Maui Land & Pineapple Co., Inc. v. Liberty Insurance Underwriters Inc.

Filing 25

ORDER ADOPTING AUGUST 17, 2016 18 FINDINGS AND RECOMMENDATION TO DENY PLAINTIFF'S 10 MOTION TO REMAND. Signed by JUDGE DERRICK K. WATSON on 11/10/2016. (ecs, )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 HAWAI`I

MAUI LAND AND PINEAPPLE CO.,
INC.,
Plaintiff,
vs.

CIVIL NO. 16-00271 DKW-RLP
ORDER ADOPTING AUGUST 17,
2016 FINDINGS AND
RECOMMENDATION TO DENY
PLAINTIFF’S MOTION TO
REMAND

LIBERTY INSURANCE
UNDERWRITERS INC., et al.,
Defendants.

ORDER ADOPTING AUGUST 17, 2016 FINDINGS AND
RECOMMENDATION TO DENY PLAINTIFF’S MOTION TO REMAND
Maui Land and Pineapple Co., Inc. (“MLP”) filed this action in Hawaii state
court against its insurer, Liberty Insurance Underwriters Inc. (“Liberty”), seeking a
declaration that Liberty is obligated to pay for MLP’s defense costs and/or
indemnify MLP in a separate Hawaii state action that names MLP and MLP
President Ryan Churchill as defendants. Liberty removed the action to this Court,
and MLP now seeks remand.
On August 17, 2016, United States Magistrate Judge Richard L. Puglisi
entered his Findings and Recommendation to Deny Plaintiff’s Motion for Remand
(“F&R”), finding that the Court should retain jurisdiction after balancing the

factors set forth by the United States Supreme Court in Brillhart v. Excess
Insurance Company of America, 316 U.S. 491 (1942), and by the Ninth Circuit in
Government Employees Insurance Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998) (en
banc). After unsuccessfully moving for reconsideration, MLP filed its objections
to the F&R, arguing that the first and third Brillhart factors command returning
jurisdiction to the state. Based on the following, the Court ADOPTS the August
17, 2016 F&R and DENIES MLP’s Motion to Remand.
BACKGROUND
This case arises out of a lawsuit initiated in the Circuit Court of the Second
Circuit, State of Hawaii, Narayan, et al. v. Marriott International Inc., et al., Civil
No. 12-1-0586(3) (the “Underlying Lawsuit”). The plaintiffs in the Underlying
Lawsuit (“Underlying Plaintiffs”) are condominium owners at The Residences at
Kapalua Bay in Maui (the “Project”). See Dkt. No. 10-3 (Second Amended
Complaint (“SAC”) in the Underlying Lawsuit). The Underlying Plaintiffs
brought claims against MLP and other defendants allegedly involved in the
development of the Project.1 Id. Ryan Churchill, one of the named defendants,
served as president of MLP and on the board of the Project’s Association of
Apartment Owners (“AOAO”). Id. The Underlying Plaintiffs assert claims for
breach of fiduciary duty; “access to books and records” of the AOAO; and

1

Liberty is not named in the Underlying Lawsuit.

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injunctive/declaratory relief against MLP, Mr. Churchill, and all other defendants.
Id. at 32-34 (SAC ¶¶ 96-103). In addition, the Underlying Plaintiffs assert the
following claims against MLP and the other developer defendants: unfair and
deceptive acts and practices; intentional misrepresentation and/or concealment;
negligent misrepresentation and/or concealment; violations of Hawaii’s
Condominium Property Act; unjust enrichment; and civil conspiracy. Id. at 35-39
(SAC ¶¶ 104-133).
In 2012, MLP tendered the Underlying Lawsuit to Liberty. However,
Liberty denied indemnity coverage for MLP on the basis that the Underlying
Lawsuit does not constitute a securities action or a shareholder derivative suit, as
required under the policy at issue.2 Liberty also denied indemnity and defense
coverage for Mr. Churchill on the basis that the claims against Mr. Churchill are
asserted against him in his capacity as director of the Project’s AOAO, and not as
an officer of MLP. See Dkt. No. 10-1 at 9-12; Dkt. No. 16 at 11-12.
On May 6, 2016, MLP initiated this coverage action in the Circuit Court of
the Second Circuit, State of Hawaii. See Dkt. No. 1-1 at 2. Liberty filed its notice
of removal on May 31, 2016, bringing the action to this Court. Dkt. No. 1.
Thereafter, MLP sought remand (Dkt. No. 10), which the Magistrate Judge

2

The relevant policy was issued by Liberty to MLP for the period September 1, 2011 to
September 1, 2012. See Dkt. No. 10-3.

