Encompass Insurance Company v. James Nunley et al, No. 2:2014cv06598 - Document 32 (C.D. Cal. 2014)
Court Description: ORDER GRANTING DEFENDANTS MOTION TO DISMISS 13 , 14 , 27 . The Complaint is hereby DISMISSED WITHOUT PREJUDICE by Judge Dean D. Pregerson. ( MD JS-6. Case Terminated ) (lc)
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Encompass Insurance Company v. James Nunley et al Doc. 32 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 ENCOMPASS INSURANCE COMPANY, 12 Plaintiff, 13 14 15 16 17 18 19 20 21 v. JAMES NUNLEY; MICHELLE HUNLEY; LORI BRAGG; NUNLEY RACING LLC; GREAT VALLEY BUILDERS, INC.; LA TULA INVESTMENTS, LLC; DRIVEN MOTORSPORTS; SCORE INTERNATIONALL, INC.; KARLA ERIKSSON; TRENT ERIKKSON, by and through his Guardian ad Litem, KARLA ERIKSSON; and TREVOR ERIKSSON, by and through his Guardian ad Litem, KARLA ERIKSSON, Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 14-06598 DDP (ASx) ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS OR STAY PROCEEDINGS (DOCKET NUMBERS 13, 14 & 27) 22 Presently before the Court are Defendants’ Motions to Dismiss 23 24 or Stay Proceedings. (Dkt. Nos. 13, 14, 27.) Having considered 25 the parties’ submissions and heard oral arguments, the Court adopts 26 the following order. 27 /// 28 /// Dockets.Justia.com 1 I. BACKGROUND 2 This case arises out of an automobile accident that took place 3 in the vicinity of an off-road race in Mexico on November 25, 2012. 4 (Defs.’ RJN, Ex. A, ¶ 1.) 5 control of the vehicle, which rolled several times. 6 One of the occupants, Mark Eriksson, was killed in the accident. 7 (Id.) 8 wrongful death suit against Bragg. 9 named as defendants Driven Motor Sports, allegedly the “sponsor” of Lori Bragg, who was driving, lost (Id. at ¶ 2.) His survivors, Karla, Trent, and Trevor Eriksson, filed a (Id. generally.) The suit also 10 Bragg’s racing team, and Score International, allegedly the 11 “sanctioning body” of the off-road race. 12 two defendants are sued under a theory of negligent entrustment. 13 The parties in that action later amended the filings to add (Id. at ¶¶ 9, 11.) These 14 Greg and Michelle Nunley, Nunley Racing LLC, Great Valley Builders, 15 and La Tula Investments (collectively, “Nunley Defendants”) as 16 defendants to either the original complaint or Score 17 International’s subsequent cross-complaint. 18 Def. Bragg’s Mot. Dismiss or Stay at 3.) 19 were also added to the action, but they are not currently parties 20 to this case. 21 (Defs.’ RJN, Exs. J-N; Numerous other parties (Id.) Plaintiff is an insurer with whom Greg and Michelle Nunley 22 have an insurance contract. 23 is defending the Nunley Defendants in the state action. 24 has filed this action in federal court seeking a declaration that 25 it is not required to defend or indemnify any of the defendants in 26 the state action. 27 Complaint alleges that “there is no coverage available” under the 28 insurance policy because of several “exclusions” to coverage (Nunley Defs.’ Mem. P. & A. at 1.) (Id. at 1-2; Compl. generally.) 2 (Id.) It It Plaintiff’s 1 provided for in the contract. 2 27, 30, 33, 36.) 3 II. (Compl. at ¶¶ 12, 15, 18, 21, 24, LEGAL STANDARD 4 Where a plaintiff seeks solely declaratory relief in a matter 5 related to a pending state court action, it is within the district 6 court’s discretion to dismiss or stay the federal action. 7 v. Seven Falls Co., 515 U.S. 277, 288 (1995). 8 judgment context, the normal principle that federal courts should 9 adjudicate claims within their jurisdiction yields to Wilton “In the declaratory 10 considerations of practicality and wise judicial administration.” 11 Id. 12 “The district court should avoid needless determination of 13 state law issues; it should discourage litigants from filing 14 declaratory actions as a means of forum shopping; and it should 15 avoid duplicative litigation. 16 proceedings involving the same issues and parties pending at the 17 time the federal declaratory action is filed, there is a 18 presumption that the entire suit should be heard in state court. 