Burley v. National Union Fire Insurance Company of Pittsburgh PA

Filing 29

ORDER Motion to dismiss 5 is hereby GRANTED WITH LEAVE TO AMEND as to the breach of good faith and fair dealing, statutory bad faith, punitive damages, and attorneyss fees. In all other respects, the motion to dismiss is DENIED. Signed by Judge Howard D. McKibben on 2/5/16. (Copies have been distributed pursuant to the NEF - JC)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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TROY AND PAULA BURLEY AND PAUL
ACKERMAN AND JUDY ACKERMAN AS
TRUSTEES OF THE ACKERMAN FAMILY
TRUST, et al.,

)
)
)
)
)
Plaintiffs,
)
)
vs.
)
)
NATIONAL UNION FIRE INSURANCE
)
COMPANY OF PITTSBURGH PA, a
)
subsidiary of AMERICAN
)
INTERNATIONAL GROUP, INC., and
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DOES 1through 100, inclusive,
)
)
Defendants.
)
_________________________________ )

3:15-cv-00272-HDM-WGC
ORDER

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Before the court is defendant National Union Fire Insurance

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Company of Pittsburgh, PA’s (“National Union”) motion to dismiss for

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failure

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defendant replied (#28). Also before the court is defendant’s request

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for

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Plaintiffs responded (#25).

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I.

to

state

judicial

a

notice

claim(#5).

in

Plaintiffs

support

of

its

responded

motion

to

(#26)

and

dismiss(#6).

Request for Judicial Notice

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A district court may take judicial notice of any fact not subject

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to reasonable dispute in that it is capable of accurate and ready
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determination by resort to sources whose accuracy cannot reasonably

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be questioned.

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judicial proceedings that are not subject to reasonable dispute when

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those proceedings relate to matters at issue. Harris v. Cty. of

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Orange, 682 F.3d 1126, 1131-32 (9th Cir. 2012); Holder v. Holder, 305

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F.3d 854, 866 (9th Cir. 2002); Lee v. City of Los Angeles, 250 F.3d

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668, 689-91 (9th Cir. 2001).

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may not take judicial notice of proceedings or records in another

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cause so as to supply, without formal introduction of evidence, facts

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essential to support a contention in a cause then before it.” M/V Am.

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Queen v. San Diego Marine Const. Corp., 708 F.2d 1483, 1491 (9th Cir.

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1983).

FED. R. EVID. 201(b).

This includes public records of

However, “[a]s a general rule, a court

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Defendant requests that the court take judicial notice of the

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August 13, 2012 order of the United States Bankruptcy Court for the

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Central District of California (#6 Ex. 1).

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the request “to the extent that Plaintiffs acknowledge that an Order

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Granting Motion for Relief from the Automatic Stay was issued in the

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U.S. Bankruptcy Court” that permitted Plaintiffs to “pursue the

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insurance of Padilla Construction Company of Nevada for payment of a

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final judgment in [the state court case] based upon assignment by

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Silverstar to Plaintiffs.”

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judicial notice of this public record to the extent set forth above.

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Defendant also requests that the court take judicial notice of

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Padilla Construction Company’s opening brief appealing plaintiffs’

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state court judgment filed on May 13, 2015.

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object to this request because the opening brief was stricken from the

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record by the Nevada Supreme Court on July 6, 2015.

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defendant’s request is denied.

(#25 at 2).

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Plaintiffs do not oppose

Accordingly, the court takes

(#6 Ex. 2).

Plaintiffs

(#25 at 2).

The

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II.

Motion to Dismiss

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In considering a motion to dismiss under Federal Rule of Civil

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Procedure 12(b)(6), the court must accept as true all material

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allegations in the complaint as well as all reasonable inferences that

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may be drawn from such allegations.

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Cederquist, 235 F.3d 1153, 1154 (9th Cir. 2000).

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the complaint also must be construed in the light most favorable to

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the nonmoving party.

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Cir. 2000).

