Probuilders Specialty Insurance Company, RRG v. Valley Corp. B. et al, No. 5:2010cv05533 - Document 380 (N.D. Cal. 2014)

Court Description: ORDER denying 366 Motion for New Trial; granting 369 Motion for Amended Partial Judgment. Plaintiff's Third and Fourth Claims will be STAYED pending a resolution by the Ninth Circuit. Signed by Judge Edward J. Davila on 11/26/2014. (ejdlc4S, COURT STAFF) (Filed on 11/26/2014)

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Probuilders Specialty Insurance Company, RRG v. Valley Corp. B. et al Doc. 380 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 9 PROBUILDERS SPECIALTY INSURANCE COMPANY, RRG, a District of Columbia, Risk Retention Group, Plaintiff, 10 v. United States District Court Northern District of California 11 12 13 14 VALLEY CORP. B., a California Corporation formerly known as R.J. HAAS CORP.; RONALD J. HAAS, an individual; TY LEVINE, an individual; and KAREN LEVINE, an individual, 15 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT [Re: Dkt. Nos. 366, 369] Defendants. 16 17 18 Presently before the court are two motions. First, Defendants Valley Corp. B. (“R.J. Haas 19 Corp.”), Ronald J. Haas (“Mr. Haas”), Ty Levine (“Mr. Levine”), and Karen Levine (“Ms. 20 Levine”) (collectively, “Defendants”) bring forth a Motion for New Trial. Second, Plaintiff 21 ProBuilders Specialty Insurance Company, RRG (“Plaintiff” or “ProBuilders”) bring forth a 22 Motion for an Amended Partial Judgment, or in the alternative, a Motion to Vacate Judgment. 23 Having reviewed the parties’ documents and heard oral argument, the court DENIES Defendants’ 24 Motion for New Trial and GRANTS ProBuilders’ Motion for Amended Partial Judgment. 25 I. 26 BACKGROUND The factual background of this case has been extensively described in previous orders of 27 the court. Briefly, this action arises out of a construction defect case litigated in Santa Clara 28 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT Dockets.Justia.com 1 County Superior Court: Ty Levine, et al. v. R.J. Haas, et al., No. 07-CV-081016 (the “Levine 2 action”). The Levines sued their general contractor Mr. Haas and his company for substandard 3 and incomplete work in the construction of their home. Mr. Haas and his company held a 4 commercial general liability policy issued by ProBuilders (“ProBuilders policy”). The Levines 5 prevailed and the court awarded them a judgment against Mr. Haas and his company for nearly $2 6 million. After the Levine action concluded, ProBuilders commenced the instant declaratory relief 7 8 and restitution action in December 2010 against Mr. Haas and his company, and the Levines. 9 ProBuilders alleged that Mr. Haas and his company made material misrepresentations on the insurance application and failed to abide by the policy’s terms in a way sufficient to effect 11 United States District Court Northern District of California 10 rescission of the contract or preclude coverage of the Levine action judgment. ProBuilders sought 12 rescission of contract, recovery of the defense costs in the Levine action, and a declaration that the 13 insurance policy did not cover the judgment in the Levine action. Mr. Haas counterclaimed for 14 breach of contract, and failure to act in good faith. The Levines separately counterclaimed for 15 relief under a theory of bad faith. After a fifteen-day jury trial on the instant action, on January 17, 2014, the jury returned a 16 17 special verdict finding that no portion of the Levine action judgment was covered under the 18 ProBuilders insurance policy. See Dkt. No. 338, Jury Verdict. On May 27, 2014, Judgment was 19 entered in favor of ProBuilders. See Dkt. No. 358, Judgment. In June 2014, Defendants filed the instant Motion for New Trial, and ProBuilders filed the 20 21 instant Motion for Amended Partial Judgment, or in the alternative, Motion to Vacate Judgment. 22 See Dkt. Nos. 366, 369. The motions have been fully briefed, and oral argument was held on 23 November 14, 2014. 