Colony Insurance Company v. Fladseth et al

Filing 39

ORDER by Judge Claudia Wilken DENYING DEFENDANTS 23 MOTION TO DISMISS OR STAY. (ndr, COURT STAFF) (Filed on 6/11/2012)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 COLONY INSURANCE COMPANY, 5 6 7 8 9 10 No. C 12-1157 CW Plaintiff, ORDER DENYING DEFENDANTS’ MOTION TO DISMISS OR STAY (Docket No. 23) v. DOUGLAS FLADSETH; and LAW OFFICES OF DOUGLAS C. FLADSETH, Defendants. ________________________________/ United States District Court For the Northern District of California Defendants Douglas Fladseth and the Law Offices of Douglas C. 11 Fladseth, a sole proprietorship, move to dismiss the first amended 12 complaint (1AC) of Plaintiff Colony Insurance Company, or to stay 13 proceedings in this case until the resolution of certain 14 underlying lawsuits pending in state court. Plaintiff opposes 15 Defendants’ motion. The Court takes Defendants’ motion under 16 submission on the papers and DENIES it. 17 BACKGROUND 18 19 20 21 22 23 24 25 Plaintiff initiated this action on March 8, 2012 and filed its 1AC on April 10, 2012. The following facts are taken from the 1AC and the documents attached thereto. Plaintiff insured Defendants pursuant to a Lawyers Professional Liability Policy number EO404193, valid from August 20, 2010 to August 20, 2011. 1AC ¶ 1. The policy provides in relevant part, 26 SECTION I - COVERAGES 27 1. Insuring Agreement 28 a. We will pay, in excess of the Deductible shown in the Declarations, those sums any insured becomes legally obligated to pay as “damages” because of an act, error or omission arising out of your “legal services” rendered or that should have been rendered. We will have the right and duty to defend any insured against a “claim” seeking those “damages.” However, we will have no duty to defend any insured against any “claim” seeking “damages” for “legal services” to which this insurance does not apply. . . . 1 2 3 4 5 6 2. Exclusions 7 This Policy does not apply to any “claim”: 8 . . . 9 d. Based on or directly or indirectly arising out of the rights or duties under any agreement including disputes over fees for services; United States District Court For the Northern District of California 10 11 . . . 12 j. Based on or directly or indirectly arising out of or resulting from: 13 . . . 14 (2) The gaining by any insured of any personal profit, gain or advantage to which an insured is not legally entitled; . . . 15 16 1AC, Ex. C, 40-42. 17 The policy also contains an addendum that provides, 18 19 SECTION I - COVERAGES, 2. Exclusions is amended and the following added: 20 This insurance does not apply to any “claim” for or awards of: 21 1. Punitive, exemplary or multiple damages; or 22 2. Equitable or non-pecuniary relief; 23 including any fines, penalties, court imposed sanctions, return or restitution of legal fees, costs or other expenses associated with such awards. 24 25 26 27 28 Id. at 52. Defendants have been named in two lawsuits currently pending in the Sonoma County Superior Court, Scholz v. Fladseth, Case No. 2 1 SCV249442, and Christiansen v. Fladseth, Case No. SCV250126, the 2 latter of which is a putative class action. 3 complaints in each lawsuit are materially identical for the 4 purposes of this action. 5 that Defendants failed to disclose to them the limitation on 6 attorneys’ fees in medical malpractice claims under California 7 state law, charged fees in excess of those amounts and assert that 8 their contingency fee agreements were void for illegality. 9 ¶¶ 10-13, Exs. A and B. The contents of the In both cases, the plaintiffs assert 1AC The causes of action asserted in each United States District Court For the Northern District of California 10 include (1) money had and received, (2) fraud, (3) conversion, 11 (4) accounting, and (5) violation of California Business and 12 Professions Code section 17200. 13 asserts a claim for professional negligence. 14 plaintiffs seek, among other things, punitive damages, accounting 15 and restitution of funds unlawfully obtained. In one, the plaintiff also In both actions, the 16 In the 1AC in this action, Plaintiff seeks a determination 17 that coverage does not exist for the underlying actions against 18 Defendants, because the claims asserted therein are based upon a 19 dispute over fees and upon Defendants gaining personal profit, 20 gain or advantage to which they are not legally entitled, and 21 because the plaintiffs in the underlying actions seek punitive, 22 exemplary or multiple damages, or equitable or non-pecuniary 23 relief, which are expressly excluded from the insurance policy. 24 Plaintiff also seeks a declaration that it does not owe a defense 25 or indemnity to Defendants for those claims. 