PSC Industrial Outsourcing, LP v. Burlington Insurance Company, The

Filing 27

ORDER ADOPTING MAGISTRATE'S FINDINGS AND RECOMMENDATION THAT PLAINTIFF'S MOTIONS TO REMAND BE GRANTED for 24 ] as to Civ. No. 10-00751 ACK-BMK, Civ. No. 11-00014 ACK-BMK, Civ. No. 11-00073 ACK-BMK. Signed by JUDGE ALAN C KAY on 5/10/11. (eps) -- The Court hereby adopts the Findings and Recommendation and remands these three actions to state court CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

PSC Industrial Outsourcing, LP,
Plaintiff,
v.
THE BURLINGTON INSURANCE
COMPANY,
Defendant.

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Civ. No. 10-00751 ACK-BMK
Civ. No. 11-00014 ACK-BMK
Civ. No. 11-00073 ACK-BMK

ORDER ADOPTING MAGISTRATE’S FINDINGS AND RECOMMENDATION THAT
PLAINTIFF’S MOTIONS TO REMAND BE GRANTED
Before the Court are objections from Defendant The
Burlington Insurance Company (“Burlington”) to the Magistrate
Judge’s Findings and Recommendation That Plaintiff’s Motions to
Remand Be Granted (“Findings and Recommendation”).

The Court

hereby adopts the Findings and Recommendation and remands these
three actions to state court.
BACKGROUND1/
These three removed declaratory judgment actions stem
from an industrial explosion at a used-oil recycling plant in

1/

Further background regarding these actions and the
underlying state court actions is provided in this Court’s
December 23, 2010, “Order (1) Granting Defendant Rehmer’s Stay
Motion (2) Granting Defendant PSC’s Stay Motion, and (3) Denying
Defendant Norva’s Motion to Dismiss” (“12/23/10 Stay Order”).
The facts as recited in this Order are not to be construed
as findings of fact that the parties may rely on in future
proceedings in this case.

Kapolei, Hawai‘i, operated by PSC Industrial Outsourcing, L.P.
(“PSC”).

On May 30, 2008, PSC entered into a contract agreement

(“5/30/08 Contract”) with a contractor, identified as “Pan Co,”
to perform work at the plant.

Macario C. Panajon, as President,

signed the 5/30/08 Contract on behalf of the contractor.

Under

this contract, Pan Co promised that it carried insurance and
would include PSC as an additional insured.2/

It also agreed to

defend, indemnify, and hold harmless PSC and its agents and
employees from and against any and all claims and damages arising
out of the contract work.
On October 7, 2008, Sean Miguel Norva (“Sean Norva”),
an employee of Pan Co or Panacorp, Inc.,3/ was welding at the
Kapolei plant when a nearby oil tank exploded.

Joel Rehmer

(“Rehmer”), a PSC operations manager, was also working at the
plant that day.

The explosion killed Sean Norva, injured David

Kahookele, and caused damage to the plant and to Bomat, Ltd.,
d.b.a. Bonded Materials Company (“Bomat”), a concrete production
facility nearby.

On October 31, 2008, PSC notified “PanCo,”

attention “Mr. Mario Panajon,” of claims arising from the
explosion, asked for indemnification, and requested that

2/

The parties dispute whether PSC was added as an
additional insured as promised.
3/

PSC contends that Sean Norva was employed by Panajon or
one or more of Panajon’s companies, not necessarily Pan Co or
Panacorp. Panajon incorporated Panacorp about two weeks before
he entered into the 5/30/08 Contract.
2

appropriate insurers be notified.

At the time of the explosion,

“Macario C. Panajon dba: Panco” was listed as a Named Insured
under a commercial general liability policy (“Policy”) issued by
Burlington.
On December 10, 2009, Burlington informed PSC that it
had no duty to defend or indemnify PSC under the Policy because
the 5/30/08 Contract “is between PSC and Panacorp, Inc., while
the Named Insured on the policy is Macario C. Panajon d/b/ Panco,
designated an individual on the Declarations Page. . . . As
Panacorp, Inc. is not a Named Insured, PSC’s contract with
Panacorp, Inc., does not make PSC an additional insured under the
[Burlington] policy issued to Mr. Panajon.”

As described below,

PSC has been sued in three separate state court actions.4/
I.

Kahookele and PSC I
On November 9, 2009, Kahookele filed a personal injury

action in the Circuit Court of the First Circuit, State of
Hawai‘i, against PSC and Panacorp, asserting claims of negligence
and strict liability.

Kahookele v. Panacorp, Inc., et al., Civ.

No. 09-1-2616-11 RAN (“Kahookele”).

PSC then asserted cross-

claims against Panacorp and third-party claims against Panajon

4/

In turn, Burlington has filed two declaratory judgment
actions in this Court. The Burlington Insurance Company v.
PanaCorp, Inc., et al., Civ Nos. 09-00587 ACK-BMK, 10-00382 ACKBMK. These actions have been consolidated and stayed under the
Younger abstention doctrine and the Declaratory Judgment Act.
See 12/23/10 Stay Order.
3

for negligence, breach of contract, misrepresentation, indemnity,
and contribution and equitable subrogation.

In response,

Panacorp cross-claimed and Panajon counterclaimed against PSC for
negligence and indemnification.
On April 1, 2010, PSC filed third-party claims against
Kimberly Anne Norva, Personal Representative of the Estate of
Sean Miguel Norva (deceased) (“Norva’s Estate”) for negligence,
implied indemnity, contribution, and equitable subrogation.