24 II. LEGAL STANDARD 25 A. Motion for New Trial 26 27 28 Within 28 days after entry of judgment, a party may move for a new trial. Fed. R. Civ. P. 2 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 59(b). Under Rule 59(a), the court may grant a new trial on all or some issues “after a jury trial, 2 for any reason for which a new trial has heretofore been granted in an action at law in federal 3 court.” “Rule 59 does not specify the grounds on which a motion for a new trial may be granted,” 4 thus courts are “bound by those grounds that have been historically recognized.” Molski v. M.J. 5 Cable, Inc., 481 F.3d 724, 729 (9th Cir. 2007) (internal quotations and citations omitted). A 6 motion for a new trial may be granted “only if the verdict is contrary to the clear weight of the 7 evidence, is based upon false or perjurious evidence, or to prevent a miscarriage of justice.” Id. 8 (internal quotations and citations omitted). “The district court has the duty to weigh the evidence 9 as the court saw it, and to set aside the verdict of the jury, even though supported by substantial evidence, where, in the court’s conscientious opinion, the verdict is contrary to the clear weight of 11 United States District Court Northern District of California 10 the evidence.” Id. “A jury verdict should be set aside only when the evidence permits only one 12 reasonable conclusion, and that conclusion is contrary to the jury’s verdict.” DSPT Int’l, Inc. v. 13 Nahum, 624 F.3d 1213, 1218 (9th Cir. 2010) (internal quotations and citations omitted). The 14 court, however, “may not grant a new trial simply because it would have arrived at a different 15 verdict.” Silver Sage Partners, Ltd. v. City of Desert Hot Springs, 251 F.3d 814, 819 (9th Cir. 16 2001). 17 B. 18 Motion to Amend the Judgment Rule 59(e) states that “[a] motion to alter or amend a judgment must be filed no later than 19 28 days after the entry of judgment.” While the district court has considerable discretion in 20 deciding the motion, “amending a judgment after its entry remains an extraordinary remedy which 21 should be used sparingly.” Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1111 (9th Cir. 2011) 22 (internal quotations and citations omitted). There are generally four grounds upon which a Rule 23 59(e) motion may be granted: “(1) if such motion is necessary to correct manifest errors of law or 24 fact upon which the judgment rests; (2) if such motion is necessary to present newly discovered or 25 previously unavailable evidence; (3) if such motion is necessary to prevent manifest injustice; or 26 (4) if the amendment is justified by an intervening change in controlling law.” Id. 27 28 3 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 C. Motion to Vacate Judgment Under Rule 60(a), “[t]he court may correct a clerical mistake or a mistake arising from 3 oversight or omission whenever one is found in a judgment, order, or other part of the record.” 4 Under Rule 60(b), “the court may relieve a party or its legal representative from a final judgment, 5 order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable 6 neglect . . . or (6) any other reason that justifies relief.” “Excusable neglect encompasses 7 situations in which the failure to comply with a filing deadline is attributable to negligence, and 8 includes omissions caused by carelessness.” Lemoge v. United States, 587 F.3d 1188, 1192 (9th 9 Cir. 2009) (internal quotations and citations omitted). The catch-all provision of “any other reason 10 that justifies relief” should be “used sparingly as an equitable remedy to prevent manifest injustice 11 United States District Court Northern District of California 2 and is to be utilized only where extraordinary circumstances prevented a party from taking timely 12 action to prevent or correct an erroneous judgment.” Harvest v. Castro, 531 F.3d 737, 749 (9th 13 Cir. 2008) (internal quotations and citations omitted). To assert this provision, the party “must 14 demonstrate both injury and circumstances beyond his control that prevented him from proceeding 15 with the action in a proper fashion.” Id. (internal quotations and citations omitted). 