Axis Reinsurance Company v. Telekenex, Inc. et al

Filing 106

Order by Hon. Samuel Conti denying 94 Motion for Entry of Judgment under Rule 54(b).(sclc1, COURT STAFF) (Filed on 4/26/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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AXIS REINSURANCE COMPANY,

For the Northern District of California

United States District Court

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Plaintiff,

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v.

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TELEKENEX, INC.; ANTHONY ZABIT;
KAREN SALAZAR; BRANDON CHANEY;
DEANNA CHANEY; MARK PRUDELL; JOY
PRUDELL; MARK RADFORD; NIKKI
RADFORD; JOSHUA SUMMERS; JULIA
SUMMERS; IXC HOLDINGS, INC.;
STRAITSHOT COMMUNICATIONS, INC.;
and STRAITSHOT RC, LLC,

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Defendants.
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Case No. 12-2979 SC
ORDER DENYING MOTION FOR
ENTRY OF JUDGMENT UNDER
RULE 54(b)

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I.

INTRODUCTION

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On December 19, 2012, the Court granted in part and denied in

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part Plaintiff Axis Reinsurance Company's ("Plaintiff") motion for

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partial summary judgment.

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that Order, Defendants Telekenex, Inc. ("Telekenex"), IXC Holdings,

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Inc. ("IXCH"), Anthony Zabit, Karen Salazar, Brandon Chaney, and

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Deanna Chaney (collectively, the "Telekenex Defendants") now move

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ECF No. 68 ("Dec. 19 Order").1

Based on

Axis Reinsurance Co. v. Telekenex, Inc., -- F. Supp. 2d --, 2012
WL 6632180, 2012 U.S. Dist. LEXIS 179647 (N.D. Cal. 2012).

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for entry of judgment pursuant to Federal Rule of Civil Procedure

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54(b).

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99 ("Opp'n"), 102 ("Reply"), and suitable for determination without

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oral argument, Civ. L.R. 7-1(b).

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the Motion is DENIED.

ECF No. 94 ("Mot.").

The Motion is fully briefed, ECF Nos.

For the reasons set forth below,

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II.

BACKGROUND

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In 2008, one of Telekenex's Washington-based competitors,

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Straitshot Communications, Inc. ("Straitshot"), sued Telekenex and

United States District Court

For the Northern District of California

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a number of the other Telekenex Defendants in a case captioned

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Straitshot Communications, Inc. v. Telekenex, Inc., et al., No.

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C10-268 TSZ (W.D. Wash.) (the "Straitshot action").

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at 4.

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stole its trade secrets and confidential customer information and

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covered up this theft by destroying evidence.

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returned a $6.49 million verdict in favor of Straitshot, finding

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for Straitshot -- in whole or in part -- on its claims for breach

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of contract, breach of the duty of loyalty, interference with

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contractual relations, and violation of Washington's Consumer

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Protection Act.

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sanctions against Telekenex in connection with its destruction of

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evidence.

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Dec. 19 Order

Straitshot alleged that a number of the Telekenex Defendants

Id. at 5.

Id.

The jury

The Court later entered spoliation

Id. at 6.

The instant action arises out of a dispute over whether the

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damages awarded and defense costs incurred in connection with the

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Straitshot action are covered by an insurance policy Plaintiff

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issued to Telekenex (the "Policy").

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asserts eight counts, including six counts for declaratory relief.

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ECF No. 15 ("Am. Compl.").

Plaintiff's amended complaint

Specifically, Plaintiff asks the Court

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to declare the following: (I) the Policy's "unlawful advantage

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exclusion" bars coverage; (II) California Insurance Code section

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533 bars coverage; (III) the spoliation sanctions are not covered

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because they do not constitute a "Loss" under the terms of the

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Policy; (IV) the finding that Defendants Mark Prudell and Joshua

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Summers, who formerly worked for Straitshot, breached their duty of

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loyalty to Straitshot does not trigger coverage for them or their

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spouses; (V) IXCH is not an insured under the Policy; and (VI) the

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proper allocation of amounts covered and uncovered by the Policy.

United States District Court

For the Northern District of California

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Id. ¶¶ 40-73.

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from the Telekenex Defendants under theories of equitable indemnity

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and restitution for amounts Plaintiff paid in connection with its

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coverage of the Straitshot action.

