Portugal v. Western World Insurance Company

Filing 22

MEMORANDUM AND ORDER signed by Judge Morrison C. England, Jr on 8/21/12 ORDERING that as a matter of law, and for the reasons set forth above, this case is STAYED, pending final judgment in Portugal v. Western World Insurance Company, et al., Case No : 34-2009-0034576-CU-BT-GDS, currently on appeal in California state court. Western's Motion for Summary Judgment 8 is therefore MOOT, as are any other motions currently before the Court. The Clerk of the Court is directed to close this case pending any future motion to reopen. The Parties are directed to file a joint notice every 90 days as to the status of the state case and, upon exhaustion of the related state court appeals, one or both parties may file a motion to reopen this case. (Becknal, R)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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SILVIA PORTUGAL,
No. 2:10-cv-02498-MCE-JFM

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Plaintiff,

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MEMORANDUM AND ORDER

v.
WESTERN WORLD INS.,

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Defendant.

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Before the Court is Defendant’s Motion for Summary Judgment

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and Summary Adjudication (ECF No. 8).

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follow, this action will be stayed pending the exhaustion of the

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appeals in the related state court action.

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For the reasons that

BACKGROUND1

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Plaintiff Silvia Portugal (“Portugal”) is a former employee

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of CareQuest, Inc., which did business as “Real Care.”

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(Plaintiff’s Response to Defendant Western World Insurance

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Company’s (“Western”) Statement of Undisputed Facts in Support of

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Motion for Summary Judgment (“P-SUF”), ECF No. 16, Attachment 1,

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¶ 1.)2

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medical services for elderly and infirm clients.

Prior to its insolvency, Real Care provided in-house
(Id.)

Real

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World was insured by Western, which issued six successive one-

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year comprehensive general liability (“CGL”) insurance policies

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to Real Care from October 15, 2001 through October 15, 2007.

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(Id. ¶ 10.)

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underlying state court action, currently on appeal, is whether

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Western’s CGL policy covered the claims raised by Portugal,

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thereby obligating Western to defend Real Care.3

At issue in both the present action and the

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The facts noted in this section are the Court’s
determination of what are undisputed material facts based on its
review of both Portugal’s and Defendant’s Statements of Facts and
the Records cited therein. For the purposes of this motion, all
reasonable inferences are drawn in favor of Portugal.
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Pagination is based on the Court’s ECF pagination, not the
pagination of the original documents.

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The following provisions of Western’s CGL Policies
covering Real World are relevant to this action. First, Western
provides coverage for “bodily injury” and “property damage”
caused by an “occurrence,” as those terms are defined under the
policies. (Id. at ¶ 11). The policies exclude coverage for
“bodily injury” or “property damage” “expected or intended from
the standpoint of the insured” and for which the insured is
obligated by assumption of liability in a contract. The CGL Form
also provides coverage for “personal and advertising” injury, and
excludes coverage for “personal and advertising injury” arising
out of breach of contract. (Id. at ¶ 11.) Next, under the
(continued...)
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A.

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Suit #1: Portugal v. Real Care

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On February 1, 2006, Portugal filed a class-action wage

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compensation lawsuit against Real Care in Sacramento Superior

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Court.

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(1) failure to (a) pay overtime, (b) provide meals and (c) pay

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all hourly wages due to non-exempt employees working for Real

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Care in violation of various California Labor Code sections;

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(2) violation of applicable wage orders issued by California’s

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Industrial Welfare Commission; and (3) intentional violation of

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California’s Unfair Business Practices Act, California Business &

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Professions code Sections 17200, et seq.

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(Id. at ¶ 4.)

On behalf of the class, Portugal alleged:

(Id. at ¶ 4.)