W. Ctr. for Journalism v.
The allegations of

Shwarz v. United States, 234 F.3d 428, 435 (9th

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The court need not, however, accept as true those allegations

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that (1) contradict matters properly subject to judicial notice; (2)

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are conclusory allegations of law, mere legal conclusions, unwarranted

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deductions of fact, or unreasonable inferences; (3) are contradicted

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by documents referred to in the complaint; or (4) are internally

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inconsistent.

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696, 699 (9th Cir. 1998); Clegg v. Cult Awareness Network, 18 F.3d

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752, 754-55 (9th Cir. 1994); Branch v. Tunnell, 14 F.3d 449, 454 (9th

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Cir. 1994), rev’d on other grounds by Galbraith v. Cty. of Santa

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Clara, 307 F.3d 1119 (9th Cir. 2002); W. Mining Council v. Watt, 643

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F.2d 618, 624 (9th Cir. 1981); Response Oncology, Inc. v. MetraHealth

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Ins. Co., 978 F. Supp. 1052, 1058 (S.D. Fla. 1997).

Shwarz, 234 F.3d at 435; Pareto v. F.D.I.C., 139 F.3d

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The purpose of a motion to dismiss under Federal Rule of Civil

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Procedure 12(b)(6) is to test the legal sufficiency of the complaint.

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Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).

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grant the motion only if it is certain that the plaintiff will not be

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entitled to relief under any set of facts that could be proven under

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the allegations of the complaint.

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80 F.3d 336, 338 (9th Cir. 1996).

The court can

Cahill v. Liberty Mut. Ins. Co.,

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A.

Background

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This action arises out of a state court construction defect case.

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Silverstar Development/Village 15 at Arrowcreek, LLC and Chantalaine

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A.C., LLC (“Silverstar”), a defendant in the state case, filed a third

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party complaint and cross claim against Padilla Construction Company

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of

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Silverstar.

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bankruptcy protection.

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order from the United States Bankruptcy Court for the Central District

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of California, granting Silverstar the express ability to enforce any

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judgment

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insurance.”

Nevada

(“Padilla”),

a

subcontractor

who

performed

work

for

Following this filing, Padilla filed for Chapter 11

against

Prior to the trial, Silverstar received an

Padilla

by

“[c]ollecting

upon

any

available

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Plaintiffs allege that in the state court action, they entered

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into a settlement with Silverstar that included the assignment to

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plaintiffs by Silverstar and Silverstar’s insurer, Clarendon America

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Insurance Company, all of Silverstar’s claims for relief asserted

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against Padilla. Plaintiffs further allege that they obtained a

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verdict in the case and were awarded a $588,888.82 judgment against

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Padilla.

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underlying state court case. Plaintiffs allege that the defendant has

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refused or otherwise failed to pay the state court judgment.

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B.

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Defendant National Union is Padilla’s insurer in the

Analysis
Plaintiffs’ second amended complaint (#1 at 7-17) alleges four

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causes

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enforcement of judgment; (3) breach of duty of good faith and fair

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dealing; and (4) breach of Nevada insurance laws/statutory bad faith.

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Defendant moves to dismiss all causes of action.

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that Nevada law applies.

of

action:

(1)

declaratory

relief;

(#5; #26 at 7).
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(2)

satisfaction

and

The parties agree

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1.

Declaratory Relief and Satisfaction and Enforcement of
Judgment

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Defendant argues that plaintiffs’ claims for declaratory relief

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and satisfaction and enforcement of judgment should be dismissed as

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premature.

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court judgment is being appealed, the judgment is not final and can

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be reversed or modified.

(#5 at 7).

Defendant contends that, because the state

(Id.).

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Plaintiffs contend that their claims are ripe for determination

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because defendant failed to follow the procedures for postponing the

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commencement of a judgment.

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rely on NRCP 62(d), which allows an appellant to post a supersedeas

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bond to stay of the execution of a judgment, and NRAP 8(a)(1)(B),

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which provides that a party must first move in the district court for

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approval of a supersedeas bond to stay the execution of a judgment

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pending appeal.