19 The pendency of a state court action does not, of itself, require a 20 district court to refuse federal declaratory relief. 21 federal courts should generally decline to entertain reactive 22 declaratory actions.” 23 1220, 1225 (9th Cir. 1998) (citations omitted). 24 If there are parallel state Nonetheless, Gov't Employees Ins. Co. v. Dizol, 133 F.3d The district court may also consider “whether the declaratory 25 action will settle all aspects of the controversy; whether the 26 declaratory action will serve a useful purpose in clarifying the 27 legal relations at issue; whether the declaratory action is being 28 sought merely for the purposes of procedural fencing or to obtain a 3 1 ‘res judicata’ advantage; or whether the use of a declaratory 2 action will result in entanglement between the federal and state 3 court systems. In addition, the district court might also consider 4 the convenience of the parties, and the availability and relative 5 convenience of other remedies.” 6 States Ins. Co. v. Kearns, 15 F.3d 142, 145 (9th Cir.1994) (J. 7 Garth, concurring)). 8 III. ANALYSIS 9 A. Id. at 1225 n.5 (quoting American Second through Fourth and Sixth through Ninth Causes of Action 10 Plaintiff agrees that a stay would be appropriate as to these 11 causes of action, “in order to protect [the] insured from the risk 12 of being bound in the underlying lawsuit by findings of fact that 13 are made in the declaratory judgment action.” 14 Thus, Plaintiff seeks, at this time, only to have its First and 15 Fifth Causes of Action litigated. 16 litigating only those two causes of action would effectively end 17 the case. 18 substantive arguments in favor of hearing the other seven causes of 19 action at this time. 20 (Id. at 16:4-6.) (Opp’n at 3:13-18.) Plaintiff also argues that even Thus, Plaintiff does not make The Nunley Defendants and Defendant Bragg both argue against a 21 partial stay, because even a partial stay would “foster piecemeal 22 litigation” and force Defendants to engage in a “two-front war,” 23 litigating this case and the underlying state case at the same 24 time. 25 B. 26 (Bragg’s Reply at 5:7-14; Nunley Defs.’ Reply at 9:11-12.) First and Fifth Causes of Action Plaintiff urges the Court not to dismiss or stay the First and 27 Fifth Causes of Action. 28 substantially the same question, although they refer to Exclusion 9 According to Plaintiff, both rest on 4 1 of the Motor Vehicle Protection section of the policy and Exclusion 2 12 of the Personal Umbrella Coverage section, respectively 3 (“Exclusion 9" and “Exclusion 12"). 4 because Exclusions 9 and 12 contain nearly identical language 5 excluding coverage for the “ownership, maintenance, or use” of 6 motor vehicles, subject to certain exceptions.1 7 Plaintiff, the only relevant exception is the exception for a 8 “motor vehicle you maintain or regularly use which is: (1) Owned by 9 a family member and not shown in the Coverage Summary; or (2) (Compl., ¶¶ 12, 24.) This is According to 10 Furnished or available for the regular use of a family member.” 11 (Opp’n at 3-8; Compl., Ex. 1, at ENC38.) 12 ruling on the question of whether the truck was “owned by, or 13 furnished or available for the regular use of, a ‘family member.’” 14 (Opp’n at 4:15-18.) 15 law that will not be addressed or decided in the underlying 16 lawsuit.” 17 Fifth Causes of Action would not prejudice the parties in the 18 underlying case or create a danger of factual findings inconsistent 19 with the findings of the state court. Plaintiff asks for a This, claims Plaintiff, is “an issue of pure (Id. at 5:1-2.) Thus, the resolution of the First and (Opp’n at 5-8.) 20 Defendants counter that ruling on the First and Fifth Causes 21 of Action involves substantially more than resolving “an issue of 22 pure law,” because even Plaintiff admits that such a ruling would 23 require the Court to make at least eight factual determinations. 