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(...continued)
Employment-Related Practices Exclusion Form ) contained in each
policy, the CGL Form is modified to exclude“bodily injury” and
“personal and advertising injury” to a person arising out of
certain enumerated employment-related practices, policies, acts
or omissions. (Id. at ¶ 12.) Under an endorsement form, the
policies provide coverage under Coverage D for “professional
liability” for “bodily injury,” “property damage” or “personal
injury” caused by a “professional incident.”
The policies exclude coverage for “bodily injury,” “property
damage” or “personal injury” for which the insured is obligated
to pay damages through assumption of a contract, and “bodily
injury” or “personal injury” to an employee arising out of and in
the course of employment or performing duties related to the
conduct of the insured’s business. The policies define
“professional incident” to mean any negligent act or omission “in
the furnishing of healthcare services” or in the rendering of
professional home health care services.” (Id. at ¶ 13.) The
“professional liability” coverage is incorporated into the CGL
Form and is subject to the CGL provisions except where the
endorsement form states a particular CGL provision is being
amended. The endorsement form incorporates the CGL “definitions”
for “bodily injury,” “property damage,” and “personal-injury”
(“advertising injury” is not incorporated because the Coverage D
- Professional Liability does not cover the harm of “advertising
injury,” it only covers the harm of “bodily injury,” “property
damage,” and “personal-injury” as defined in the CGL Form).
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In addition, Portugal alleged that Real Care misclassified its

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“Caregiver” employees as “personal attendants” so as to exempt

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itself from abiding by California labor laws.

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Complaint, Portugal v. Real Care, ECF No. 8, Attachment 3, p. 46

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at ¶ 6.)

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(First Amended

On March 28, 2006, Western, Real Care’s insurance provider,

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declined coverage for the tender of defense by Real Care of the

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Portugal class action on the grounds that the wage claims

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asserted by Plaintiffs were not protected by the policy.

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(Defendant’s Statement of Undisputed Facts (“SUF”), ECF No. 8,

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Attachment 2, ¶ 14.)

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default judgment against Real Care for damages in the amount of

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$23 million.

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On November 16, 2007, Portugal obtained a

(Id. at ¶¶ 15, 16.)

On December 5, 2007, and again on April 1, 2008, Western

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reiterated its denial of coverage to Real Care and provided Real

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Care with written explanations regarding the basis for denial.

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(Id. at ¶¶ 17-18.)

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judgment, Real Care went out of business and became insolvent.

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(P-SUF at ¶ 63.)

Apparently as a result of the litigation and

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B.

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Suit #2: Portugal v. Western in State Court

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On February 11, 2009, Portugal filed a class-action lawsuit

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in the Sacramento Superior Court against Western, CareQuest and

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others.

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(RJN, Complaint, ECF No. 8, Ex. D.)

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The class’s standing was based on its status as a third party

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“Judgment Creditor” under California Insurance Code ¶ 11580, due

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to the $23 million owed to them by Real Care as a result of the

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default judgment.

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claimed that Western had a duty to indemnify Real Care, had a

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duty to defend Real Care, and had a duty of good faith and fair

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dealing in connection with investigating whether it had to

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indemnify Real Care.

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(Id. at ¶¶ 1, 3.)

In the new action, Portugal

(Id. at ¶¶ 39-48.)

On September 23, 2010, the Superior Court granted Western’s

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Motion for Summary Judgment.4

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Judgment, ECF No. 8, Attachment 3, Exhibit E.)

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Superior Court concluded that “the Portugal class action claims

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for wages and employment benefits are not potentially covered

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under the terms of any of the Western World policies.”

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83-84.)

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(1) that Western’s policy only covered “bodily injury, death, or

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property damage” and that Portugal’s wage-based claim against

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Real Care was therefore not indemnified by Western (id. at 85);

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(2) that unpaid wages and overtime are not “bodily injury” or

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“personal and advertising injury” or “property damage” (id. at

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86);5

(Order Granting Motion for Summary
In its Order, the

(Id. at

Specifically, the court made the following findings:

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Plaintiff’s motion to strike this fact “as disputed,
irrelevant, and immaterial,” (P-SUF, ECF No. 16 at ¶ 25) is
denied. The Court concludes there is no reasonable basis to
dispute this fact as it is relevant and it is material.