PSC

also asserted a third-party claim against Burlington, which
sought a declaration that PSC is covered under the Policy.5/
Burlington subsequently moved to sever PSC’s third-party claim
against Burlington, and the Kahookele court orally granted this
motion at a November 10, 2010 hearing.

The court entered a

written order granting Burlington’s motion to sever on December
8, 2010.

5/

A number of other claims were filed in Kahookele. In
particular, Norva’s Estate filed fourth-party claims against
Panajon’s insurance agents, Finance Insurance, Ltd., and Hawaii
Insurance Consultants, Ltd., asserting claims of negligence and
breach of duty to change the named insured to, or secure coverage
for, Panacorp under the Policy. Finance Insurance cross-claimed
against Hawaii Insurance Consultants for tortious and negligent
conduct and contribution and indemnification. Hawaii Insurance
Consultants cross-claimed against Finance Insurance for indemnity
and contribution. And PSC cross-claimed against Finance
Insurance and Hawaii Insurance Consultants for failing to obtain
coverage required or appropriate under the 5/30/08 Contract and
for failing to change the name of the named insured under the
Policy to Panacorp and the status of the named insured to a
corporation.
4

On December 16, 2010, Burlington filed a Notice of
Removal in this Court, removing PSC’s severed declaratory claim.
PSC Industrial Outsourcing, LP v. The Burlington Insurance
Company, Civ. No. 10-00751 ACK-BMK (“PSC I”).
2011, PSC filed a Motion to Remand.

On January 14,

Burlington filed a

memorandum in opposition on February 3, 2011, and PSC filed a
reply on February 10, 2011.
II.

Norva and PSC II
On September 24, 2009, Norva’s Estate and survivors

filed a personal injury action in the Circuit Court of the First
Circuit, State of Hawai‘i, against PSC and Rehmer.

Norva, et al.

v. PSC Industrial Outsourcing, LP, et al., Civ. No. 09-1-2157-09
PWB (“Norva”).

PSC and Rehmer counterclaimed against Norva’s

Estate for negligence, indemnity, contribution, and
reimbursement, and also asserted third-party claims against
Panajon and Panacorp for negligence, breach of contract,
misrepresentation, indemnity, contribution, and reimbursement.
PSC also asserted third-party claims against Burlington, which
sought, inter alia, a declaration that PSC is covered under the
Policy.6/

6/

Several other claims have been filed in Norva. Like in
Kahookele, Norva’s Estate filed fourth-party claims against
Finance Insurance and Hawaii Insurance Consultants, Ltd., and PSC
cross-claimed against Finance Insurance and Hawaii Insurance
Consultants.
5

On November 29, 2010, the Norva court dismissed PSC’s
third-party complaint against Burlington without prejudice to
PSC’s asserting such claims against Burlington in a separate
lawsuit.

Consequently, on December 21, 2010, PSC filed a

complaint against Burlington in the Circuit Court of the First
Circuit, State of Hawai‘i, for a declaration that PSC is covered
under the Policy.

PSC Industrial Outsourcing, LP v. Burlington

Insurance Co., Civ. No. 10-1-2712-12 VLC.
On January 6, 2011, Burlington filed a Notice of
Removal in this Court, removing PSC’s re-filed declaratory claim
against Burlington.

PSC Industrial Outsourcing, LP v. The

Burlington Insurance Company, Civ. No. 11-00014 ACK-BMK (“PSC
II”).

On February 3, 2011, PSC filed a Motion to Remand.

Burlington filed a memorandum in opposition on February 14, 2011,
and PSC filed a reply on February 18, 2011.
III. Bomat and PSC III
On September 30, 2010, Bomat and Great American
Insurance Company filed a negligence, strict liability, and
nuisance action in the Circuit Court of the First Circuit, State
of Hawai‘i, against PSC d.b.a Phillips Services Hawaii, PSC
Industrial Services, and Panacorp.

Bomat, Ltd. v. PSC Industrial

Outsourcing, LP, et al., Civ. No. 10-1-2090-09 RAT (“Bomat”).
PSC asserted cross-claims against Panacorp and third-party claims
against Panajon for negligence, breach of contract,

6

misrepresentation, implied indemnity, and contribution and
equitable subrogation.

In response, Panacorp cross-claimed and

Panajon counterclaimed against PSC for negligence and
indemnification.

PSC also filed third-party claims against

Norva’s Estate for negligence, indemnity, contribution, and
equitable subrogation.

Lastly, PSC filed a third-party claim

against Burlington, which sought a declaration that PSC is
covered under the Policy.7/
Burlington subsequently moved to sever PSC’s thirdparty claim against Burlington, and the Bomat court orally
granted this motion at a January 18, 2011 hearing.

It appears

that the court has yet to enter a written order granting
Burlington’s motion to sever.
On January 31, 2011, Burlington filed a Notice of
Removal in this Court, removing PSC’s severed declaratory claim.
PSC Industrial Outsourcing, LP v. The Burlington Insurance
Company, et al., Civ. No. 11-00073 ACK-BMK (“PSC III”).
February 7, 201 1, PSC filed a Motion to Remand.

On

Burlington

filed a memorandum in opposition on February 14, 2011, and PSC
filed a reply on February 18, 2011.

7/

Several other claims have been filed in Bomat. Like in
Kahookele, Norva’s Estate filed fourth-party claims against
Finance Insurance and Hawaii Insurance Consultants; Finance
Insurance and Hawaii Insurance Consultants each filed crossclaims against the other; and PSC filed cross-claims against
Finance Insurance and Hawaii Insurance Consultants.
7

IV.

