Lennar Mare Island, LLC v. Steadfast Insurance Company

Filing 81

ORDER signed by Judge Kimberly J. Mueller on 12/16/2013 DENYING 41 Plaintiff's Motion to Sever. (Donati, J)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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LENNAR MARE ISLAND, LLC,

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Plaintiff,
v.

Defendants.
STEADFAST INSURANCE COMPANY,

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ORDER

STEADFAST INSURANCE COMPANY,
and Does 1 through 10,

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No. 2:12-CV-02182-KJM-KJN

Counterclaimant,
v.
LENNAR MARE ISLAND, LLC; CH2M
HILL CONSTRUCTORS, INC., and
DOES 1 through 10,

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Counterdefendants.

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CH2M HILL CONSTRUCTORS, INC.,

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Counterclaimant,
v.
STEADFAST INSURANCE COMPANY,
Counterdefendant.

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This matter is before the court on the motion to sever by plaintiff Lennar Mare

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Island, LLC (“LMI”). (ECF 41.) LMI seeks an order severing all claims between defendant

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Steadfast Insurance Company (“Steadfast”) and CH2M Hill Constructors, Inc. (“CH2M”). (Id. at

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1.) Steadfast and CH2M oppose the motion. (CH2M’s Opp’n, ECF 61; Steadfast’s Opp’n, ECF

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62.) The court decided the matter without a hearing. As explained below, the court DENIES the

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motion to sever.

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I.

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RELEVANT BACKGROUND
A.

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PROCEDURAL BACKGROUND
On June 22, 2012, LMI filed a complaint against Steadfast in the Solano County

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Superior Court alleging four causes of action: (1) intentional interference with contract;

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(2) breach of contract; (3) tortious breach of the implied covenant of good faith and fair dealing;

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and (4) declaratory relief. (Def.’s Notice of Removal, Ex. A at 1-6, ECF 1.) On August 21, 2012,

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Steadfast removed the case to this court. (ECF 1.) On August 27, 2012, Steadfast filed an

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answer. (Def.’s Answer Compl., ECF 4.) On the same day, Steadfast also filed a counterclaim

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against LMI and an additional party, CH2M, for declaratory relief. (Def.’s Countercl. at 4, ECF

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5.) On September 14, 2012, LMI filed its answer to Steadfast’s counterclaim. (Pl.’s Answer

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Countercl., ECF 10.) On October 17, 2012, CH2M filed its answer to Steadfast’s counterclaim

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and its own counterclaim against Steadfast for: (1) breach of contract; (2) declaratory relief; and

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(3) tortious breach of the implied covenant of good faith. (CH2M’s Answer & Countercl., ECF

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12.) Steadfast filed its answer to CH2M’s counterclaim on December 3, 2012. (Def.’s Answer

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Countercl., ECF 15.)

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On January 17, 2013, LMI amended its original complaint alleging the same

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causes of action as in the original complaint. (Pl.’s First Am. Compl. (“FAC”), ECF 22.)

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Steadfast filed its answer to LMI’s first amended complaint on January 31, 2013. (Def.’s Answer

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First Am. Compl., ECF 26.) Finally, on September 10, 2013, LMI filed the instant motion to

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sever all of the claims between Steadfast and CH2M. (ECF 41.)

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B.

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RELEVANT FACTUAL BACKGROUND
The claims in this case arise out of pollution cleanup at the former Mare Island

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Naval Shipyard (“Shipyard”) in Vallejo, California. (ECF 41 at 2.) In April 2001, LMI and

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CH2M entered into a contract known as the Guaranteed Fixed Price Contract, according to which

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CH2M agreed to provide certain environmental services related to the remediation of

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contamination at the Shipyard. (ECF 26 ¶ 7; ECF 5 ¶ 8). LMI and CH2M then obtained an

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insurance program from Steadfast, according to which Steadfast issued two insurance policies:

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Remediation Stop Loss insurance policy (“RSL”) and Environmental Liability insurance policy

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(“ELI”). (ECF 26 ¶ 8.) At the time of the issuance, Steadfast was aware of the contractual

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relationship between LMI and CH2M and issued both of the policies in contemplation of that

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relationship. (Id. ¶ 15.)

