Petitioner-appellant Leonard Kalish ("Kalish") appeals from a July 23, 2008 judgment of conviction on all three counts of a three-count indictment charging him with conspiracy to commit wire and mail fraud, in violation of 18 U.S.C. § 371, wire fraud, in violation of 18 U.S.C. § 1343, and mail fraud, in violation of 18 U.S.C. § 1341. At trial, the Government established that Kalish, through his company, The Funding Solution ("TFS"), fraudulently induced hundreds of prospective borrowers into paying purportedly refundable advance fees in exchange for promises of assistance in securing loans. When neither the loans nor the promised assistance materialized, the advance fees were not returned. Undercover FBI agents gathered evidence supporting the wire and mail fraud counts by posing as restaurateurs seeking funding for a restaurant called "Quick Bites." Kalish refused to return their advance fee after failing to obtain a loan for their venture.
On appeal, Kalish principally argues that (1) the indictment was defective, (2) the evidjsruze was insufficient to warrant a conviction, (3) the trial court erroneously admitted key evidence, (4) the trial court's interruptions during summation deprived him of effective representation, and (5) his sentence was unreasonable. We assume the parties' familiarity with the facts and the record of prior proceedings, which we reference only as necessary to explain our decision.
In this order, we address Kalish's appeal only insofar as it challenges his conviction and sentence of imprisonment. In an accompanying opinion, we address Kalish's appeal from the district court's November 24, 2009 order of forfeiture as well as his claims regarding restitution.
DISCUSSION
I. Kalish's Challenges to the Indictment
Kalish claims that the Government "constructively amended the indictment" by offering evidence at trial that went beyond the Quick Bites transaction referenced in the substantive wire and mail fraud counts. "Constructive amendment . . . occurs when the presentation of evidence . . . modifies] essential elements of the offense charged to the point that there is a substantial likelihood that the defendant [was] convicted of an offense other than the one charged by the grand jury." United States v. Clemente, 22 F.3d 477, 482 (2d Cir. 1994). Nothing of the sort happened here. Count one of the indictment charged Kalish with "a scheme to defraud numerous Prospective Borrowers" seeking loans for " various business projects" over the course of a six-year period. (emphasis added.) Because the indictment reached well beyond the Quick Bites scheme, the prosecution was free, to offer evidence of Kalish's many other victims.
In some tension with his constructive amendment claim, Kalish next argues that the indictment charged "an overly broad conspiracy" and was insufficiently specific. This claim fails because "an indictment `need only trade the language of the statute and, if necessary to apprise the defendant of the nature of the accusation against him, state time and place in approximate terms.'" United States v. Frias, 521 F.3d 229, 235 (2d Cir. 2008), quoting United States v. Flaharty, 295 F.3d 182, 198 (2d Cir. 2002); see also United States v. Carr, 582 F.2d 242, 244 (2d Cir. 1978). Kalish's indictment did more than track the statutory text: it provided details about the nature of the fraudulent scheme, the content of Kalish's allegedly fraudulent representations, and the specific dates of some of the overt acts taken in furtherance of the conspiracy. Therefore, it exceeded the minimal specificity required.
Kalish also complains of insufficient pretrial notice of the Government's allegations against him. "[A] claim concerning information needed for trial preparation is more appropriately addressed to a bill of particulars." United States v. Davidoff, 845 F.2d 1151, 1154 (2d Cir. 1988) (internal quotation marks omitted). Here, Kalish requested additional specificity pretrial and the Government provided more than adequate details regarding the victims of the fraud and the nature of the proof it intended to offer at trial. This satisfied the Government's obligation to inform Kalish of the charges against him. See United States v. Bagaric, 706 F.2d 42, 61-62 (2d Cir. 1983), abrogated on other grounds by Nat'l Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994).
Finally, Kalish claims that the indictment was "fatally flawed" because it "incorporated key conspiracy allegations from Count One into Counts Two and Three. . . ." This argument is wholly frivolous: the Federal Rules of Criminal Procedure expressly permit one count of an indictment to "incorporate by reference an allegation made in another count." Fed.R.Crim.P. 7(c)(1). To the extent Kalish challenges the indictment as duplicitous, his inability to show prejudice resulting from the alleged duplicity defeats the claim. United States v. Margiotta, 646 F.2d 729, 733 (2d Cir. 1981).
II. Sufficiency of the Evidence
Kalish argues that the Government's evidence at trial failed to establish intent to defraud. Our review of the jury's verdict is highly deferential: we must affirm the conviction if " any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." United States v. Aguilar, 585 F.3d 652, 656 (2d Cir. 2009) (internal quotation marks omitted); see also United States v. MacPherson, 424 F.3d 183, 187 (2d Cir. 2005). In making that determination, we "view the evidence in the light most favorable to the government, crediting every inference that could have been drawn in the government's favor." United States v. Chavez, 549 F.3d 119, 124 (2d Cir. 2008).
Kalish insists that his actions were protected by his contractual arrangements with prospective borrowers. The Fee Agreements signed by borrowers technically permitted TFS to retain advance fees once it secured a loan proposal. Kalish claims that he worked diligently on behalf of his clients and successfully obtained numerous loan proposals. According to Kalish, "where someone agrees, under a contract, to perform certain services with the intent to perform, then his failure to do so may give rise to civil liability, but it does not constitute a crime."
