Great America Insurance Company et al v. Chang et al

Filing 49

Order by Hon. Samuel Conti granting 45 Motion to Dismiss. (sclc1, COURT STAFF) (Filed on 1/17/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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United States District Court

For the Northern District of California

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GREAT AMERICAN INSURANCE
COMPANY, and GREAT AMERICAN
INSURANCE COMPANY OF NEW YORK,

) Case No. 12-00833-SC
)
) ORDER GRANTING THIRD-PARTY
) DEFENDANT'S MOTION TO DISMISS
Plaintiffs,
)
)
v.
)
)
MICHAEL CHANG, d/b/a SUNRISE
)
CLEANERS, INC., and ROXANNE
)
CHANG, d/b/a, SUNRISE CLEANERS, )
INC.,
)
)
Defendants.
)
)
)
MICHAEL CHANG, d/b/a SUNRISE
)
CLEANERS, INC., and ROXANNE
)
CHANG, d/b/a, SUNRISE CLEANERS, )
INC.,
)
)
Third-Party
)
Plaintiffs,
)
)
v.
)
)
FIREMAN'S FUND INSURANCE
)
COMPANY,
)
)
Third-Party
)
Defendant.
)
)

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I.

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INTRODUCTION
Now before the Court is Fireman's Fund Insurance Company's

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("FFIC") Motion to Dismiss Michael and Roxanne Chang's

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(collectively, "the Changs") Third-Party Complaint.

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("Mot.").

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("Reply"), and appropriate for determination without oral argument.

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For the reasons set forth below, the Court GRANTS the motion on the

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ground that the Changs have failed to establish subject-matter

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jurisdiction.

ECF No. 48

The Motion is fully briefed, ECF Nos. 47 ("Opp'n"), 48

United States District Court

For the Northern District of California

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II.

BACKGROUND
This case involves an insurance coverage dispute arising from

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an underlying lawsuit filed against the Changs, Bilal Kartal v.

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Michael Chang, et al., Case No. CIV 458146, San Mateo Superior

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Court (hereinafter, the "Kartal Action").

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The Kartal action concerns the alleged contamination of a property

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owned by Michael Chang that is located on Baldwin Avenue in San

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Mateo, California.

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a related insurance dispute arising from claims that Michael Chang

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asserted in a different litigation in which he sought to recover

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pollution and investigation costs from the California Underground

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Storage Tank Fund (the "Storage Tank Fund Action").

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Id. ¶¶ 4, 6.

ECF No. 16 ("FAC") ¶ 11.

The instant action also involves

Id. ¶ 11.

The Changs tendered claims to Great American Insurance Company

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and Great American Insurance Company of New York (collectively,

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"Great American") for insurance benefits under two policies issued

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by Great American between 1977 and 1983.

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American is defending the Changs in the Kartal action under a

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reservation of rights and has advanced other claimed amounts, also

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Id. ¶ 20.

Although Great

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under a reservation of rights, Great American alleges that it has

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no duty to defend or indemnify the Changs in the underlying

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actions.

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the Changs in February 2012 (hereinafter, "the Great American

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Action").

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has no duty to defend or indemnify the Changs with respect to the

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Kartal Action or other pollution claims involving the Baldwin

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Avenue property.

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American also seeks reimbursement of amounts paid in connection

United States District Court

For the Northern District of California

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Id. ¶¶ 12-19.

ECF No. 1.

Great American filed this action against

Great American seeks a declaration that it

FAC at 43-44 ("Prayer for Relief").

with the Changs' insurance claims.

Great

Id.

On September 21, 2012, the Changs filed a third-party

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complaint against FFIC for breach of contract, breach of the

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covenant of good faith and fair dealing, and declaratory relief.

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ECF No. 33 (Third-Party Complaint ("TPC")).

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rambling and opaque, but the Changs appear to allege that FFIC

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issued insurance policies to Christopher Chang in connection with

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the Baldwin Avenue property between 1984 and 1989.

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41, 86.

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under the policies and, thus, are entitled to FFIC coverage for the

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Kartal Action and the Storage Tank Fund Action.

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to the Changs, FFIC breached these insurance agreements in bad

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faith, withheld unidentified information, and somehow colluded with

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Great American to obstruct the Changs' access to the benefits of

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the FFIC and Great American policies.