16 III. DEFENDANTS’ MOTION FOR NEW TRIAL Defendants move for a new trial on three separate grounds: (1) the jury verdict was against 17 18 the weight of the evidence; (2) the jury verdict was the result of confusing and prejudicial 19 evidence that should not have been admitted; and (3) jury instructions were improper. Each will 20 be addressed in turn. 21 A. 22 Jury Verdict Against the Weight of the Evidence The jury’s special verdict was entered on January 17, 2014. See Dkt. No. 338, Jury 23 Verdict. In the Special Verdict Form, Question No. 1 asked: “Is any portion of the Levine action 24 judgment covered under the ProBuilders policy?” Id. at 2. The jury found “No.” Id. The 25 remainder of the form pertaining to breach of contract, breach of the implied covenant of good 26 faith and fair dealing, and punitive damages was left blank. Id. 27 28 4 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 Defendants argue that the overwhelming weight of the evidence satisfied their burden of 2 proof as to Question No. 1. Dkt. No. 366, Defendants’ Motion (“Def. Mot.”) at 8. Defendants 3 base their argument on four points. First, cracked stucco is property damage that is covered by the 4 ProBuilders policy. Id. at 9. Second, the stucco began cracking during the policy period, as 5 evidenced by testimony at trial. Id. Third, the policy covers only property damage caused by an 6 occurrence, and that occurrence was the OSB installation defect that damaged the stucco. Id. at 7 10-11. Fourth, although the framing was completed prior to the policy period, under the jury 8 instructions, this did not preclude coverage. Id. at 11. Defendants’ arguments are based on the 9 premise that each defect was a separate occurrence, and the defect that caused the stucco cracking 10 occurred during the policy period. United States District Court Northern District of California 11 ProBuilders argues that the major problem with the construction of the Levine home was 12 R.J. Haas Corp.’s bad framing job, which was completed before the inception of the policy. Dkt. 13 No. 372, Plaintiff’s Opposition (“Pl. Opp.”) at 5. The faulty framing caused property damage to 14 the roof and subfloors, which began before the inception of the policy. Id. at 6. Testimony at trial 15 proved that the framing also caused the stucco cracking. Id. at 8. Thus, ProBuilders contends that 16 it was reasonable for the jury to conclude that the negligent framing was one occurrence that 17 caused damage to the roof, subfloor, and stucco, and that the first damage began prior to the 18 inception of the policy. Id. at 9. ProBuilders further argues that Defendants did not meet their 19 burden of proving that the OSB installation was a separate occurrence, that it caused the stucco to 20 crack, and that the property damage occurred during the policy period. Id. at 10. 21 To succeed at trial, Defendants had to prove by a preponderance of the evidence that under 22 the terms and conditions of the ProBuilders policy, ProBuilders had the obligation to pay some of 23 the Levine action judgment. See Dkt. No. 335, Jury Instructions (“Jury Inst.”) Nos. 25, 27. To 24 meet this burden, Defendants had to prove: (1) there was property damage; (2) the property 25 damage resulted from an occurrence; and (3) the property damage must have first happened during 26 the policy period. See Jury Inst. Nos. 28-30. That stucco cracking constituted property damage is 27 28 5 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 not in dispute. To prove that the stucco cracking resulted from an occurrence, Defendants rely on the 2 3 expert testimony of Mr. Patrick Kelley, a general contractor. See Def. Mot. at 8-9. Mr. Kelley 4 explained that the OSB, or oriented strand board, was not spaced correctly. See Dkt. No. 281, 5 Trial Transcript (“Tr.”) at 603. This was a defect in the framing that caused the stucco to crack. 6 See id. at 603-04. Defendants argue that there were multiple mistakes in the construction of the 7 home, and the mistake in the OSB installation is the independent occurrence that led to the stucco 8 cracking. Def. Mot. at 8-9, 11. Mr. Kelley’s testimony, however, appeared to contribute the 9 stucco cracking primarily to the framing: “[The stucco] wouldn’t have cracked as bad [if it had the proper mixture of water and cement], but it would have cracked because of the framing that was 11 United States District Court Northern District of California 10 associated with this structure.” See Tr. at 604. In his short response, Mr. Kelley mentioned 12 “framing” at least five times. See id. at 604-05. While Mr. Kelley mentioned the defect of the 13 OSB installation, it was, nonetheless, reasonable for the jury to conclude that the “occurrence” that 14 caused the stucco cracking was the bad framing. 