Evanston Insurance Company v. Honso USA, Inc. et al

Filing 35

ORDER DENYING DEFENDANT WEN'S MOTION TO DISMISS by Judge Alsup denying 18 Motion to Dismiss (whalc2, COURT STAFF) (Filed on 4/11/2011) (Additional attachment(s) added on 4/11/2011: # 1 proof of service) (tdm, COURT STAFF).

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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EVANSTON INSURANCE COMPANY,

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For the Northern District of California

United States District Court

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No. C 10-05596 WHA

Plaintiff,
v.

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HONSO USA, INC., ROBERT HORAN,
and JIPU “DAN” WEN,

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ORDER DENYING
DEFENDANT WEN’S MOTION
TO DISMISS AND VACATING
MOTION HEARING

Defendants.
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INTRODUCTION

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Defendant Jipu “Dan” Wen, proceeding pro se, moves to dismiss the complaint. He

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argues that dismissal is warranted: (1) for plaintiff’s failure to name an indispensable party,

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(2) for lack of sufficient amount in controversy, and (3) for lack of personal jurisdiction. For the

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reasons stated below, defendant Wen’s motion is DENIED.
STATEMENT

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This declaratory judgment action was filed by plaintiff Evanston Insurance Company on

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December 9, 2010. Jurisdiction is based on diversity of the parties.
This action concerns an underlying putative consumer class action captioned Robert

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Horan v. Honso Pharmaceutical Co., Ltd., et al., Case No. CIV091978, presently pending in the

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California Superior Court in Marin County. The defendants in our action include the sole named

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plaintiff in the underlying case, Robert Horan, and two of many defendants in the underlying
case.

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It is alleged in the Horan action that Robert Horan is a California resident who purchased

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Honso’s product, an herbal dietary supplement called “Sho-saiko-to,” and that the product was

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not accurately represented. On behalf of himself and a class of others similarly situated, Horan

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claims violation of the California Business and Professions Code, Civil Code, and Health and

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Safety Code. The Horan complaint was filed on April 22, 2009 (Compl. Exh. 3).

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By letter dated June 22, 2009, Evanston denied coverage to defendants Wen and Honso

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USA, Inc. for the Horan action because it does not bring claims for bodily injury, property

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damage, personal injury, or advertising injury, for which coverage is provided, as defined in the

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Evanston policy. Evanston also advised Honso and Wen that it would appoint counsel to defend
them in the Horan action solely as a business accommodation until such time as the state court

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For the Northern District of California

United States District Court

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decided a motion to quash service on the defendants that was then pending (Suben Decl. Exh. A).

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On July 12, 2010, the state court denied the motion to quash as to Wen, specifically

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holding as follows:

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The court finds that Wen has sufficient minimum contacts to justify this court’s
exercise of jurisdiction over him. Plaintiff offers sufficient evidence to show that
Wen actively and directly participated in the allegedly unfair business practice.

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(Id. Exh. B (capitals omitted)). Evanston thereafter reiterated to Honso and Wen that this ruling

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terminated the agreement to defend them in the Horan action, but given the dispute that was

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apparent between the parties concerning coverage, Evanston consented to continuing to pay

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defense counsel for Wen and Honso while reserving its rights to seek a judicial determination of

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coverage and reimbursement (Id. Exh. C).

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In this action, plaintiff seeks a declaration that it is not obligated to defend Honso and

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Wen in the Horan action in state court because there is no possibility of a covered claim

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inasmuch as the Horan complaint does not state a claim for bodily injury, property damage,

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personal injury, or advertising injury, as defined by the Evanston policy. All defendants appear to

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have been served, but only defendant Wen has appeared. Defendant Wen now moves pro se to

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dismiss this action against him on the grounds that (1) plaintiff has failed to name Horan-action

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plaintiff’s counsel as an indispensable party, (2) the complaint does not present a sufficient

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amount in controversy, and (3) this Court lacks personal jurisdiction over him.
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ANALYSIS
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FAILURE TO NAME AN INDISPENSABLE PARTY
A party making a Rule 12(b)(7) motion to dismiss for failure to join a party under Rule 19

Verity, 910 F.2d 555, 558 (9th Cir. 1990). Rule 19 provides separate tests for determining

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whether a party is necessary and indispensable. Both tests must be satisfied before a suit may be

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dismissed for nonjoinder of an absent party. In assessing whether the tests have been met, the

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court’s inquiry should be both fact-specific and practical. See Provident Tradesmen Bank &

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Trust Co. v. Patterson, 390 U.S. 102, 118–19 (1968). The inquiry is designed to avoid the harsh

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results of rigid application. See Eldredge v. Carpenters 46 N. Cal. Cntys. Joint Apprenticeship &

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For the Northern District of California

bears the burden of demonstrating that dismissal is appropriate. See Makah Indian Tribe v.