The TPC is sometimes

See TPC ¶¶ 40-

The Changs further allege that they are beneficiaries

See id.

According

See id. ¶¶ 63, 88, 106.

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Among other things, the Changs seek damages resulting from

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FFIC's refusal to pay their claims and defend the Kartal Action and

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the Storage Tank Fund Action, as well as a judicial determination

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that FFIC has a duty to defend and indemnify the Changs in those

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actions.

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III. DISCUSSION
FFIC now moves to dismiss the TPC on the following grounds:

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(1) the TPC is not a proper impleader under Federal Rule of Civil

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Procedure 14; (2) the Court lacks subject-matter jurisdiction; and

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(3) the TPC fails to state a claim because it is "prolix, verbose,

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incomprehensible, and full of irrelevant material."

United States District Court

For the Northern District of California

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Mot. at 1.

The Court addresses each of these issues below.

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A.

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"A trial court must act within its sound discretion when

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determining whether a third-party defendant may be impleaded under

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[Federal] Rule [of Civil Procedure] 14."

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& Gas Co., 845 F.2d 196, 199 (9th Cir. 1988).

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defendant to file a third-party complaint against "a nonparty who

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is or may be liable to it for all or part of the claim against it."

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Fed. R. Civ. P. 14(a)(1).

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asserted under Rule 14 when that claim is dependent on the outcome

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of the main claim.

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characteristic of a Rule 14 claim is that [the] defendant is

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attempting to transfer to the third-party defendant the liability

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asserted against him by the original plaintiff.

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the alleged third-party claim arises from the same transaction or

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set of facts as the original claim is not enough."

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Charles Alan Wright & Arthur R. Miller, Federal Practice and

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Procedure § 1446 (1971 ed.)).

Rule 14 Impleading

Stewart v. Am. Int'l Oil
Rule 14 allows a

Thus, a third-party claim may only be

Stewart, 845 F.2d at 200.

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"The crucial

The mere fact that

Id. (quoting 6

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Here, FFIC argues that the TPC is improper under Rule 14

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because FFIC's alleged liability to the Changs is not derivative of

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or dependent on the Changs' liability to Great American.

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7.

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American and FFIC have a duty to defend and indemnify them in the

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Kartal Action and the Storage Tank Fund Action.

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Changs are unsuccessful in the Great American Action but prevail on

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the claims asserted in the TPC, FFIC may be liable for all of the

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potential defense, investigation, and clean-up costs in the

The Court disagrees.

MOT. at

The Changs allege that both Great

Thus, if the

United States District Court

For the Northern District of California

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underlying actions.

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unsuccessful on its claims and continues to defend and indemnify

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the Changs in the underlying actions, then FFIC's liability will be

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more limited.

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recovery from Great American and FFIC and the costs associated with

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the underlying actions are finite, FFIC's total potential liability

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is contingent on Great American's.

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On the other hand, if Great American is

Since the Changs presumably cannot get double

This finding is further supported by the California Supreme

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Court's recent decision in State v. Continental Insurance Company,

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55 Cal. 4th 186, 201 (Cal. 2012).

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Continental dealt with "long tail" claims for the clean-up of a

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contaminated property.

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such cases an insured has a right to "stack" its policy limits,

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meaning that "when more than one policy is triggered by an

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occurrence, each policy can be called upon to respond to the claim

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up to the full limits of the policy."

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omitted).

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exhausted, [the insured] is entitled to seek indemnification from

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any of the remaining insurers [that were] on the risk . . . ."

Like the instant action,

55 Cal. 4th at 195.

The court held that in

Id. at 200 (quotations

"When the policy limits of a given insurer are

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Id.

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(quotations omitted).

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stack their FFIC and Great American policies, FFIC's indemnity

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obligations may be contingent on a determination of Great

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American's in the Great American Action.

Thus, because the Changs may be entitled to

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B.

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FFIC argues that even if the TPC is a proper impleader, it

Subject-Matter Jurisdiction

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should be dismissed for lack of subject-matter jurisdiction.

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third-party plaintiffs, the Changs bear the burden of establishing

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the propriety of the Court's exercise of jurisdiction.

As

See

United States District Court

For the Northern District of California

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Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377

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(1994).