15 To prove that stucco cracking first happened during the policy period, Defendants rely on 16 Mr. Levine’s and Mr. Haas’s testimony at trial. See Def. Mot. at 9. Mr. Levine testified that the 17 stucco was first installed in September or October 2006, and he first noticed the cracking a week 18 or two later. See Dkt. No. 328, Tr. at 1587. Mr. Haas testified that the stucco was installed in 19 September 2006, and he first noticed the cracking in late September or October 2006. See Dkt. 20 No. 315, Tr. at 1405. Defendants contend that the first documented complaint about stucco 21 cracking is the list of defects contained in a letter dated November 13, 2006, after the ProBuilders 22 policy period began. 1 Def. Mot. at 9. The letter, however, only states that the Levines had seen a 23 number of construction defects and lists the defect items that needed to be addressed; it does not 24 state when the stucco cracking was first seen. Trial Exhibit (“Trial Exh.”) 108. As ProBuilders 25 26 27 28 1 Defendants do not provide a citation for the letter, thus the court assumes Defendants are referring to Trial Exhibit 108. 6 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT points out, Mr. Haas (the general contractor) and Mr. Levine (the owner of the home) were in the 2 best position to provide documentation as to when the stucco was first installed and when they 3 first noticed cracking, yet no documentation was provided to corroborate their testimony. See Pl. 4 Opp. at 13. Thus, the jury, receiving the testimony and following the court’s instructions, 5 considered the nature, quality and character of the witnesses’ testimony, such as: (1) the 6 opportunity and ability of the witness to see or hear or know the things testified to; (2) the 7 witness’s memory; (3) the witness’s manner while testifying; (4) the witness’s interest in the 8 outcome of the case and any bias or prejudice; (5) whether other evidence contradicted the 9 witness’s testimony; (6) the reasonableness of the witness’s testimony in light of all the evidence; 10 and (7) any other factors that bear on believability. See Jury Inst. No. 11; Ninth Circuit Manual of 11 United States District Court Northern District of California 1 Model Civil Jury Instructions, Jury Inst. No. 1.11 “Credibility of Witnesses” (2007). Given the 12 absence of documentation and potential self-interest in the testimonies, it was reasonable for the 13 jury to conclude that by a preponderance of the evidence, the stucco cracking did not first occur 14 during the policy period. Accordingly, this court finds that the jury verdict is not against the weight of the evidence. 15 16 Therefore, a new trial is not warranted on this basis. 17 B. 18 Confusing and Prejudicial Evidence Offered at Trial As grounds for a new trial, Defendants argue that they were prejudiced by evidence the 19 jury should never have heard, including the Superior Court’s findings that the framers were Mr. 20 Haas’s employees and ProBuilders’ “genuine dispute” rescission evidence. Def. Mot. at 4. 21 1. Superior Court’s Findings 22 In the Levine action, the Superior Court judge found that the framers were Mr. Haas’s 23 employees and not independent contractors. At trial in this court, Mr. Haas testified that the 24 framers were subcontractors, but after this court found the Superior Court decision to be binding, 25 Mr. Haas had to testify that he in fact had employees. Id. at 5-6. Consequently, Defendants 26 contend that ProBuilders portrayed Mr. Haas as a liar due to his contradictory testimony. Id. at 4- 27 28 7 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 5. Defendants argue that if this court had held the Superior Court findings to be binding earlier in 2 the trial, the jury would not have heard Mr. Haas’s statements about subcontractors and Mr. Haas 3 would not have been impeached on this point. Id. at 6. Defendants would then have been able to 4 cross-examine ProBuilders’ witnesses who testified that there was no coverage because the work 5 was done by subcontractors. Id. Defendants contend that this issue must have been confusing to 6 the jury whose questions during deliberation focused on rescission. Id. 7 ProBuilders argues that there was no prejudice because the court expressly instructed the 8 jury to find that the framers were Haas Corp. employees, and it must be presumed that the jury 9 followed jury instructions. Pl. Opp. at 18. ProBuilders further argues that the framers’ status is irrelevant to the jury’s verdict because the jury concluded that there was no coverage and Mr. 11 United States District Court Northern District of California 10 Haas would have been impeached in any event given that he was convicted of eleven felony 12 charges, including insurance fraud and perjury. Id. at 18-19. 