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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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 and/or strike Michael and Roxanne

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Chang's (collectively, "the Changs") Amended Third-Party Complaint

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pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6),

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and 41(b).

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Nos. 56 ("Opp'n"), 58 ("Reply"), and appropriate for determination

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without oral argument pursuant to Civil Local Rule 7-1(b).

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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

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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 the underlying actions to Great American

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Insurance Company and Great American Insurance Company of New York

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(collectively, "Great American") for insurance benefits under two

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policies issued by Great American between 1977 and 1983.

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They also tendered insurance claims to FFIC pursuant to policies

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FFIC issued to the Changs' tenant, Christopher Chang, between 1984

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Id. ¶ 20.

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and 1987.

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12.

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under a reservation of rights and has advanced other claimed

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amounts, also under a reservation of rights.

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American alleges that it has no duty to defend or indemnify the

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Changs because, among other things, the Changs breached their duty

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to cooperate under the policies by attempting to manufacture a

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claim for insurance benefits.

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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

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Changs' environmental consultant to the Changs' attorneys,

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suggesting that the Kartal action did not trigger Great American's

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duty to defend, but that Great American's duty might be triggered

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through a cross-complaint filed by third parties.

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The Changs subsequently filed a cross-complaint in the Kartal

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action against Christopher Chang and Grace and Kuneo Yamuguchi

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(collectively, the "Yamaguchis"), whose family had allegedly owned

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or operated a dry cleaning business at the Baldwin Avenue property

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since the 1930s.

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then encouraged Christopher Chang and the Yamuguchis to file cross-

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complaints against Michael Chang.

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cited in the FAC indicate that the Changs' attorneys and

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environmental consultant believed that these cross-complaints would

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trigger coverage by Great American and FFIC.

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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")

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against the Changs in February 2012.

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seeks a declaration that it has no duty to defend or indemnify the

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Changs with respect to the Kartal Action or other pollution claims

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involving the Baldwin Avenue property.

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ECF No. 1.

Great American

FAC at 43-44 ("Prayer for

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Relief").

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in connection with the Changs' insurance claims.

Great American also seeks reimbursement of amounts paid
Id.

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In connection with the Great American Action, the Changs have

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filed a third-party complaint against FFIC for breach of contract,

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breach of the covenant of good faith and fair dealing, and

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declaratory relief.

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insurance agreements in bad faith by refusing to fulfill its duties

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to defend and investigate contamination at the Baldwin Avenue

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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

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that FFIC colluded with Great American to suppress the filing of

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cross-complaints against the Changs that would have triggered

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coverage under the relevant policies.

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things, the Changs seek damages resulting from FFIC's refusal to

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pay their claims and defend the Kartal Action and the Storage Tank

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Fund Action, as well as a judicial determination that FFIC has a

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duty to defend and indemnify the Changs in those actions.

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See id. ¶ 15.

Among other

FFIC moved to dismiss the Changs' original third-party

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complaint on the grounds that (1) the third-party complaint was not

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a proper impleader, (2) the court lacked subject matter

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jurisdiction, and (3) the Changs failed to meet Rule 8's pleading

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requirements.

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FFIC's motion to dismiss.

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Court rejected FFIC's impleader arguments but found that subject

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matter jurisdiction was lacking because the third-party complaint

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did not raise a federal question and diversity was lacking.

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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

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Great Am. Ins. Co. v. Chang, 2013 WL 183976, 2013 U.S. Dist.
LEXIS 7435 (N.D. Cal. Jan. 17, 2013).

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jurisdiction presented a closer question due to the allegations

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concerning collusion between Great American and FFIC, and granted

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the Changs leave to amend so that they could assert proper grounds

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for supplemental jurisdiction.

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reach FFIC's Rule 8 arguments but noted concerns about the clarity

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and organization of the third-party complaint.

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Id. at 6-9.

The Court declined to

Id. at 10.

On February 15, 2013, the Changs filed their Amended Third-

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Party Complaint against FFIC.

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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

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claim.

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from the pleading, as well as thirty-nine exhibits attached

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thereto.