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Pursuant to Federal Rules of Evidence 201(b) (authorizing
judicial notice of adjudicative facts ‘capable of accurate and
ready determination by resort to sources whose accuracy cannot be
reasonably questioned’), Western requests the Court take judicial
notice of several documents. (Request for Judicial Notice
(continued...)
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(3) that Real Care’s employees were not performing a

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“professional service” within the meaning of the policies (id.);

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(4) that failure to pay statutory wage and employment benefits

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does not constitute an “occurrence” under the policies (id. at

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87); (5) that the “contractual liability” exclusion applies and

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therefore excludes liability on behalf of Western (id.); (6) that

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the “employment related practices” and “employers liability”

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exclusions also apply (id.); and (7) that the “expected or

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intended injury” exclusion in the contract applies (id.).6

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Following the Superior Court’s order on summary judgment,

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Portugal filed a notice of appeal.

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Att. 1, ¶ 115.)

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¶ 116.)

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(Western’s Reply, ECF No. 20,

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The appeal is currently pending.

(Id. at

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(...continued)
(“RJN”) (ECF No. 8, Att. 3, pp. 1-2.)) Specifically, Western
asks the Court to take judicial notice of: (1) Portugal’s
Complaint in this matter (RJN, Ex. A); (2) Portugal’s Complaint
in the Portugal v. Real Care, Sacramento County Superior Court
Action No. 06AS00410 matter (Id., Ex. B);(3) Portugal’s First
Amended Complaint in the Portugal v. Real Care, Sacramento County
Superior Court Action No. 06AS00410 matter (Id., Ex. C);
(4) Portugal’s Complaint in Portugal v. Apex Care, Inc. et al.,
Sacramento County Superior Court Action No. 34-2009-00034576-CUBT-GDS (Id., Ex. D); (5) Order Granting Motion for Summary
Judgment in Sacramento County Superior Court Action No. 34-200900034576-CU-BT-GDS (Id., Ex. E); (6) Western’s Answer to
Portugal’s Complaint (Id., Ex. F). Western’s requests are
unopposed and are the proper subject of judicial notice. See,
e.g., Champlaie v. BAC Home Loans Servicing, LP, 706 F. Supp. 2d
1029, 1040 (E.D. Cal. 2009); Lee v. County of Los Angeles,
250 F.3d 668, 688 (9th Cir. 2001) (court may take judicial notice
of matters of public record). Accordingly, Western’s Request for
Judicial Notice (ECF No. 8, Att. 3.) is granted.

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C.

Suit #3: Portugal v. Western World Removed to Federal
Court

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On August 11, 2010, while the Superior Court was considering

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Western’s Motion for Summary Judgment, Portugal filed another

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class action against Western in the Sacramento Superior Court.

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(ECF No 1, Ex. 1.)

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the other class members were suing in “a new and additional

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capacity as an assignee through a written assignment” of all of

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Real Care’s rights against Western.7

In this action, Portugal stated that she and

(Id. at ¶ 1.)

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In the first action (Suit # 2) against Western, Portugal

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claimed that Western had a duty to indemnify Real Care, had a

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duty to defend Real Care, and had a duty of good faith and fair

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dealing in connection with investigating whether it had to

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indemnify Real Care.

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¶¶ 39-48.

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she raised four claims: (1) that Western had a duty to indemnify

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Real Care; (2) Western had a duty to defend Real Care;

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(3) Western failed to investigate and conclusively eliminate the

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potential for coverage of Real Care.

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No. 8, Ex. E, p. 87.)

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on the basis of diversity jurisdiction (See Notice of Removal,

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ECF No. 1).