13 This court finds Defendants’ arguments unpersuasive. In the sixth day of trial, Defendants 14 requested this court to take judicial notice of the Superior Court’s finding that the framers were 15 employees. See Dkt. No. 291, Tr. at 951 (Defense Counsel Sallander stated: “I came into the case 16 believing I had a finding from a Superior Court judge that there were employees . . . . So would 17 the court then give and take judicial notice that [the Superior Court judge] found that the framers 18 were employees?”). The court granted Defendants’ request and included a jury instruction 19 providing: “The Court has found that the framers of the Levines’ house were Haas Corp. 20 employees.” Jury Inst. No. 16. While it now appears that Defendants object to the timing upon 21 which this court took judicial notice, Defendants did not object at the time of trial. Furthermore, 22 the issue of Mr. Haas’s credibility is unpersuasive because he would have been impeached with 23 his convictions for eleven felony charges. Accordingly, a new trial is not warranted on this basis. 24 2. 25 Defendants contend that, at the eleventh hour, ProBuilders improperly argued a “genuine 26 27 28 “Genuine Dispute” Defense and Rescission dispute” defense that it had not asserted before. Def. Mot. at 1. At trial, ProBuilders’ coverage 8 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 claims handler, Sherrianne Hanavan, testified that rescission was one reason why ProBuilders did 2 not pay to settle. Id. at 3. Ms. Hanavan testified that all internal communications and 3 deliberations about coverage would be in the coverage claim file that was not in evidence. Id. at 7. 4 Since ProBuilders argued that a “genuine dispute” about coverage was a defense to bad faith, 5 Defendants contend that ProBuilders put its internal discussions about coverage at issue. Dkt. No. 6 375, Defendants’ Reply (“Def. Reply”) at 2. In doing so, ProBuilders should have disclosed this 7 coverage claim file during Rule 26 initial disclosures. Def. Mot. at 7. Defendants argue that this 8 is important because the “genuine dispute” defense was the only justification for the jury hearing 9 any evidence about Mr. Haas’s alleged misrepresentations to ProBuilders. Id. Consequently, this reinforced ProBuilders’ portrayal of Mr. Haas as a liar, which prejudiced and confused the jury. 11 United States District Court Northern District of California 10 Id. Furthermore, Defendants contend that ProBuilders’ closing argument about rescission 12 confused the jury and made them focus on rescission, thus leading them to rescind the policy in its 13 verdict. Id. at 1, 3. 14 In opposition, Plaintiffs present four arguments. First, ProBuilders’ “genuine dispute” 15 defense was not asserted at the eleventh hour. Pl. Opp. at 14. This defense was asserted in its 16 answer to the Levines’ counterclaim, in its answer to Mr. Haas’ counterclaim, and in the Joint 17 Final Pretrial Conference Statement filed on October 4, 2013. Id. Moreover, at the Final Pretrial 18 Conference held on October 18, 2013, the court heard arguments regarding the “genuine dispute” 19 doctrine as it related to ProBuilders’ rescission evidence. Id. at 15. Second, the “genuine dispute” 20 doctrine is irrelevant in determining the instant motion because the jury ultimately determined that 21 the Levine action judgment was not covered under the policy, thus the jury never had to determine 22 whether ProBuilders acted in bad faith. Id. at 16. Third, ProBuilders was under no obligation 23 under Rule 26 to produce the coverage claim file because it did not use any evidence from the file 24 at trial. Id. When Defendants became aware of this file at trial, they could have subpoenaed it. 25 Id. Fourth, in its closing argument, ProBuilders’ counsel did not ask the jury to rescind the policy. 