Great America Insurance Company et al v. Chang et al

Filing 61

Order by Hon. Samuel Conti granting 53 Motion to Dismiss for Lack of Jurisdiction.(sclc1, COURT STAFF) (Filed on 4/16/2013)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 United States District Court For the Northern District of California 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 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. ) ) 1 I. 2 INTRODUCTION Now before the Court is Fireman's Fund Insurance Company's 3 ("FFIC") motion to dismiss and/or strike Michael and Roxanne 4 Chang's (collectively, "the Changs") Amended Third-Party Complaint 5 pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), 6 and 41(b). 7 Nos. 56 ("Opp'n"), 58 ("Reply"), and appropriate for determination 8 without oral argument pursuant to Civil Local Rule 7-1(b). 9 reasons set forth below, the Motion is GRANTED. ECF No. 53 ("Mot."). The Motion is fully briefed, ECF For the United States District Court For the Northern District of California 10 11 12 II. BACKGROUND This case involves an insurance coverage dispute arising from 13 an underlying lawsuit filed against the Changs, Bilal Kartal v. 14 Michael Chang, et al., Case No. CIV 458146, San Mateo Superior 15 Court (hereinafter, the "Kartal Action"). 16 The Kartal action concerns the alleged contamination of a property 17 owned by Michael Chang that is located on Baldwin Avenue in San 18 Mateo, California. 19 a related insurance dispute arising from claims that Michael Chang 20 asserted in a different litigation in which he sought to recover 21 pollution and investigation costs from the California Underground 22 Storage Tank Fund (the "Storage Tank Fund Action"). 23 Id. ¶¶ 4, 6. ECF No. 16 ("FAC") ¶ 11. The instant action also involves Id. ¶ 11. The Changs tendered the underlying actions to Great American 24 Insurance Company and Great American Insurance Company of New York 25 (collectively, "Great American") for insurance benefits under two 26 policies issued by Great American between 1977 and 1983. 27 They also tendered insurance claims to FFIC pursuant to policies 28 FFIC issued to the Changs' tenant, Christopher Chang, between 1984 2 Id. ¶ 20. 1 and 1987. 2 12. 3 under a reservation of rights and has advanced other claimed 4 amounts, also under a reservation of rights. 5 American alleges that it has no duty to defend or indemnify the 6 Changs because, among other things, the Changs breached their duty 7 to cooperate under the policies by attempting to manufacture a 8 claim for insurance benefits. 9 ECF No. 50 (Amended Third-Party Complaint ("Am. TPC")) ¶ Great American is defending the Changs in the Kartal action FAC ¶¶ 12-19. Great Id. at 18. Specifically, Great American points to a 2008 email from the United States District Court For the Northern District of California 10 Changs' environmental consultant to the Changs' attorneys, 11 suggesting that the Kartal action did not trigger Great American's 12 duty to defend, but that Great American's duty might be triggered 13 through a cross-complaint filed by third parties. 14 The Changs subsequently filed a cross-complaint in the Kartal 15 action against Christopher Chang and Grace and Kuneo Yamuguchi 16 (collectively, the "Yamaguchis"), whose family had allegedly owned 17 or operated a dry cleaning business at the Baldwin Avenue property 18 since the 1930s. 19 then encouraged Christopher Chang and the Yamuguchis to file cross- 20 complaints against Michael Chang. 21 cited in the FAC indicate that the Changs' attorneys and 22 environmental consultant believed that these cross-complaints would 23 trigger coverage by Great American and FFIC. 24 Id. ¶ 57. Id. at 53-54. Great American alleges that the Changs Id. ¶¶ 59-70. Other emails See id. Great American filed this action (the "Great American Action") 25 against the Changs in February 2012. 26 seeks a declaration that it has no duty to defend or indemnify the 27 Changs with respect to the Kartal Action or other pollution claims 28 involving the Baldwin Avenue property. 3 ECF No. 1. Great American FAC at 43-44 ("Prayer for 1 Relief"). 2 in connection with the Changs' insurance claims. Great American also seeks reimbursement of amounts paid Id. 3 In connection with the Great American Action, the Changs have 4 filed a third-party complaint against FFIC for breach of contract, 5 breach of the covenant of good faith and fair dealing, and 6 declaratory relief. 