A "loan proposal" is an initial, non-binding letter of interest from a lender. It is distinct from a "loan commitment," which permits the borrower to bind the lender to the proposed terms of the loan.
Kalish's argument fails to address the nature of the accusations against him. Kalish stands convicted of fraud in the inducement to contract, not of failing to live up to the promises contained in the Fee Agreements. The testimony 6f fraud victims and former TFS employees demonstrated that Kalish convinced prospective borrowers to pay advance fees by dramatically overstating TFS's efficacy and promising to refund advance fees if TFS failed to secure actual funding. That was more than sufficient evidence for the jury to conclude that Kalish had the requisite intent to defraud.
III. The Trial Court's Evidentiary Rulings
We review evidentiary rulings for abuse of discretion and reverse only when the trial court "acted arbitrarily or irrationally." United States v. Nektalov, 461 F.3d 309, 318 (2d Cir. 2006) (internal quotation marks omitted).
A. The "Tombstones" Were Properly Admitted
Plaques — colloquially referred to as "tombstones" — purporting to depict successful loans and satisfied customers adorned TFS's walls. Many of these tombstones mischaracterized as "secured" loans TFS was merely pursuing; others actually represented wholly dissatisfied customers, some of whom testified against Kalish at trial. The Government offered fifty-nine such tombstones into evidence. Kalish claims that prejudice from this "cumulative proof . . . clearly outweighed any probative value that the tombstones may have had."
Kalish's claim that the tombstones constitute "blatant hearsay" is frivolous: the tomb-stones were not entered into evidence for their truth. See Fed.R.Evid. 801(c).
Federal Rule of Evidence 403 permits the trial court to exclude evidence "if its probative value is substantially out' weighed by the danger of unfair prejudice . . . or needless presentation of cumulative evidence." Fed.R.Evid. 403. There was nothing "unfair" however, about drawing the jury's attention to the tombstones: "[e]vidence is prejudicial only when it tends to have some adverse effect upon a defendant beyond tending to prove the fact or issue that justified its admission into evidence." United States v. Figueroa, 618 F.2d 934, 943 (2d Cir. 1980). Here, the trial court admitted the tombstones into evidence because their misleading nature tended to show that Kalish intentionally overstated TFS's efficacy. This was highly probative of Kalish's intent to defraud. Kalish's assertion that the fifty-nine tomb-stones overstated the extent of his scheme is without merit because there was ample evidence from which the jury could have found that there were, in fact, hundreds of victims. Therefore, the tombstones were not unfairly prejudicial and were properly admitted.
Despite Kalish's claim that too many of the tombstones were offered into evidence, we find no reason to disturb the trial court's judgment that the tombstones — each depicting a different transaction — were not needlessly cumulative.
B. The Admission of 404(b) Evidence Was Not Reversible Error
Prior to founding TFS, Kalish was a corporate officer of the Financial Corporation of America ("FCA"). In 1999, FCA was charged with mail fraud and Kalish, in his capacity as corporate officer, entered a guilty plea on its behalf. During the Government's rebuttal case, the transcript of that plea allocution, the criminal information charging FCA with mail fraud, and the plea agreement Kalish signed on behalf of FCA were admitted into evidence. Kalish claims that this violated Federal Rule of Evidence 404(b).
Under Rule 404(b), other act evidence "is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of . . . intent . . . plan, knowledge, . . . or absence of mistake." Fed.R.Evid. 404(b). "To determine whether a district court properly admitted other act evidence, [we consider] whether (1) it was offered for a proper purpose; (2) it was relevant to a material issue in dispute; (3) its probative value . . . substantially out-weighed . . . its prejudicial effect; and (4) the trial court gave an appropriate limiting instruction. . . ." United States v. Guang, 511 F.3d 110, 121 (2d Cir. 2007), quoting United States v. LaFlam, 369 F.3d 153, 156 (2d Cir. 2004).
The broad discretion we afford trial judges on evidentiary rulings makes what was a relatively close call at trial an easy affirmance on appeal. First of all, this "Circuit takes an inclusionary approach to the admission of [404(b)] evidence under which such evidence is admissible for any purpose other than to show the defendant's criminal propensity." United States v. McCallum, 584 F.3d 471, 475 (2d Cir. 2009). The trial court found that the FCA evidence demonstrated Kalish's "knowledge that [he] had to be careful in making representations to borrowers [and] potential borrowers[] that would mislead them" and his "knowledge of the unlawful nature of conduct which would mislead or tend to mislead the borrowers." (Tr. 1284-85.) Demonstrating such knowledge is clearly a proper purpose. McCallum, 584 F.3d at 475. Second, the evidence was relevant to whether Kalish had the necessary intent to defraud. The jury could reasonably infer that Kalish's awareness of the illegality of conduct tending to mislead potential borrowers, combined with his clear willingness to dramatically overstate TFS's efficacy while masking the nature of the advance fees, demonstrated an intent to defraud. Third, the fact that Kalish was not indicted based on his involvement with FCA reduced any unfair prejudice resulting from the evidence's admission. Whatever prejudicial impact remained did not so outweigh the evidence's probative value so as to make its admission an abuse of discretion. That is particularly true because the FCA scheme "did not involve conduct any more sensational or disturbing than the crime with which [Kalish] was charged." United States v. Roldan-Zapata, 916 F.2d 795, 804 (2d Cir. 1990). Finally, the district court gave an emphatic limiting instruction immediately after admitting the evidence, and repeated the entirety of that instruction in its final charge to the jury. (Tr. 2476-78, 2694-96.) Therefore, we find no reversible error in the trial court's admission of this 404(b) evidence.