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supersedeas bond, plaintiffs argue that their claims regarding the

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final judgment obtained against Padilla in state court are ripe. (Id.

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at 8-10).

(Id.).

(#26 at 8).

Specifically, plaintiffs

Thus, as defendants have not posted a

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“[U]nder Nevada law, declaratory relief between a third party

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claimant and an insurer is proper only after the third party obtains

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a tort judgment against the tortfeasor.”

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Supp. 2d 1072, 1077 (D. Nev. 2011) (citing Knittle v. Progressive Cas.

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Ins. Co., 112 Nev. 8, 908 P.2d 724, 726 (1996)).

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claimant’s rights against a tortfeasor’s insurer mature when the

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claimant obtains a judgment against the tortfeasor.

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Farmers Ins. Co., 91 Nev. 199, 533 P.2d 158, 159 (1975).

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tort claimant “can assert no legally protectible interest” until the

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claimant establishes the tortfeasor’s liability by obtaining a tort
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Vignola v. Gilman, 804 F.

The third party

Roberts v.
As such, a

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judgment against the tortfeasor.

Knittle, 908 P.2d at 726.

Here, plaintiffs have a justiciable claim for declaratory relief

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against Padilla’s insurer, defendant National Union.

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second amended complaint alleges that, as assignees of Silverstar,

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they obtained a judgment in the underlying state court case.

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plaintiffs have a claim against defendant for declaratory relief and

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satisfaction and enforcement of judgment as the underlying tort suit

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resulted in a final judgment.

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execution of a judgment becomes effective once the supersedeas bond

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is filed. The defendant has not posted a supersedeas bond to stay the

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execution

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of

the

judgment

Accordingly,

the

court

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plaintiffs’

claims

for

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Plaintiffs’

Thus,

Pursuant to NRCP 62(d), a stay of

in

the

enforcement of judgment.

denies

underlying

defendant’s

declaratory

relief

state
motion

and

court
to

case.

dismiss

satisfaction

and

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2.

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Defendant argues that plaintiffs lack standing to sue for bad

Breach of Good Faith and Fair Dealing

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faith.

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the ability to “enforce any judgment” obtained against Padilla by

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“[c]ollectng upon any available insurance,” that does not include an

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assignment of Padilla’s rights.

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argues that it does not owe a duty of good faith and fair dealing

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towards the alleged creditors of its insured.

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defendant contends that even if plaintiffs had standing to sue for bad

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faith, their claims would fail because they have failed to allege

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facts to support their claim.

First, defendant asserts that while plaintiffs were assigned

(#5 at 7-8).

Second, defendant

(Id. at 8).

Finally,

(Id. at 8-10).

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Plaintiffs have not cited any case in which a third party

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claimant was allowed to directly proceed against their tortfeasor’s

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insurer for a breach of good faith and fair dealing.
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Nonetheless,

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plaintiffs assert that they have standing to bring bad faith claims

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pursuant to Federal Rule of Civil Procedure 18(a).1

(#26 at 10).

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In Nevada, third parties cannot bring breach of good faith and

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fair dealing claims against a tortfeasor’s insurance company because

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they have no contractual relationship with the insurer.

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Allstate Ins. Co., 108 Nev, 344, 830 P.2d 1335, 1336 (1992); see also

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Tweet v. Webster, 610 F. Supp. 104, 106 (D. Nev. 1985) (noting that

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Nevada courts have refused to extend insurance company’s liability to

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a third party absent the special element of reliance).

See Gunny v.

Liability for

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bad faith is tied to the covenant of good faith and fair dealing

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arising out of an underlying contractual relationship.

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Ins. Co. v. McClelland, 105 Nev. 504, 750 P.2d 193, 197 (1989).

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such, “[w]hen no contractual relationship exists, no recovery for bad

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faith is allowed.”

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suggested that there is an exception if the third party is a specific

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intended beneficiary of the policy or has relied to its detriment on

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the representations made by the insured.

