                            NOT FOR PUBLICATION

                     UNITED STATES COURT OF APPEALS                        FILED
                            FOR THE NINTH CIRCUIT                           MAR 29 2011

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

CYNTHIA ALLOCCO,                                 No. 09-16021

              Plaintiff - Appellant,             D.C. No. 2:01-cv-02220-JAT

  and
                                                 MEMORANDUM *
RALPH ALLOCCO,

              Plaintiff,

  v.

METROPOLITAN LIFE INSURANCE
COMPANY, a foreign corporation,

              Defendant - Appellee.



CYNTHIA ALLOCCO, wife,                           No. 09-17609

              Plaintiff - Appellant,             D.C. No. 2:01-cv-02220-JAT

  v.

METROPOLITAN LIFE INSURANCE
COMPANY, a foreign corporation,

              Defendant - Appellee.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                    Appeal from the United States District Court
                             for the District of Arizona
                    James A. Teilborg, District Judge, Presiding

                       Argued and Submitted March 18, 2011
                             San Francisco, California

Before: HUG, REAVLEY**, and W. FLETCHER, Circuit Judges.

      This case involves two consolidated appeals by plaintiff-appellant Cynthia

Allocco stemming from her diversity suit against defendant-appellee Metropolitan

Life Insurance Company (“Met Life”). First, Allocco appeals the district court’s

decision granting summary judgment to Met Life on her bad faith tort claim.

Second, she appeals the district court’s order granting Met Life $30,928.40 in

attorneys’ fees under A RIZ. R EV. S TAT. § 12-341.01. Because the parties are

familiar with the factual and procedural history of this case, we do not recount

additional facts except as necessary to explain the decision.

      We review the district court’s grant of summary judgment de novo.

Broussard v. Univ. of Cal., 192 F.3d 1252, 1255 (9th Cir. 1999). We review the

award of attorneys’ fees for abuse of discretion. Velarde v. PACE Membership



       **
               The Honorable Thomas M. Reavley, Senior Circuit Judge for the Fifth
Circuit, sitting by designation.

                                          2
Warehouse, Inc., 105 F.3d 1313, 1318 (9th Cir. 1997). Jurisdiction is proper

pursuant to 28 U.S.C. § 1291 and we affirm the district court’s grant of summary

judgment on the bad faith claim and reverse the award of attorneys’ fees.

         1. The bad faith tort claim

         We affirm the district court’s grant of summary judgment to Met Life on

Allocco’s bad faith claim. Under Arizona law, the tort of bad faith requires both a

contract and a “special relationship” between the parties. Burkons v. Ticor Title

Ins. Co., 813 P.2d 710, 720 (Ariz. 1991). However, contractual privity is not

required if the defendant is a third-party administrator of an insurance contract.

See Sparks v. Republic Nat’l Life Ins. Co., 647 P.2d 1127, 1137-38 (Ariz. 1982);

Farr v. Transamerica Occidental Life Ins. Co., 699 P.2d 376, 386 (Ariz. Ct. App.

1984).

         Here, there is no contractual relationship between Allocco and Met Life

because Met Life is the third-party administrator of her employer’s salary

continuation plan. Moreover, we cannot accept Allocco’s argument that

contractual privity is unnecessary because the record does not support her assertion

that the salary continuation plan is an insurance contract. See Guaranteed

Warranty Corp. v. State ex. rel Humphrey, 533 P.2d 87, 90 (Ariz. Ct. App. 1975)

(establishing a five-factor test for analyzing whether a contract is insurance).


                                           3
      2. Attorneys’ fees

      We reverse the district court’s award of attorneys’ fees to Met Life. The

court made several errors in its analysis of the factors trial courts should consider

in deciding whether to award fees under A RIZ. R EV. S TAT. § 12-341.01. See Assoc.

Indemnity Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985).

      The district court drew unreasonably negative conclusions about merits of

Allocco’s claim in its discussion of the first Associated Indemnity factor. The fact

that Allocco prevailed in the first trial and the fact that her employer eventually

paid her the disputed benefits weigh against granting attorneys’ fees.

      In its discussion of the third factor, the court elected to give “very little

weight” to Allocco’s financial circumstances because “[p]laintiffs without

significant resources must not be free to pursue frivolous contract litigation.” This

rationale, however, is inapplicable to Allocco because her suit was not frivolous.

      Additionally, in considering the fourth factor, the district court concluded

that Met Life had prevailed on all issues, relying in part on American Express’s

decision to pay Allocco salary continuation benefits. This reasoning improperly

penalizes Allocco for her success in obtaining the disputed benefits.

      Finally, the district court’s conclusion that the novelty of Allocco’s claim

weighed in favor of granting fees is contrary to Arizona precedent. See Rowland v.


                                            4
Great States Ins. Co., 20 P.3d 1158, 1168 (Ariz. Ct. App. 2001); Scottsdale Mem’l

Health Sys., Inc. v. Clark, 791 P.2d 1094, 1099 (Ariz. Ct. App. 1990). A court “by

definition abuses its discretion when it makes an error of law.” Koon v. United

States, 518 U.S. 81, 100 (1996).

      Judgment Affirmed but Modified by Vacating the Attorneys’ Fees

      Award.




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