                               NOT FOR PUBLICATION

                       UNITED STATES COURT OF APPEALS                                 FILED
                                FOR THE NINTH CIRCUIT                                  DEC 06 2010

                                                                                  MOLLY C. DWYER, CLERK
 MARK H. GOLDBERG, SHERRY R.                             No. 08-17316               U .S. C O U R T OF APPE ALS

 GOLDBERG, AND THE MH & SR
 GOLDBERG FAMILY TRUST BY                                D.C. No. CV-05-2670-JAT
 MARK H. GOLDBERG AND SHERRY
 R. GOLDBERG, as Trustees,
                                                         MEMORANDUM *
                Plaintiffs-Appellants,

 v.

 PACIFIC INDEMNITY COMPANY
 AND FEDERAL INSURANCE
 COMPANY,

                Defendants-Appellees.


                       Appeal from the United States District Court
                                for the District of Arizona
                       James A. Teilborg, District Judge, Presiding

                           Argued Submitted November 1, 2010
                                San Francisco, California

 Before: ALARCÓN and RYMER, Circuit Judges, and TRAGER, District Judge**




       *
              This disposition is not appropriate for publication and is not precedent except as
provided by Ninth Circuit Rule 36-3.
       **
               The Honorable David G. Trager, Senior United States District Judge for the
Eastern District of New York, sitting by designation.
       Plaintiffs appeal several issues decided by the district court, namely: (1) the

district court's grant of defendants' motion for summary judgment on plaintiffs' bad

faith claim; (2) the content of certain jury instructions given by the district court on

plaintiffs' breach of contract claim and the sufficiency of the evidence supporting

those instructions; and (3) the district court's grant of attorneys' fees to defendants.

Given the parties' familiarity with the facts, we do not fully recount them here

except as necessary to explain our decision. This court has jurisdiction under 28

U.S.C. § 1291. For the following reasons, we affirm.1



I.     The District Court Did Not Err by Granting Defendants' Motion for
       Summary Judgment on Plaintiffs' Bad Faith Claim

       Plaintiffs argue that the district court improperly granted defendants' motion

for summary judgment on plaintiffs' bad faith claim. Plaintiffs allege that there

was sufficient evidence in the record for a reasonable juror to find that defendants

acted in bad faith by: (1) refusing to raze and rebuild plaintiffs' house, which

plaintiffs argue was not a fairly debatable assessment of plaintiffs' insurance claim;

and (2) investigating plaintiffs' claim in bad faith. This court reviews the district



       1
         Defendants cross-appealed the district court's May 13, 2009 Order denying defendants'
request for expert witness fees and double costs pursuant to Arizona Rule of Civil Procedure 68.
(No. 09-16243.) We affirm the district court's decision in an opinion filed concurrently with this
memorandum disposition.

                                                2
court's grant of summary judgment de novo. Bias v. Moynihan, 508 F.3d 1212,

1218 (9th Cir. 2007).

      Under Arizona law, the tort of bad faith arises "when the insurer

intentionally denies, fails to process or pay a claim without a reasonable basis."

Zilisch v. State Farm Mut. Auto. Ins. Co., 995 P.2d 276, 279 (Ariz. 2000) (internal

quotations omitted). An insurer's assessment of a claim does not constitute bad

faith if it is "fairly debatable." Lasma Corp. v. Monarch Ins. Co. of Ohio, 764

P.2d 1118, 1122-23 (Ariz. 1988).

      However, even if an insurer's assessment of a claim was fairly debatable, the

insurer may still be liable if it unreasonably failed to conduct an adequate

investigation of the insured's claim or acted unreasonably in evaluating the claim.

Zilisch, 995 P.2d at 280. Arizona applies a two-prong test to determine whether an

insurer acted in bad faith in investigating, evaluating and processing a claim.

There must be "sufficient evidence from which reasonable jurors could conclude

that in the investigation, evaluation, and processing of the claim, [1] the insurer

acted unreasonably and [2] either knew or was conscious of the fact that its

conduct was unreasonable." Id. at 280. Thus, an insured must satisfy both an

objective and a subjective prong to prove bad faith. Trus Joist Corp. v. Safeco Ins.

Co., 735 P.2d 125, 134 (Ariz. App. 1986).



                                           3
      It is unnecessary to address the merits of plaintiffs' first argument – that

defendants' failure to raze and rebuild plaintiffs' home was not fairly debatable –

because plaintiffs waived that argument by failing to raise it in their Opposition to

Summary Judgment before the district court. As a general rule, this court does not

consider arguments that are raised for the first time on appeal. See Smith v. Marsh,

194 F.3d 1045, 1052 (9th Cir. 1999).

      Plaintiffs' second argument – that there is sufficient evidence in the record

for a reasonable juror to find that defendants investigated plaintiffs' claim in bad

faith – fails because no reasonable juror could find that defendants acted in an

objectively unreasonable manner. No reasonable juror could find that plaintiffs

acted unreasonably by failing to use urine sniffing dogs or gas chromatography

when plaintiffs' own expert doubted the reliability of those tests. Likewise, no

reasonable juror could find that the objective testing procedures plaintiffs used

were inadequate because plaintiffs do not point to any evidence that other objective

testing protocols were available, and plaintiffs never proposed alternative testing

protocols despite invitations from defendants to do so. This court has reviewed the

record with regard to plaintiffs' other allegations of bad faith conduct and finds that

no reasonable juror could find that any of the conduct that plaintiffs point to in

their briefs or discuss in their "Comprehensive Statement of Facts" was objectively



                                           4
unreasonable.