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Cas. Ins. Co., 453 F. Supp 2d 1241, 1247-48 (D. Nev. 2006); Vignola,

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804 F.2d at 1076.

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Plaintiffs’

Id.

second

United Fire
As

However, the Nevada Supreme Court has

amended

Beregerud v. Progressive

complaint

fails

to

allege

the

plaintiffs

and

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existence

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defendant.

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defendants’ insurance policy with Padilla.

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that

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detrimentally relied on defendant’s representations.

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Nevada law, plaintiffs do not have standing to bring a claim of bad

they

of

a

contractual

relationship

between

Rather, plaintiffs are third party claimants against

are

specific

intended

Plaintiffs do not allege

beneficiaries

or

that

they

Thus, under

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Rule 18(a) concerns joinder of claims, rather than standing to
sue for bad faith.
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faith against defendant.

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motion to dismiss as to plaintiffs’ breach of good faith and fair

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dealing claims.

The court, therefore, grants defendant’s

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3.

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Defendant argues that plaintiffs also lack standing to sue for

Breach of Nevada Insurance Laws/Statutory Bad Faith

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unfair claims practices.

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assigned the ability to “enforce any judgment” obtained against

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Padilla, which it argues does not include the right to sue for unfair

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claims practices.

Defendant states that plaintiffs were only

Additionally, defendant argues that plaintiffs do

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not allege that the Unfair Claims Practices Act provides a cause of

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action to a third party claimant who is suing the insured.

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even if plaintiffs were to have standing, defendant maintains that

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they have not alleged facts to support their claim as they have not

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alleged that Padilla suffered any damages as a result of any alleged

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violation.

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but argue generally that they have alleged facts sufficient to support

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their claims for unfair claims practices.

Moreover,

Plaintiffs do not address defendant’s standing argument,

(#26 at 10-13).

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Under Nevada’s Unfair Claims Practices Act, NRS 686A.310, an

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insurer is liable for engaging in certain unfair practices. The Act

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makes an insurer liable to the insurance commissioner and “to its

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insured for any damages sustained by the insured as a result of the

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commission of any act set for in subsection 1 as an unfair practice.”

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NEV. REV. STAT. 686A.310(2).

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In Tweet v. Webster, 614 F. Supp. 1190, 1195 (D. Nev. 1985),this

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Court held that third party claimants have no private cause of action

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under NRS 686A.310.

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Aetna Casualty & Surety Co., 713 F. Supp. 1371, 1376 (D. Nev. 1989)

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(holding that NRS 686A.310 creates no cause of action for a third

See also Crystal Bay Gen. Improvement Dist. v.

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party

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subsequently agreed in Gunny v. Allstate Ins. Co., 108 Nev. 344, 830

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P.2d 1335, 1336 (1992)(citing Crystal Bay, 713 F. Supp. at 1377).

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claimant

against

an

insurer).

The

Nevada

Supreme

Court

As previously discussed, plaintiffs have not alleged that they

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are

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contractual relationship with the defendant.

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have not alleged sufficient facts to establish standing to assert a

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claim under NRS 686A.310.

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motion to dismiss as to plaintiffs’ statutory bad faith claims.

covered as insureds

under

the

policy or

that

they

have

a

Therefore, plaintiffs

Accordingly, the court grants defendant’s

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4.

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Defendant argues that plaintiffs’ claim for punitive damages

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should be dismissed and/or stricken because the only possible basis

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for awarding punitive damages fails as a matter of law.

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14). On the other hand, plaintiffs argue that, as they “have properly

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asserted their cause of action for bad faith, the trier of fact could

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reasonably determine that National Union’s conduct amounts to a

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conscious disregard of the rights of Plaintiffs/insured.”

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15).

Punitive Damages

(#5 at 11-

(#26 at

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Even though punitive damages are a remedy, and not a claim,

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plaintiffs must still plead facts to support an award of punitive

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damages in order to maintain a prayer for them in their complaint.