24 25 26 27 28 1 The Court notes that although Plaintiff attaches a copy of the policy as Exhibit 1 to the Complaint, the copy appears to be incomplete – the Court is unable to find Exclusion 9 to the Motor Vehicle Protection portion of the policy anywhere in the exhibit as filed. The Court will therefore confine its analysis largely to Exclusion 12 and assume, as Plaintiff has indicated, that the two Exclusions are substantially the same. 5 1 (Nunley Defs.’ Reply at 10-13; Opp’n at 5.) 2 five of the eight facts are in dispute, are not easily established, 3 and cannot be stipulated to. 4 Reply at 2.) 5 including the First and Fifth, should be stayed or dismissed. 6 Defendants argue that (Nunley Defs.’ Reply at 11; Bragg Defendants’ position is that all causes of action, To determine whether Plaintiff’s request to litigate only the 7 First and Fifth Causes of Action should be granted, the Court 8 weighs the factors listed by the Dizol court. 9 Where relevant, the Court also considers some of the additional 10 factors listed by Judge Garth in Kearns. 11 1. 12 See Part II, supra. Id. Needless Determination of State Law Issues Federal courts adopt a generally deferential approach to state 13 law. 14 Declaratory Judgments Act give district courts the authority to 15 make determinations of state law in some circumstances, for reasons 16 of both consistency and federalism it is preferable that state 17 courts make determinations of state law where practical. 18 even when “there is no great need for state court resolution of an 19 open question of state law,” a federal court may decline 20 jurisdiction over a declaratory judgment action in the interest of 21 resolving the issue at the state level. 22 of the Midwest, 298 F.3d 800, 804 (9th Cir. 2002). 23 especially the case where “an ongoing state proceeding involves a 24 state law issue that is predicated on the same factual transaction 25 or occurrence.” 26 1012, 1017 (9th Cir. 1995) overruled as to other matters by Gov't 27 Employees Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998). Although the diversity jurisdiction statute and the Indeed, Huth v. Hartford Ins. Co. This is Am. Nat. Fire Ins. Co. v. Hungerford, 53 F.3d 28 6 1 Moreover, where there is a state law mechanism for providing 2 declaratory relief, the balance tips in favor of letting the state 3 court do so. 4 mechanism, allowing “[a]ny person interested under a written 5 instrument” to seek “a declaration of his or her rights or duties 6 with respect to another.” 7 allowing an insurer to bring an action for declaratory judgment at 8 the federal level when a perfectly sufficient state mechanism 9 existed “would simply result in a waste of federal resources at Cal. Civ. Proc. Code § 1060 provides such a In Hungerford, the court noted that 10 every level of the decision making process” and “would result in 11 the federal district court needlessly analyzing a state law issue.” 12 53 F.3d at 1018. 13 appeal, it would “also lead to the state and federal appellate 14 courts reviewing claims arising from an identical set of facts even 15 though the cases can easily be consolidated if filed within the 16 same court.” 17 Defendants’ position.2 18 2. Id. The court further noted that if the cases went to This set of factors weighs in favor of the Forum Shopping, Procedural Fencing, and Reactive Declaratory 19 Judgment Actions 20 The Dizol court instructed district courts to discourage 21 “forum shopping” and “reactive actions,” and Judge Garth similarly 22 counseled courts to be on guard against the use of federal actions 23 in “procedural fencing.” All these factors address essentially the 24 2 25 26 27 28 Where the relief sought is solely declaratory in nature, “needless determination of state law issues alone may support” declining jurisdiction. R.R. St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d 966, 975 (9th Cir. 2011). However, the Ninth Circuit also instructs that the district court should “make a sufficient record of its reasoning to enable appropriate appellate review.” Dizol, 133 F.3d at 1225. Thus, the Court continues with the analysis of other factors. 