(RJN, Complaint, ECF No. 8, Ex. D.,

In Portugal’s second suit against Western (Suit # 3),

(Defendant’s RJN, ECF

Western thereafter removed to this Court

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Apparently, Portugal purchased the rights from Real Care
to pursue this action against Western as an assignee. Notably,
Portugal does not provide evidence to show that she or the class
are in fact an “assignee,” citing only a declaration and their
complaint in state court in which they also alleged their
relation to the contract as an assignee. (Response to Statement
of Undisputed Facts, ECF No. 16, No. 38.) However, Western does
not dispute this point and the issue is immaterial to the
judgment in this case.
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Following discovery, Western filed the instant Motion for

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Summary Judgment (“MSJ”). (ECF No. 8.)

In its MSJ, Western

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generally contends that summary judgment should be granted on the

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same basis that the Superior Court granted summary judgment in

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the state action.

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SUMMARY JUDGMENT STANDARD

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The Federal Rules of Civil Procedure provide for summary

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judgment when “the pleadings, depositions, answers to

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interrogatories and admissions on file, together with affidavits,

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

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fact and that the moving party is entitled to a judgment as a

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matter of law.”

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Fed. R. Civ. P. 56(c).

The standard that applies to a motion for summary

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adjudication is the same as that which applies to a motion for

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summary judgment.

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ChemTronics, 16 F. Supp. 2d. 1192, 1200 (S.D. Cal. 1998).

See Fed. R. Civ. P. 56(a), 56(c); Mora v.

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Under summary judgment practice, the moving party
always bears the initial responsibility of informing
the district court of the basis for its motion, and
identifying those portions of ‘the pleadings,
depositions, answers to interrogatories, and admissions
on file together with the affidavits, if any,’ which it
believes demonstrate the absence of a genuine issue of
material fact.

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Celotex Corp. v. Catrett, 477 U.S. at 323 (quoting Rule 56(c)).
If the moving party meets its initial responsibility, the

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burden then shifts to the opposing party to establish that a

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genuine issue as to any material fact actually does exist.
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Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

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585-87 (1986).

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factual dispute, the opposing party must tender evidence of

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specific facts in the form of affidavits, and/or admissible

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discovery material, in support of its contention that the dispute

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exists.

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demonstrate that the fact in contention is material, i.e., a fact

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that might affect the outcome of the suit under the governing

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law, and that the dispute is genuine, i.e., the evidence is such

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that a reasonable jury could return a verdict for the nonmoving

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party.

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52 (1986); Owens v. Local No. 169, Assoc. of Western Pulp and

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Paper Workers, 971 F.2d 347, 355 (9th Cir. 1987).

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In attempting to establish the existence of this

Fed. R. Civ. P. 56(e).

The opposing party must

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 251-

In resolving a summary judgment motion, the evidence of the

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opposing party is to be believed, and all reasonable inferences

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that may be drawn from the facts placed before the court must be

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drawn in favor of the opposing party.

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Nevertheless, inferences are not drawn out of the air, and it is

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the opposing party’s obligation to produce a factual predicate

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from which the inference may be drawn.

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Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985),

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aff’d, 810 F.2d 898 (9th Cir. 1987).

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Anderson, 477 U.S. at 255.

Richards v. Nielsen

ANALYSIS

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In its Motion for Summary Judgment, Western generally

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contends that Portugal’s claims are identical to the ones she

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raised in her prior state court action, and that because the

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Superior Court decided in Western’s favor in the first action,

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Portugal is barred on the basis of collateral estoppel from

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raising her claims again in this action.

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whether her claims are identical and essentially contends that

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because she brings this action as an assignee, rather than as a

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judgment creditor, this suit is fundamentally different from the

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prior action.

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Portugal disputes

In Kremer v. Chem. Const. Corp., 456 U.S. 461 (1982), the

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U.S. Supreme Court addressed 28 U.S.C.A. § 1738, which

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establishes that state judicial proceedings are granted full

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faith and credit in federal courts.

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that, “1738 does not allow federal courts to employ their own

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rules of res judicata in determining the effect of state

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judgments.

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federal court to accept the rules chosen by the State from which

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the judgment is taken.”

