California Department of Toxic Substances Control et al v. Jim Dobbas, Inc. et al

Filing 270

ORDER signed by Senior Judge William B. Shubb on 2/16/2023 GRANTING 196 , 205 , 217 , 222 that the insurers' motions to set aside the default of Collins & Aikman Products, LLC.(Reader, L)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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----oo0oo----

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CALIFORNIA DEPARTMENT OF TOXIC
SUBSTANCES CONTROL, et al.,

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No. 2:14-cv-00595 WBS EFB

Plaintiff,
ORDER RE: MOTIONS TO SET
ASIDE DEFAULT

v.
JIM DOBBAS, INC., a California
corporation, et al.,
Defendant.

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----oo0oo---When the Ninth Circuit reversed this court’s order

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denying the insurers’ motions to intervene, the panel remanded

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the matter to this court with instructions to reconsider its

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denial of the motions to set aside the clerk’s default of their

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insured, Collins & Aikman Products, LLC (“C&A Products”).

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Cal. Dep’t of Toxic Substances Control v. Jim Dobbas, Inc., 54

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F.4th 1078 (9th Cir. 2022).

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reasons discussed below concludes that the motions to set aside

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the default must now be granted.

See

The court does so now, and for the

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In its Order of October 22, 2019 (Docket No. 221), this

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court denied Travelers’ motion to vacate the default of C&A

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Products and explained in detail its reasons for the denial.

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court first articulated the considerations which the Ninth

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Circuit has held must be taken into account in determining

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whether good cause exists under Rule 55(c) of the Federal Rules

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of Civil Procedure to set aside an entry of default.

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considerations are, as this court stated, (1) whether the party

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seeking to set aside default engaged in culpable conduct that led

The

Those

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to the default; (2) whether the party had a meritorious defense;

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and (3) whether reopening the default would prejudice the other

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party.

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Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (internal quotations

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omitted).

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sufficient reason for the district court to refuse to set aside

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the default.”

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United States v. Signed Personal Check No. 730 of Yubran

“[A] finding that any one of these factors is true is

Id.

After specifically addressing each of those three

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considerations, this court concluded that even if Travelers were

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permitted to intervene, it had failed to establish good cause to

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set aside C&A’s default.

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This court held:

First, although there is no claim that Travelers
itself engaged in any culpable conduct, the conduct of
its insured corporation, through its duly authorized
receiver, can be considered culpable. C&A Products
was a Delaware limited liability company. Under
Delaware law, a cancelled limited liability company
can be sued if the Delaware Court of Chancery appoints
a trustee or receiver for the company. 6 Del. C. §
18-805. The Court of Chancery’s appointed receiver,
Brian Rostocki, had “the power, but not the
obligation, to defend, in the name of Collins & Aikman
Products, LLC, any claims made against it in DTSC v.
Dobbas.” In re Collins & Aikman Prods., LLC, No.
10348-CB, 2014 WL 6907689, at *1-2 (Del. Ch. Dec. 8,
2014) (Docket No. 73-1). Mr. Rostocki accepted
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service of DTSC’s First Amended Complaint and failed
to respond, leading to the entry of default. (Docket
No. 129.)
Second, Travelers has not offered or suggested any
meritorious defense that C&A Products would have to
the complaint if its default were set aside.
Travelers’ disagreement with Mr. Rostocki’s decision
not to respond does not rise to the level of a
“meritorious defense” necessary to show good cause.
Further, the court expresses no opinion as to the
merits of Travelers’ own declaratory relief action
against DTSC, except to note that the relief sought in
that action would not constitute a defense which C&A
Products could assert to liability in this action.
Third, Travelers has failed to show that reopening the
default would not prejudice DTSC. The harm here is
“greater” than “simply delaying the resolution of the
case.” TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d
691, 701 (9th Cir. 2001), overruled on other grounds
by Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141
(2001). DTSC sought entry of default against C&A
Products in 2015. Neither C&T Products nor Travelers
did anything to attempt to set aside that default for
over three years. DTSC relied in good faith on that
default and incurred the litigation expenses
associated with preparing and filing a motion for
entry of judgment on that default.
For those reasons, the court denied Travelers’ motion
to vacate entry of default.
Subsequently, the other insurers, Continental, Century,

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and Allianz, made similar motions to intervene and set aside the

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default, and in its order of December 4, 2019, this court denied

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those motions, noting that those insurers “offer many of the same

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arguments Travelers did in its motion, with some important

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differences.”