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Currently, an actual controversy exists between LMI, CH2M, and Steadfast as to

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their obligations and rights under the ELI and RSL policies. (FAC ¶ 34; ECF 26 ¶ 34; ECF 5

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¶ 15; ECF 12 ¶ 15.) Specifically, LMI has tendered claims to Steadfast for costs of cleaning up

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pollution at various sites, but Steadfast contends that it is not obligated to pay for those claims

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under the ELI policy. (FAC ¶ 34; ECF 26 ¶ 34.) CH2M has tendered claims to Steadfast for

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costs under the RSL policy, but Steadfast contends that it is not obligated to pay for those claims

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under the RSL policy. (ECF 5 ¶ 15; ECF 12 ¶ 15.)

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II.

STANDARD

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A district court may “on just terms, add or drop a party” and “may also sever any

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claim against a party.” FED. R. CIV. P. 21. A court may sever particular parties or claims where

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the joinder is improper under Federal Rule of Civil Procedure 20 and “no substantial right will be

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prejudiced by the severance.” Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir. 1997).

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Moreover, even where joinder is proper under Rule 20, a court may still order a severance to

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prevent delay or prejudice. Coleman v. Quaker Oats Co., 232 F.3d 1271, 1296 (9th Cir. 2000).

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The decision whether to grant or deny severance lies within the district court’s sound discretion

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and is subject to review only for clear abuse. See Coughlin, 130 F.3d at 1351. A court may

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consider the same factors relevant to bifurcation under Rule 42(b) in determining whether to grant
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a severance under Rule 21. See Anticancer, Inc. v. Pfizer Inc., 11-CV-107 JLS RBB, 2012 WL

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1019796, at *2 (S.D. Cal. Mar. 26, 2012). Courts balance such factors as the convenience and

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economy of one trial; the complexity of legal theories and factual proof; and the potential of

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prejudice if severance is granted. See, e.g., CJ Inv. Servs., Inc. v. Williams, 5:08-CV-5550 EJD,

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2012 WL 547176, at *2 (N.D. Cal. Feb. 17, 2012); Wynes v. Kaiser Permanente Hosps., 2:10-

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CV-00702-MCE, 2011 WL 4954196, at *4 (E.D. Cal. Oct. 17, 2011).

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III.

DISCUSSION

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In support of its Motion to Sever, plaintiff LMI raises two arguments. (ECF 41 at
1-2.) First, LMI argues Steadfast’s joinder of CH2M was improper under Rule 20. (Id. at 1.)

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Second, LMI argues that even if joinder was proper under Rule 20, “judicial efficiency and

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prejudice to LMI both weigh heavily in favor of severance.” (Id. at 2.) The court will address

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these arguments in turn.

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A.

Joinder of CH2M under Rule 20
Plaintiff LMI argues that Steadfast improperly joined CH2M under Rule 20

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because Steadfast “does not assert a claim against LMI and [CH2M] with respect to the same

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transaction, occurrence or series of occurrences, and there are no material questions of law or fact

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common to Steadfast’s claims against LMI and [CH2M].” (Id. at 1-2.)

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Steadfast responds LMI “turns a blind eye to its own complaint” because LMI’s

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complaint against Steadfast includes a claim for interference with LMI’s contractual relations

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with CH2M based on the RSL policy and Steadfast’s counterclaim against CH2M seeks

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declaration of rights and liabilities under the same policy. (ECF 62 at 2.)

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“Rule 20 is designed to promote judicial economy, and reduce inconvenience,

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delay, and added expense.” Coughlin, 130 F.3d at 1251. Joinder of a party under Rule 20 is

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proper if: (1) the right to relief arises out of “the same transaction, occurrence, or series of

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transactions or occurrences”; and (2) any question of law or fact common to all parties joined will

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“arise in the action.” FED. R. CIV. P. 20. Courts construe these requirements liberally to promote

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trial convenience and to expedite determination of disputes. See United Mine Workers of Am. v.