Magistrate Judge Kurren’s Findings and Recommendation
Magistrate Judge Kurren held a hearing on PSC’s motions

to remand on February 24, 2011, and issued a Findings and
Recommendation to grant these motions on March 18, 2011.

The

Findings and Recommendation found that Burlington’s Notice of
Removal in PSC I was “untimely under 28 U.S.C. § 1446(b), which
requires a notice of removal [to] be filed within thirty days
from when it can first be ascertained that a case is removable.”
Findings and Recommendation at 3.

It then found, “[i]n addition

and subsequent to the timeliness issue addressed [with respect to
PSC I], that the factors under the Declaratory Judgment Act weigh
in favor of remanding all three actions [i.e., PSC I, PSC II and
PSC III] to state court.”

Id.

Burlington filed objections to

the Findings and Recommendation on April 1, 2011 (“Objection”),
and PSC filed responses to Burlington’s objections on April 15,
2011.8/
STANDARD OF REVIEW
This Court treats a motion to remand as a dispositive
motion, requiring the issuance of a findings and recommendation
by the magistrate judge.

See Keown v. Tudor Ins. Co., 621 F.

8/

Burlington filed identical objections to the Findings and
Recommendation in each of the three actions. PSC filed three
responses to Burlington’s objections: a response regarding PSC I
(“PSC I Response”); a response regarding PSC II (“PSC II
Response”); and a response regarding PSC III, which incorporates
the PSC II Response.
8

Supp. 2d 1025, 1029 (D. Haw. 2008); Sylvester v. Menu Foods,
Inc., Civ. No. 07-00409 ACK-KSC, 2007 WL 4291024, at *2 (D. Haw.
Dec. 5, 2007).

A district court reviews de novo those portions

of a magistrate judge’s findings and recommendation to which an
objection is made and may accept, reject, or modify, in whole or
in part, the findings and recommendation made by the magistrate
judge.

28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); D. Haw.

Local Rule 74.2.

The district court may accept those portions of

the findings and recommendation that are not objected to if it is
satisfied that there is no clear error on the face of the record.
Stow v. Murashige, 288 F. Supp. 2d 1122, 1127 (D. Haw. 2003).
The district court may receive further evidence or recommit the
matter to the magistrate judge with instructions.
§ 636(b)(1).

28 U.S.C.

It may also consider the record developed before

the magistrate judge.

D. Haw. Local Rule 74.2.

The district

court must arrive at its own independent conclusions about those
portions of the magistrate judge’s report to which objections are
made, but a de novo hearing is not required.

United States v.

Remsing, 874 F.2d 614, 618 (9th Cir. 1989).
The Court finds that a hearing in this matter is
neither necessary nor appropriate.
Rule 7.2(d).

9

See D. Haw. Local

DISCUSSION
I.

Motion to Remand PSC I
The Court agrees with the Findings and Recommendation’s

conclusion that Burlington’s Notice of Removal in PSC I was
untimely under 28 U.S.C. § 1446(b).

Section 1446, which governs

the procedure for removal, provides that where a case is not
initially removable:
a notice of removal may be filed within thirty days
after receipt by the defendant, through service or
otherwise, of a copy of an amended pleading, motion,
order or other paper from which it may first be
ascertained that the case is one which is or has become
removable, except that a case may not be removed on the
basis of jurisdiction conferred by section 1332 of this
title more than 1 year after commencement of the
action.
28 U.S.C. § 1446(b) (emphasis added).9/

As PSC argues,

§ 1446(b)’s thirty-day removal period was triggered on November
10, 2010, when the Kahookele court orally granted Burlington’s
motion to sever.

PSC I Response at 2-9.

From this oral ruling,

Burlington “could reasonably determine for the first time that
[the action against it was removable].”

Carvalho v. Equifax

Info. Servs., LLC, 629 F.3d 876, 887 (9th Cir. 2010).

9/

Because

Until PSC’s declaratory claim against Burlington was
severed, Burlington could not remove that claim because there was
no diversity of citizenship: Plaintiff Kahookele and Defendant
Panacorp are both citizens of Hawai‘i. Also, third-party
defendants, like Burlington, are generally not permitted to
remove under 28 U.S.C. § 1441. See generally Schmidt v. Ass’n of
Apartment Owners of Marco Polo Condominium, 780 F. Supp. 699 (D.
Haw. 1991).
10

this removal period ran until December 10, 2010, Burlington’s
December 16, 2010, Notice of Removal was untimely.
Burlington argues that the removal period was not
triggered until December 8, 2010, when the Kahookele court
entered a written order granting Burlington’s motion to sever.
Objection at 1-2.

Burlington contends that (1) the November 10

oral ruling did not constitute the “receipt” of a “copy” of a
“paper” of any kind, and (2) the December 8 written order was
necessary to accomplish the severance, as evidenced by the
Kahookele court’s directing Burlington on November 10 to prepare
such a written order.

Id. at 10-17.

Neither argument is

persuasive.
Burlington’s first argument is foreclosed by the recent
Carvalho decision, in which the Ninth Circuit followed the Sixth
Circuit in holding that deposition testimony may trigger
§ 1446(b)’s thirty-day removal period.

See 629 F.3d at 887

(citing Peters v. Lincoln Elec. Co., 285 F.3d 456, 466 (6th Cir.
2002)).

In Carvalho, removal was found to be timely “[b]ecause

the notice of removal was filed within thirty days of Carvalho’s
deposition testimony, which was ‘other paper from which it may
first be ascertained that the case is . . . removable’ [under 28
U.S.C. § 1446(b)].”

Id.