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the Court must consult California res judicata rules to determine

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whether the issues presented by Portugal are barred in this court

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from relitigation.

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The Supreme Court stated

Rather, it goes beyond the common law and commands a

Kremer, 456 U.S. 461 at 481.

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Therefore,

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Under California law, collateral estoppel has been found to

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bar relitigation of an issue decided at a previous proceeding “if

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(1) the issue necessarily decided at the previous [proceeding] is

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identical to the one which is sought to be relitigated; (2) the

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previous [proceeding] resulted in a final judgment on the merits;

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and (3) the party against whom collateral estoppel is asserted

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was a party or in privity with a party at the prior

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[proceeding].”

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136 Cal. App. 4th 82, 90 (Cal. Ct. App. 2006); see also Lyons v.

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Security Pacific Nat. Bank, 40 Cal. App. 4th 1001, 1015 (Cal. Ct.

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App. 1995) (“In addition to these factors, ... the courts

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consider whether the party against whom the earlier decision is

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asserted had a ‘full and fair’ opportunity to litigate the

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issue.”)

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would result or if the public interest requires that relitigation

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not be foreclosed.”

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Utilities Com., 25 Cal.3d 891, 902 (Cal. 1979).

Rodgers v. Sargent Controls & Aerospace,

Collateral estoppel will not be applied “if injustice

Consumers Lobby Against Monopolies v. Public

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A.

Collateral Estoppel’s First and Third Prongs: Identical
Issues and Parties

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In order to establish collateral estoppel, Western must

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first demonstrate that the issues decided in the first case are

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identical to those being presented here.

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requires the parties be identical.

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The third prong

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Portugal alleges that the claims in state court are based on

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Section 11580 of the California Insurance Code and are therefore

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not identical to the federal court claims because Portugal brings

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the present action as an “assignee” rather than “judgment

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creditor”.

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(See Opposition, ECF No. 17, pp. 18-20).

Before turning to whether the issues are identical, the

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Court first considers the third prong for determining whether

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collateral estoppel applies: specifically, whether the parties

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are identical.

The only difference between the parties to the

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Superior Court action and the present action is that the class

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now brings the action as assignees rather than as judgment

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creditors.

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that clearly differentiate between assignees and judgment

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creditors (id.), and the Court is not persuaded that this change

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of status constitutes a material difference.

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Court concludes that the third prong is satisfied: the parties

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are identical.

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Portugal does not provide any persuasive authority

Therefore, the

Turning to collateral estoppel’s second prong—whether the

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issues in the state court case are identical to those in this

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case—Portugal contends that, while similar, the claims in this

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action are not identical.

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identical is not relevant to res judicata analysis; rather, the

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Court must decide whether the issues are identical.

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136 Cal. App. 4th 82, 90; see also Lyons, 40 Cal. App. 4th 1001,

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1015.

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However, whether the claims are

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See Rogers,

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On that point, the crucial issue decided by the Superior

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Court is identical to the fundamental issue underlying each and

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every one of the claims in the instant case: specifically,

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whether Western had any potential obligation under the policies

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at issue to cover Real Care.

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was no possibility for coverage.

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Attachment 3, Exhibit E, at 83-84.)

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Portugal raises four claims: (1) that Western had a duty to

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indemnify Real Care; that (2) Western had a duty to defend Real

The Superior Court concluded there
(See Order, ECF No. 8,
In the present action,

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Care; that (3) Western failed to investigate and conclusively

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eliminate the potential for coverage of Real Care; and (4) that

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Western failed to interpret the potential for coverage of Real

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Care.

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also turns on the issue of whether there was a possibility of

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coverage that would have obligated Western to have defended or

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indemnified Real Care in the first lawsuit between Portugal and

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Real Care.

(See Complaint, ECF No. 1, Ex. 1.)