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Gibbs, 383 U.S. 715, 724 (1966) (“Under the Rules, the impulse is toward entertaining the
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broadest possible scope of action consistent with fairness to the parties; joinder of claims, parties

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and remedies is strongly encouraged.”).

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The first prong, the same transaction or occurrence requirement, “refers to

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similarity in the factual background of a claim.” Coughlin, 130 F.3d at 1350. Claims that “arise

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out of a systematic pattern of events” and “have [a] very definite logical relationship” arise from

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the same transaction or occurrence. Bautista v. Los Angeles Cnty., 216 F.3d 837, 842-43 (9th Cir.

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2000) (internal quotations omitted).

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The second requirement is that there be a single question of law or fact common to
all the parties joined. Desert Empire Bank v. Ins. Co. of N. Am., 623 F.2d 1371, 1375 (9th Cir.

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1980). “The common question need not predominate; [that is] a requirement for class actions, not

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for permissive joinder.” Lee v. Cook Cnty., Ill., 635 F.3d 969, 971 (7th Cir. 2011), reh’g denied

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(Apr. 12, 2011). However, “the mere fact that all . . . claims arise under the same general law

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does not necessarily establish a common question of law or fact.” Coughlin, 130 F.3d at 1351.

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Here, after considering the parties’ contentions, the court finds Rule 20

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requirements are satisfied. LMI’s cause of action for intentional interference with contractual

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relations is based on Steadfast’s alleged deliberate and wrongful delay of processing of CH2M’s

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claims made under the RSL policy. (ECF 22 ¶ 16.) Specifically, LMI alleges “Steadfast refused

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to pay approximately [$1 million] in expenses CH2M had claimed under the RSL policy . . . even

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though Steadfast repeatedly acknowledged that the claim was covered under the RSL policy” (id.

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¶ 17), and “Steadfast knew its actions interfered with the contractual relationship between LMI

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and CH2M . . . .” (Id. ¶ 18.) As a result, LMI alleges, CH2M stopped the work it was performing

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for LMI; thus, LMI’s contractual relationship with CH2M was disrupted. (Id. ¶¶ 19-20.)

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Steadfast’s counterclaim is for declaratory relief against LMI and CH2M.

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Steadfast reasons while “LMI alleges that Steadfast groundlessly refused to pay CH2M . . . under

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the RSL policy,” “Steadfast disputes that it has an obligation to pay for the disputed costs at issue

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under the RSL policy.” (ECF 5 ¶ 15.) Accordingly, as to the same transaction or occurrence

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requirement, because Steadfast’s claims arise out of the same RSL policy and Steadfast’s alleged

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failure to pay to CH2M, Steadfast’s claims for declaratory relief against LMI and CH2M arise

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from the same transaction and occurrence.

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The commonality requirement is satisfied as well. Steadfast’s claims for

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declaratory relief against both LMI and CH2M involve the same RSL policy, and the common

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question whether Steadfast was obligated to pay for the costs requested by CH2M will likely arise

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in the action. See Sole Energy Co. v. Petrominerals Corp., 128 Cal. App. 4th 212, 237-38 (2005)

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(stating one of the elements of interference with contractual relations claim is “defendant’s

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intentional acts designed to induce a . . . disruption of the contractual relationship”).

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Additionally, as explained above, because courts construe Rule 20 requirements liberally to

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promote trial convenience, the court finds Steadfast’s joinder of CH2M proper under Rule 20.

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League to Save Lake Tahoe v. Tahoe Reg’l Planning Agency, 558 F.2d 914, 917 (9th Cir. 1977)

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(citing Mosley v. Gen. Motors Corp., 497 F.2d 1330, 1333 (8th Cir. 1974)).

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Even where Rule 20 requirements are met, “a district court must examine whether

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permissive joinder would ‘comport with the principles of fundamental fairness’ or would result in

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prejudice to either side.” Coleman, 232 F.3d at 1296 (quoting Desert Bank, 623 F.2d at 1375).

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Severance is appropriate where the likelihood of confusion and prejudice outweigh the gains from

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judicial economy. See id.

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B.