26 LEGAL STANDARD 27 Under the Declaratory Judgment Act, a two-part test is used 28 to determine whether jurisdiction over a claim for a declaratory 3 1 judgment is appropriate. 2 F.3d 665, 669 (9th Cir. 2005). 3 an actual case or controversy exists within its jurisdiction. 4 Second, if so, the court must decide whether to exercise its 5 jurisdiction. Principal Life Ins. Co. v. Robinson, 394 First, the court must determine if Id. Id. 6 A district court has “discretion in determining whether and 7 when to entertain an action under the Declaratory Judgment Act.” 8 Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995). 9 “there is no presumption in favor of abstention in declaratory However, United States District Court For the Northern District of California 10 actions generally, nor in insurance coverage cases specifically.” 11 Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th 12 Cir. 1998). 13 actions over which it has jurisdiction is guided by the Supreme 14 Court’s announcements in [Brillhart v. Excess Ins. Co., 316 U.S. 15 491 (1942)].” 16 Brillhart factors are non-exclusive and state that, ‘[1)] the 17 district court should avoid needless determination of state law 18 issues; [2)] it should discourage litigants from filing 19 declaratory actions as a means of forum shopping; and [3)] it 20 should avoid duplicative litigation.’” 21 Employees Ins. Co., 133 F.3d at 1225) (alterations in original). 22 “Essentially, the district court must balance concerns of judicial 23 administration, comity, and fairness to the litigants.” 24 (internal quotations omitted). 25 additional and potentially relevant considerations,” including 26 “whether the declaratory action will serve a useful purpose in 27 clarifying the legal relations at issue” and “whether the “The district court’s discretion to hear declaratory Principal Life Ins. Co., 394 F.3d at 672. “The Id. (quoting Gov’t Id. The Ninth Circuit has also “noted 28 4 1 declaratory action is being sought merely for the purposes of 2 procedural fencing or to obtain a ‘res judicata’ advantage.” 3 4 Id. DISCUSSION Defendants do not assert that the Court lacks jurisdiction 5 over Plaintiff’s claims for declaratory judgment. 6 this motion, Defendants request that this Court exercise its 7 discretion to decline jurisdiction over this matter, or stay it 8 pending resolution of the underlying litigation. Instead, in Defendants contend that this action will be duplicative of 10 United States District Court For the Northern District of California 9 the state court actions, because the factual questions here are 11 the same as in those actions. 12 state law cases that counsel that when there is a “risk of 13 inconsistent factual determinations that could prejudice the 14 insured,” because the “coverage question turns on facts to be 15 litigated in the underlying action,” a stay pending resolution of 16 the underlying suit is appropriate. 17 Superior Court, 6 Cal. 4th 287, 301 (1993). 18 that, “when the coverage question is logically unrelated to the 19 issues of consequence in the underlying case, the declaratory 20 relief action may properly proceed to judgment.” 21 Defendants rely on a variety of Montrose Chemical Corp. v. These cases also note Id. at 302. In the instant action, the Court is not being asked to 22 determine if Defendants actually gained profits to which they were 23 not entitled or if the contingency fee agreements were actually 24 void, and the Court would not have to determine these issues in 25 adjudicating this coverage action. 26 asked if Defendants’ potential liability on the state court 27 actions would be covered by the underlying insurance policy. 28 5 Instead, the Court is being 1 Thus, the “coverage question is logically unrelated to the issues 2 of consequence” in the underlying actions. 3 The other factors relevant to this determination also do not 4 favor abstention. 5 cases, those actions will not determine the coverage issues that 6 are asserted here, and there are not any other pending cases in 7 which these issues would be decided. 8 duplicative and was not filed as a means of forum shopping. 9 Further, this action will serve a useful purpose to clarify the Plaintiff is not a party to the underlying Thus, this litigation is not United States District Court For the Northern District of California 10 legal obligations of Plaintiff regarding the underlying state 11 actions. 12 13 14 15 CONCLUSION For the reasons set forth above, the Court DENIES Defendants’ motion to dismiss or stay (Docket No. 23). IT IS SO ORDERED. 16 17 18 Dated: 6/11/2012 CLAUDIA WILKEN United States District Judge 19 20 21 22 23 24 25 26 27 28 6

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