Burlington Insurance Company v. Guerdon Enterprises LLC et al

Filing 37

MEMORANDUM DECISION AND ORDER. IT IS ORDERED THAT: Plaintiff's Motion to Dismiss, Stay, or Transfer 10 is DENIED. Defendant Cahill Park Homeowners Association's Motion to Dismiss for Lack of Personal Jurisdiction 13 is GRANTED. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (st)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

THE BURLINGTON INSURANCE
COMPANY,
Case No. 1:13-cv-00078-BLW
Plaintiff,
v.

MEMORANDUM DECISION AND
ORDER

GUERDON ENTERPRISES, LLC;
CAHILL PARK HOMEOWNERS
ASSOCIATION; CAHILL SOUTH LLC;
CAHILL ASSOCIATES SOUTH LP;
CAHILL ASSOCIATES SOUTH, INC.;
CAHILL NORTH CONSTRUCTION,
INC.; and CASTLE GROUP
CALIFORNIA, INC.,
Defendants.

INTRODUCTION
The Court has before it Defendant Guerdon Enterprises’ Motion to Dismiss, Stay
or Transfer by Guerdon Enterprises, LLC (Dkt. 10) and Defendant Cahill Park HOA’s
Motion to Dismiss for Lack of Personal Jurisdiction (Dkt. 13). The Court has determined
that the decisional process will not be aided by oral argument, and therefore issues the
following decision based upon the briefs.
BACKGROUND
In July 2010, Cahill sued Guerdon and several other defendants for the alleged
faulty construction of, and resulting property damage to, the Cahill Park condominiums

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(the “Cahill action”). The Cahill action is currently pending in California Superior Court
for Santa Clara County. Guerdon is a defendant in the Cahill action because it
manufactured in Idaho allegedly defective modular buildings or modular building
components and shipped them to California for installation in the condominiums.
Subject to a reservation of rights, Burlington assumed the defense of Guerdon in
the Cahill action. Burlington no longer wishes to continue in that role. To that end, on
February 14, 2013, Burlington brought this action seeking a declaration that it has no
duty to indemnify Guerdon and may cease its defense of the Cahill action.
Burlington bases its arguments on the language contained in five commercial
general liability policies it issued to Guerdon. Complaint, ¶20, Dkt. 1. In combination,
the policies cover Guerdon from April 2003 through April 2008, with each policy
covering one year. Apart from different policy numbers and coverage periods, however,
the policies contain identical coverage provisions.
The policies provide coverage for “those sums the insured becomes legally
obligated to pay as damages because of . . . ‘property damage’ to which” the contract
applies. Id. ¶24. The contract applies to property damage caused by an “occurrence.”
Id. An occurrence is defined as “an accident, including continuous or repeated exposure
to substantially the same general harmful conditions.” Id. The policies also include a
number of identical exclusions, lettered J through M and a fungi or bacteria exclusion.
Id. ¶¶40, 44, 48, 53, 57. Burlington argues that Guerdon’s alleged faulty manufacturing

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does not qualify as an “occurrence” or falls within an exclusion. Furthermore, Burlington
argues that the property damage fell outside of the policies’ coverage periods.
Just over a month after Burlington filed this action, American Hallmark Insurance
Company of Texas (“American”) filed a similar declaratory judgment action against
Guerdon in California Superior Court for Santa Clara County (the “American action”).
Dkt. 10-8. American also seeks a declaration that it has no duty to indemnify or defend
Guerdon under its policies “with respect to the alleged claims and damages sought by
[the plaintiff] in the Cahill action.” Id. ¶18. In support of its claim, American points to
six exclusions in the commercial general liability policies it issued to Guerdon. Id. ¶17.
The American action is stayed pending resolution of the Cahill action. See Reply, p. 4,
Dkt. 24.
In response to Burlington’s declaratory judgment action, Guerdon filed its motion
to dismiss, stay, or transfer this action. About a week later, Defendant Cahill filed its
motion to dismiss for lack of personal jurisdiction.
ANALYSIS
1.