Kalish asserts that his defense was "strictly limited to the Fee Agreement's unequivocal language," thereby "eliminat[ing] intent as an issue." As a legal matter, the Fee Agreement's language could not absolve Kalish of fraudulently inducing prospective borrowers to sign the Fee Agreement in the first place. See United States v. Wallach, 935 F.2d 445, 463 (2d Cir. 1991) (concluding that "the with-holding . . . of information that could impact on economic decisions can provide the basis for a mail fraud prosecution"). Kalish's defense amounted to a claim that he acted in good faith to fulfill the only promises he made to borrowers. That defense squarely placed his intent to defraud in issue.
IV. Interruptions During Summation
Kalish contends that Judge Patterson undermined his defense by interrupting defense counsel's summation eleven times in order to correct what Judge Patterson believed were misrepresentations of the record. Judge Patterson concluded each such "interruption" (some of which were simply rulings on prosecution objections) by instructing the jury that their recollection of the evidence — and not his — governed. Kalish argues that the judge's comments deprived him of effective assistance of counsel.
It is within the trial court's discretion to interrupt a summation when counsel misrepresents the factual record. See United States v. Mieles, 481 F.2d 960, 963 (2d Cir. 1973). Still, we must decide "whether the summation[] . . . w[as] so hindered by the trial court's interruptions as to have abridged [Kalish's] constitutional rights." United States v. Busic, 592 F.2d 13, 36 (2d Cir. 1978). Even where "the trial judge's conduct left something to be desired," United States v. Amiel, 95 F.3d 135, 146 (2d Cir. 1996), we will reverse a conviction only if "the jurors have been so impressed by the judge's partiality that it affected their deliberations," United States v. Tocco, 135 F.3d 116, 129 (2d Cir. 1998); see also Busic, 592 F.2d at 37.
Our decision in Busic provides a guide-post somewhere near the outer limits of acceptable behavior by a trial judge. There, we found no reversible error when the trial judge interrupted one defense summation eighteen times, and a second approximately forty times. Busic, 592 F.2d at 35-36. Insofar as Kalish's argument rests on the frequency of interruption, Judge Patterson's eleven interjections are well within the outer boundary set by Busic.
Nevertheless, the primary question is not the number of interruptions, but the nature of and justification for the trial judge's comments. While most of the comments here were insignificant and/or appropriate, a careful review of the record reveals two instances where the trial court interrupted defense counsel's summation even though no misrepresentations had occurred. In Busic, we excused the trial court's inappropriate interventions because defense counsel "was usually able to quickly reformulate his statement and proceed with his argument" and because "the judge specifically instructed the jury on at least two occasions that certain of his interruptions were unjustified and that counsel had been correct in his assertions." Id. at 36 n. 6. Here, defense counsel quickly moved on with his summation after nearly every interruption. Furthermore, Judge Patterson made clear, both at the end of each interjection and in his final charge to the jury, that the jury's recollection of the evidence controlled. He also clearly instructed the jurors that they were the "exclusive judges" of the facts and that the Court had "[no] opinion as to the facts or what [their] verdict should be." (Tr. 2663.) As a result, "whatever negative impression might arguably have been conveyed to the jurors by the court's questions and comments during summation was certainly erased by the court's subsequent comments to the jury." Busic, 592 F.2d at 37; see also United States v. Mickens, 926 F.2d 1323, 1327-28 (2d Gir.1991).
V. Kalish's Sentence of Imprisonment
We review Kalish's sentence for reasonableness. Kimbrough v. United States, 552 U.S. 85, 90-91, 128 S.Ct. 558, 169 L.Ed.2d 481 (2007); United States v. Williams, 475 F.3d 468, 474 (2d Cir. 2007). "Reasonableness review is akin to review for abuse of discretion, under which we consider whether the sentencing judge exceeded the bounds of allowable discretion, committed an error of law in the course of exercising discretion, or made an erroneous finding of fact." Williams, 475 F.3d at 474 (internal quotation marks omitted).
Kalish asserts that the district court committed Guidelines errors in (1) calculating the amount of loss and (2) applying a four-level role adjustment after concluding Kalish was "an organizer or leader of a criminal activity that involved five or more participants. . . ." U.S.S.G. § 3B1.1(a). We review the district court's factual findings relevant to the Guidelines for clear error. United States v. Awan, 607 F.3d 306, 312 (2d Cir. 2010).
We find no reason to disturb the district court's conclusion regarding the applicable loss amount, which need only be supported by a preponderance of the evidence. See United States v. Ruggiero, 100 F.3d 284, 290-291 (2d Cir. 1996). Here, the district court based its calculations on trial testimony and supporting affidavits that it meticulously reviewed and accepted only after a two-day sentencing hearing. Kalish's argument to the contrary merely rehashes his insufficiency claims, which we have al-ready rejected.