7 1 same concern: the anticipatory use of a federal court as a more 2 friendly or convenient forum in an action that would otherwise be 3 litigated elsewhere. 4 an action filed “under the apparent threat of a presumed adversary 5 filing the mirror image of that suit in another court.” 6 Network, Inc. v. Discovery Commc'ns, Inc., 11 F. App'x 297, 301 7 (4th Cir. 2001) (quoting Citigroup Inc. v. City Holding Co., 97 F. 8 Supp. 2d 549, 557 (S.D.N.Y. 2000)). 9 declaratory judgment action “occur[s] when a party sues in federal The archetypal example of forum shopping is Learning The archetypal “reactive” 10 court to determine their liability after the commencement of a 11 state court action.” 12 CV. 09-00290 DAE-BMK, 2009 WL 3378593, at *8 (D. Haw. Oct. 21, 13 2009). 14 state court action for declaratory judgment that the insurer must 15 defend or indemnify her in some underlying claim, an insurer’s 16 attempt to leap to federal court implicates these concerns. 17 Gemini Ins. Co. v. Clever Const., Inc., No. Thus, where an insured party files, or is about to file,3 a Here, however, no insured party has filed for declaratory 18 relief on this subject. 19 seeking a more advantageous forum for an action that already exists 20 or looms on the horizon. 21 distant from the place the underlying action is being litigated, or 22 otherwise inconvenient, so that this does not appear to be the sort 23 of “procedural fencing” courts should guard against. 24 factors does not weigh in favor of Defendants’ position. There is no concern about Plaintiff Moreover, the federal forum is not This set of 25 26 27 28 3 “[T]he order of filing is legally insignificant . . . .” Huth v. Hartford Ins. Co. of the Midwest, 298 F.3d 800, 804 (9th Cir. 2002). 8 1 3. Duplicative Litigation, Parallel State Proceedings, and Res 2 Judicata 3 The court should also be on guard against creating duplicative 4 litigation – especially ruling on the same issues of fact that are 5 being adjudicated in state court. 6 undermines judicial economy and wastes resources, but mostly it is 7 because of the danger of creating findings of fact that provide the 8 party seeking declaratory judgment with what Judge Garth called 9 “‘res judicata’ advantage” in another court. This is in part because doing so Kearns, 15 F.3d at 10 145. 11 facts of the state court action before the state court can do so. 12 In this case, as noted above, Plaintiff frames its First and In other words, the Court should be reluctant to decide the 13 Fifth Causes of Action as involving solely questions of law. 14 this is not so: Plaintiff itself identifies at least eight factual 15 predicates to the declaratory relief it seeks (the non-availability 16 of coverage). 17 and control of the vehicle, go to the heart of the underlying 18 action. 19 example, the Erikssons assert that Bragg was using the truck with 20 the knowledge and permission of Defendant Driven Motorsports and 21 certain unknown “Does” (later added as, collectively, the Nunley 22 Defendants), and that Driven and the “Does” negligently entrusted 23 the vehicle to her. 24 These are particular allegations about who controls or owns the 25 truck. 26 neither uncontested nor simple: the state complaint suggests that 27 Driven had control of the truck, but the Nunley Defendants allege 28 that title is held jointly by Michelle Nunley and Great Valley But Some of these, especially related to ownership, use, In the original complaint in the state action, for (Nunley Defs.’ RJN, Ex. A, ¶¶ 2, 17, 30-35.) Moreover, the facts regarding ownership and control are 9 1 Builders. 2 “there is evidence to suggest that the truck was not furnished for 3 regular use by Mr. Nunley.” 4 hand, it might well have been furnished for regular use by his 5 family members; the parties are still determining what other 6 individuals may have had use of the truck at the race event. 7 at 7:9-18.) 