Motion to Dismiss, Stay or Transfer
Pursuant to the Declaratory Judgment Act, federal courts “may declare the rights

and other legal relations of any interested party seeking such [a] declaration.” 28 U.S.C.
§ 2201(a). The permissive language of the Act provides district courts with broad
discretion to abstain from exercising jurisdiction over a declaratory judgment action so
long as doing so “furthers the Declaratory Judgment Act’s purpose of enhancing judicial

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economy and cooperative federalism.” R.R. Street & Co. Inc. v. Transp. Ins. Co., 656
F.3d 966, 975 (9th Cir. 2011) (internal quotation marks omitted). While “there is no
presumption in favor of abstention in declaratory actions generally,” the presence of
“parallel state proceedings involving the same issues and parties pending at the time the
federal declaratory action is filed [raises] a presumption that the entire suit should be
heard in state court.” GEICO v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998) (en banc).
In exercising its discretion, “[t]he Brillhart1factors remain the philosophic
touchstone” for the Court. Id. They are: (1) avoiding needless determinations of state
law issues; (2) avoiding duplicative litigation; and (3) discouraging litigants from forum
shopping. Id. While the Brillhart factors are not exclusive, id. n.5, they are sufficient to
guide the Court’s resolution of this motion.
A.

Needless Determination of State Law Issues

The first Brillhart factor states that the Court should avoid needless determination
of state law issues. Both sides agree that this case will likely be resolved under state law.
The case involves insurance law, an area Congress has expressly left to the states through
the McCarran-Ferguson Act. 15 U.S.C. §§ 1011-12 (1988). In similar cases, where “the
sole basis of jurisdiction is diversity of citizenship,” the Ninth Circuit has stated that “the
federal interest is at its nadir.” Cont'l Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1371 (9th
Cir. 1991) overruled on other grounds by Dizol, 133 F.3d 1220.

1

Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942)

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However, because the parallel proceeding in the California state court does not
deal with the precise issue at stake in this case – the Burlington policy coverage issue –
and there is no pending Idaho suit, there is no proceeding which will reach a resolution of
the state law issues in this case. Accordingly, the Court’s decision in this case would not
constitute a needless resolution of state law. See American Cas. Co. v. Krieger, 181 F.3d
1113, 1119 (9th Cir. 1999).
B.

Avoiding Duplicative Litigation.

At first blush, the risk of duplicative litigation may seem apparent. However, the
two actions are not duplicative simply because they involve some of the same parties and
they stem from the same construction site. A closer look at the two cases suggests no
concern for duplicative litigation if this case proceeds.
The Cahill action does not concern the coverage issues underlying this suit, and it
will not resolve the contract questions raised in this suit. Dkt. 17 at 11. The cause of the
damage to the Cahill condominiums and when that damage occurred are clearly at issue
in the Cahill action. See Cahill Complaint, ¶ 82, Dkt. 10-3. The answers to those
questions may ultimately determine how much, if any, Burlington must cover in damages
– but only if Burlington is contractually obligated to cover Guerdon’s allegedly faulty
workmanship. And that contractual question is what is before this Court. Thus, the
questions of fact and law do not overlap in the two matters. Accordingly, there is no
concern about conflicting judgments.

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With respect to the American action, although both American and Burlington
believe that exclusions J, K, L, and M and the fungi and bacteria exclusion apply to
Guerdon’s alleged faulty manufacturing in their respective contracts, the fact remains that
we are talking about two separate sets of contracts. The same general exclusions do
appear in the same general area of the insurers’ respective policies, and their language is
similar in many instances, but that does not mean one controls the other. Thus, although
an argument can be made that it could be more efficient for one court to apply this
common language to the facts of the case as found by the Cahill court, it does not create a
concern for duplicative litigation.
C.

Discouraging Forum Shopping.

