                              NOT FOR PUBLICATION

                      UNITED STATES COURT OF APPEALS                       FILED
                              FOR THE NINTH CIRCUIT                         AUG 18 2011

                                                                        MOLLY C. DWYER, CLERK
                                                                         U .S. C O U R T OF APPE ALS

METROPOLITAN BUSINESS                             No. 09-57002
MANAGEMENT, INC., a California
corporation; JOHN KHAKI, an individual,           D.C. No. 2:05-cv-08306-CAS-CW

                Plaintiffs - Appellants,
                                                  MEMORANDUM *
  v.

ALLSTATE INSURANCE COMPANY,
an Illinois corporation,

                Defendant - Appellee.



METROPOLITAN BUSINESS                             No. 09-57008
MANAGEMENT, INC., a California
corporation; JOHN KHAKI, an individual,           D.C. No. 2:05-cv-08306-CAS-CW

                Plaintiffs - Appellants - Cross
- Appellees,

  v.

ALLSTATE INSURANCE COMPANY,
an Illinois corporation,

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

       **    The Honorable Matthew F. Kennelly, District Judge for the U.S.
District Court for Northern Illinois, Chicago, sitting by designation.
             Defendant - Appellee - Cross -
Appellant.



                   Appeal from the United States District Court
                       for the Central District of California
                   Christina A. Snyder, District Judge, Presiding

                       Argued and Submitted August 3, 2011
                               Pasadena, California

Before: REINHARDT and BERZON, Circuit Judges, and KENNELLY, District
Judge.**

      Plaintiffs-Appellants-Cross-Appellees Metropolitan Business Management,

Inc. (“MBM”) and John Khaki have appealed the district court’s orders denying

their request for attorney’s fees pursuant to Brandt v. Superior Court, 37 Cal. 3d

813 (1985), and reducing their award of punitive damages. Defendant-Appellee-

Cross-Appellant Allstate Insurance Company seeks reversal and entry of judgment

in its favor. The district court’s orders followed a jury verdict in favor of MBM

and Khaki on their breach of contract and bad faith claims. The district court

treated the jury’s verdict as advisory on MBM and Khaki’s declaratory judgment

claim, which the court resolved in favor of MBM and Khaki. See Fed. R. Civ. P.

39(c). We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

      The district court did not err in denying Allstate’s motions for judgment as a

matter of law. We review the district court’s denial of these motions de novo,

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viewing the evidence in the light most favorable to MBM and Khaki and drawing

all reasonable inferences in their favor, and may overturn the rulings only if there

was no legally sufficient basis for a reasonable jury to find in favor of MBM and

Khaki. See Bell v. Clackamas Cnty., 341 F.3d 858, 865 (9th Cir. 2003). The

evidence introduced at trial was sufficient for a reasonable fact finder to conclude

that in 1995, Allstate added MBM by name to Dominic Annino’s policy as an

insured. It is undisputed that Allstate failed to notify MBM when it reduced

coverage by changing the policy from Form AU9700 to Form AP529 in 1997.

Because insurance companies are “‘bound by a greater coverage in an earlier

policy when a renewal policy is issued but the insured is not notified of the specific

reduction in coverage,’” Allstate is bound by the broader coverage grant in Form

AU9700. Allstate Ins. Co. v. Fibus, 855 F.2d 660, 663 (9th Cir. 1988) (quoting

Fields v. Blue Shield of Cal., 163 Cal. App. 3d 570, 579 (1985)); cf. Kotlar v.

Hartford Fire Ins. Co., 83 Cal. App. 4th 1116, 1121 n.3 (2000) (holding that “the

named insured” entitled to notice of cancellation under Cal. Ins. Code § 677.2(b)

includes “‘[a]dditional named insureds’ . . . who are added as insureds after the

policy issues”).

      Allstate had a duty to defend MBM and Khaki because the claims in the

underlying complaint were potentially covered by Form AU9700. See Horace


                                          3
Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (1993). The jury’s finding that

Allstate’s refusal to defend MBM and Khaki was unreasonable, and therefore

constituted bad faith, was supported by sufficient evidence. See Wilson v. 21st

Century Ins. Co., 42 Cal. 4th 713, 723 (2007); First Nat’l Mortg. Co. v. Fed. Realty

Inv. Tr., 631 F.3d 1058, 1067-68 (9th Cir. 2011).

      The district court likewise did not err in denying Allstate’s motion for a new

trial based on the jury’s award of emotional distress damages to Khaki. Khaki had

standing as an “insured person” within the meaning of Form AU9700. See Seretti

v. Superior Nat’l Ins. Co., 71 Cal. App. 4th 920, 929 (1999). Moreover, the

amount of the award was not against the clear weight of the evidence or grossly

excessive when compared with similar cases. See McCollough v. Johnson,

Rodenburg & Lauinger, LLC, 637 F.3d 939, 957 (9th Cir. 2011).

      In awarding MBM and Khaki punitive damages, the district court did not

clearly err in finding that Allstate’s conduct constituted “‘oppression, fraud, or

malice’” and that one of Allstate’s managing agents ratified that conduct. Cal. v.

Altus Finance S.A., 540 F.3d 992, 1000 (9th Cir. 2008) (quoting Cal. Civ. Code §

3294(a)); see also Cal. Civ. Code § 3294(b). We review the constitutionality of the

$2,000,000 punitive damages award de novo. Altus Finance S.A., 540 F.3d at

1000. Considering it in comparison to the jury’s $612,846.57 award of


                                           4
compensatory tort damages, see Major v. W. Home Ins. Co., 169 Cal. App. 4th

1197, 1224 (2009), we conclude that the punitive damages award is not excessive

in light of the standard articulated in State Farm Mutual Automobile Insurance Co.

v. Campbell, 538 U.S. 408 (2003), and our cases applying that standard. See, e.g.,

S. Union Co. v. Irvin, 563 F.3d 788, 791-92 (9th Cir. 2009). Nor did the district

court clearly err in determining, on reconsideration, that the evidence of recidivism

was weak, warranting a reduction in the amount of the award. See Mendez v. Cnty.

of San Bernardino, 540 F.3d 1109, 1120-21 (9th Cir. 2008).

       Finally, the district court did not err in denying MBM and Khaki’s request

for Brandt fees. Because such fees are recoverable as damages in a bad faith

action, they may be awarded only “by the trier of fact unless the parties stipulate

otherwise.” Brandt, 37 Cal. 3d at 819. The parties did not enter into a stipulation

that the issue would be decided by the district court. Allstate clearly stated its

objection to determination of Brandt fees by the court, and its response to a note

the jury sent after it had started deliberations did not amount to a stipulation that

the court could decide this issue as the finder of fact after no evidence on the issue

had been presented to the jury. Finally, because the jury was the trier of fact on the

bad faith claim, MBM and Khaki’s separate declaratory judgment claim did not

enable the district court to award them Brandt fees.


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AFFIRMED.




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