Similarly, we find no reason to disturb the district court's conclusion that five or more individuals participated in the scheme. In addition to Joel Pondelik, Kalish's former employee who testified as part of a cooperation agreement, the district court found that TFS employees Corey Burns, Tor Newcomer, Osborne Williams, and Easton Bell assisted Kalish by making false representations to prospective borrowers. Kalish provides no reason to doubt this finding, and our independent review of the record has uncovered no error in the district court's determination.
As for substantive unreasonableness, we are unpersuaded by Kalish's conclusory assertion that his sentence to the bottom of the applicable Guidelines range "is far greater than necessary." There is no evidence that this case falls outside of "the overwhelming majority of cases" where "a Guidelines sentence [is] comfortably within the broad range of sentences that would be reasonable in the particular circumstances." United States v. Fernandez, 443 F.3d 19, 27 (2d Cir. 2006). Therefore, we refuse to disturb the considered judgment of the trial court. See United States v. Cavera, 550 F.3d 180, 190 (2d Cir. 2008) (noting "institutional advantages of district courts" in meting out appropriate sentences).
CONCLUSION
We have considered all of Kalish's additional arguments and find them to be without merit. For the foregoing reasons, the judgment of conviction is AFFIRMED.
Louisiana Citizens Property Corp., 08-251, p. 11 (La.App. 4 Cir. 6/4/08),
985 So.2d 1275, 1283. Accordingly, we conclude that Citizens qualifies as an insurer pursuant to state statute and we further hold that Citizens is not entitled to immunity from the imposition of penalties in this case. The trial court did not err in denying Citizens' motions for summary judgment on these issues.
We therefore turn to the next issue raised by defendant: that the trial court's award of a penalty/money judgment to plaintiffs, without consideration of the individual facts and/or defendant's actions, constituted an unconstitutional taking, and a violation of defendant's due process rights. Citizens has asserted substantive and procedural due process challenges to the constitutionality of La.R.S. 22:658(A)(3) and La.R.S. 22:1220. Defendant contends that insofar as the trial court applied La.R.S. 22:658(A)(3) as a strict liability statute, the application renders the judgments to be an unconstitutional taking in violation of the United States Constitution.
Citizens contends that in the present case, there is no interpretation of La.R.S. 22:658(A)(3) which would have allowed the trial court to impose penalties without some consideration of the circumstances that gave rise to the failure upon which the penalty was based. As such, Citizens contends that the trial court's application of the statute violated defendant's due process rights. Citizens argues that the trial court's ruling is inherently arbitrary and unrelated to actual harm sustained as it was based solely on a spread sheet providing an itemization of two dates, the date the claim was made and the date the insurer issued a report.
In Louisiana, it is well-settled that all statutory enactments are presumed constitutional and every presumption of law and fact must be indulged in favor of legality. Moore v. RLCC Technologies, Inc., 95-2621, p. 7 (La.2/28/96), 668 So.2d 1135, 1140. Because a statute is presumed constitutional, the party challenging the constitutionality of the statute bears the burden of proof, and it is a heavy one. To challenge a legislative act as unconstitutional on its face, the challenger must establish that no circumstances exist under which the act would be valid. City of New Orleans v. La. Assessors' Retirement and Relief Fund, 05-2548, p. 24 (La.10/1/07), 986 So.2d 1, 19. This court reviews judgments declaring a statute unconstitutional de novo. State v. All Property and Cas. Ins. Carriers Authorized and Licensed to do Business in the State, 06-2030, p. 6 (La.8/25/06), 937 So.2d 313, 319.
The claims asserted by plaintiffs/class representatives arise under certain provisions of the Louisiana Insurance Code. The United States Supreme Court has recognized that state regulation of the insurance business has been upheld against a claim that the law violated constitutional due process provisions. California State Auto. Ass'n InterIns. Bureau v. Moloney, 341 U.S. 105, 71 S.Ct. 601, 95 L.Ed.2d 788 (1951). Further, by enactment of the Insurance Code, the Louisiana Legislature has evidenced Louisiana's interest in regulating the insurance industry. According to the clear wording of the statutes, La.R.S. 22:658(A)(3) and La.R.S. 22:1220 are to be read together for a claim of penalties for failure to initiate loss adjustment.
It is a basic rule of statutory interpretation that, if a statute is susceptible of two constructions, one of which will render it constitutional and the other of which will render it unconstitutional, or raise grave and doubtful constitutional questions, the court will adopt the interpretation of the statute which, without doing violence to its language, will maintain its constitutionality. Hondroulis v. Schuhmacher, 553 So.2d 398, 416-417 (La. 1988).
As stated by the Louisiana Attorney General in its amicus brief, a reasonable interpretation of these two statutes is one that requires a separate inquiry into the facts surrounding each claim to determine whether any penalty is warranted, and if so, in what amount. As the language of La.R.S. 22:1220 referenced in La.R.S. 22:658(A)(3) suggests that the imposition of additional fines is discretionary, a reasonable interpretation of the statutes requires the court to evaluate and analyze individual facts and circumstances of each case to determine whether a fine is warranted, not to exceed $5,000.