7 insurance agreements in bad faith by refusing to fulfill its duties 8 to defend and investigate contamination at the Baldwin Avenue 9 properties. The Changs allege that FFIC breached its See, e.g., Am. TPC ¶¶ 21-25. The Changs also allege United States District Court For the Northern District of California 10 that FFIC colluded with Great American to suppress the filing of 11 cross-complaints against the Changs that would have triggered 12 coverage under the relevant policies. 13 things, the Changs seek damages resulting from FFIC's refusal to 14 pay their claims and defend the Kartal Action and the Storage Tank 15 Fund Action, as well as a judicial determination that FFIC has a 16 duty to defend and indemnify the Changs in those actions. 17 See id. ¶ 15. Among other FFIC moved to dismiss the Changs' original third-party 18 complaint on the grounds that (1) the third-party complaint was not 19 a proper impleader, (2) the court lacked subject matter 20 jurisdiction, and (3) the Changs failed to meet Rule 8's pleading 21 requirements. 22 FFIC's motion to dismiss. 23 Court rejected FFIC's impleader arguments but found that subject 24 matter jurisdiction was lacking because the third-party complaint 25 did not raise a federal question and diversity was lacking. 26 4-6. ECF No. 45. On January 17, 2013, the Court granted ECF No. 49 ("Jan. 17 Order").1 The Id. at The Court found that the Changs' assertion of supplemental 27 1 28 Great Am. Ins. Co. v. Chang, 2013 WL 183976, 2013 U.S. Dist. LEXIS 7435 (N.D. Cal. Jan. 17, 2013). 4 1 jurisdiction presented a closer question due to the allegations 2 concerning collusion between Great American and FFIC, and granted 3 the Changs leave to amend so that they could assert proper grounds 4 for supplemental jurisdiction. 5 reach FFIC's Rule 8 arguments but noted concerns about the clarity 6 and organization of the third-party complaint. 7 Id. at 6-9. The Court declined to Id. at 10. On February 15, 2013, the Changs filed their Amended Third- 8 Party Complaint against FFIC. 9 for lack of subject matter jurisdiction and failure to state a FFIC subsequently moved to dismiss United States District Court For the Northern District of California 10 claim. 11 from the pleading, as well as thirty-nine exhibits attached 12 thereto. Alternatively, FFIC moves to strike dozens of paragraphs 13 14 III. DISCUSSION 15 As third-party plaintiffs, the Changs bear the burden of 16 establishing the propriety of the Court's exercise of jurisdiction. 17 See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 18 (1994). 19 may properly exercise federal question or diversity jurisdiction. 20 See Am. TPC ¶ 1. 21 Third-Party Complaint, like their original third-party complaint, 22 presents only questions of state law, and all parties to the third- 23 party complaint appear to be California residents. 24 for jurisdiction alleged in the Amended Third-Party Complaint is 25 supplemental jurisdiction. 26 The Changs have abandoned their contention that the Court The reason for this is clear: The Changs' Amended The only basis See id. Under 28 U.S.C. § 1367(a), "in any civil action of which the 27 district courts have original jurisdiction, the district courts 28 shall have supplemental jurisdiction over all other claims that are 5 1 so related to claims in the action within such original 2 jurisdiction that they form part of the same case or controversy . 3 . . ." 4 enable state and federal suits to be consolidated in federal court 5 whenever ordinary notions of judicial economy would make that a 6 desirable result, but instead should be reserved for cases where 7 failure to exercise federal jurisdiction would prevent a party from 8 obtaining justice." 9 F.2d 377, 381-82 (7th Cir. 1988). Supplemental jurisdiction should not be invoked "merely to Hartford Acc. & Indem. Co. v. Sullivan, 846 Thus, a district court may only United States District Court For the Northern District of California 10 assert supplemental jurisdiction over claims between non-diverse 11 parties when those claims arise out of the "same transaction or 12 occurrence" as the claim over which the court has unquestioned 13 federal jurisdiction. 