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recommended denying. Dkt. No. 18. The Magistrate Judge also denied MLP’s
Motion for Reconsideration. Dkt. No. 21.
STANDARD OF REVIEW
A motion to remand is a case-dispositive motion, requiring the issuance of a
findings and recommendation if initially reviewed by a magistrate judge. See Flam
v. Flam, 788 F.3d 1043, 1047 (9th Cir. 2015); Keown v. Tudor Ins. Co., 621 F.
Supp. 2d 1025, 1029 (D. Haw. 2008). When a party objects to a magistrate judge's
findings or recommendations, the district court must review de novo those portions
to which the objections are made and “may accept, reject, or modify, in whole or in
part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. §
636(b)(1); see also United States v. Raddatz, 447 U.S. 667, 673 (1980); United
States v. Reyna–Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc) (“[T]he
district judge must review the magistrate judge's findings and recommendations de
novo if objection is made, but not otherwise.”).
Under a de novo standard, this Court reviews “the matter anew, the same as
if it had not been heard before, and as if no decision previously had been
rendered.” Freeman v. DirecTV, Inc., 457 F.3d 1001, 1004 (9th Cir. 2006); United
States v. Silverman, 861 F.2d 571, 576 (9th Cir. 1988). Although the district court
need not hold a de novo hearing, it is the Court’s obligation to arrive at its own
independent conclusion about those portions of the magistrate judge’s findings or
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recommendation to which a party objects. United States v. Remsing, 874 F.2d 614,
618 (9th Cir. 1989).
DISCUSSION
At issue is whether the Court should decline to exercise its discretion to
retain jurisdiction over this matter. The parties agree that jurisdiction is not
mandatory, and that courts in the Ninth Circuit apply the discretionary standards
articulated by the United States Supreme Court in Brillhart v. Excess Insurance
Company of America, 316 U.S. 491 (1942), and by the Ninth Circuit in
Government Employees Insurance Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998) (en
banc). The Brillhart factors to be considered are: (1) avoiding needless
determination of state law issues; (2) discouraging litigants from filing declaratory
actions as a means of forum shopping; and (3) avoiding duplicative litigation. In
addition, the Court may consider additional factors enumerated in Government
Employees Insurance Co. Because MLP limits its objections to the Magistrate
Judge’s analysis of the first and third Brillhart factors, the Court does likewise.3
Upon de novo review, the Court agrees with the F&R’s recommendation to
exercise the Court’s discretion in favor of retaining jurisdiction over this action.

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The Magistrate Judge found the second Brillhart factor to be neutral. Neither party objected to
that finding, and this Court finds no reason to disturb it either.

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I.

Avoiding Needless Determination of State Law Issues
The first Brillhart factor focuses on whether the retention of jurisdiction is

likely to result in this Court needlessly determining state law issues. “A needless
determination of state law may involve an ongoing parallel state proceeding
regarding the precise state law issue, an area of law Congress expressly reserved to
the states, or a lawsuit with no compelling federal interest (e.g., a diversity
action).” Keown v. Tudor Ins. Co., 621 F. Supp. 2d 1025, 1031-32 (D. Haw. 2008)
(citing Continental Case. Co. v. Robsac Indus., 947 F.2d 1367, 1371-72 (9th Cir.
1991), overruled in part on other grounds by Dizol, 133 F.3d at 1225). The Court
acknowledges that in this diversity action, there are no compelling federal interests,
and that insurance is an area of law that Congress has expressly reserved to the
states. See Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Simpson Mfg. Co., 829 F.
Supp. 2d 914, 922 (D. Haw. 2011) (citing 15 U.S.C. §§ 1011–12). “However,
there is no presumption in favor of abstention in declaratory actions generally, nor
in insurance coverage cases specifically.” Dizol, 133 F.3d at 1225.
As to whether there is an ongoing parallel state proceeding:
“The concern in this factor is with unsettled issues of state law,
not fact-finding in the specific case.” [Nat’l Chiropractic Mut.
Ins. Co. v. Doe, 23 F. Supp. 2d 1109, 1118 (D. Alaska 1998)
(citing Robsac Indus., 947 F.2d at 1371)]. When state law is
unclear, “[a]bsent a strong countervailing federal interest, the
federal court should not elbow its way . . . to render what may
be an ‘uncertain’ and ‘ephemeral’ interpretation of state law.”
Mitcheson v. Harris, 955 F.2d 235, 238 (4th Cir. 1992).
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Allstate Ins. Co. v. Davis, 430 F. Supp. 2d 1112, 1120 (D. Haw. 2006).
In the instant action, MLP brings a claim for Declaratory Judgment against
Liberty, arguing that:
MLP is entitled to a declaration as to Liberty’s obligations to
MLP and/or Ryan Churchill under the Liberty Policy, including
a declaration that Liberty is obligated to pay benefits, including,
but not limited to, defense fees and costs, owed under the
Liberty Policy, that Liberty is under a duty to advance MLP
and/or Ryan Churchill defense costs incurred in the Underlying
Lawsuit, and an order, pursuant to HRS § 431:10-242, that
Liberty pay MLP’s attorneys’ fees and costs incurred in
pursuing this suit.
Complaint ¶ 14.
It is quite clear, and the parties do not dispute, that the legal issues in this
declaratory action involve the interpretation of the policy issued by Liberty. It is
well-established that courts in this district have, on numerous occasions,
interpreted insurance policies pursuant to state law to determine the scope of an
insurer’s duties to an insured. See, e.g., Allstate, 430 F. Supp. 2d at 1120 (“The
issues before the Court in this action do not implicate novel or unsettled matters of
state law. On numerous occasions, the United States District Court in the District
of Hawaii has interpreted insurance policies pursuant to Hawaii state law to
determine the scope of an insurer’s duties to an insured.”).

