                                                                        F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                      September 7, 2005
                             FOR THE TENTH CIRCUIT
                                                                    PATRICK FISHER
                                                                             Clerk


    ROGER DARIN EAVES,

                Plaintiff-Appellant,

    v.                                                 No. 04-6156
                                                 (D.C. No. 03-CV-863-M)
    FIREMAN’S FUND INSURANCE                           (W.D. Okla.)
    COMPANIES; AMERICAN
    AUTOMOBILE INSURANCE
    COMPANY, A Fireman’s Fund
    Insurance Company, foreign insurers
    authorized to do business in
    Oklahoma;

                Defendants-Appellees,

    and

    NATIONAL SURETY
    CORPORATION, a Foreign
    corporation,

                Defendant.


                             ORDER AND JUDGMENT *


Before BRISCOE, ANDERSON, and MURPHY, Circuit Judges.


*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore

ordered submitted without oral argument.

      In this insurance contract dispute, Roger Darin Eaves alleges breach of his

automobile insurance contract and bad faith on the part of American Automobile

Insurance Company (AAIC), and bad faith on the part of Fireman’s Fund

Insurance Company (FFIC), the company with which he dealt in securing the

insurance contract and making his claim. The district court entered summary

judgment in favor of FFIC on the ground that it had no duty to act in good faith

towards Mr. Eaves, and in favor of AAIC on the grounds that AAIC had a

reasonable dispute regarding coverage and that Mr. Eaves had not presented

sufficient evidence reasonably tending to show bad faith or unreasonable conduct

by AAIC. We exercise our jurisdiction under 28 U.S.C. § 1292 and reverse.

                                 BACKGROUND

      On appeal, we view the facts in the light most favorable to Mr. Eaves.

McKnight v. Kimberly Clark Corp., 149 F.3d 1125, 1128 (10th Cir. 1998).

Mr. Eaves made his living selling, trading and repairing brand name tools from

his van. Mr. Eaves had an insurance policy with AAIC covering the van and its

                                         -2-
contents. Mr. Eaves dealt exclusively with FFIC in securing his policy and

believed that FFIC had issued the same. Mr. Eaves’ van was subsequently stolen

and then burned. Some of the van’s contents were stolen and the rest were burned

with the van. Mr. Eaves filed an insurance claim with FFIC and FFIC assigned a

special investigator to investigate the claim. Although FFIC told Mr. Eaves that it

intended to discuss settlement of the claim, FFIC’s investigator informed the

detective investigating the theft of the van that:

      there were big discrepancies between the stories and alibis
      of [Mr. Eaves] and his wife, that Mr. Eaves had removed a tire from
      the truck prior to the theft and had sorted through tools leaving the
      broken tools in a pile but presumably removing the good tools, and
      that [Mr. Eaves] had failed a polygraph test.

App. at 51. After the investigator urged the detective to encourage the district

attorney’s office to prosecute, Mr. Eaves was charged with arson and two counts

of insurance fraud, a fact that was reported in a local newspaper. Mr. Eaves was

charged despite the fact that the investigating detective stated that his

investigation “simply found no direct evidence that [Mr. Eaves] was involved in

the theft and arson of the truck” and that “based upon [his] personal investigation

and knowledge there was no physical evidence or other leads available to solve

the crime.” Id. at 50-51. According to the assistant district attorney involved

with the case, “it was [the investigator] who instigated and encouraged the filing

of the theft and arson and insurance fraud criminal charges against [Mr. Eaves],”


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and that if it were not for the actions taken by the investigator, no charges would

have been filed against Mr. Eaves. Id. at 67.

      Following the charges being filed, FFIC’s investigator was subpoenaed to

appear at the preliminary hearing in the criminal case and to turn over his file on

the investigation for examination. He failed to either appear or turn over his file,

although the hearing was rescheduled once, evidently at his request. The charges

against Mr. Eaves were therefore dropped since the assistant district attorney was

“relying upon [the investigator] as [her] primary and essential witness to prove

the charges.” App. at 67. AAIC subsequently paid the lienholder on Mr. Eaves’

van $40,908.17, but paid Mr. Eaves nothing. Mr. Eaves filed suit against AAIC

and FFIC seeking damages for breach of contract and bad faith against AAIC, and

for bad faith against FFIC. 1

      The district court subsequently granted AAIC’s and FFIC’s motion for

summary judgment. The district court agreed with FFIC’s argument that it could

not be liable for breaching the implied covenant of good faith because it had no

contractual relationship with Mr. Eaves. The district court also agreed with

AAIC’s argument that it also had no bad faith liability because a legitimate

dispute existed as the sufficiency of Mr. Eaves’ insurance claim and that



1
      Mr. Eaves also sued National Surety Corporation, but that party was later
dismissed from the suit with Mr. Eaves’ consent.

