Century Surety Company v. Kashama et al
Filing
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ORDER by Judge Edward M. Chen granting 35 Plaintiff's Motion for Default Judgment (emclc1, COURT STAFF) (Filed on 8/2/2012)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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CENTURY SURETY COMPANY,
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Plaintiff,
ORDER GRANTING PLAINTIFF’S
MOTION FOR DEFAULT JUDGMENT
v.
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For the Northern District of California
United States District Court
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No. C-11-5482 EMC
ISAAC K. KASHAMA, et al.,
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Defendants.
___________________________________/
(Docket No. 35)
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Plaintiff Century Surety Co. has filed suit against Defendants Osman Othman and Isaac K.
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Kashama, asking the Court for, inter alia, a declaration that it has not duty to defend or indemnify
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under a certain insurance policy because of Defendants’ failure to cooperate. The claims against Mr.
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Othman are currently subject to a bankruptcy stay because he is a debtor in a bankruptcy proceeding.
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(Mr. Othman is represented by counsel.) After Mr. Kashama failed to respond to the complaint, the
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Clerk of the Court entered his default. Currently pending before the Court is Century’s motion for
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default judgment against Mr. Kashama only.
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I.
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FACTUAL & PROCEDURAL BACKGROUND
Century’s complaint and evidence submitted in support of the motion for default judgment
establish as follows.
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Century issued an insurance policy to Mr. Othman and others for the period April 4, 2008, to
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April 4, 2009. The policy provided property and liability coverage for an apartment building located
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in Oakland, California. See Compl. ¶ 7 & Ex. A (policy).
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In May 2010, some of the tenants in the apartment building initiated a suit in state court
based on a fire that took place in the building which destroyed their belongings. In May 2011, an
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amended complaint was filed, naming as the only defendants Mr. Othman and Mr. Kashama. Mr.
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Kashama was named as a defendant because he was the property manager for the building. See
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Compl. ¶ 8 & Ex. B (FAC). This underlying lawsuit will hereinafter be known as the Shore lawsuit.
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Century appears to concede that Defendants were first served with the Shore lawsuit after the
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amended complaint was filed. See Compl., Ex. D (letter). After being served, Mr. Kashama sent a
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letter to Century on his own behalf and on the behalf of Mr. Othman. In the letter, Mr. Kashama
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gave Century notice of the Shore lawsuit and asked Century to defend. Mr. Kashama further asked
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that Century authorize him and Mr. Othman to hire independent counsel for the defense because of a
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conflict of interest. According to Mr. Kashama, there was a conflict of interest because he had a
pending action against Century for bad faith based on the way that it handled first-party claims
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For the Northern District of California
United States District Court
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submitted to Century as a result of the fire. See Compl. ¶ 9 & Ex. C (letter); see also Darling-
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Alderton Decl., Ex. 16 (second amended complaint). Apparently, Mr. Othman had assigned the
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first-party claims to Mr. Kashama.
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In June 2011, Defendants responded to the Shore plaintiffs’ amended complaint. Both
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appeared in pro per. Subsequently, in July 2011, Century agreed to defend both Mr. Othman and
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Mr. Kashama in the Shore lawsuit under a reservation of rights. Century, however, disagreed that
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independent counsel was necessary. Accordingly, it appointed an attorney of its own choosing. See
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Compl. ¶ 10 & Ex. D (letter).
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Subsequently, that attorney – David J. Samuelson – tried to contact Defendants. Mr.
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Samuelson was not successful in reaching them by telephone (the voice mail was always full) and so
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sent Defendants a letter in July 2011. In the letter, Mr. Samuelson asked Defendants to contact him
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so that they could meet and so that Defendants could sign a substitution-of-counsel form. See
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Krishna-Purcell Decl., Ex. 5. Mr. Samuelson never received a response to his letter. Nor did he
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hear back from Defendants after he was finally able to leave a message on their voice mail. See
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Krishna-Purcell Decl., Ex. 6. Similarly, a Century claims attorney, Sunita Krishna-Purcell, left a
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message with Defendants but did not hear back. See Krishna-Purcell Decl. ¶ 10.