Carvalho’s holding that testimony may

constitute “other paper,” and thus trigger § 1446, shows that a
court’s oral ruling may also trigger § 1446.

11

See also Huffman v.

Saul Holdings Limited P’ship, 194 F.3d 1072, 1078 (10th Cir.
1999) (“A majority of the federal district courts have not
required receipt of an actual written document [under § 1446(b)].
Instead, they have held that a discovery deposition does satisfy
the requirement.” (citations omitted));

Estate of Combas

Martinez v. Barros & Carrion, Inc., 668 F. Supp. 2d 334, 343
(D.P.R. 2009) (“Federal district courts have ruled that a state
court judge’s pronouncement from the bench that a non-diverse
defendant was no longer party to the action is sufficient notice
of [the] action’s removability.” (citations omitted)).
According to Burlington, Carvalho did not “consider
whether oral testimony would constitute a ‘paper.’”
15-16.

Objection at

Burlington suggests that oral testimony “apparently” was

not an issue in Carvalho, “as a transcript of the deposition
testimony most likely was provided to the parties at or near the
time of the deposition.”

Objection at 15-16.

But there are no

facts in Carvalho to support that claim, and the Court is
unpersuaded by Burlington’s speculation.
Carvalho held that “a plaintiff’s response to
deposition questions can constitute ‘other paper’ within the
meaning of section 1446(b).”

629 F.3d at 887; see also Peters,

285 F.3d at 465-66 (“[A] plaintiff’s answers to deposition
questions can constitute an ‘other paper’ for purposes of the
removal statute.”).

It also held that § 1446(b)’s thirty-day

12

removal period began on the day of the deposition in question.
Carvalho, 629 F.3d at 887.

Carvalho did not hold that a

transcript of Carvalho’s deposition responses satisfied the
“other paper” requirement, or that the removal period began on
the day that a deposition transcript was received by the
defendant.

Neither Carvalho nor Peters, on which Carvalho

relied, require that a defendant receive a copy of the deposition
transcript at issue in order for the removal period to begin.10/
Notably, the Tenth Circuit has explicitly rejected
Burlington’s speculative theory that deposition testimony only
triggers § 1446(b)’s removal period once a defendant receives a
written transcript of the testimony.

In Huffman, on which Peters

relied, the Tenth Circuit discussed how “[a] majority of the
federal district courts have not required receipt of an actual
written document [under § 1446(b)].

Instead, they have held that

a discovery deposition does satisfy the requirement.”
at 1078 (collecting cases).

194 F.3d

Huffman then adopted “the majority

rule” that a discovery deposition constitutes “other paper” for
purposes of § 1446(b).

Id.

Further, the court held that

10/

Carvalho found that § 1446(b)’s removal period was
triggered by deposition testimony from which the defendant “could
reasonably determine for the first time that” the case was
removable. 629 F.3d at 887. As Peters noted, “‘[h]olding that a
plaintiff’s deposition testimony may be an ‘other paper’ under
§ 1446(b) is consistent with the purpose of the removal statute
to encourage prompt resort to federal court when a defendant
first learns that the plaintiff is alleging a federal claim.’”
285 F.3d at 465-66 (citation omitted, emphasis added).
13

“[b]ecause the applicable rule of civil procedure does not
provide a deadline for obtaining a transcript of a deposition,
see Fed. R. Civ. P. 30(b)(2), (f)(2), the date of receipt of a
transcript may also be subject to manipulation.

Accordingly, the

removal period commences with the giving of the testimony, not
the receipt of the transcript.”

Id.

Burlington’s reliance on cases discussing the general
rule that § 1446(b) requires physical pleadings or papers is
misplaced.

See Objection at 11-16.

As PSC argues, none of these

cases addressed “whether statements made in official and recorded
court proceedings, such as testimony and verbal orders,
constitute an ‘order or other paper’ under Section 1446(b).”

PSC

I Response at 5.
Three of Burlington’s cases considered whether
complaints or other written pleadings provided sufficient notice
of removability to trigger § 1446(b).

See Proctor v. Vishay

Intertechnology Inc., 584 F.3d 1208, 1223-24 (9th Cir. 2009);
Harris v. Bankers Life & Cas. Co., 425 F.3d 689, 694-98 (9th Cir.
2005); Rossetto v. Oaktree Capital Mgmt., LLC, 664 F. Supp. 2d
1122, 1127-30 (D. Haw. 2009).

The only one of Burlington’s cases

that addressed oral communications held that out-of-court oral
settlement demands did not trigger § 1446(b)’s removal period.
See Mendoza v. OM Fin. Life Ins. Co., No. C 09-01211 JW, 2009 WL

14

1813964, at *5 (N.D. Cal. June 25, 2009).

Mendoza does not help

Burlington.
In Thomas v. Ritter, No. 3:98CV530-H, 1999 WL 1940047,
at *1 (W.D.N.C. Feb. 11, 1999), on which Mendoza relied, the
court found that a settlement demand conveyed by telephone did
not trigger § 1446(b)’s removal period, reasoning that
“[a]llowing oral communications of settlement offers to establish
the amount in controversy would present enormous proof problems,
and potentially require an evidentiary hearing on every notice of
removal and motion for remand.”

Id. at *1-2.

Ritter recognized,

however, that oral notice of removability has been permitted to
trigger § 1446(b) where “the oral notice[] [is] given in court
proceedings and/or in the presence of the presiding judge,
thereby removing any proof problems regarding who said what at
what time.”

Id. at *2. n.2 (collecting cases).