Fundamental Fairness
LMI advances the following arguments as to why severance is appropriate even

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assuming joinder is proper under Rule 20. First, LMI argues the trial of LMI’s claims and

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CH2M’s claims “will involve almost entirely different evidence.” (ECF 41 at 9.) The only

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“factual commonality between the two cases is that they both arise out of cleanup of pollution at

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the . . . Shipyard, and that there is a connection between [CH2M’s] claim for non-payment of its

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costs . . . and LMI’s interference with contract claim.” (Id.) Second, LMI argues “[s]eparating

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the cases will also avoid prejudice to LMI from jury confusion” in light of the factual complexity

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of the case. (Id.) Finally, LMI reasons the amount of discovery will be more reasonable because

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“LMI will not need to attend depositions of [CH2M] witnesses on RSL [p]olicy . . .” (id. at 10),

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and “Steadfast will have no need to depose [thirty-five] witnesses” if its case against CH2M is

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“no longer part of this case.” (Id. at 9-10.)

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CH2M responds to LMI’s arguments as follows: “LMI’s claim for contractual

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interference against Steadfast involves the RSL [p]olicy, the same policy under which [CH2M] is

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suing Steadfast for coverage.” (ECF 61 at 2.) Moreover, “LMI’s contractual interference claim

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involves Building 206/208, which is also part of [CH2M’s] claim against Steadfast.” (Id.)

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Accordingly, CH2M argues there is sufficient factual and legal commonality for the claims to

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remain joined. Additionally, CH2M argues the severance of the claims into two independent

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actions “raises the possibility of inconsistent verdicts regarding exactly what rights and duties

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Steadfast has under the RSL [p]olicy.” (Id. at 3.) CH2M also points out that “[i]f there are

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depositions of certain witnesses that LMI believes do not relate to its claims, LMI is free not to

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attend.” (Id.)

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Steadfast responds to LMI’s arguments by reasoning that “[s]everance will only

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result in judicial inefficiency” because “[m]any of the issues and witnesses involved in the

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complaint and counterclaims are the same.” (ECF 62 at 4.) “[P]roper jury instructions and a

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special verdict form can remedy any jury confusion.” (Id. at 5.) Therefore, “[b]ecause severance

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will require much of the same evidence and many of the same witnesses to be presented in two

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trials, severance would inevitably result in judicial inefficiency.” (Id. at 6.)

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The court is not persuaded that likelihood of jury confusion and prejudice

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outweigh the benefit of judicial economy realized through maintaining joinder of claims. First,

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the legal theories involved in this case are not unduly complicated. As noted above, LMI alleges

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four causes of action: (1) intentional interference with contract; (2) breach of contract; (3) tortious

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breach of the implied covenant of good faith and fair dealing; and (4) declaratory relief. (ECF 22.)

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Steadfast’s counterclaims are for declaratory relief (ECF 5), and CH2M’s counterclaims against

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Steadfast are for: (1) breach of contract; (2) tortious breach of the implied covenant of good faith; and

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(3) declaratory relief. (ECF 12).

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Second, as explained above, LMI’s intentional interference with contract claim
and Steadfast’s counterclaim for declaratory relief against CH2M will likely involve presentation
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of the same evidence. Any potential for jury confusion can be addressed through proper

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instructions at trial. The Coleman case cited by LMI is clearly distinguishable. In Coleman, the

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Ninth Circuit affirmed the district court’s decision to sever the claims of three employees from

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those of seven other employees. The affirmance approved the district court’s reasoning that the

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defendant employer would be prejudiced because the jury would be confused by the application

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of the law of six different states, given the state law claims that needed to be evaluated under

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different state laws. 232 F.3d at 1297. Unlike in Coleman, all of the claims in this case arise

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under California law, and there are only three parties involved.

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Weighing the interests of judicial efficiency against the potential prejudice to LMI,

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the court finds the judicial economy achieved through joinder outweighs the likelihood of

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prejudice to LMI.

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IV.

CONCLUSION

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For the foregoing reasons, the court DENIES plaintiff’s motion to sever.

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IT IS SO ORDERED.

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Dated: December 16, 2013.

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UNITED STATES DISTRICT JUDGE

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