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In August 2011, Century wrote to Defendants two times, noting that they had failed to
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contact Mr. Samuelson. Century asked Defendants to contact Mr. Samuelson so that he could
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substitute in as counsel. Century also warned Defendants that their failure to cooperate could
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jeopardize their insurance coverage. See Compl. ¶ 12 & Ex. E (letter); Krishna-Purcell Decl. ¶ 11 &
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Ex. 8 (letter). A week or so later, Mr. Samuelson received a “garbled voicemail” from Mr.
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Kashama. Krishna-Purcell Decl., Ex. 9 (email). In the voice mail, Mr. Kashama stated that he did
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not know whether he should talk to Mr. Samuelson and advised that he would write a letter setting
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out his position. However, Mr. Samuelson never received any such letter from Mr. Kashama. See
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Krishna-Purcell Decl. ¶ 12 & Ex. 9 (email).
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Thereafter, on September 12, 2011, Century wrote to Defendants again, noting, inter alia,
signed a substitution-of-counsel form. Century warned again that a failure to cooperate could
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For the Northern District of California
that there had been no substantive contact with Mr. Samuelson and that neither individual had
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United States District Court
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jeopardize insurance coverage. The letter was personally served on both Defendants. See Compl. ¶
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13 & Ex. F (letter and proofs of service).
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On September 21, 2011, Century wrote to Defendants yet again. Century pointed out once
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again that no substantive contact had been made with Mr. Samuelson. Century further warned that,
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if Defendants did not sign the substitution-of-counsel form, then it would have to file a complaint
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against Defendants, asking the Court to declare that no policy benefits were available based on
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Defendants’ breach of a cooperation provision in the insurance policy. This letter appears to have
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been personally served on Mr. Kashama. See Compl. ¶ 14 & Ex. G (letter and proof of service for
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Mr. Kashama).
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On November 7, 2011, Mr. Samuelson sent both Defendants a letter, asking once again that
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they contact him about the defense of the Shore case. See Krishna-Purcell Decl. ¶ 16 & Ex. 13
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(letter). Three days later, Century filed the pending lawsuit against Defendants. In the complaint, as
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well as the motion for default judgment, Century seeks the following relief:
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(1)
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A declaration that Century has the contractual right to control the defense of the Shore
lawsuit and that Century is not obligated to provide independent counsel;
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A declaration that Defendants further breached the insurance policy (more specifically, the
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cooperation clause in the policy) by failing to cooperate with the defense, which extinguishes
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Century’s duty to defend and/or indemnify; and
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(3)
A declaration that other parties are precluded from suing Century on the insurance policy
pursuant to the “Legal Action Against Us” clause, which provides that “[n]o person or
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organization has a right under this Coverage Part . . . [t]o sue us on this Coverage Part unless
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all of its terms have been fully complied with.”
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As indicated above, after the complaint was filed and served, Mr. Othman filed a notice that
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he is currently in bankruptcy proceedings such that all claims against him are automatically stayed.
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See Docket No. 25 (notice). In February 2012, Mr. Kashama asked Century for additional time to
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file a responsive pleading but never did so. See Darling-Alderton Decl. ¶| 11. Accordingly, in May
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2012, Century asked for an entry of default against Mr. Kashama, which issued on May 25, 2012.
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See Docket No. 33 (notice). Century has now moved for a default judgment against Mr. Kashama.
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For the Northern District of California
United States District Court
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II.
A.
DISCUSSION
Service of Process
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In deciding whether to grant or deny a default judgment, a court must first “assess the
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adequacy of the service of process on the party against whom default is requested.” Board of
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Trustees of the N. Cal. Sheet Metal Workers v. Peters, No. C-00-0395 VRW, 2000 U.S. Dist. LEXIS
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19065, at *2 (N.D. Cal. Jan. 2, 2001). In the instant case, there does not appear to be a problem with
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service of process. Federal Rule of Civil Procedure 4(e) provides that an individual may be served
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by, e.g., personal delivery. See Fed. R. Civ. P. 4(e)(2)(A) (allowing for “deliver[y] [of] a copy of the
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summons and of the complaint to the individual personally”). Century has provided a proof of
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service indicating that there was personal service on Mr. Kashama in January 2012. See Docket No.