Accordingly, where La.R.S. 22:658(A)(3) and La.R.S. 22:1220 are interpreted to require a fact-based judicial determination of the appropriate level of penalty based on the circumstances surrounding each individual claim, no violence is done to the language of the statutes and constitutional safeguards are not violated. As this interpretation of the statute is a reasonable one and maintains its constitutionality, we must adopt this interpretation of the statute. Accordingly, Citizens' failed to meet its heavy burden of proving that there are no circumstances under which these statutes would be valid. We therefore conclude that the trial court did not err in dismissing these constitutional challenges.
We turn next to the merits of the summary judgments rendered in this case. A summary judgment is appropriate when there remains no genuine issue as to material fact and the mover is entitled to judgment as a matter of law. La.C.C.P. art. 966. A "genuine issue" is a "triable issue." More precisely, an issue is genuine if reasonable persons could disagree. If on the state of the evidence, reasonable persons could reach only one conclusion, there is no need for a trial on that issue. In determining whether an issue is "genuine," courts cannot consider the merits, make credibility determinations, evaluate testimony or weigh evidence. Facts are material if they potentially insure or preclude recovery, affect a litigant's ultimate success, or determine the outcome of the legal dispute. Any doubt as to a dispute regarding a material issue of fact must be resolved against granting the motion and in favor of a trial on the merits. Smith v. Our Lady of the Lake Hosp., Inc., 93-2512, pp. 26-27 (La.7/5/94), 639 So.2d 730, 750-51. (Citations omitted).
Summary judgments are favored in the law and the rules should be liberally applied. Nutt v. City of Gretna, 00-1864 (La.App. 5 Cir. 5/16/01), 788 So.2d 617; Carr v. Wal-Mart Stores, Inc., 00-896 (La. App. 5 Cir. 10/31/00), 772 So.2d 865; writ denied, 00-3247 (La.1/26/01), 782 So.2d 636. The summary judgment procedure shall be construed to accomplish the ends of just, speedy, and inexpensive determination of allowable actions. La.C.C.P. art. 966; Perricone v. East Jefferson General Hosp., 98-343 (La.App. 5 Cir. 10/14/98), 721 So.2d 48. The mover bears the burden of proof. La.C.C.P. article 966(C)(2). If the supporting documents presented by the mover are not sufficient to resolve all material fact issues, summary judgment must be denied. Geo Consultants Intern, v. Professional Roofing and Const. Inc., 95-1016, pp. 3-4 (La. App. 5 Cir. 3/26/96), 672 So.2d 1002, 1005. Once the mover has made a prima facie showing that the motion shall be granted, the burden shifts to the adverse party to present evidence demonstrating that material factual issues remain. Perricone v. East Jefferson General Hosp., supra.
Summary judgments are reviewed on appeal de novo. An appellate court thus asks the same questions as does the trial court in determining whether summary judgment is appropriate: whether there is any genuine issue of material fact, and whether the mover-appellant is entitled to judgment as a matter of law. Smith v. Our Lady of the Lake Hosp., Inc., supra; Carr v. Wal-Mart Stores, Inc., supra.
The summary judgments rendered in this case were based on the provisions of La.R.S. 22:658(A)(3) which provides:
Acts 2008, No. 415, Sec. 1, effective January 1, 2009, renumbered the entire insurance code without making substantive changes. La.R.S. 22:658 was renumbered as La.R.S. 22:1892.
(3) Except in the case of catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim and of a claim for reasonable medical expenses within fourteen days after notification of loss by the claimant. In the case of catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim within thirty days after notification of loss by the claimant. Failure to comply with the provisions of
this Paragraph shall subject the insurer to the penalties provided in R.S. 22:1220.
La.R.S. 22:658(A)(3) allows for penalties as provided by La.R.S. 22:1220 which provides in part as follows:
This statute has been renumbered as La.R.S. 22:1973.
§ 1220. Good faith duty; claims settlement practices; cause of action; penalties
A. An insurer, including but not limited to a foreign line and surplus line insurer, owes to his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both. Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach.
* * *
C. In addition to any general or special damages to which a claimant is entitled for breach of the imposed duty, the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater.
Both La.R.S. 22:658 and La.R.S. 22:1220 are penal in nature and must be strictly construed. Reed v. State Farm Mut. Auto. Ins. Co., 03-107, p. 13 (La. 10/21/03), 857 So.2d 1012, 1020; Perkins v. Guaranty Nat. Ins. Co., 95-229, p. 9 (La.App. 3 Cir. 11/2/95), 667 So.2d 559, 565, writ denied, 96-759 (La.5/31/96), 673 So.2d 1033. Statutes authorizing the imposition of a penalty are to be strictly construed. Sales 360, L.L.C. v. Louisiana Motor Vehicle Com'n, 07-432, p. 10 (La. App. 5 Cir. 12/11/07), 976 So.2d 188, 193.
In addition, we note that the statutory scheme does not mandate the imposition of a penalty. Rather, subsection La.R.S. 22:1220(0 is discretionary and provides that the claimant "may be awarded penalties. . . ." Holt v. Aetna Cas. Sur. Co., 28, 450, p. 19 (La.App. 2 Cir. 9/3/96), 680 So.2d 117, 130, writ denied, 96-2515 (La.12/6/96), 684 So.2d 937 and writ denied, 96-2523 (La.12/6/96), 684 So.2d 938. See also, Sutton v. Oncale, 99-967, p. 10 (La.App. 5 Cir. 3/29/00), 765 So.2d 1072.