                                         -4-
Mr. Eaves had not presented sufficient evidence reasonably tending to show bad

faith or unreasonable conduct. Although neither party had argued the issue, the

district court also granted summary judgment to AAIC on Mr. Eaves’ breach of

contract claim. Mr. Eaves appealed.

                                     ANALYSIS

      “We review a grant of summary judgment de novo, applying the same

standard as the district court.” McKnight, 149 F.3d at 1128. Under Fed. R. Civ.

P. 56(c), summary judgment should be entered by the district court “if the

pleadings depositions, answers to interrogatories, and admissions on file, together

with the affidavits, if any, show that there is no genuine issue as to any material

fact and that the moving party is entitled to a judgment as a matter of law.” On

appeal,

      [w]e examine the record to determine whether any genuine issue of
      material fact was in dispute; if not, we determine whether the
      substantive law was applied correctly, and in so doing we examine
      the factual record and reasonable inferences therefrom in the light
      most favorable to the party opposing the motion.

McKnight, 149 F.3d at 1128 (brackets and quotations omitted).

      When determining whether summary judgment should be granted as to a

certain issue, a court must consider who will bear the ultimate burden of

persuasion on that issue at trial. If a party moving for summary judgment will

bear the ultimate burden of persuasion on the issue at trial, that party must submit


                                          -5-
enough evidence in support of its motion that it would be entitled to a directed

verdict at trial if the evidence is not controverted. Anderson v. Dep’t of Health &

Human Servs., 907 F.2d 936, 947 (10th Cir. 1990). In other words, it must

present evidence showing that no issue exists regarding the material facts, and

that those facts prove all of the elements of its case and disprove any pleaded

affirmative defenses. If the moving party does not meet this initial burden of

production, summary judgment may not be granted, even if the non-moving party

fails to respond. Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976, 979

(10th Cir. 2002). If the moving party does meet this initial burden of production,

the opposing party must produce evidence demonstrating that a genuine issue does

exist regarding a material fact, Anderson, 907 F.2d at 947, or submit an affidavit

requesting additional time for discovery under Fed. R. Civ. P. 56(f), Culver v.

Town of Torrington, 930 F.2d 1456, 1458-59 (10th Cir. 1991).

      Where the moving party does not have the ultimate burden of persuasion at

trial on an issue, it still has “both the initial burden of production on a motion for

summary judgment and the burden of establishing that summary judgment is

appropriate as a matter of law.” Trainor, 318 F.3d at 979. “The moving party

may carry its initial burden by producing affirmative evidence negating an

essential element of the nonmoving party’s claim, or by showing that the

nonmoving party does not have enough evidence to carry its burden of persuasion


                                          -6-
at trial.” Id. If it chooses to show that the nonmoving party does not have

enough evidence to carry its burden of persuasion at trial, it must make more than

simple conclusory assertions to that effect, otherwise summary judgment “would

be converted into a tool for harassment.” Windon Third Oil & Gas Drilling

P’ship v. FDIC, 805 F.2d 342, 345-46 n.7 (10th Cir. 1986) (quotation omitted).

In other words, the moving party must affirmatively demonstrate that there is no

evidence in the record to support judgment for the non-moving party. Hanson v.

F.D.I.C., 13 F.3d 1247, 1253 (8th Cir. 1994).

      If a moving party fails to carry its initial burden of production, the
      nonmoving party has no obligation to produce anything, even if the
      nonmoving party would have the ultimate burden of persuasion at
      trial. In such a case, the nonmoving party may defeat the motion for
      summary judgment without producing anything.

Trainor, 318 F.3d at 979 (quoting Nissan Fire & Marine Ins. Co. v. Fritz Cos.,

210 F.3d 1099, 1102-03 (9th Cir. 2000)). If a moving party that would not have

the burden of persuasion at trial files a properly supported motion for summary

judgment and shows that the nonmoving party does not have enough evidence to

carry its burden of persuasion at trial, and the nonmoving party fails to go beyond

the pleadings and designate specific facts showing that there is a genuine issue

for trial, then entry of summary judgment is mandated. Celotex Corp. v. Catret,

477 U.S. 317, 322 (1986). The non-moving party may designate specific facts




                                         -7-
showing a genuine issue for trial through affidavits, depositions, answers to

interrogatories, or admissions on file. Id. at 324.