This case is not an “archetyp[al]” instance of reactive litigation, wherein an
insurance company seeks a declaratory judgment “against its insured during the pendency
of a non-removable state court action presenting the same issues of state law.” Cont’l
Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1372 (9th Cir. 1991) overruled in part on
other grounds by Dizol, 133 F.3d at 1220. The insurance issues raised in this suit are not
before the Cahill court, and nothing in the record suggests that Burlington knew of the
American action before it filed in this Court. See id. at 1372-73. Moreover, every
plaintiff seeks a favorable forum when filing a suit, and this Court shares the Ninth
Circuit’s concerns over “labeling as ‘forum shopping’ a plaintiff’s desire to bring
previously unasserted claims in federal court. The desire for a federal forum is assured by
the constitutional provision for diversity jurisdiction and the congressional statute

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implementing Article III.” R.R. Street & Co., 656 F.3d at 982 (internal quotation marks
and alteration omitted). Accordingly, the Court will deny the Motion to Dismiss, Stay or
Transfer this case.
2.

Motion to Dismiss for lack of Personal Jurisdiction
On a motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2), the

plaintiff bears the burden of showing that the Court has jurisdiction over the defendant.
Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir.2004). Because
there has not been an evidentiary hearing on the matter, Burlington must satisfy this
burden by making a prima facie showing that the Court has jurisdiction over the
defendant. Id. Although Burlington cannot “simply rest on the bare allegations” in its
complaint, the Court accepts as true the uncontroverted allegations in its complaint. Id.
(internal quotation mark omitted). Furthermore, conflicting statements in the parties’
affidavits will be resolved in the plaintiff’s favor. Id.
Because there is no federal statute which controls the Court's personal jurisdiction
in this matter, the Court applies the law of Idaho. See Fed. R. Civ. Pro. 4(k)(1)(A);
Schwarzenegger, 374 F.3d at 800. Idaho’s long arm statute is coextensive with the limits
of due process. Lake v. Lake, 817 F.2d 1416, 1420 (9th Cir.1987). Thus, the only
question is whether the constitutional standard is met in this case. Schwarzenegger, 374
F.3d at 800.
The Due Process Clause of the Fourteenth Amendment allows state courts, and
therefore this Court, to exercise personal jurisdiction over an out-of-state defendant if the

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defendant has “certain minimum contacts with [the state] such that the maintenance of
the suit does not offend traditional notions of fair play and substantial justice.” Int’l Shoe
Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (internal
quotation marks omitted). “Endeavoring to give specific content to [International Shoe’s]
‘fair play and substantial justice’” standard, the Supreme Court has recognized two
categories of cases in which personal jurisdiction exists over a foreign defendant.
Goodyear Dunlop Tires Operations, S.A., v. Brown, 131 S.Ct. 2846, 2853 (2011). First, a
court has specific jurisdiction over a defendant when the defendant’s actions within the
forum state give rise to the cause of action. Id. Second, where a defendant’s contacts with
the forum are “continuous and systematic,” courts may exercise general jurisdiction over
the defendant “on causes of action arising from dealings entirely distinct from [the
defendant's in-state] activities.” Id. (internal quotation mark omitted). Here, Burlington
does not assert general jurisdiction. Accordingly, the only question before the Court is
whether the Court has specific jurisdiction over the claims.
A.