14 Id. at 382. In its January 17 Order, the Court noted that there was some 15 factual overlap between the Great American Action and the claims 16 asserted in the Changs' initial third-party complaint, since both 17 actions arise out of the alleged contamination at the Baldwin 18 Avenue property. 19 that this factual overlap was insufficient to support the exercise 20 of supplemental jurisdiction, since the Changs' third-party 21 complaint and the Great American Action concerned different 22 insurance policies and thus distinct transactions. 23 suggested that the Changs' allegations that Great American and FFIC 24 colluded by refusing to file cross-complaints against one another 25 on behalf of their insureds could potentially support the exercise 26 of supplemental jurisdiction. 27 original third-party complaint, these allegations were "conclusory 28 and otherwise incoherent." Jan. 17 Order at 8. Id. Id. However, the Court found Id. The Court However, as pled in the Chang's The Court also noted that it was 6 1 entirely unclear why Great American and FFIC were obligated to file 2 cross-complaints against each other. 3 Id. The Changs have amended their third-party complaint to add 4 more factual allegations concerning FFIC and Great American's 5 handling of the underlying actions. 6 explaining how Great American and FFIC allegedly colluded in 7 suppressing the filing of cross-complaints that would have 8 triggered coverage under the relevant policies. 9 duty to file cross-complaints, the Changs' allegations concerning They have also added facts Absent a legal United States District Court For the Northern District of California 10 collusion between Great American and FFIC are irrelevant to the 11 Changs' claims for bad faith and breach of insurance contract. 12 However, it remains unclear why FFIC and Great American had a duty 13 to file cross-complaints. 14 control the defense of its insured. 15 Ins. Exch., 91 Cal. App. 4th 1093, 1105-06 (Cal. Ct. App. 2001). 16 Accordingly, an insurer does not have a duty to prosecute a 17 counterclaim or a cross-complaint on behalf of the insured absent 18 some contractual provision requiring such action. 19 06. 20 An insurer generally has a right to See James 3 Corp. v. Truck See id. at 1104- The Changs have not pointed to provisions in any of the 21 relevant policies that would have required either FFIC or Great 22 American to file cross-complaints in the underlying actions. 23 have they pointed to any authority that would give rise to an 24 independent duty to take such actions. 25 concerning FFIC's purported duty to file cross-complaints is 26 circular: the cross-complaints were "standard and expected" and 27 28 7 Nor The Changs' only argument See Opp'n at 9.2 1 necessary to trigger coverage under the policies. 2 But the Changs have cited no authority suggesting that FFIC was 3 required to file cross-complaints merely because the cross- 4 complaints may have triggered coverage under the Changs' policies. 5 Thus, the Court finds that the Changs have failed to meet 6 their burden of establishing grounds for the exercise of 7 supplemental jurisdiction over the Amended Third-Party Complaint. 8 Since the Court has already granted the Changs leave to amend on 9 this very same issue once before, it declines to grant leave to United States District Court For the Northern District of California 10 amend again. 11 dismiss for failure to state a claim or its motion to strike. The Court also declines to address FFIC's motion to 12 13 IV. 14 CONCLUSION For the foregoing reasons, the Court GRANTS Fireman's Fund 15 Insurance Company's motion to dismiss for lack of subject matter 16 jurisdiction. 17 Chang's third-party complaint against FFIC without prejudice to the 18 Changs' right to bring this complaint in state court. The Court DISMISSES the Michael Chang and Roxanne 19 20 IT IS SO ORDERED. 21 22 Dated: 23 April 15, 2013 UNITED STATES DISTRICT JUDGE 24 2 25 26 27 28 The Changs also argue that the Court should exercise supplemental jurisdiction because it previously found that the original third party complaint was a proper impleader. Id. at 10-11. However, as the Court stated in its January 17 Order, "when assessing supplemental jurisdiction, the issue of whether a party has been properly impleaded . . . is not dispositive." Jan. 17 Order at 7 (citing Galt G/S V. Hapag Lloyd A.G., 60 F.3d 1370, 1374 (9th Cir. 1995)). 8

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