Plaintiff's remaining two counts seek reimbursement

On December 19, 2012, the Court granted in part and denied in

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part Plaintiff's motion for summary judgment on Counts I, II, and

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V.

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advantage exclusion barred" coverage for the $6.49 million judgment

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but not the spoliation sanctions, and rejected the Telekenex

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Defendants' argument that Plaintiff is estopped from asserting the

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exclusion because it purportedly failed to inform the Telekenex

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Defendants of their right to independent counsel.

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With respect to Count II, the Court found that California law -- as

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opposed to Washington law -- governed the dispute and that

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California Insurance Code section 533 barred coverage for the $6.49

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million judgment but not the spoliation sanctions.

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The Court also ruled in favor of Plaintiff on Count V, finding that

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IXCH is not covered under the Policy because IXCH is not named as

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an insured and did not automatically acquire a right to coverage

As to Count I, the Court found that the Policy's "unlawful

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Id. at 14-18.

Id. at 18-24.

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when it agreed to purchase Telekenex's assets.2

Id. at 25.

The Telekenex Defendants have answered Axis's Amended

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Complaint and asserted five counterclaims.

ECF No. 69 ("Telekenex

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Answer").

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Axis is estopped from denying coverage, that Axis may not allocate

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between covered and uncovered claims, and that Axis must fully

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reimburse the Telekenex Defendants for the costs and damages

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associated with the Straitshot action.

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third counterclaims are for breach of contract and negligence.

The first counterclaim seeks a judicial declaration that

Id. ¶ 56.

The second and
Id.

United States District Court

For the Northern District of California

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¶¶ 57-63.

The fourth counterclaim asserts that Plaintiff engaged

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in bad faith and breached its statutory and regulatory duties under

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Washington law by, among other things, wrongfully asserting that

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California law applies and failing to inform the Telekenex

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Defendants of their right to independent counsel.

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The fifth counterclaim, pled in the alternative, asserts that

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Plaintiff engaged in bad faith under California law.3

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76.

Id. ¶¶ 64-72.

Id. ¶¶ 73-

The Telekenex Defendants now move under Rule 54(b) for a

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determination that the Court's December 19 Order constitutes a

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final judgment with respect to coverage under the Policy for the

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$6.49 million Straitshot judgment.

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///

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///

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The Telekenex Defendants subsequently moved for reconsideration
of the December 19 Order. ECF No. 83. That motion was denied.
ECF No. 88.
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The Telekenex Defendants recently moved for leave to amend their
answer to add a new counterclaim under Washington's Insurance Fair
Conduct Act. ECF No. 85. The Court denied that motion finding
that the proposed amendment would be futile in light of the Court's
earlier finding that California law governs this dispute. ECF No.
101.

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III. LEGAL STANDARD
Rule 54(b) allows a district court to direct entry of final

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judgment for the purpose of appeal as to one or more, but fewer

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than all, claims if the court expressly determines that there is no

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just reason for delay.

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Rule 54(b) is governed by a two-step process.

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v. Gen. Elec. Co., 446 U.S. 1, 7-8 (1980).

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determine whether it is dealing with a final judgment.

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"It must be a 'judgment' in the sense that it is a decision upon a

Fed. R. Civ. P. 54(b).

The application of
Curtiss-Wright Corp.

First, the court must
Id. at 7.

United States District Court

For the Northern District of California

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cognizable claim for relief, and it must be 'final' in the sense

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that it is 'an ultimate disposition of an individual claim entered

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in the course of a multiple claims action.'"

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Roebuck & Co. v. Mackey, 351 U.S. 427, 436 (1956)).

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Court must determine whether there is any just reason for delay,

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"tak[ing] into account judicial administrative interests as well as

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the equities involved."

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preserve the long-standing policy against piecemeal appeals.

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Accordingly, the Court may properly "consider such factors as

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whether the claims under review were separable from the others

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remaining to be adjudicated and whether the nature of the claims

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already determined was such that no appellate court would have to

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decide the same issues more than once even if there were subsequent

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appeals."

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54(b) certification inappropriate.

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significance for Rule 54(b) purposes turns on their

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interrelationship with the claims on which certification is

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sought."