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matter jurisdiction is proper under: (1) 28 U.S.C. § 1331, which

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provides for federal question jurisdiction; (2) 28 U.S.C. § 1332;

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which provides for diversity jurisdiction; (3) the Federal

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Declaratory Judgment Act ("DJA"), 28 U.S.C. § 2201, and (4) 28

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U.S.C. § 1367, which provides for supplemental jurisdiction.

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¶¶ 1, 3.

In the TPC, they allege that the exercise of subject-

TPC

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The first three grounds are clearly not applicable here.

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exercise of federal question jurisdiction is inappropriate because

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the TPC raises only issues of state contract law.

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108.

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since the Changs and FFIC are all citizens of California.1

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Further, the DJA does not provide an independent basis for the

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exercise of federal jurisdiction.

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case of actual controversy within its jurisdiction, . . . any court

The

See id. ¶¶ 75-

As to 28 U.S.C. § 1332, there is no diversity of citizenship

See 28 U.S.C. § 2201(a) ("In a

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The citizenship of the parties is unclear from the TPC. FFIC
asserts that there is no diversity in its Motion, Mot. at 2, and
the Changs have not contested the point.

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of the United States . . . may declare the rights and other legal

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relations of any interested party . . . .") (emphasis added).

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The Changs' assertion of supplemental jurisdiction presents a

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closer question.

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of which the district courts have original jurisdiction, the

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district courts shall have supplemental jurisdiction over all other

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claims that are so related to claims in the action within such

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original jurisdiction that they form part of the same case or

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controversy . . . ."

Under 28 U.S.C. § 1367(a), "in any civil action

When assessing supplemental jurisdiction, the

United States District Court

For the Northern District of California

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issue of whether a party has been properly impleaded under Rule

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14(a) is not dispositive.

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F.3d 1370, 1374 (9th Cir. 1995).2

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not be invoked "merely to enable state and federal suits to be

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consolidated in federal court whenever ordinary notions of judicial

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economy would make that a desirable result, but instead should be

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reserved for cases where failure to exercise federal jurisdiction

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would prevent a party from obtaining justice."

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at 381-82.

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jurisdiction over Rule 14(a) claims between non-diverse parties

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when those claims arise out of the "same transaction or occurrence"

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as the claim over which the court has unquestioned federal

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jurisdiction.

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Id.

See Galt G/S V. Hapag Lloyd A.G., 60
Supplemental jurisdiction should

Hartford, 846 F.2d

Thus, a district court may only assert supplemental

Id. at 382.

Factual overlap alone is insufficient.

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See also Hartford Accident and Indem. Co. v. Sullivan, 846 F.2d
377, 382 (7th Cir. 1988) ("Dicta in a few cases can be read to
suggest that any 14(a) claim is within the ancillary jurisdiction
of the federal courts, [citations omitted], but it is doubtful that
the suggestion was intended, and if it was we respectfully disagree
with it.") (emphasis in the original).

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Here, there is some factual overlap between the Great American

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Action and the claims asserted in the TPC, since both actions arise

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out of the alleged contamination at the Baldwin Avenue property.

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However, the claims in the Great American Action and the TPC are

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not so related that they form the same case or controversy.

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resolution of the Great American Action will turn on the language

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of the insurance policies Great American issued to the Changs.

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contrast, the resolution of the TPC will turn on the language of

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the FFIC policies issued to Christopher Chang.

The

In

Thus, the two

United States District Court

For the Northern District of California

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actions arise out of distinct transactions -- the Great American

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policies and the FFIC policies -- and a judgment in one action will

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not affect the outcome of the other.

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The Changs argue that the two actions arise from the same

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transaction or occurrence because Great American and FFIC colluded:

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The collusion and intertwined nature between the
actions of [Great American] and FFIC is central
to the claims we present.
FFIC and [Great
American] have taken a series of actions and
inactions, including the suppression [of] the
filing of cross complaints and suppression of
policy
information,
and
other
actions
to
artificially not trigger defense obligations.

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Opp'n at 4.

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colluded or why they were obligated to file cross-complaints

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against each other.

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conclusory and otherwise incoherent.

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The Changs' opposition brief does nothing to clarify the matter

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except to cryptically refer to "evidence" attached to the TPC.

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Opp'n at 9.

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collection of random documents.