I. Breach of Contract Claim against AAIC.

      Mr. Eaves’ complaint alleged a breach of contract and sought damages for

the claimed value of the van and its contents minus the amount paid to the

lienholder. AAIC failed to make payment to Mr. Eaves, evidently on the ground

that he had burned his own van. “The plea of nonliability [under an insurance

policy covering fire damage], because same resulted from fire of incendiary

origin, [is] an affirmative defense. The party asserting an affirmative defense

bears the burden of producing evidence in support thereof, and must prove every

essential fact by a fair preponderance of evidence.” Pac. Ins. Co. of New York v.

Frank, 452 P.2d 794, 796 (Okla. 1969). Consequently, AAIC would have the

burden at trial of proving Mr. Eaves’ alleged responsibility.

      Defendants’ motion for summary judgment sought summary judgment on

the issue of breach of contract and the tort of bad faith. Defendants’ brief in

support of its motion, however, neither addressed the breach of contract claim nor

presented any evidence regarding Mr. Eaves’ alleged culpability. Mr. Eaves’

response to defendants’ motion also did not address the breach of contract claim.

The district court, nevertheless, granted summary judgment to AAIC on the

breach of contract claim. This was error. While the record is clear that


                                          -8-
Mr. Eaves’ truck was burned and that some of the tools that were in the truck

were missing and the remainder burned, no evidence was presented as to Mr.

Eaves’ culpability in the incident. While Mr. Eaves’ response did present

affidavits of a detective and an assistant district attorney who were involved in

the case that discussed the actions of FFIC’s investigator, no affidavit was

presented from the investigator, nor was any evidence presented from the alleged

investigation. Since the investigator’s statements to the authorities would clearly

be hearsay as to Mr. Eaves’ alleged culpability, and the investigating detective

averred that the official investigation revealed no evidence that Mr. Eaves

committed arson, granting summary judgment to AAIC on the breach of contract

claim was improper.

II. Bad Faith Claim Against FFIC.

       Mr. Eaves would have had the ultimate burden of persuasion at trial on the

issue of whether FFIC acted in bad faith. Buzzard v. Farmers Ins. Co., Inc., 824

P.2d 1105, 1109 (Okla. 1991). The parties agree that contracts in Oklahoma

contain an implied duty of good faith. The parties also agree that Mr. Eaves’

insurance contract was with AAIC and not FFIC and that generally a bad faith

action may not be brought against a party that has no contractual relationship with

the plaintiff.




                                         -9-
       On summary judgment, FFIC undertook to satisfy its initial burden of

production by producing affirmative evidence negating an essential element of

Mr. Eaves’ claim: to-wit, it sought to show that it did not have a contractual

relationship with Mr. Eaves and that, therefore, under the general rule stated

above, it had no duty of good faith toward Mr. Eaves. As support for this claim,

FFIC submitted the affidavit of its assistant secretary stating that FFIC “had no

contractual relationship with [Mr. Eaves]” and that FFIC “provides claims

handling and adjusting services for [AAIC].” App. at 26.

      The fatal flaw in FFIC’s motion lies in the fact that “[t]he essence of the

tort of bad faith, as it is recognized in Oklahoma, is the unreasonableness of the

insurer’s actions,” Conti v. Republic Underwriters Ins. Co., 782 P.2d 1357, 1360

(Okla. 1989), and, as recognized by the district court, there are some situations

where a duty of good faith exists despite the absence of an express contractual

relationship. Wathor v. Mut. Assurance Adm’rs, Inc., 87 P.3d 559, 562-63 (Okla.

2004). 2 Consequently, FFIC could have had no express contractual relationship


2
            The district court expressly examined the Oklahoma Supreme Court
holding in Wathor that:

      the imposition of a nondelegable duty on the insurer does not
      necessarily preclude an action by an insured against a plan
      administrator for breach of an insurer’s duty of good faith. . . .

      ....
                                                                           (continued...)

                                        -10-
with Mr. Eaves and still have been liable for bad faith. As a result, FFIC did not

meet its initial burden of production with regard to its attempt to negate an

essential element of Mr. Eaves’ bad faith claim since a contractual relationship is

not an essential element of the claim.

         Further, FFIC made no attempt to take the other avenue open to it: to

affirmatively demonstrate that no evidence in the record supported judgment for

Mr. Eaves. FFIC did not make even a conclusory allegation that Mr. Eaves could

not prove bad faith. Windon Third Oil & Gas Drilling Partnership, 805 F.2d at

345-46 n.7. Therefore, entry of summary judgment was error. It would have been


2
    (...continued)

         In a situation where a plan administrator performs many of the tasks
         of an insurance company, has a compensation package that is
         contingent on the approval or denial of claims, and bears some of the
         financial risk of loss for the claims, the administrator has a duty of
         good faith and fair dealing to the insured.