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///

Id.

Id. at 8.

Id. (quoting Sears,
Second, the

This step is necessary to
Id.

The existence of counterclaims does not render Rule

Id.

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Id. at 9.

"[Counterclaims']

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IV.

DISCUSSION
The Court finds that its December 19 Order does not fall

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within the ambit of Rule 54(b).

As an initial matter, it is not

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clear that the December 19 Order constitutes a final judgment.

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That order disposed of three of Plaintiff's seven counts, and the

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Court is not convinced that the remaining four counts constitute

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separate claims for the purposes of Rule 54(b).

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in Rule 54(b) refers to a set of facts giving rise to legal rights

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in the claimant, not to legal theories of recovery based upon those

"The word 'claim'

United States District Court

For the Northern District of California

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facts."

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(9th Cir. 1961).

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where "[t]he 'claims' stated in the complaint are really but one

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claim, stated in two ways, for the purpose of presenting two legal

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theories of recovery."

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CMAX, Inc. v. Drewry Photocolor Corp., 295 F.2d 695, 697
Thus, Rule 54(b) certification is inappropriate

Id.

Here, in ruling on Plaintiff's Counts I and II, the Court

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determined that the Policy's unlawful advantage exclusion and

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California Insurance Code section 533 bar coverage for the $6.49

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million judgment rendered in the Straitshot action.

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has yet to rule on Counts VI, VII, or VIII, and thus, has yet to

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determine the allocation between amounts covered and uncovered by

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the Policy (including defense costs) or whether Plaintiff is

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entitled to reimbursement from the Telekenex Defendants.

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that the Court's ruling on Plaintiff's Counts I and II has a

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dispositive impact on Plaintiff's Counts VI, VII, and VIII, at

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least with respect to the $6.49 million judgment, but the parties

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have yet to fully brief that issue.

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But the Court

It may be

In any event, certifying the December 19 Order pursuant to
Rule 54(b) would unquestionably result in a piecemeal appeal.

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Plaintiff's Counts I and II are interrelated with their requests

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for reimbursement.

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Defendants counterclaims for breach of contract, bad faith, and

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negligence, which are based on identical facts and raise similar

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legal issues.

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appeal of facts and legal issues inextricably intertwined with

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matters that are still pending before the Court.

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to rule on these pending issues and either party appealed, the

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Ninth Circuit would need to address substantially similar issues

Counts I and II are also interrelated with

Thus, a Rule 54(b) certification would result in an

If the Court were

United States District Court

For the Northern District of California

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for a second time.

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54(b) is intended to prevent.

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to good judicial administration "to have both [the Ninth Circuit]

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and the district court simultaneously passing upon what is in

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substance the identical claim, [the Ninth Circuit] dealing with one

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theory, but basically the same facts").

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This is the kind of piecemeal appeal that Rule
See CMAX, 295 F.2d at 697 (contrary

The Telekenex Defendants argue that their right to coverage

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for indemnity has been finally resolved by the Court's decision on

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Plaintiff's Counts I and II.

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address how their still-pending counterclaims might ultimately

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affect their right to coverage.

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suggest that a Rule 54(b) certification will streamline the process

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because if the Ninth Circuit reverses the December 19 Order, Axis's

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Counts VII and VIII will never be litigated.

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were the case -- and it remains unclear that it is -- the Telekenex

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Defendants once again ignore their pending counterclaims.

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Telekenex Defendants' argument also assumes that the Court's

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December 19 Order will be reversed and that the reversal will be

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filed prior to the date currently set for trial.

Reply at 3.

However, they do not

The Telekenex Defendants also

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Id.

Even if this

The

If either of

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these assumptions proves incorrect, then a Rule 54(b) certification

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would likely create more work for the federal courts, not less.

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Additionally, staying the trial pending an appeal of the December

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matter.

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V.

CONCLUSION
For the foregoing reasons, the Court finds that there are just

reasons to delay the Telekenex Defendants' appeal of the Court's

United States District Court

For the Northern District of California

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December 19 Order.

Accordingly, the Telekenex Defendants' Rule

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54(b) Motion is DENIED.

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IT IS SO ORDERED.

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Dated: April 24, 2013
UNITED STATES DISTRICT JUDGE

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