It is not entirely clear how Great American and FFIC

The TPC's allegations on this matter are
See TPC ¶¶ 39, 63-64, 106.

See

But that evidence is nothing more than a disorganized
See ECF No. 33-1.

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As the

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documents are not referenced in the TPC or otherwise identified, it

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is entirely unclear what they are to supposed to be or what they

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are supposed to prove.

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dozens and span over one hundred pages, the Changs do not identify

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where one begins and the next ends.

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Further, though the documents number in the

In sum, the Changs have failed to meet their burden of

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establishing subject-matter jurisdiction.

Accordingly, FFIC's

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motion to dismiss for lack of subject-matter jurisdiction is

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GRANTED.

The Court GRANTS the Changs leave to amend the TPC so as

United States District Court

For the Northern District of California

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to assert proper grounds for subject-matter jurisdiction and

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reminds counsel that conclusory allegations of jurisdiction will

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not suffice.

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C.

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As the Changs have failed to establish subject-matter

Rule 8 Pleading Requirements

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jurisdiction, the Court need not address FFIC's Rule 12(b)(6)

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motion to dismiss for failure to state a claim.

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Changs have been granted leave to amend to establish jurisdiction,

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some guidance on this issue could avoid the need for further

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briefing.

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However, since the

Rule 8 requires a pleading to be "concise and direct" and to

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set forth a "short and plain statement of the claim showing that

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the pleader is entitled to relief."

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Additionally, the allegations made in a complaint must be both

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"sufficiently detailed to give fair notice to the opposing party of

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the nature of the claim so that the party may effectively defend

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against it" and "sufficiently plausible" such that "it is not

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unfair to require the opposing party to be subjected to the expense

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of discovery."

Fed. R. Civ. P. 8(a)(2), (d).

Starr v. Baca, 633 F.3d 1191, 1204 (9th Cir. 2011).

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"When there are well-pleaded factual allegations, a court should

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assume their veracity and then determine whether they plausibly

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give rise to an entitlement to relief."

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U.S. 662, 664 (2009).

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as true all of the allegations contained in a complaint is

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inapplicable to legal conclusions.

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elements of a cause of action, supported by mere conclusory

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statements, do not suffice."

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v. Twombly, 550 U.S. 544, 555 (2007)).

United States District Court

However, "the tenet that a court must accept

Threadbare recitals of the

Id. at 663. (citing Bell Atl. Corp.

FFIC takes issue with the length and the clarity of the TPC.

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For the Northern District of California

Ashcroft v. Iqbal, 556

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MOT. at 10-13.

The Court is not concerned with the length.

At 31

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pages and 108 paragraphs, the TPC is far less burdensome than FFIC

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makes it out to be.

However, the Court is concerned with the

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clarity of the TPC.

There appears to be no order -- chronological

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or otherwise -- to the general allegations.

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errors and typos make many sentences difficult to understand.

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of the factual allegations are conclusory.

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specific, but the TPC fails to provide sufficient background or

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context to make them comprehensible.

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these factual allegations relate to the Changs' claims for relief.

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Additionally, as discussed above, the relevancy of the

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undifferentiated mass of exhibits attached to the TPC is not

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readily apparent.

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FFIC, as well as the Court.

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correct them.3

Rampant grammatical
Some

A number of others are

It is unclear how some of

These deficiencies place an improper burden on
The Changs' amended complaint should

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3

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If these deficiencies are not corrected, the Court suggests that
FFIC consider a Rule 12(f) motion to strike, in addition to a Rule
12(b)(6) motion to dismiss for failure to state a claim. The
motion to strike should identify particular paragraphs containing

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IV.

CONCLUSION

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For the foregoing reasons, the Court GRANTS Fireman's Fund

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Insurance Company's motion to dismiss the Third-Party Complaint for

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lack of subject-matter jurisdiction.

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Plaintiffs Michael Chang and Roxanne Chang leave to amend their

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complaint within thirty (30) days of the signature date of this

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Order.

The Court also GRANTS

Failure to do so will result in dismissal of this action.

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IT IS SO ORDERED.

United States District Court

For the Northern District of California

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Dated:

January 17, 2013
UNITED STATES DISTRICT JUDGE

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"redundant, immaterial, impertinent, or scandalous matter[s]."
Fed. R. Civ. P. 12(f).

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See