Similarly,

although Mendoza observed that oral communications “are generally
insufficient to constitute ‘other papers,’” it further recognized
that “exclusion of oral communications under § 1446(b) is not
absolute, as some courts have allowed testimony under oath to
satisfy the ‘other paper’ requirement of § 1446(b).”

Id. at *5 &

n.4 (citing Riggs v. Cont’l Baking Co., 678 F. Supp. 236, 238
(N.D. Cal. 1988) (holding that a deposition constituted “other
paper” under § 1446(b))).

15

Unlike out-of-court oral settlement offers, oral
testimony under oath and oral statements made during court
proceedings are inherently trustworthy and easily verifiable.
This is all the more true of a court’s oral ruling, which of
course is at issue here.

Indeed, contrary to Burlington’s

suggestion, numerous district courts have held that a court’s
oral ruling may trigger § 1446(b)’s thirty-day removal period.
As the court explained in Estate of Combas Martinez:
Courts have usually held that oral statements do not
qualify as “other paper” for purposes of triggering
removability under the second paragraph of Section
1446(b). However, they have made exceptions when it
comes to oral statements made in the courtroom during
the course of litigation. See Wright, Miller, Cooper &
Steinman, Federal Practice and Procedure: Jurisdiction,
14C § 3731 (2009). Federal district courts have ruled
that a state court judge’s pronouncement from the bench
that a non-diverse defendant was no longer party to the
action is sufficient notice of [the] action’s
removability.
668 F. Supp. 2d at 343 (discussing King v. Kayak Mfg. Corp., 688
F. Supp. 227, 229-230 (N.D. W. Va. 1988), and also citing
Heniford v. Am. Motors Sales Corp., 471 F. Supp. 328 (D.S.C.
1979), and First Nat’l Bank in Little Rock v. Johnson & Johnson,
455 F. Supp. 361 (E.D. Ark. 1978)); see also Kohl’s Dep’t Stores,
Inc. v. Perkowitz & Ruth Architects, No. 10-CV-378, 2010 WL
4386677, at *5 (E.D. Wis. Oct. 28, 2010) (“The court agrees with
plaintiff that § 1446(b)’s thirty-day limitations period
commenced on March 4, 2010, when the state court made an oral
ruling denying the defendants’ motion to dismiss.”).
16

Likewise,

in Ford v. Healthport Technologies, LLC, No. 3:08-CV-208, 2008 WL
3927146, at *1 (E.D. Tenn. Aug. 21, 2008), the court held that:
the time for removal under § 1446(b) commenced when the
Chancellor orally granted plaintiffs’ motion to amend
the complaint, not when the order memorializing the
oral ruling was entered by the court. To hold
otherwise, would be to exalt form over substance. As
the Sixth Circuit has opined, the time for removal
under § 1446(b) commences “from the date that a
defendant has solid and unambiguous information that
the case is removable.” Holston v. Carolina Freight
Carriers Corp., 1991 WL 112809 (6th Cir. June 26,
1991).
Id. at *3; see also May v. J.D. Candler Roofing Co., No.
04-CV-74690, 2005 WL 1349110, at *5 (E.D. Mich. May 12, 2005)
(reaching the same conclusion, for similar reasons).
In short, the Court finds, in light of Carvhalo, that
the Ninth Circuit would conclude that a court’s oral ruling
triggers § 1446(b)’s removal period where it allows a defendant
to “reasonably determine for the first time that” the case is
removable.

See Carvhalo, 629 F.3d at 887.
Burlington’s second argument, that PSC I was not

removable until entry of the December 8 written order, when the
severance was actually accomplished, is more easily disposed of.
Objection at 16-17.

The official minutes for Kahookele

demonstrate that Burlington’s motion to sever was in fact granted
at the November 10 hearing.

See Motion to Remand PSC I Ex. 51.

Likewise, Burlington’s counsel’s sworn declaration states that at
the November 10 hearing, the judge “ordered PSC’s third-party

17

complaint against Burlington severed from the remaining claims in
that action.”

Id. Ex. 41 at 3.

Moreover, Burlington’s argument

is undermined by its having removed the severed declaratory claim
in Bomat on January 31, 2011, even though the Bomat court had not
yet entered its written order severing the claim – an order,
like the severance order in Kahookele, that Burlington’s counsel
was instructed to prepare.

Burlington evidently believed that

the severance in Bomat was accomplished as of the January 18 oral
severance, or shortly thereafter.

Otherwise, Burlington’s Notice

of Removal in PSC III would have seemed premature.
In sum, the Court finds that Burlington’s Notice of
Removal in PSC I was untimely under 28 U.S.C. § 1446(b).
Burlington filed this notice more than 30 days after the
Kahookele court orally granted Burlington’s motion to sever,
which was when Burlington “could reasonably determine for the
first time” that the severed claim was removable.
629 F.3d 876 at 887.

See Carvalho,

Accordingly, the Court adopts the Findings

and Recommendation that PSC’s Motion to Remand PSC I be
granted.11/

11/

In light of the Court’s holding, the Court need not
address PSC’s alternative argument that Burlington’s Notice of
Removal in PSC I was also untimely under § 1446(b) because it was
filed more than one year after Kahookele commenced. See PSC I
Response at 11-14. The Findings and Recommendation did not reach
this issue. Likewise, the Court need not address PSC’s
alternative arguments that PSC I should be remanded under the
Declaratory Judgment Act and/or the Younger abstention doctrine.
(continued...)
18

II.

Motions to Remand PSC II and PSC III
The Court also agrees with the Findings and

Recommendation’s conclusion that because Burlington failed to
timely remove PSC I, PSC II and PSC III should be remanded under
the Declaratory Judgment Act.