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7 (proof of service).
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The Court notes that, in addition to being personally served with the summons and
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complaint, Mr. Kashama was also served by mail and email with respect to the motion for entry of
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default, see Docket No. 32 (proof of service), and by mail with respect to the motion for default
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judgment. See Docket No. 36 (proof of service).
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B.
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Eitel Factors
After entry of a default, a court may grant a default judgment on the merits of the case. See
Fed. R. Civ. P. 55. A default judgment may not be entered, however, against an infant or
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incompetent person unless represented in the action by a general guardian or other such
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representative who has appeared. See id. Furthermore, a default judgment may not be entered
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against an individual in military service until after the court appoints an attorney to represent the
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defendant. See 50 U.S.C. App. § 521. In the instant case, Century has provided sufficient evidence
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demonstrating that Mr. Kashama is neither an infant, incompetent person, or a person in military
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service. See Darling-Alderton Decl. ¶ 15. Accordingly, the Court may consider whether a default
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judgment may be entered against Mr. Kashama.
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For the Northern District of California
United States District Court
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“The district court’s decision whether to enter a default judgment is a discretionary one.”
Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). Factors that a court may consider in
exercising that discretion include:
(1) the possibility of prejudice to the plaintiff; (2) the merits of
plaintiff’s substantive claim; (3) the sufficiency of the complaint; (4)
the sum of money at stake in the action; (5) the possibility of a dispute
concerning material facts; (6) whether the default was due to
excusable neglect, and (7) the strong policy underlying the Federal
Rules of Civil Procedure favoring decisions on the merits.
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Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Generally, upon entry of default, the
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factual allegations of the plaintiff’s complaint will be taken as true, except for those relating to the
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amount of damages. See TeleVideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987).
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The majority of these factors weigh in favor of Century. For example, if the motion for
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default judgment were to be denied, then Century would likely be left without a remedy. Notably,
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Century gave repeated warnings to Mr. Kashama that his failure to cooperate could jeopardize his
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insurance coverage but still he failed to respond to Century in any substantive way. See Walters v.
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Shaw/Guehnemann Corp., No. C 03-04058 WHA, 2004 U.S. Dist. LEXIS 11992, at *7 (N.D. Cal.
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Apr. 15, 2004) (“To deny plaintiffs’ motion [for default judgment] would leave them without a
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remedy. Prejudice is also likely in light of the merits of their claim.”); Pepsico, Inc. v. Cal. Sec.
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Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002) (“If Plaintiffs’ motion for default judgment is
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not granted, Plaintiffs will likely be without other recourse for recovery.”). Also, Century is not
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seeking any money damages from Mr. Kashama, and the critical declaratory relief requested – i.e., a
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declaration that Mr. Kashama’s failure to cooperate extinguishes Century’s duty to defend and/or
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indemnify – is not unreasonable given the circumstances. Cf. id. at 1176 (stating that “the court
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must consider the amount of money at stake in relation to the seriousness of Defendant’s conduct”).
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Century is entitled to know what its responsibilities are in this context. Finally, because Mr.
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Kashama has not filed an answer to the complaint, there is little to suggest that there is a possibility
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of a dispute concerning material facts, and it is unlikely that Mr. Kashama’s default was due to
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excusable neglect, especially when Century served both the motion for entry of default and motion
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for default judgment on Mr. Kashama but still received no response.
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The only factors that deserve closer analysis are the second and third factors – i.e., the merits
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of Century’s substantive claim and the sufficiency of the complaint. These factors basically “require
that a plaintiff ‘state a claim on which the [plaintiff] may recover.’” Id. at 1175. Century has pled
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For the Northern District of California
United States District Court
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sufficient allegations to support its main request for declaratory relief – namely, a declaration that
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Mr. Kashama’s failure to cooperate extinguishes Century’s duty to defend and/or indemnify. As
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Century points out, the insurance policy at issue includes a provision that requires an insured to
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“[c]ooperate with us in the investigation or settlement of the claim or defense against the ‘suit.’”