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United States District Court

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Training Comm., 662 F.2d 534, 537 (9th Cir. 1981).

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Rule 19(a) contains the “necessary party” test, which itself is comprised of two prongs.

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The first prong states that a party must be joined if “in that person’s absence, the court cannot

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accord complete relief among existing parties.” If this prong is not met, a party may still be

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deemed necessary if the second prong is met. That prong requires joining a party if “that person

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claims an interest relating to the subject of the action and is so situated that disposing of the

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action in the person’s absence may: (i) as a practical matter impair or impede the person’s ability

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to protect the interest; or (ii) leave an existing party subject to a substantial risk of incurring

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double, multiple, or otherwise inconsistent obligations because of interest.”

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A finding that a party is necessary does not end the inquiry. The party must also pass the

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“indispensable party” test contained in Rule 19(b). Absent a necessary party, the court must

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decide whether, “in equity and good conscience, the action should proceed among the existing

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parties or should be dismissed.” Relevant factors to this determination include: (i) the extent to

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which a judgment rendered in the person’s absence might prejudice that person or the existing

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parties, (ii) the extent to which any prejudice could be lessened or avoided, (iii) whether a

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judgment rendered in the person’s absence would be adequate, and (iv) whether the plaintiff

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would have an adequate remedy if the action were dismissed for nonjoinder.

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In our case, defendant Wen argues that the law firm representing plaintiff in the Horan
action must be joined as a necessary party.

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The complaint names Robert Horan, plaintiff in the underlying action, as a defendant

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herein, and alleges that Horan is a necessary or otherwise proper party in this action, because he

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may seek benefits under the policy at issue. Defendant Wen agrees. He states that plaintiff

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properly named Horan as a defendant herein, but argues that in addition plaintiff’s counsel in the

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Horan action, Ropers, Majeski, Kohn & Bentley, is also a necessary and indispensable party.

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Wen argues that just like Horan, his counsel “may seek benefits under the Policy issued to

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Honso” (Br. 4). Yet Wen intimates no legal basis on which plaintiff’s counsel in the Horan
action would be entitled to such benefits. Wen argues that counsel are seeking vast damages in

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For the Northern District of California

United States District Court

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the underlying suit, but neglects the fact that they are seeking such damages on behalf of Horan,

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who is already named as a defendant here. It is unclear how counsel’s “financial interests will be

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affected by the declaratory judgment sought in this Court” (Br. 5).

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Defendant Wen has not carried his burden to show that Ropers, Majeski, Kohn & Bentley

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is a necessary and indispensable party such that failure to join it requires dismissal. His motion

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on this basis is accordingly DENIED.

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B.

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AMOUNT-IN-CONTROVERSY REQUIREMENT
Pursuant to 28 U.S.C. 1332(a)(1), “[t]he district courts shall have original jurisdiction of

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all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of

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interest and costs, and is between . . . citizens of different States.” Defendant Wen does not

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dispute that the parties to this action are citizens of different states (Br. 6). As a result, diversity

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jurisdiction exists if plaintiff has met the amount-in-controversy requirement. The amount in

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controversy is generally determined by the amount claimed in the complaint, and this amount

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controls if the complaint was made in good faith. See St. Paul Mercury Indem. Co. v. Red

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Cab Co., 303 U.S. 283, 288–89 (1938). Nonetheless, a district court may be justified in

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dismissing the action where it appears to a legal certainty that the actual claim is less than the

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jurisdictional amount. See Lowdermilk v. U.S. Bank Nat’l Ass’n, 479 F.3d 994, 999 (9th Cir.