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discuss those differences, concluding that Continental’s position

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was “substantially indistinguishable” from Traveler’s and that

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Century “offers the same arguments Travelers did.”

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With regard to Allianz’s motion, the court concluded that

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although it did not disclaim coverage it was an excess insurer,

(Docket No. 237 at 2-3.)

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The court went on to

(Id. at 3.)

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and because the court could not conclude that primary coverage

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was exhausted, Allianz’s motion to intervene would also be

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denied.

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(Id. at 4-6.)
As none of the alleged distinctions between Travelers

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and the other insurers had any effect on the court’s decision to

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deny the motion to set aside C&A Products’ default, there was no

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need to readdress that motion.

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denied, and that decision was the law of the case.

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That motion had already been

This court felt it had clearly explained the reasons

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for its denial of Travelers’ motion to set aside the default, and

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there was no reason to restate those reasons when denying the

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exact same motions by the other insurers.

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Ninth Circuit in its Opinion stated that this court denied the

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motions to set aside the default “for reasons that are unclear.”

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Dobbas, 54 F.4th at 1081.

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that it lacked jurisdiction over an appeal from an order denying

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a motion to set aside the entry of default alone, it seemingly

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went out of its way at the end of the Opinion to reiterate that

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the reasons for the denial of the insurers’ motions to set aside

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the default were “unclear at best.”

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Nevertheless, the

Although the panel expressed the view

See id. at 1092 n.18.1

This court must assume that its orders of October 22,

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2019, and December 4, 2019, were both before the Ninth Circuit on

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appeal.

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denial of the motions to set aside the default than it did in its

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October 22, 2019 order.

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this court’s decision, the court must assume that if it were

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This court cannot more clearly state its reasons for

In light of the panel’s assessment of

There is no indication that any party requested
rehearing of that decision. See Fed. R. App. P. 40.
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again to deny the motions to set aside the default for the same

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reasons, when the matter finally becomes ripe for appeal, the

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Ninth Circuit would again find those reasons to be “unclear at

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best” and thus insufficient.

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There is another, more compelling, reason to grant the

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motion this time around, however.

The Ninth Circuit held that

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the insurers have a right to intervene in this action.

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explaining its decision to allow the insurers to intervene, the

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Ninth Circuit cited Clemmer v. Hartford Insurance Co., 587 P.2d

In

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1098 (Cal. 1978), overruled on other grounds by Ryan v.

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Rosenfeld, 395 P.3d 689 (Cal. 2017), for the proposition that an

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insurer has an interest under the direct action statute in

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preventing its noncooperating insured’s default.

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Circuit observed:

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The Ninth

The California Court of Appeal has since consistently
followed Clemmer and repeatedly held that insurers
have a protectable interest under § 11580 in
preventing defaults by their insureds that are
incapable of defending themselves or otherwise
unwilling to do so.
Dobbas, 54 F.4th at 1090 (emphasis added).

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In other words, the whole purpose of permitting the

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insurers to intervene is to prevent the default of their insured.

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That purpose would be defeated in this case if the court were to

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permit the insured’s default.

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insurers would be a meaningless sham if the default of their

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insured has already been entered.

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default of C&A Products would be inconsistent with the Ninth

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Circuit’s decision in this case allowing its insurers to

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intervene.

Obviously, intervention by the

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In short, permitting the

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IT IS THEREFORE ORDERED that the insurers’ motions to

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set aside the default of Collins & Aikman Products, LLC (Docket

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Nos. 196, 205, 217, 222) be, and the same hereby are, GRANTED.

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Dated: February 16, 2023

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