Wathor, 87 P.3d at 562-63. The Oklahoma Supreme Court modeled its holding in
Wathor on the Tenth Circuit decision in Wolf v. Prudential Ins. Co. of America,
50 F.3d 793 (10th Cir. 1995), which “emphasized that the analysis should focus
on the factual question of whether the plan administrator acted sufficiently like an
insurer such that there was a ‘special relationship’ between the plan administrator
and the insured that would give rise to the duty of good faith.” Wathor, 87 P.3d
at 562 (quoting Wolf, 50 F.3d at 797).

      The district court also examined the Oklahoma Supreme Court’s holding in
Oliver v. Farmers Ins. Group of Cos., 941 P.2d 985 (Okla. 1997), that “[i]f one
corporation is simply the instrumentality of another corporation, the separation
between the two may be disregarded and treated as one for the purpose of tort
law.” Id. at 987.

                                          -11-
error even if Mr. Eaves had not responded regarding this issue, since FFIC would

not have shown that no genuine issue existed as to any material fact and that it

was entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c).

III. Bad Faith Claim Against AAIC.

      The district court also erred in granting summary judgment in regard to

Mr. Eaves’ bad faith claim against AAIC. Like FFIC in connection with the

previous issue, AAIC sought to negate an essential element of Mr. Eaves’ bad

faith claim against it. AAIC asserted that a claim for bad faith would not lie

where an insurer could show that it had a justifiable reason for withholding

payment under the policy and that “[t]he evidence presented to the District

Attorney’s office which was sufficient to warrant the filing of arson charges

certainly provided the defendant AAIC with a justifiable reason basis for denying

the claim.” App. at 21-22. AAIC’s attempt to negate an essential element of

Mr. Eaves’ claim was insufficient for two reasons.

      First, AAIC presented no evidence supporting its claim. While the record

shows that the district attorney’s office filed charges against Mr. Eaves for

insurance fraud and arson, the charges were a direct result of representations

made by FFIC’s investigator and would not have been made without those

representations. AAIC was not relying on the findings of the district attorney’s

office in disputing Mr. Eaves’ claim; it was relying on evidence produced by its


                                        -12-
own investigation. This evidence was not presented in AAIC’s motion for

summary judgment.

      Second, even if evidence of a legitimate dispute had been presented, such a

dispute, as stated by the district court, “will not ‘act as an impenetrable shield

against a valid claim of bad faith’ where the insured presents ‘sufficient evidence

reasonably tending to show bad faith or unreasonable conduct.’” App. at 80

(quoting Vining v. Enter. Fin. Group, Inc., 148 F.3d 1206, 1214 (10th Cir. 1998)

(“[A] plaintiff may bring a bad faith cause of action even though a legitimate

defense to a breach of contract claim exists if the defendant did not actually rely

on that defense to deny payment under the policy.”) (further quotations omitted)).

Therefore, proof of a legitimate dispute does not negate an essential element of

Mr. Eaves’ bad faith claim against AAIC, since Mr. Eaves could prove bad faith

even if a legitimate dispute existed.

      Consequently, AAIC did not meet its initial burden of production with

regard to its attempt to negate an essential element of Mr. Eaves’ bad faith claim.

AAIC made no attempt to affirmatively demonstrate that there was no evidence in

the record to support Mr. Eaves’ bad faith claim. It did not even make a

conclusory allegation to that effect. Therefore, as with the claim against FFIC,

even if Mr. Eaves had not responded regarding this issue, summary judgment

would have been improper because AAIC did not show “that there [existed] no


                                          -13-
genuine issues as to any material fact and that [it was] entitled to a judgment as a

matter of law.” Fed. R. Civ. P. 56(c).

                                   CONCLUSION

      Since the district court’s rulings improperly shifted the burden to Mr. Eaves

to show a genuine issue of material fact when FFIC and AAIC had failed to meet

their initial burden of production, and since AAIC presented no evidence

supporting its motion for summary judgment on the breach of contract claim, we

hold that the district court erred in granting summary judgment on behalf of AAIC

and FFIC. We therefore REVERSE the judgment of the district court and

REMAND for further proceedings consistent with this order and judgment.


                                                     Entered for the Court



                                                     Michael R. Murphy
                                                     Circuit Judge




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