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2007).
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A jurisdictional challenge under Rule 12(b)(1) may be made either on the face of the

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pleadings or by presenting extrinsic evidence. See Warren v. Fox Family Worldwide, Inc.,

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328 F.3d 1136, 1139 (9th Cir. 2003). “In a facial attack, the challenger asserts that the allegations

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contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast,

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in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would

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otherwise invoke federal jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th

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Cir. 2004). This order must consider the allegations in the complaint as true and draw all

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reasonable inferences in favor of the plaintiff. See Wolfe v. Strankman, 392 F.3d 358, 362 (9th

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Cir. 2004).
In our case, defendant Wen primarily makes a facial attack, by stating that the “bare

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For the Northern District of California

United States District Court

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assertion” in the complaint that the amount in controversy exceeds $75,000 is insufficient. Yet

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defendant Wen provides no further argument in support. In fact, the complaint appends and

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incorporates the policy at issue, which contains a “per occurrence” limit of liability of $1 million

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and a policy aggregate limit of $2 million (Compl. Exh. 2). Therefore, defendant has not

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established to a legal certainty that the allegations in the complaint cannot meet the amount-in-

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controversy requirement.

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Defendant Wen’s brief also states that he “challenges the accuracy of [the complaint’s]

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bare assertion” that the amount in controversy exceeds $75,000 (Br. 6–7). Yet defendant Wen

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presents no facts — either asserted or demonstrated through evidence — that the amount in

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controversy is less that the jurisdictional minimum. To the contrary, plaintiff has shown that the

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amount in controversy is much greater, as Evanston has already incurred $152,299.80 in

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defending Honso and Wen in the Horan action, which is not even close to completion (Suben

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Decl. ¶ 6). Therefore, regardless of whether this is a facial or factual challenge, defendant’s

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motion to dismiss on this basis is DENIED.

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C.

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PERSONAL JURISDICTION OVER DEFENDANT WEN
“For a court to exercise personal jurisdiction over a nonresident defendant, that defendant

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must have at least ‘minimum contacts’ with the relevant forum such that the exercise of

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jurisdiction ‘does not offend traditional notions of fair play and substantial justice.’”
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Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 801 (9th Cir. 2004) (citation omitted).

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California’s long-arm statute authorizes the exercise of jurisdiction on any basis not inconsistent

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with the state or federal Constitutions. CAL. CODE CIV. PROC. § 410.10. As such, the analysis of

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personal jurisdiction collapses into a single inquiry under federal due process.

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Plaintiff has the burden of establishing the existence of jurisdiction, but “dismissal is

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appropriate only if the plaintiff has not made a prima facie showing of personal jurisdiction. In

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determining whether [plaintiff] has met this burden, uncontroverted allegations in [the] complaint

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must be taken as true, and ‘conflicts between the facts . . . must be resolved in [plaintiff’s] favor

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for purposes of deciding whether a prima facie case for personal jurisdiction exists.’” Am. Tel. &

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For the Northern District of California

United States District Court

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Tel. Co. v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996) (citations omitted).
Personal jurisdiction may be either general or specific to the allegations in the complaint.

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See Schwarzenegger, 374 F.3d at 801–02. General jurisdiction exists when the defendant has

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engaged in “continuous and systematic general business contacts,” that “approximate physical

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presence” in the forum state. Id. at 801 (citations omitted). Specific jurisdiction exists when the

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suit arises out of or is related to the defendant’s contacts with the forum state. Helicopteros

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Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984). The Ninth Circuit applies a

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three-prong test for analyzing claims of specific jurisdiction:

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(1) the non-resident defendant must purposefully direct his activities or
consummate some transaction with the forum or resident thereof; or perform
some act by which he purposefully avails himself of the privilege of conducting
activities in the forum, thereby invoking the benefits and protections of its laws;

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(2) the claim must be one which arises out of or relates to the defendant’s forumrelated activities; and

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(3) the exercise of jurisdiction must comport with fair play and substantial justice.

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Lake v. Lake, 817 F.2d 1416, 1421 (9th Cir. 1987). The first prong of this test, referring to

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purposeful direction or purposeful availment, does not require physical presence in the forum

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state. Ibid.

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Defendant Wen is a resident of Arizona, not California. Regardless, the California state

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court in the Horan action has already held that defendant Wen is subject to personal jurisdiction

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in California. The order denying defendant’s motion to quash specifically stated:
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The court finds that Wen has sufficient minimum contacts to justify this court’s
exercise of jurisdiction over him. Plaintiff offers sufficient evidence to show that
Wen actively and directly participated in the allegedly unfair business practice.