Citizens argues on appeal that the trial court erred in imposing liability for penalties by summary judgment without a factual determination of the insurer's conduct. In response, plaintiffs/class representatives argue that unlike failure to pay cases, there is no requirement of proving that the insurer acted arbitrarily or capriciously in failing to timely initiate loss adjustment. In support of this argument, plaintiffs rely on La.R.S. 22:658(B), which requires a showing of arbitrary and capricious conduct for all sections of La.R.S. 22:658(A), except section (3) relating to initiation of loss adjustment. Accordingly, unlike situations involving the insurer's failure to pay, plaintiffs/class representatives contend that the conduct of the insurer is not an issue for trial as to whether the insurer failed to timely initiate loss adjustment. We disagree.
La.R.S. 22:658 B. (1) Failure to make such payment within thirty days after receipt of such satisfactory written proofs and demand therefor or failure to make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim, as provided in Paragraphs (A)(1) and (4), respectively, or failure to make such payment within thirty days after written agreement or settlement as provided in Paragraph (A)(2), when such failure is found to be arbitrary, capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured, or to any of said employees, or in the event a partial payment or tender has been made, fifty percent of the difference between the amount paid or tendered and the amount found to be due as well as reasonable attorney fees and costs. Such penalties, if awarded, shall not be used by the insurer in computing either past or prospective loss experience for the purpose of setting rates or making rate filings.
While we acknowledge that La.R.S. 22:658(B) omits reference to La.R.S. 22:658(A)(3), we find that this portion of the statute, by its own terms, contains a reference to penalties while the other sections of the statute do not. La.R.S. 22:658(A)(3) specifically states that failure to comply with that paragraph subjects the insurer to penalties provided in La.R.S. 22:1220. La.R.S. 22:1220 is a statute which imposes penalties on an insurer for breach of the good faith duty. Pursuant to La.R.S. 22:1220(A), an insurer has a duty of good faith and fair dealing toward its insured, including the duty to adjust claims fairly and promptly. Willard v. R B Falcon Drilling USA, Inc., 01-2334, p. 7 (La.App. 1 Cir. 12/20/02), 836 So.2d 424, 429.
La.R.S. 22:1220A also imposes a duty of good faith and fair dealing in performance of the insurance contract. See, La.C.C. art. 1983. Breach of this duty by the insurer renders it liable for any damages, foreseeable or not, that are a direct consequence of its failure to perform. La.C.C. art. 1997; La.R.S. 22-.1220A. Williams v. Louisiana Indem. Co., 26, 887, p. 3 (La.App. 2 Cir. 6/21/95), 658 So.2d 739, 742. The burden is on the insured to prove arbitrariness, capriciousness, or lack of probable cause. Talton v. USAA Cas. Ins. Co., 06-1513, p. 16 (La.App. 4 Cir. 3/19/08), 981 So.2d 696, 708, writ denied, 08-837 (La.6/6/08), 983 So.2d 923.
When a law is clear and unambiguous and its application does not lead to absurd consequences, the law shall be applied as written and no further interpretation may be made in search of the intent of the Legislature. La.C.C. art. 9. The words of a law must be given their generally prevailing meaning. La.C.C. art. 11. The word "shall" in its usual signification for purposes of statutory construction denotes a mandatory duty. Ray v. South Cent. Bell Tel. Co., 315 So.2d 759 (La. 1975); Jurisich v. Jenkins, 99-76, p. 6 (La.10/19/99), 749 So.2d 597, 600.
Compare, La.R.S. 23:1201(G) which clearly states that if a final judgment is not paid within 30 days after it comes due, penalties and attorney's fees shall be added. This language is mandatory and does not allow for the court's discretion in determining whether it is due. Funderburk v. Nabors Drilling USA, 07-1408 (La.App. 3 Cir. 4/2/08), 979 So.2d 1293, 1294, writ denied, 06-1252 (La.9/15/06), 936So.2d 1275.
In addition to the above judicial principles which are guides to determine the intent of the Legislature, the Legislature has enacted rules for the construction of statutes in the provisions of the revised statutes. In the interpretation of statutes, the word `may' means `permissive.' La.R.S. 1:3, La.C.C.P. art. 5053. The word denotes discretion, in this instance, on the part of the trier of facts, that is, the court. In re State in Interest of Elliott, 206 So.2d 802, 805 (La.App. 2 Cir. 1968)
A reasonable interpretation of these two statutes indicates that in order to subject an insurer to penalties for failing to initiate loss adjustment in a timely manner, the insurer must be found to have breached the duty of good faith. La.R.S. 22:658(A)(3) allows the imposition of penalties as set forth in La.R.S. 22:1220, which clearly imposes a good faith duty on the insurer in its dealings with the insured. As stated in La.R.S. 22-.1220A, an insurer owes his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly. A reading of these two statutes together indicates that an assessment of whether the insured breached its duty of good faith is required prior to an assessment of penalties. Further, Louisiana law does not specifically distinguish between the terms "arbitrary and capricious" and "bad faith."