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In Nevada, punitive damages are available “where it is proven by clear

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and

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oppression, fraud, or malice, express or implied.”

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§ 42.005(1).

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good faith claim.

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remaining claims, declaratory relief and satisfaction and enforcement

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of judgment.

convincing

evidence

that

the

defendant

has

been

guilty

of

NEV. REV. STAT.

By this order, the court has dismissed the breach of
Punitive damages are not available for the

Therefore, plaintiffs are not entitled to recover
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punitive damages as a matter of law. Accordingly, defendant’s request

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to dismiss plaintiffs’ prayer for punitive damages is GRANTED.

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5.

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Finally, defendant moves to dismiss and/or strike plaintiffs’

Attorneys’ Fees

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request for attorneys’ fees.

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follows the “American Rule” under which each party must bear their own

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attorneys’ fees.

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have not cited any statute, rule, or contractual provision under which

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recovery for attorneys’ fees is possible.

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Defendant argues that Nevada generally

(#5 at 14).

Defendant also asserts that plaintiffs

(Id.).

Plaintiffs explain that they may be entitled to attorneys’ fees

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and

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insurance policy, and under their common law bad faith claims.

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at 17).

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provided the applicable insurance policy, they argue that the Court

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cannot make any determinations regarding the fees recoverable under

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the policies. (Id.). Additionally, plaintiffs contend that the state

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court awarded them $228,696.12 in attorney’s fees and costs in the

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underlying state court action.

costs

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as

the

prevailing

party,

pursuant

to

the

applicable
(#26

Because plaintiffs contend that the defendant has not

(Id.).

A court may grant a motion to strike pursuant to Federal Rule of

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Civil

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“insufficient defense or any redundant, immaterial, or scandalous

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matter.”

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state court action are part of the first and second causes of action

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for relief for declaratory judgment and satisfaction and enforcement

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of judgment.

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attorneys’ fees in this case.

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dismissed plaintiffs’ claims for bad faith.

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pled a basis for the recovery of attorneys’ fees, the court will GRANT

Procedure

12(f)

if

the

contested

language

constitutes

an

The attorney’s fees and costs awarded in the underlying

As such, they are not recoverable under a request for
Additionally, by this order the court

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As plaintiffs have not

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defendant’s request to strike plaintiffs’ request for attorneys’ fees.

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C.

Amendment

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Plaintiffs state that they will be seeking leave in order to file

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a third amended complaint “to provide more detailed facts that have

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come to light since the filing of the original complaint.”

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11 & n.7).

(#26 at

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Pursuant to Federal Rule of Civil Procedure 15(a)(2), “the court

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should freely give leave [to amend] when justice so requires.”

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However, leave to amend “is not to be granted automatically.”

In re

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W. States Wholesale Nat. Gas Antitrust Litig., 715 F.3d 716, 738 (9th

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Cir. 2013). The court “considers the following five factors to assess

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whether to grant leave to amend: (1) bad faith, (2) undue delay, (3)

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prejudice to the opposing party, (4) futility of amendment, and (5)

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whether plaintiff has previously amended the complaint.

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court will grant plaintiffs leave to amend their second amended

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complaint if plaintiffs can allege that they are a named insured or

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specific intended beneficiaries under the terms of the insurance

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policy. Additionally, plaintiffs may amend their complaint to restore

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their request for punitive damages and attorneys’ fees if they can

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demonstrate a basis for recovery consistent with this order.

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. . .

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. . .

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. . .

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. . .

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. . .

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. . .

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. . .
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Id.

The

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In accordance with the foregoing, defendant’s motion to dismiss

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(#5) is hereby GRANTED WITH LEAVE TO AMEND as to the breach of good

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faith and fair dealing, statutory bad faith, punitive damages, and

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attorneys’s fees.

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DENIED.

In all other respects, the motion to dismiss is

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IT IS SO ORDERED.

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DATED: This 5th day of February, 2016.

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____________________________
UNITED STATES DISTRICT JUDGE

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