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Compl., Ex. A (Commercial Lines Policy § 4.2.c(3)). Century has adequately pled a breach of the
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cooperation clause by alleging that Mr. Kashama asked Century to defend him in the Shore lawsuit
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but then did not sign a substitution-of-counsel form or even respond to Century’s position that
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independent counsel was not required. Because Mr. Kashama breached his duty to cooperate,
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Century has a legitimate basis to ask to be excused from its duties under the insurance policy (i.e.,
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duty to defend and/or indemnify). Furthermore, because Mr. Kashama has effectively prevented
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Century from defending the case, it is fair to excuse Century from its duty to defend and/or
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indemnify.
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The Court, however, declines to award the other declaratory relief requested by Century.
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First, to the extent Century asks for a declaration that it has no obligation to provide Mr. Kashama
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with independent counsel, that request for relief is essentially moot in light of the declaratory relief
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to be awarded above. Second, to the extent Century seeks a declaration that no else can sue it on the
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policy pursuant to the “Legal Action Against Us” clause,1 that request for relief is not ripe for
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review. See Boeing Co. v. Cascade Corp., 207 F.3d 1177, 1192 (9th Cir. 2000) (stating that,
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“[w]hether declaratory relief is appropriate depends upon whether the facts alleged, under all the
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circumstances, show that there is a substantial controversy, between parties having adverse legal
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interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment”;
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adding that “[a] case is ripe where the essential facts establishing the right to declaratory relief have
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already occurred”) (internal quotation marks omitted; emphasis added); Hodgers-Durgin v. De La
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Vina, 199 F.3d 1037, 1044 (9th Cir. 1999) (stating that the “[r]ipeness doctrine protects against
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premature adjudication of suits in which declaratory relief is sought”). It is also unclear whether this
Court can bind future third parties not named in this action.
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For the Northern District of California
United States District Court
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In sum, out of the relief requested by Century, the Court shall grant only the request for a
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declaration that Mr. Kashama’s failure to cooperate extinguishes Century’s duty to defend and/or
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indemnify.
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In so ruling, the Court takes note that it has taken into consideration whether or not a default
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judgment against Mr. Kashama should be deferred pursuant to Frow v. De La Vega, 82 U.S. 552
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(1872), in which the Supreme Court held that, under certain circumstances, a court should not enter
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a default judgment against one or more defendants which is, or likely to be, inconsistent with
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judgment on the merits in favor of the remaining answering defendants. See, e.g., Shanghai Auto.
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Instrument Co. v. Kuei, 194 F. Supp. 2d 995, 1006 (N.D. Cal. 2001) (report and recommendation)
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(noting that courts, “including the Ninth Circuit, have held that Frow is not limited to claims
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asserting joint liability, but extend to certain circumstances in which the defendants have closely
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related defenses or are otherwise similarly situated”). The Court is satisfied that the Frow rule is not
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applicable in the instant case because Mr. Othman has made an appearance in the litigation and thus
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may still act to cooperate with Century. Also, Mr. Othman is in a different position inasmuch as he
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currently has the benefit of a bankruptcy stay.
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That clause provides as follows: “No person or organization has a right under this
Coverage Part . . . [t]o sue us on this Coverage Part unless all of its terms have been fully complied
with.”
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III.
CONCLUSION
For the foregoing reasons, the Court grants Century’s motion for default judgment. Century
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is entitled to a declaration that Century has no duty to defend and/or indemnify Mr. Kashama
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because of his failure to cooperate.
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This order disposes of Docket No. 35.
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IT IS SO ORDERED.
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Dated: August 2, 2012
_________________________
EDWARD M. CHEN
United States District Judge
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For the Northern District of California
United States District Court
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