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Moreover, after carefully reviewing the exhibits that the parties attached
from the Underlying Lawsuit, including the underlying complaint,4 and the
arguments presented, the Court is unpersuaded that the Underlying Lawsuit
constitutes a parallel proceeding. The present case does not involve the precise
state law issues at stake in the Underlying Lawsuit, nor does it involve the same
parties. More specifically, the Underlying Lawsuit does not involve Liberty as a
party or the issue of Liberty’s obligations under the policy. That is, the state court
is not being asked to determine whether Liberty has a duty to advance defense
costs or indemnify either MLP or Mr. Churchill. Nor does this action appear to
require this Court to address unsettled issues of state contract interpretation or
coverage law. As such, the record does not establish that the factual circumstances
of the Underlying Lawsuit constitute a parallel state court action, or would require
this Court to needlessly determine state law issues.
On balance, the first Brillhart factor counsels in favor of retaining
jurisdiction.
II.

Duplicative Litigation
The third Brillhart factor, avoiding duplicative litigation, also favors

retaining jurisdiction. “[D]uplicative litigation may be a concern if this Court’s

4

The Second Amended Complaint (Dkt. No. 10-2) is the operative complaint for determining
coverage in this action.

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determination regarding [an insurer’s] duties hinges on a finding that will also be
addressed in the state court.” Allstate, 430 F. Supp. 2d at 1121.
First, as to Liberty’s duty to advance defense costs, the Court agrees with the
Magistrate Judge’s conclusion that the Court can generally ascertain whether this
duty exists by examining the Second Amended Complaint in the Underlying
Lawsuit and the relevant policy language. See Dairy Road Partners v. Island Ins.
Co., Ltd., 992 P.2d 93, 108 (Haw. 2000) (holding that the duty to defend “is purely
contractual and depends, in the first instance, on the language of the particular
policy involved”); AIG Hawaii Ins. Co. v. Smith, 891 P.2d 261, 265 (Haw. 1995)
(“The well established general rule is that the allegations in the complaint in the
underlying action determine an insurer’s duty to defend its insured.”) (citation
omitted). In other words, determining Liberty’s duty to advance defense costs
does not hinge on a factual determination to be made by the state court. See
Allstate, 430 F. Supp. 2d at 1121.
Second, as to Liberty’s duty to indemnify, the Court acknowledges that this
requires a fact-specific analysis. See id. at 1122. As the Magistrate Judge pointed
out, “Liberty’s duty to indemnify Mr. Churchill turns on whether Mr. Churchill’s
alleged liability is based on his conduct as a board member or his conduct as the
president of MLP, or both.” Dkt. No. 19 at 11 (citing Dkt. No. 10-3, Narayan v.
Marriott International, Inc., et. al, SAC ¶ 26(d)). The Court agrees, however, that
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if there is an actual concern regarding the capacity in which Mr. Churchill is being
sued, the Court can defer decision on the indemnity issue until the capacity issue is
resolved in the Underlying Lawsuit.
In sum, the Court finds that this factor also weighs in favor of retaining
jurisdiction. After balancing the relevant factors,5 the Court reaches the same
conclusion as the Magistrate Judge: the Court should retain jurisdiction over this
case.
CONCLUSION
The Court hereby ADOPTS the August 17, 2016 F&R (Dkt. No. 18) and
DENIES MLP’s Motion to Remand (Dkt. No. 10).
IT IS SO ORDERED.
DATED: November 10, 2016 at Honolulu, Hawai‘i.

Maui Land & Pineapple Co., Inc. v. Liberty Insurance Underwriters Inc., et al.; CV
16-00271 DKW-RLP; ORDER ADOPTING AUGUST 17, 2016 FINDINGS AND
RECOMMENDATION TO DENY PLAINTIFF’S MOTION TO REMAND
5

Although MLP did not object to the Magistrate Judge’s balancing of the Dizol factors, the Court
has independently reviewed those factors, and reaches the same conclusion as the Magistrate
Judge. In addition, the Court recognizes that MLP focused exclusively on applying the Brillhart
factors to Mr. Churchill, without addressing at all how they applied to MLP. The Court agrees
with Liberty that, as to MLP’s claim for coverage in its own right, the Brillhart/Dizol factors
weigh in favor of retaining jurisdiction.

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