II.   None of the Jury Instructions on Plaintiffs' Breach of Contract Claim
      Constitute Reversible Error

      Plaintiffs argue that the district court erred in its pretrial rulings and related

jury instructions by: (1) requiring plaintiffs to prove a physical loss; and

(2) denying plaintiffs' Rule 50 motion for judgment as a matter of law regarding

certain policy conditions and exclusions. This court reviews claims of error in jury

instructions for abuse of discretion. Snake River Valley Elec. Ass'n v. PacifiCorp,

357 F.3d 1042, 1052 n.11 (9th Cir. 2004). Legal error in the instruction is a per se

abuse of discretion, subject to a harmless error analysis. Id. This court reviews a

district court's denial of a motion for judgment as a matter of law de novo,

considering whether any reasonable jury could find in favor of the non-moving

party. Lakeside-Scott v. Multnomah Cty., 556 F.3d 797, 802 (9th Cir. 2009).

      Plaintiffs' first argument – that the district court erred by allowing the jury to

determine whether the presence of odors in a home constitutes physical loss – has

no merit. As an initial matter, the instruction at issue dealt with smells from

excluded conditions (mold, animals or groundwater), not urine, as plaintiffs argue.

Even if it had dealt with physical loss from the urine odor, it would still have been

proper because it is an accurate statement of the law. Finally, even if plaintiffs'


                                            5
argument had merit, they waived any objection to the form of the instruction by

suggesting a substantially similar instruction at trial.

      Plaintiffs' second argument – that the district court improperly denied their

Rule 50 motion regarding policy provisions and exclusions – also fails. Even if the

district court improperly denied plaintiffs' Rule 50 motion with regard to one or

more policy provisions or affirmative defenses, any error was harmless.

      When the jury issues a general verdict that does not specifically state the

grounds on which the jury reached its verdict, and some but not all of the theories

submitted to the jury lack evidentiary support, "the reviewing court has discretion

to construe a general verdict as attributable to another theory if it was supported by

substantial evidence and was submitted to the jury free from error." Traver v.

Meshriy, 627 F.2d 934, 938 (9th Cir. 1980).

      Here, the jury's verdict may be upheld because there was substantial

evidence to support the jury's general verdict for defendants on the breach of

contract claim under the theory that the contract did not require defendants to raze

and rebuild plaintiffs' house because many of the odors in the home were caused

by non-urine sources, which, although covered by the insurance policy, likely

could be remediated, and that any remaining urine contamination could also be

remediated. As such, any error that may have existed in denying plaintiffs'



                                            6
Rule 50 motion regarding certain policy conditions and exclusions raised by

defendants was harmless.



III.   The District Court Did Not Abuse Its Discretion by Granting
       Defendants Attorneys' Fees

       Plaintiffs argue that the district court erred by awarding $2,966,106.37 in

attorneys' fees to defendants. In awarding fees, the district court applied Arizona

law, which vests discretion in trial courts to award reasonable attorneys' fees to a

successful contract litigant. A.R.S. 12-341.01; Assoc. Indem. Corp. v. Warner,

694 P.2d 1181, 1183 (Ariz. 1985). This court reviews an award of attorneys' fees

under state law for abuse of discretion. Vess v. Ciba-Geigy Corp., 317 F.3d 1097,

1102 (9th Cir. 2003).

       Under Arizona law, trial courts are to consider six factors in deciding

whether attorneys' fees should be granted. Those factors are: (1) whether the

unsuccessful party's claims or defenses were meritorious; (2) whether the litigation

could have been avoided or settled and the successful party's efforts were

completely superfluous in achieving that result; (3) whether assessing fees against

the unsuccessful party would cause an extreme hardship; (4) whether the

successful party prevailed with respect to all the relief sought; (5) whether the legal

question was novel and whether such claim or defense has previously been

                                           7
adjudicated in this jurisdiction; and (6) whether the award would discourage other

parties with tenable claims or defenses from litigating or defending legitimate

contract issues for fear of incurring liability for substantial amounts of attorneys'

fees. Newbery Corp. v. Fireman's Fund Ins. Co., 95 F.3d 1392, 1405-06 (9th Cir.

1996) (citing Assoc. Indem., 694 P.2d at 1184). "[T]he weight given to any one

factor is within the court's discretion." Moedt v. Gen. Motors Corp., 60 P.3d 240,

245 (Ariz. App. 2000).

      Plaintiffs, focusing on the sixth factor, argue that the award of attorneys' fees

would discourage future insureds from challenging claims decisions made by their

insurers. However, plaintiffs fail to show how the district court, which found that

this factor marginally favored defendants, abused its discretion. The district court

recognized that "any award of this magnitude could possibly chill future plaintiffs

from bringing meritorious claims," but found that "the particular circumstances of

this case" made it unlikely that an award of attorneys' fees would have a chilling

effect. Goldberg v. Pac. Indem. Co., No. CV 05-2670-PHX-JAT, 2009 WL

1327528, at *5 (D. Ariz. May 13, 2009). Because the district court considered the

specific circumstances of this case in deciding that the chilling effect factor

weighed marginally in favor of defendants, and because it found that all but one of

the six factors weighed in favor of defendants, the district court did not abuse its



                                           8
discretion by awarding defendants attorneys' fees pursuant to Arizona law.

      For the foregoing reasons, the district court's grant of summary judgment to

defendants on plaintiffs' bad faith claim, pretrial rulings on plaintiffs' breach of

contract claim and grant of attorneys' fees to defendants are affirmed.

      AFFIRMED.




                                            9