The phrase "arbitrary, capricious, or without probable cause" is synonymous with "vexatious." Both describe an insurer whose willful refusal of a claim is not based on a good faith defense. Louisiana Maintenance Services, Inc. v. Certain Underwriters at Lloyd's of London, 616 So.2d 1250, 1253 (La. 1993). Bad faith has been described to mean more than mere bad judgment or negligence; it implies a dishonest purpose or evil intent. Vaughn v. Franklin, 00-0291, p. 8 (La.App. 1 Cir. 3/28/01), 785 So.2d 79, 86, writ denied, 01-1551 (La.10/5/01), 798 So.2d 969. Arbitrary action is a willful and unreasoning action, without consideration for the facts and circumstances presented, or acting with unfounded motivation. Vaughn, 00-0291 at p. 8, 785 So.2d at 86. An insurer's action in handling a claim is arbitrary and capricious when its willful refusal of a claim is not based on a good faith defense or is unreasonable or without probable cause. Calogero v. Safeway Ins. Co. of Louisiana, 99-1625, p. 5 (La.1/19/00), 753 So.2d 170, 173.
Moreover, Louisiana jurisprudence supports a conclusion that the conduct of the insurer in initiating loss adjustment is a material fact in determining whether penalties should be imposed. In Orellana v. Louisiana Citizens Property Ins. Corp., 07-1095, p. 5 (La.App. 4 Cir. 12/5/07), 972 So.2d 1252, 1256, writ denied, 08-41 (La.10/24/08), 25 So.3d 777, the court found no error in the trial court's finding that Louisiana Citizens acted in bad faith for its failure to properly and timely adjust plaintiffs claim.
Further, although plaintiffs/class representatives argue that there are no exceptions to the impositions of penalties authorized by La.R.S. 22:658(A)(3), we find at least one instance where the court's factual determination that penalties were not warranted was upheld by an appellate court. In a case involving a claim for failing to timely initiate loss adjustment, the facts indicate that plaintiff sent his initial report to the wrong person, and the insurance claim adjuster made repeated attempts by telephone to contact the insured once the report was received, but failed to connect within the time period proscribed by La.R.S. 22:658. The trial court found that although the insurer took steps to ascertain the claim in a timely manner, due to a series of circumstances, the insurer was unable to conduct an inspection until several months after the report was first received. After reviewing the meaning of arbitrary and capricious and without probable cause as contemplated by La.R.S. 22:658, the appellate court upheld the trial court's refusal to award penalties based on its factual findings that the insurer did not act in an arbitrary and capricious manner. Block v. St. Paul Fire Marine Co., 32, 306 (La.App. 2 Cir. 9/22/99), 742 So.2d 746.
The court further stated:
If R.S. 22:658 prescribed strict liability, and were to be mechanically applied, this assignment of error [that the insurer
failed to comply with the statutory time limit for initiating a claim investigation] might have some substance. The plain language of the statute, however, requires a determination whether the insurer acted arbitrarily, capriciously, and without probable cause. It is equally clear that this determination is one of fact based on the unique circumstances of each case.
In the present case, we find no manifest error in the district court's finding that St. Paul did not act arbitrarily, capriciously, or without probable cause in either investigating or paying the plumbing claim.
Block v. St. Paul Fire cfe
Marine Co., 32, 306, pp. 9-10,
742 So.2d at 753. [Citations omitted.]
Further, Louisiana jurisprudence has generally held that the determination of whether penalties are imposed is a factual determination subject to the manifest-error standard of review. In McClendon v. Economy Fire Cas. Ins. Co., 98-1537 (La.App. 3 Cir. 4/7/99), 732 So.2d 727, the court found that the trial court, following a trial on the merits, erred in refusing to award penalties where there was no evidence that the insurer took any substantive action within fourteen days after notification of the loss.
In Louisiana Bag Co., Inc. v. Audubon Indem. Co., 08-453, pp. 14-15 (La.12/2/08), 999 So.2d 1104, 1114 a failure to pay case, the Louisiana Supreme Court emphasized the necessity for a factual determination for liability for penalties. The Court stated:
This court has also stated that penalties should be imposed only when the facts "negate probable cause for nonpayment."
Guillory v. Travelers Ins. Co.,
294 So.2d 217 (La. 1974).
See also Crawford v. Al Smith P. H. Serv., Inc., 352 So.2d 669, 673 (La. 1977);
McDill v. Utica Mut. Ins. Co., 475 So.2d 1085, 1092 (La. 1985). An insurer's conduct depends on the facts known to the insurer at the time of its action, and this court has declined to assess penalties "when the insurer has a reasonable basis to defend the claim and acts in good-faith reliance on that defense."
Reed, 857 So.2d at 1021 (citing
Block v. St. Paul Fire Marine Ins. Co., 32, 306 (La.App. 2 Cir. 9/22/99),
742 So.2d 746, 752, 754). Specifically, when there is a "reasonable and legitimate question as to the extent and causation of a claim, bad faith should not be inferred from an insurer's failure to pay within the statutory time limits when such reasonable doubts exist."
Id. (citing
Block, 742 So.2d at 752). In these instances, when there are substantial, reasonable and legitimate questions as to the extent of an insurer's liability or an insured's loss, failure to pay within the statutory time period is not arbitrary, capricious or without probable cause.