Specific Jurisdiction

The Ninth Circuit analyzes specific jurisdiction according to a three-prong test: (1)
the defendant must perform an act or consummate a transaction such that it purposefully
avails itself of the privilege of conducting activities in the forum; (2) the claim must
relate to or arise out of the defendant’s activities in the forum; and (3) the court’s exercise
of jurisdiction must be reasonable. See Yahoo! Inc. v. La Ligue Contre Le Racisme Et
L'Antisemitisme, 433 F.3d 1199, 1205–06 (9th Cir. 2006); Schwarzenegger, 374 F.3d at

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802. Burlington bears the burden of satisfying the first two prongs of the test. See Menken
v. Emm, 503 F.3d 1050, 1057 (9th Cir. 2007). If Burlington succeeds in satisfying the
first two prongs, the burden shifts to Cahill to come forward with a compelling case that
the exercise of jurisdiction would not be reasonable. Boschetto v. Hansing, 539 F.3d
1011, 1016 (9th Cir.2008) (internal citation omitted).
(1)

Purposeful Availment

“To have purposefully availed itself of the privilege of doing business in the
forum, a defendant must have ‘performed some type of affirmative conduct which allows
or promotes the transaction of business within the forum state.” Boschetto, 539 F.3d at
1016 (citing Sher v. Johnson, 911 F.2d 1357, 1362 (9th Cir. 1990)). Parties “who reach
out beyond one state and create continuing relationships and obligations with citizens of
[the forum state]” are subject to personal jurisdiction in that forum. Burger King Corp.,
471 U.S. at 473. This requirement is satisfied if the defendant “has taken deliberate
action” toward the forum state. Ballard v. Savage, 65. F.3d 1495, 1498 (9th Cir. 1995). It
is not required that a defendant be physically present or have physical contacts with the
forum, so long as his efforts are “purposefully directed” toward forum residents. Id.
(citing Burger King Corp., 471 U.S. at 476).
Burlington argues that this Court may exercise jurisdiction over Cahill “due to the
nature and quality of its contacts with the State of Idaho arising out of the litigation that
gave rise to the subject claim.” Def.’s Resp., p. 6, Dkt. 16. Burlington makes three
arguments in support of this general argument that Cahill purposefully availed itself of

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doing business in Idaho through the underlying litigation: (1) Cahill purposefully availed
itself of the laws of Idaho because Guerdon, one of the defendants in the California case,
has ties to Idaho and is insured by a company with ties to Idaho; (2) Cahill purposefully
availed itself of the laws of Idaho because of Cahill’s third-party beneficiary status for its
claims against Burlington’s insured, Guerdon; and (3) Cahill purposefully availed itself
of the laws of Idaho because the creation of the condominium project at issue in the
California case suggests Cahill was involved in the contracting with Burlington’s Idahobased insured, Guerdon. None of these arguments are persuasive.
To be perfectly honest, one of the most telling signs that none of these arguments
succeed is the fact that they are confusing and difficult to understand – essentially they
take a very winding road to reach a conclusion that Cahill purposefully availed itself of
the laws of Idaho. With regard to the first argument, Burlington cites no authority for its
proposition that a plaintiff somehow avails itself of State A’s laws simply because it filed
suit in State B and named a defendant with some tangential tie to State A or because that
defendant is insured by a company with ties to State A. Likewise, Burlington cites no
authority for its suggestion that Cahill’s potential third-party beneficiary status to a
contract between other parties means Cahill purposefully availed itself of the laws of
Idaho. Finally, Burlington’s suggestion that even though Cahill did not contract with an
Idaho resident, it somehow availed itself of the laws of Idaho because some of its former
members may have been part of a contract with Guerdon is a stretch. In the end, the

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Court cannot find that Cahill has taken “deliberate action” toward Idaho. Accordingly,
the first prong of the specific jurisdiction test is not satisfied.
(2)

Relatedness

The second prong is likewise not satisfied. The next requirement for specific
jurisdiction is that the claim asserted in the litigation arises out of the defendant’s forum
related activities. See Yahoo! Inc., 433 F.3d at 1205–06. Because the Court could not find
any forum related activities, it follows that the claims in this litigation arose from some
forum-related actions.
However, even if Cahill somehow purposefully availed itself to the laws of Idaho
“due to the nature and quality of its contacts with the State of Idaho arising out of the
litigation that gave rise to the subject claim,” there is no evidence that Burlington’s
claims arise out of any forum related activities. Cahill did not have contact with Idaho by
suing Guerdon in California even if Cahill is successful in that lawsuit and tries to
directly sue Burlington. Again, to be frank, Burlington’s somewhat convoluted argument
is difficult to follow, and the Court understands it only enough to know it is without
merit.
(3)