Each of these claims

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Although Portugal’s status has changed from judgment

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creditor to assignee of rights, her claims remain essentially

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identical to those raised in the prior action, and each of these

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claims turns on the issue of Western’s obligation to defend or

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indemnify Real Care.

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the Superior Court definitively ruled out any potential for both

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a Duty to Defend or Duty to Indemnify claim, stating:

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In granting summary judgment for Western,

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Plaintiff has failed to demonstrate that a disputed
issue of material fact remains for trial as to whether
the claims in the underlying action were potentially
covered by the policies of insurance, or that moving
party in any manner waived the right to assert its
policy defenses.

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(Id.)

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The Superior Court held that, without any possible potential

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for coverage, Portugal could not establish that Western owed any

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duty to Real Care.

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present action is also whether Western owed any duty to Real

(Id. at 83-84.)

The fundamental issue in the

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Care.

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to defend or indemnify Real Care, both issues which have been

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conclusively decided in the parallel state court case.

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Portugal’s third and fourth claims (failure to investigate and

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failure determine the potential for coverage) both also turn on

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Western’s potential duty to cover Real Care, which, again, was

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effectively decided by the Superior Court when it found no

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potential for coverage.

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Portugal’s first two claims assert that Western had a duty

Therefore, the first and third prongs of the collateral

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estoppel test are satisfied as the issues and parties in both

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actions are identical.

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B.

Collateral Estoppel’s Second Prong: Final Judgment

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Portugal contends that there is no final judgment on the

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merits because the state court ruling is currently under appeal.

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(Opposition at 13-14.) Western argues that the Superior Court’s

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summary judgment order constitutes a final judgment on the

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merits, therefore this action is barred by collateral estoppel.

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(MSJ, ECF No. 8, Att. 1, p. 14 n.7.)

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Again, the Court must refer to California law to determine

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whether a summary judgment on appeal is considered a “final

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judgment”.

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Theater, 101 Cal. App. 3d 296, 306 (Cal. Ct. App. 1980), the

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court held that, “It is an elemental principle of res judicata

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that the doctrine applies only to judgments and orders which are

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final.

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pending.”

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cases under appeal are not final.

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198 Cal. App. 4th 726, 731 (Cal. Ct. App. 2011) (“The final

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judgment prerequisite requires that the time for seeking a new

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trial or appealing the judgment has expired and any appeal is

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final.

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if it is still subject to direct attack.”

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Summerville, 34 Cal. App. 4th 1062, 1067-1068 (Cal. Ct. App.

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1995); Abelson v. National Union Fire Ins. Co., 28 Cal. App. 4th

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776, 787 (Cal. Ct. App. 1994)).

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In People ex rel. Gow v. Mitchell Bros.’ Santa Ana

A judgment is not final while an appeal therefrom is
Other California appellate courts have confirmed that
See People v. Burns,

In other words, the judgment is not final and preclusive
(citing People v.

Because the Superior Court’s decision is currently on

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appeal, the second collateral estoppel prong requiring there be a

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final judgment on the merits is not satisfied.
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Furthermore, the outcome of the appeal may have a material effect

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on the issues being litigated in this action.

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The Court will therefore stay this proceeding, pending the
resolution of the state court action.

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CONCLUSION

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As a matter of law, and for the reasons set forth above,

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this case is STAYED, pending final judgment in Portugal v.

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Western World Insurance Company, et al., Case No: 34-2009-

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0034576-CU-BT-GDS, currently on appeal in California state court.

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Western’s Motion for Summary Judgment (ECF No. 8) is therefore

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MOOT, as are any other motions currently before the Court.

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Clerk of the Court is directed to close this case pending any

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future motion to reopen.

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joint notice every 90 days as to the status of the state case

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and, upon exhaustion of the related state court appeals, one or

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both parties may file a motion to reopen this case.

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The Parties are directed to file a

IT IS SO ORDERED.
Dated: August 21, 2012

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The

_____________________________
MORRISON C. ENGLAND, JR.
UNITED STATES DISTRICT JUDGE

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