Although the cited case does not involve a claim for failure to initiate loss adjustment, we find that the court's reasoning with regard to the necessity of making a factual determination of the insurer's conduct is applicable in the present case. Bad faith should not be inferred from an insurer's failure to pay within the statutory time limits when reasonable doubt exists for such failure. Thus, in the present case, we find that the determination of whether an insurer has breached its duty of good faith and is liable for penalties necessarily requires a factual determination by the trial court.
We also find no support for plaintiffs' argument that the $5,000 penalty imposed by the trial court for each claim was a mandatory minimum. In Adams v. Stratton, 02-224, pp. 4-5 (La.App. 5 Cir. 10/16/02), 831 So.2d 290, 292, writ denied, 02-2792 (La.2/7/03), 836 So.2d 101, this Court stated as follows:
La.R.S. 22:1220(C), as written is clear and unambiguous. There is no mandatory minimum language in the penalty provision. Thus, keeping in mind the strict construction requirement, we find no mandate for a minimum penalty amount. To the contrary, as noted in
Harrington, [Harrington v. Cato Corporation, 32-055 (La.App. 2nd Cir. 6/16/99),
740 So.2d 732] the language in the statute is all permissive. The statute provides that the claimant "may be awarded penalties." It also provides that the amount of the penalties, if awarded, are "not to exceed two times the damages sustained or five thousand dollars, whichever is greater." The statute clearly provides a mandatory maximum, limiting an award to an amount of twice the damages or $5000, whichever is greater. However, we find no mandatory minimum penalty amount in the statute. The amount of the penalty, provided it is not over the statutory maximum, is a matter of the trial court's discretion based on the facts of the case.
Because of the posture of the case on summary judgment, the documentation submitted to the trial court in the exhibits submitted by the movers contain information regarding the date of the claim and the date the insurer issued its report, but many of the documents fail to indicate whether other steps were attempted by the insurer prior to issuance of the report. Nevertheless, the record contains substantial evidence with regard to the unusual circumstances following Hurricanes Katrina and Rita which may have rendered the insurer unable to timely adjust the insurance claims. We find that the documentation submitted by the movers fails to address a material fact at issue as to the insurer's conduct in adjusting the asserted claims. While plaintiffs argue that Citizens failed to meet its burden on summary judgment, our de novo review of the record, including a review of the supporting documentation submitted at trial, convinces us that plaintiffs failed to present a prima facie case sufficient to support judgment as a matter of law as to their entitlement to statutory penalties.
Although the trial court concluded that the advance payments made by Citizens after these catastrophes and the Executive Orders entered by the Governor of Louisiana are not relevant to a determination of Citizens' liability for penalties, we hold that these findings were an important factual consideration with regard to the insurer's liability for penalties. Among the other factual considerations set forth herein, these are factual determinations which are within the province of the trier of fact, and as such, they are inappropriate for resolution by summary judgment.
In sum, we conclude that any assessment of penalties authorized by statute necessarily requires a factual assessment by the trial court of the particular facts of the particular case. Although the award of general or special damages, if requested, is mandatory, the trial court's grant of penalties under La.R.S. 22:1220(0 is discretionary. The insured does not need to prove actual damages as a prerequisite for the discretionary award of penalties. Sultana Corp. v. Jewelers Mut. Ins. Co., 03-360, p. 8 (La.12/3/03), 860 So.2d 1112, 1118-1119. However, the discretionary nature of the assessment of penalties required a factual determination by the trial court, one which was absent on the motions for summary judgment.
In this case, we conclude that the trial court erred in determining that the conduct of the insurer was not a material fact at issue here and further in finding that $5,000 represented the minimum penalty pursuant to the statutory provisions. The blanket assessment of $5,000 to each claimant without regard to the circumstances of the case and without a factual determination of whether penalties were warranted is manifestly erroneous and must be reversed. In light of this conclusion, we will not reach defendant's argument that the documents submitted by plaintiffs in support of the motions for summary judgment were evidentiarily insufficient as this matter must be remanded for further proceedings.
The definition of the class in this case includes insureds of Citizens who provided notification of loss but did not receive adjustment of the claims within 30 days. By rendering the summary judgments in this matter, the trial court imposed an across-the-board penalty in the amount of $5,000 for each claimant without making required factual determinations, including the conduct of the insurer and the amount of penalty owed in each case. Although this court previously affirmed the designation of the definition of the class, we noted in our opinion that the certification may be adjusted at anytime if it became necessary. Oubre v. Louisiana Citizens Fair Plan, supra, 07-66, p. 14, 961 So.2d at 513. To the extent that the current class certification prevents the trial court from making the necessary factual determinations regarding the assessment of penalties against the insurer, we suggest that the class definition be revised to accomplish this requirement.
For the reasons assigned herein, we conclude that the assessment of penalties against the insured in this case required factual determinations which were not appropriate for resolution by summary judgment. We therefore reverse the three summary judgments rendered in favor of plaintiffs/class representatives and against Louisiana Citizens Property Insurance Corporation and remand this matter to the trial court for further proceedings. Each party shall bear its own costs of this appeal.
REVERSED AND REMANDED.