Most importantly, the remanded PSC

I action will be addressing nearly identical claims in state
court as those raised in PSC II and PSC III.
Burlington attempts to avoid remand by arguing that (1)
the Court lacks discretion to remand PSC II and/or PSC III under
the Declaratory Judgment Act because these actions contain
implicit claims for breach of contract and bad faith, and (2)
remand is unwarranted even under the Declaratory Judgment Act’s
abstention analysis.

See Objection at 17-33.

Neither argument

is persuasive.

11/

(...continued)
See id. at 15-38.
Finally, the Court need not decide whether the Findings and
Recommendation correctly concluded that the official minutes for
Kahookele, which indicated that Burlington’s motion to sever was
granted, constituted an “order or other paper” that triggered
§ 1446(b). See Findings and Recommendation at 5-6 & n.4.
Although the Findings and Recommendation’s conclusion seems
correct, Burlington’s argument to the contrary has some traction.
Even though Burlington had notice of the contents of the minutes
in Kahookele, these minutes arguably could not trigger
§ 1446(b)’s removal period because Burlington did not receive or
view them. See Objection at 12-13; Opp’n to Motion to Remand PSC
I Attach. 1 at 2 (stating, in an undisputed declaration, that
Burlington did not receive or review the official minutes for
Kahookele prior to January 14, 2011, and was not even aware of
the minutes until then).
19

The Supreme Court has cautioned district courts
determining whether to exercise their discretion to issue
declaratory judgments to (1) avoid needless determination of
state law issues; (2) discourage litigants from filing
declaratory actions in an attempt to forum shop; and (3) avoid
duplicative litigation.

Gov’s Employees Ins. Co. v. Dizol, 133

F.3d 1220, 1225 (9th Cir. 1998) (en banc) (citing Brillhart v.
Excess Ins. Co. of America, 316 U.S. 491, 494 (1942)).

However,

“when other claims are joined with an action for declaratory
relief (e.g., bad faith, breach of contract, breach of fiduciary
duty, rescission, or claims for other monetary relief), the
district court should not, as a general rule, remand or decline
to entertain the claim for declaratory relief.”

Id.

“Because claims of bad faith, breach of contract,
breach of fiduciary duty and rescission provide an independent
basis for federal diversity jurisdiction, the district court is
without discretion to remand or decline to entertain these causes
of action.

Indeed, the district court has a ‘virtually

unflagging’ obligation to exercise jurisdiction over these
claims.”

Id. at 1226 n.6 (quoting First Ins. Co. v. Callan

Assocs., Inc., 113 F.3d 161 (9th Cir. 1997)).

“The appropriate

inquiry for a district court in a Declaratory Judgment Act case
is to determine whether there are claims in the case that exist
independent of any request for purely declaratory relief, that

20

is, claims that would continue to exist if the request for a
declaration simply dropped from the case.”

Snodgrass v.

Provident Life & Acc. Ins. Co., 147 F.3d 1163, 1167–68 (9th
Cir.1998) (per curiam) (citations omitted).
Burlington’s first argument relies on Callan for the
proposition that where claims providing an independent basis for
federal diversity jurisdiction are “implicit” in a complaint,
remand is improper.

Objection at 18-19.

on Callan is misplaced.

Burlington’s reliance

In Callan,

the plaintiff sought a declaration that it was not
required to provide coverage to the defendant who was
being sued in another action because the defendant
allegedly did not disclose pertinent information to the
plaintiff. [Callan, 113 F.3d] at 162. The plaintiff in
that action stated in its Case Management Conference
Statement that it sought rescission of its contract
with the defendant. Id. The court concluded, “The
action, as it developed, was an action for rescission
rather than merely for declaratory judgment. . . . We
go beyond the pleadings and look at the case as it was
presented to the magistrate judge.”12/ Id. at 163. The
court further noted that the plaintiff alleged a basis
for rescission. Id.
Maui Land & Pineapple Co. v. Occidental Chem. Corp., 24 F. Supp.
2d 1079, 1081 (D. Haw. 1998) (footnote added).

Here, by

contrast, PSC has neither explicitly nor implicitly sought relief
for breach of contract and/or bad faith.

Cf. Callan, 113 F.3d at

163 (holding that “rescission was implicit as a remedy in the

12/

The parties in Callan stipulated that a magistrate judge
would conduct proceedings in the case. Callan, 113 F.3d at 162.
21

complaint” and that it “became explicit as [the plaintiff’s]
objective in the Joint Case Management Conference Statement”).
The Court is unpersuaded by Burlington’s speculative
argument that PSC drafted its complaints and proposed discovery
in PSC II and PSC III with an eye toward establishing claims for
breach of contract and bad faith.

See Objection at 19-23.

As

PSC argues, “Burlington’s attempt to conjure up claims that are
not present is unavailing because the plain language of [the
complaints in PSC II and PSC III] contradicts Burlington’s
imaginative reading.”

PSC II Response at 22.

Unlike PSC’s

initial third-party complaint in Norva, which sought a
declaration that Burlington “ha[d] breached obligations owed to
PSC,” and had rejected PSC’s tender “in bad faith”; the removed
complaints seek a declaration only “that there is coverage for
PSC under the Policy . . . and that Burlington has wrongfully
rejected PSC’s request for coverage and indemnity.”