Alternatively, FFIC moves to strike dozens of paragraphs

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III. DISCUSSION

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

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establishing the propriety of the Court's exercise of jurisdiction.

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

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(1994).

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may properly exercise federal question or diversity jurisdiction.

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See Am. TPC ¶ 1.

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Third-Party Complaint, like their original third-party complaint,

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presents only questions of state law, and all parties to the third-

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party complaint appear to be California residents.

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for jurisdiction alleged in the Amended Third-Party Complaint is

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supplemental jurisdiction.

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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

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district courts have original jurisdiction, the district courts

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shall have supplemental jurisdiction over all other claims that are

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so related to claims in the action within such original

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jurisdiction that they form part of the same case or controversy .

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. . ."

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enable state and federal suits to be consolidated in federal court

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whenever ordinary notions of judicial economy would make that a

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desirable result, but instead should be reserved for cases where

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failure to exercise federal jurisdiction would prevent a party from

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obtaining justice."

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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

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assert supplemental jurisdiction over claims between non-diverse

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

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occurrence" as the claim over which the court has unquestioned

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federal jurisdiction.

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Id. at 382.

In its January 17 Order, the Court noted that there was some

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factual overlap between the Great American Action and the claims

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asserted in the Changs' initial third-party complaint, since both

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actions arise out of the alleged contamination at the Baldwin

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Avenue property.

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that this factual overlap was insufficient to support the exercise

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of supplemental jurisdiction, since the Changs' third-party

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complaint and the Great American Action concerned different

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insurance policies and thus distinct transactions.

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suggested that the Changs' allegations that Great American and FFIC

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colluded by refusing to file cross-complaints against one another

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on behalf of their insureds could potentially support the exercise

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of supplemental jurisdiction.

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original third-party complaint, these allegations were "conclusory

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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

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entirely unclear why Great American and FFIC were obligated to file

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cross-complaints against each other.

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Id.

The Changs have amended their third-party complaint to add

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more factual allegations concerning FFIC and Great American's

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handling of the underlying actions.

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explaining how Great American and FFIC allegedly colluded in

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suppressing the filing of cross-complaints that would have

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triggered coverage under the relevant policies.

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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

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collusion between Great American and FFIC are irrelevant to the

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Changs' claims for bad faith and breach of insurance contract.

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However, it remains unclear why FFIC and Great American had a duty

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to file cross-complaints.

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control the defense of its insured.

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Ins. Exch., 91 Cal. App. 4th 1093, 1105-06 (Cal. Ct. App. 2001).

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Accordingly, an insurer does not have a duty to prosecute a

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counterclaim or a cross-complaint on behalf of the insured absent

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some contractual provision requiring such action.

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06.

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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

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relevant policies that would have required either FFIC or Great

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American to file cross-complaints in the underlying actions.

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have they pointed to any authority that would give rise to an

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independent duty to take such actions.

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concerning FFIC's purported duty to file cross-complaints is

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circular: the cross-complaints were "standard and expected" and

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Nor

The Changs' only argument

See Opp'n at 9.2

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necessary to trigger coverage under the policies.

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But the Changs have cited no authority suggesting that FFIC was

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required to file cross-complaints merely because the cross-

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complaints may have triggered coverage under the Changs' policies.

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Thus, the Court finds that the Changs have failed to meet

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their burden of establishing grounds for the exercise of

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supplemental jurisdiction over the Amended Third-Party Complaint.

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Since the Court has already granted the Changs leave to amend on

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this very same issue once before, it declines to grant leave to

United States District Court

For the Northern District of California

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amend again.

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dismiss for failure to state a claim or its motion to strike.

The Court also declines to address FFIC's motion to

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IV.

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

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Insurance Company's motion to dismiss for lack of subject matter

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jurisdiction.

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Chang's third-party complaint against FFIC without prejudice to the

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Changs' right to bring this complaint in state court.

The Court DISMISSES the Michael Chang and Roxanne

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IT IS SO ORDERED.

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Dated:

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April 15, 2013
UNITED STATES DISTRICT JUDGE

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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)).

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