Reasonableness

Finally, even if Burlington satisfied the first two prongs, the burden would merely
shift to the Cahill to “present a compelling case that the exercise of jurisdiction would not
be reasonable.” See Boschetto, 539 F.3d at 1016. To determine the reasonableness of
exercising specific jurisdiction over a nonresident defendant, the court typically considers

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the following factors: (1) the extent of the defendant’s purposeful interjection into the
forum state’s affairs; (2) the burden on the defendant of defending in the forum; (3) the
extent of conflict with the sovereignty of the defendant’s state; (4) the forum state’s
interest in adjudicating the dispute; (5) the most efficient judicial resolution of the
controversy; (6) the importance of the forum to the plaintiff’s interest in convenient and
effective relief; and (7) the existence of an alternative forum. See Menken, 503 F.3d at
1057 (citing Burger King Corp., 471 U.S. at 476–477). Here, Cahill has met its burden.
The first factor is largely co-extensive with the purposeful availment prong. For
the same reasons explained in the purposeful availment discussion above, the Court finds
that this factor weighs strongly in favor of Cahill. Essentially, the extent of Cahill’s
purposeful interjection into Idaho is nil.
Regarding the second factor, Cahill, which has no offices in Idaho, will be
burdened by litigating this case in Idaho. The burden is especially high because Cahill is
already defending itself in the California action and would need to continue doing so
even if this case proceeded simultaneously.
The third factor – conflicts with the sovereignty of the defendant’s state – is
essentially a non-factor here. Although the parties seem to agree that concerns regarding
conflicts of sovereignty are adequately addressed by the choice of law rules applied in
this case, there is no indication that Idaho or California is the better forum.
With respect to the fourth factor, Idaho has no real interest in adjudicating
Burlington’s claims against Cahill. Although the Court has an interest in the limited issue

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of determining the coverage issue regarding the Burlington/Guerdon contract, it has little
or no interest in the California construction defect dispute.
In evaluating “the most efficient resolution” factor, the Ninth Circuit has “looked
primarily at where the witnesses and the evidence are likely to be located.” CoreVent
Corp. v. Nobel Indus. AB, 11 F.3d 1482, 1489 (9th Cir. 1993). Here, the parties did not
provide the Court with much information about the witnesses, and the evidence should be
fairly limited given the simple claims in this case. Thus, even if this factor supports
Burlington, it is weighs only slightly in their favor.
Regarding the sixth factor – the importance of the forum to the plaintiff’s interest
in convenient and effective relief – California is at least as convenient because the
underlying suit is already proceeding there. Thus, the Court does not find that this forum
is especially efficient for Burlington, and this factor weighs against finding specific
jurisdiction.
Regarding the final reasonableness factor, Burlington bears the burden of proving
the unavailability of an alternative forum. CoreVent Corp., 11 F.3d at 1490. Burlington
has failed to meet this burden – this action could proceed in California. Therefore, this
factor weighs against exercising personal jurisdiction over Cahill. See CE Distrib., 380
F.3d at 1112.
Weighing all seven factors, the Court concludes that even if Burlington met the
first two prongs of the specific jurisdiction test, Cahill has met its burden of showing that

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the exercise of jurisdiction would be unreasonable. Accordingly, the Court will grant
Cahill’s motion to dismiss.
ORDER
IT IS ORDERED THAT:
1.

Plaintiff’s Motion to Dismiss, Stay, or Transfer (Dkt. 10) is DENIED.

2.

Defendant Cahill Park Homeowners Association’s Motion to Dismiss for
Lack of Personal Jurisdiction (Dkt. 13) is GRANTED.

DATED: October 28, 2013

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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