8 9 (Nunley Defs.’ Reply at 12:10.) Bragg alleges that (Bragg Reply at 7:4-5.) On the other (Id. Because disposing of the First and Fifth Causes of Action requires not just determinations of state law, but questions of 10 fact that overlap with key questions in the state action, this set 11 of factors weighs in favor of Defendants’ position. 12 4. 13 Resolution of the Entire Controversy Finally, Judge Garth’s opinion in Kearns encourages courts to 14 consider “whether the declaratory action will settle all aspects of 15 the controversy.” 16 it will, because “once the court determines that a named insured 17 cannot be his or her own family member, the controversy will be 18 resolved in its entirety.” 19 15 F.3d at 145. Plaintiff appears to argue that (Opp’n at 16:5-6.) Plaintiff seems to misconstrue Judge Garth’s point. Clearly 20 any declaratory action settles itself; the question is whether it 21 could act to settle the underlying action. 22 economy might be served, and the benefit to the state court system 23 might outweigh the dangers inherent in the federal court making 24 needless determinations of state law. 25 might be resolved, would certainly not settle all aspects of the 26 underlying case, which is a tort case separate from (though sharing 27 factual underpinnings with) the question of insurer liability. 28 10 If it could, judicial This action, however it 1 Even if the Court were to read this factor as Plaintiff does, 2 it cannot say that resolving the First and Fifth Causes of Action 3 would resolve even all aspects of this action. 4 on these two causes of action, the Court and the parties would 5 still have seven more causes of action to address later. 6 if Plaintiff wins on the narrow question of whether the “family 7 member” exceptions to Exclusions 9 and 12 apply, that does not 8 necessarily mean that Exclusions 9 and 12 act to release Plaintiff 9 from its liability to defend and indemnify some or all of the If Plaintiff loses And even 10 Nunley Defendants. 11 exclusions which fit the facts of the case. 12 exceptions to Exclusion 12 for “[a] motor vehicle . . . you acquire 13 during the policy period, if it is covered by an underlying 14 policy,” “[a]ny motor vehicle used as a temporary substitute for a 15 motor vehicle of the same type shown in the Coverage Summary,” and 16 “[a]n automobile only for you or a family member, not owned by or 17 furnished or available for the regular use of you or any family 18 member.” 19 clear on the face of the partial policy document available to the 20 Court (see note 1, supra) whether a finding that one Exclusion 21 applies would nullify the effect of an exception to another 22 Exclusion. 23 course, “ordinary principles of insurance contract interpretation 24 [would] require[] it be construed in the insured's favor, according 25 to his reasonable expectations.” 26 Court, 6 Cal. 4th 287, 299 (1993). 27 that even this action could be concluded solely on Plaintiff’s 28 narrowly-defined questions. There may be other exceptions to those (Compl., Ex. 1 at ENC38-39.) For example, there are Indeed, it is not even To the extent that the policy might be ambiguous, of Montrose Chem. Corp. v. Superior 11 It is therefore far from clear 1 Thus, this factor is either neutral or favors Defendants’ 2 position. 3 5. 4 Balance of the Factors Taken all together, the factors outlined in Dizol/Kearns favor 5 not resolving the First and Fifth Cause of Action by themselves at 6 this time. 7 8 C. 9 Dismissal or Stay Defendants ask for a dismissal or, in the alternative, a stay 10 of all proceedings until the conclusion of the underlying state 11 court action. 12 action is to dismiss without prejudice. 13 IV. 14 The Court finds that the most appropriate course of CONCLUSION The Complaint is hereby DISMISSED WITHOUT PREJUDICE. 15 16 17 IT IS SO ORDERED. 18 19 20 Dated: December 8, 2014 DEAN D. PREGERSON United States District Judge 21 22 23 24 25 26 27 28 12
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