Compare

Motion to Remand PSC II Ex. 37 ¶¶ 67-68; with id. Ex. 56 ¶ 81,
and PSC III Notice of Removal Ex. A ¶ 86.13/

13/

Although Burlington

PSC filed its initial third-party complaint in Norva,
which included an explicit claim for bad faith, before Burlington
explained to PSC its rationale for denying coverage. See PSC I
Response at 18. Although the removed complaints seek a
declaration that Burlington “wrongfully rejected PSC’s request
for coverage,” this does not amount to a claim for breach of
contract or bad faith. See id. at 17 n.4 (discussing how PSC’s
requested declaration is based on its theory that Burlington
should be estopped from denying coverage (citing Mount Vernon
Fire Ins. Co. v. J.J.C. Stucco & Carpentry Corp., No. 95-CV-5202,
(continued...)
22

contends that PSC is “clearly” pursuing breach of contract and
bad faith claims, the instant actions bear no resemblance to
Callan, where the plaintiff explicitly argued to the court that
rescission was appropriate.

Cf. Callan, 113 F.3d at 162;

Powelson v. St. Paul Fire & Marine Ins. Co., No. CV-04-665-ST,
2004 WL 1792465, at *3 (D. Or. Aug. 11, 2004) (finding that a
declaratory judgment claim alleging that the defendant “‘breached
its promise’ causing past and continuing damages” contained an
independent breach of contract claim).

The Court finds that

PSC’s assertions in the removed complaints were necessarily made
in support of its declaratory claim for insurance coverage.
Notably, Burlington does not cite a single case that
has relied on Callan to find mandatory jurisdiction based on
“implicit” claims within a declaratory judgment action.

Instead,

Burlington attempts to distinguish United National Insurance Co.
v. R & D Latex Corp., 242 F.3d 1102 (9th Cir. 2001), which
rejected an argument that a plaintiff’s declaratory claim was
“merely a breach of contract claim in very thin disguise.”
at 1114-15.

Id.

The Ninth Circuit held that unlike in Callan, the

declaratory claim contained “no implicit claim for money damages
. . . . Rather, [the plaintiff] has opted to forego at present
any right it may hold to a monetary remedy, though we may assume

13/

(...continued)
1997 WL 177864, at *5 (E.D.N.Y. Apr. 3, 1997))).
23

that it will seek to enforce that right in the future, as
California law permits.”

Id. at 1114 n.13.

PSC has similarly

“opted to forgo at present any right it may hold to a monetary
remedy” due to any breach of contract and/or bad faith on
Burlington’s part.

Id.

Burlington also attempts to distinguish

Maui Land & Pineapple, which found Callan unavailing because the
plaintiff “ha[d] not stated that it s[ought] rescission of a
contract, and, in fact, it d[id] not.”

24 F. Supp. 2d at 1081.

Again, the Court finds Callan unavailing to Burlington for the
same reason.

Like in Maui Land & Pineapple, PSC’s removed claims

in PSC II and PSC III are “essentially one[s] for declaratory
judgment regarding contract rights.”

Id.

In short, there is no independent basis for federal
jurisdiction over the removed claims, and the Court has the
“unique and substantial discretion” to decide whether to exercise
its jurisdiction under the Declaratory Judgment Act.

Wilton v.

Seven Falls Co., 515 U.S. 277, 286 (1995).
Burlington’s second (and alternative) argument, that
PSC II and PSC III should not be remanded even under the
Declaratory Judgment Act’s abstention analysis, is predicated on
Burlington’s argument that PSC I was timely removed.
Objection at 26-33.

See

Because the Court has rejected that

argument, and found that PSC I should be remanded as untimely
removed, Burlington’s Declaratory Judgment Act analysis is

24

rendered impotent.

Indeed, Burlington does not contest that if

PSC I is remanded, and Callan is unavailing, PSC II and PSC III
should be remanded as well.14/

The Court will nevertheless

briefly address why it exercises its “unique and substantial
discretion” to decline jurisdiction under the Declaratory
Judgment Act.

Wilton, 515 U.S. at 286.

As PSC argues, two of the three Brillhart factors favor
remand.15/

The first Brillhart factor favors remand because

allowing PSC II and/or PSC III to proceed would result in
needless determinations of state law issues.

A court needlessly

determines state law issues where “the precise” issues “are the
subject of a parallel proceeding in state court.”

Continental

Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1371 (9th Cir. 1991),
overruled in part on other grounds by Dizol, 133 F.3d at 1227.

14/

Likewise, at the February 24, 2011 hearing before
Magistrate Judge Kurren, Burlington conceded that if PSC I were
remanded, and Callan were unavailing, there would be little
reason for the federal court to exercise jurisdiction over PSC II
and/or PSC III.
15/

The second Brillhart factor, which considers potential
forum shopping, is neutral. This Court has already rejected
Burlington’s argument that “PSC’s filing of third-party
complaints against it in the three state actions evidences a
‘forum-shopping scheme.’” 12/23/10 Stay Order at 48; see
Objection at 31-32. And as PSC concedes, Burlington’s removal of
PSC II and PSC III also did not constitute forum-shopping. PSC
II Response at 32 (citing Keown v. Tudor Ins. Co., 621 F. Supp.
2d 1025, 1038 (D. Haw. 2008)). Indeed, PSC “merely preferred
state resolution while [Burlington] preferred federal
resolution.” Huth v. Hartford Ins. Co. of the Midwest, 298 F.3d
800, 804 (9th Cir. 2002); see also Callan, 113 F.3d at 162.
25

The remanded declaratory claim in PSC I constitutes a pending
“parallel proceeding[] in state court” that will address the
precise state law issues as those raised in PSC II and PSC III.
Id. at 1374.

“Courts should generally decline to assert

jurisdiction in insurance coverage and other declaratory relief
actions presenting only issues of state law during the pendency
of parallel proceedings in state court.”