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(Suben Decl. Exh. B (capitals omitted)). This order declines to part company with our sister court

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on the same issue. Not only is defendant Wen subject to specific personal jurisdiction in

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California due to his involvement in the business practices at issue in the underlying Horan suit,

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but, moreover, he is subject to specific personal jurisdiction in this coverage action due to his

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participation in the underlying suit to which our action pertains.

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The decision of Mass. Bay Ins. Co. v. Portland Water Dist., No. CIV. 99-487-M, 2000

here. The court found specific jurisdiction to exist over a non-resident defendant in an insurance

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For the Northern District of California

WL 1499493 (D.N.H. May 10, 2000), is persuasive. The facts are substantially similar to those

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United States District Court

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coverage action because the underlying suit, to which the coverage action pertained, was

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proceeding in a state court of the same state. There, as here, “th[e] declaratory judgment action

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arises directly out of [defendant’s] having allegedly [violated the law] in this forum, [his] having

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been named as a defendant in the underlying state tort action, and [plaintiff’s] desire to obtain a

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judicial determination of its obligations, if any, to provide [defendant] with a defense in this state

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and indemnify [him] for any damages [he] must pay in the pending tort action.” Id. at *4.

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The very same rationale applies here, where plaintiff’s claims arise out of defendant

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Wen’s participation in the underlying Horan action, and, in turn, his allegedly illegal business

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practices in this state that are the subject of that action. Furthermore, by virtue of his participation

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in Horan, and for the same reasons found by the state court, defendant Wen has purposely availed

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himself of the laws of California in connection with his activities directed at the forum and his

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participation in Horan.

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Defendant Wen solely argues that finding specific personal jurisdiction “is [] unwarranted

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because Plaintiff’s claims in this case do not relate to or arise out of any of Mr. Wen’s contacts

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with California” (Br. 14). He fails to respond to the argument that specific jurisdiction exists

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because of his participation in the underlying Horan action, which this case wholly concerns.

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Because this order has found that specific personal jurisdiction exists to hail defendant Wen into

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this Court, this order need not determine whether general jurisdiction exists over defendant Wen.
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Defendant Wen argues that assertion of jurisdiction over him in this Court would be

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unreasonable. First, he argues that “there were no ‘substantial consequences’ related to Mr.

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Wen’s conduct,” because plaintiff names him as a defendant due to “his current and former work

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with Honso USA” (Br. 15). The first part of this statement is irrelevant to the current inquiry.

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The second part of this statement is incorrect, as plaintiff names him as a defendant, according to

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the complaint, for failure to pay his own defense costs in the Horan action. Second, defendant

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Wen argues that it would be burdensome, costly, and inconvenient for him to defend himself in

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California, as he does not reside here and as Honso witnesses and records are in Arizona (ibid.;

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Reply 5). It is irrelevant that Honso witnesses and records are in Arizona, because this action

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For the Northern District of California

Lastly, it is also reasonable to subject defendant Wen to jurisdiction in this forum.

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United States District Court

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concerns insurance coverage, as opposed to the merits of the claims being asserted in state court.

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This order finds that the exercise of jurisdiction over defendant Wen is reasonable and

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does not offend traditional notions of fair play and substantial justice. The burden imposed on

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defendant Wen by requiring him to appear in this forum is minimal in light of the fact that he is

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already appearing in the Horan action in Marin County Superior Court. The State of California

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also has an interest in this action, as defendant Wen is alleged to have violated state law and has

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demanded that Evanston provide him with a defense against such allegations. California

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therefore has an interest in seeing a prompt resolution to the insurance coverage issues relating to

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the state court suit. It is both logical and efficient for the parties herein to litigate the coverage

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action in the same state as the underlying Horan action. In addition, it appears that defendant

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Wen is receiving assistance in our action from a California attorney, though that attorney is not

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counsel of record (Suben Decl. Exh. D).

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Therefore, despite the fact that defendant Wen is defending pro se and resides in Arizona,
subjecting him to personal jurisdiction in this Court is both proper and not unreasonable.
CONCLUSION
For the foregoing reasons, defendant Wen’s motion is DENIED. The motion hearing on

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April 14, 2011, is VACATED. The case management conference on April 14 at 3:00 p.m. will go

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forward as scheduled.

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IT IS SO ORDERED.

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Dated: April 11, 2011.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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