Id.

The first Brillhart factor also weighs in favor of
remand because PSC II and PSC III “involve[] insurance law, an
area that Congress has expressly left to the states,” and raise
no compelling federal interest.

Robsac, 947 F.2d at 1371.

Further, these actions involve two unsettled issues of state law:
(1) whether the policy at issue affords coverage to a corporation
that is solely owned by an individual named insured who conducts
a business through the corporation and (2) whether the policy
would provide coverage to a solely owned corporation that is the
mere alter-ego of the individual named insured.

See 12/23/10

Stay Order at 23-27, 44-45; Keown v. Tudor Ins. Co., 621 F. Supp.
2d 1025, 1032 (D. Haw. 2008) (declining jurisdiction over a
declaratory judgment claim relating to a liability insurance
exclusion “to avoid needlessly determining a state law issue that
the Hawaii courts have yet to address”).
The third Brillhart factor favors remand because
exercising jurisdiction over the instant actions would result in

26

duplicative litigation.

“[W]hen a party requests declaratory

relief in federal court and a suit is pending in state court
presenting the same state law issues, there exists a presumption
that the entire suit should be heard in state court.”
Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1366–67 (9th
Cir. 1991).

“Gratuitous interference with the orderly and

comprehensive disposition of a state court litigation should be
avoided.”

Brillhart, 316 U.S. at 495.

If the Court were to

allow PSC II and/or PSC III to proceed, it would be “indulging in
‘[g]ratuitous interference’” with the state court because the
remanded declaratory claim in PSC I “involv[es] the same parties
and present[s] [an] opportunity for ventilation of the same state
law issues.”

Wilton, 515 U.S. at 283 (quoting

Brillhart, 316

U.S. at 495).16/

16/

PSC II and PSC III raise other issues that are now
pending before the state courts, even apart from the declaratory
claims duplicated in PSC I. See 12/23/10 Stay Order at 50-51
(discussing PSC’s third-party claims against Panacorp and/or
Panajon for breach of contract, misrepresentation, and implied
indemnity, which involve factual questions regarding the
contractor’s identity).
Moreover, as PSC points out, Norva, Kahookele, and Bomat now
involve additional claims, filed after the Court’s 12/23/10 Stay
Order, which potentially raise coverage issues that overlap with
issues arising in PSC II and PSC III. PSC II Response at 25-27.
For example, Norva’s Estate has filed fourth-party claims against
Panajon’s insurance agents, Finance Insurance and Hawaii
Insurance Consultants; Finance Insurance and Hawaii Insurance
Consultants have filed cross-claims against each other; and PSC
has filed cross-claims against Finance Insurance and Hawaii
Insurance Consultants. Each of these claims alleges that the
fourth-party defendant failed to procure the requested insurance.
27

Finally, in addition to the Brillhart factors, the
Ninth Circuit has suggested that district courts should consider
the following additional factors:
[W]hether the declaratory action will settle all
aspects of the controversy; whether the declaratory
action will serve a useful purpose in clarifying the
legal relations at issue; whether the declaratory
action is being sought merely for the purposes of
procedural fencing or to obtain a ‘res judicata’
advantage; or whether the use of a declaratory action
will result in entanglement between the federal and
state court systems. In addition, the district court
might also consider the convenience of the parties, and
the availability and relative convenience of other
remedies.
Dizol, 133 F.3d at 1225 n.5 (citation omitted).

Consideration of

the relevant Dizol factors also weighs in favor of remand.
First, remand is preferable because resolution of PSC II and/or
PSC III would result in undue entanglement between this Court and
the state courts.

As this Court has previously held, “several of

the issues here are related or identical to issues that will be
faced in the state court actions.”

12/23/10 Stay Order at 52;

see Stewart Title Co. v. Investors Funding Corp., Civ. No.
09–00455 SOM/KSC, 2010 WL 1904981, at *7 (D. Haw. May 11, 2010).
Second, remand is preferable for the sake of convenience.

This

Court’s resolution of PSC I and/or PSC II would force PSC and
Burlington to litigate in both state and federal court.

Remand,

on the other hand, would allow these parties - and the myriad
other parties litigating coverage issues stemming from the

28

October 7, 2008 explosion - to litigate all their claims in state
court.
In sum, the Court finds that it is not precluded by
Callan from declining jurisdiction over PSC II and/or PSC III,
and that the Brillhart and Dizol factors indeed support remanding
these actions under the Declaratory Judgment Act.

Accordingly,

the Court adopts the Findings and Recommendation that PSC’s
Motion to Remand PSC II and Motion to Remand PSC III be
granted.17/
CONCLUSION
For the foregoing reasons, the Court ADOPTS the
Findings and Recommendation, and REMANDS these three actions Civ. Nos. 10-00751 ACK-BMK, 11-00014 ACK-BMK, and 11-00073
ACK-BMK - to state court.

17/

In light of the Court’s holding, the Court need not
decide whether the Younger Abstention Doctrine supports remanding
PSC II and/or PSC III. See Objection at 33-40; PSC II Response
at 35-39. The Findings and Recommendation did not reach this
issue.
29

IT IS SO ORDERED.
Dated:

Honolulu, Hawai‘i, May 10, 2011.

________________________________
Alan C. Kay
Sr. United States District Judge

PSC Industrial Outsourcing, LP v. The Burlington Insurance Company, Civ. Nos.
10-00751 ACK-BMK, 11-00014 ACK-BMK, 11-00073 ACK-BMK, Order Adopting
Magistrate’s Findings and Recommendation That Plaintiff’s Motions to Remand Be
Granted.

30