26 Id. at 17. Counsel mentioned rescission twice to explain why ProBuilders chose to file a 27 28 9 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 rescission lawsuit against Mr. Haas and why ProBuilders waited to file the Complaint until after 2 the Levine action trial. Id. 3 This court finds Defendants’ arguments unpersuasive. There is no indication that, at trial, 4 Defendants objected to any argument ProBuilders made regarding the “genuine dispute” defense. 5 Defendants did not request the coverage claim file from Plaintiffs or ask leave for a trial subpoena 6 to obtain it. As to closing arguments, Defendants did not object to any portion of ProBuilders’ 7 closing argument and Defendants, in fact, mentioned the term “rescission” much more frequently 8 than ProBuilders’ counsel. See Dkt. No. 334, Tr. at 1919 (in closing argument, ProBuilders’ 9 counsel mentions rescission once); id. at 1967-70 (in closing argument, Defendants’ counsel discusses rescission); id. at 1982 (in rebuttal, ProBuilders’ counsel mentions rescission once); id. 11 United States District Court Northern District of California 10 at 1994, 1997 (in rebuttal, Defendants’ counsel discusses rescission). Moreover, the jury was 12 explicitly instructed not to consider counsel’s arguments as evidence, thus it is unlikely that the 13 jury was confused by closing argument. See Jury Inst. No. 7 (“Arguments and statements by 14 lawyers are not evidence . . . . What they have said in their opening statements, have said in their 15 closing arguments, and at other times is intended to help you interpret the evidence, but it is not 16 evidence.”). See also Ho v. Carey, 332 F.3d 587, 594 (9th Cir. 2003) (the court “presume[s] that a 17 jury follows the trial court’s instructions”). Accordingly, a new trial is not warranted on this basis. 18 C. 19 Improper Jury Instructions The ProBuilders policy contained “exclusion” provisions that eliminated coverage. As 20 grounds for a new trial, Defendants argue that jury instructions on four exclusions were improper 21 because they are either not consistent with California authority or the exclusion could not apply. 22 Def. Mot. at 12. The four exclusions at issue are J(5), J(6), L, and M. 23 1. 24 Under Exclusions J(5) and J(6), the policy would not apply to: 25 26 27 28 Exclusions J(5) and J(6) Property damage to: ... (5) Any real property on which you or any contractors or subcontractors, working directly or indirectly on your behalf are 10 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 2 3 4 5 6 7 8 9 10 performing operations, if the property damage arises out of those operations except that, if you are not a general contractor or developer of real property, then this exclusion applies only to the particular part of the real property on which you or others working directly or indirectly on your behalf are performing the operations; or (6) Any property that must be restored, repaired or replaced because your work was incorrectly performed on it. ... Paragraph (6) of this exclusion does not apply to property damage included in the products-completed operations hazard. For purposes of paragraph (5), you or any contractors or subcontractors working directly or indirectly on your behalf shall be deemed to be “performing operations” from the time when you or the contractors or subcontractors begin work until such operations are complete as set forth in paragraph 14.b. of SECTION V – DEFINITIONS – (Products-Completed Operations Hazard). Commercial General Liability Coverage Form (“ProBuilders Policy”) at 5. United States District Court Northern District of California 11 Jury instructions stated that ProBuilders had the burden of proving by a preponderance of 12 the evidence that policy exclusions eliminating coverage for the Levines’ judgment applied. See 13 Jury Inst. No. 36. As to Exclusion J(5), jury instructions provided: 14 18 Exclusion “J(5)” only precludes coverage for property damage arising out of the ongoing operations performed by Haas Corp. or Haas Corp.’s subcontractors on the Levine residence. The policy holds that operations are completed at the earliest of the following times: (1) after the work that caused the damage has been put to its intended use by any person, including a worker on the construction project, or (2) when Haas Corp. refused to continue performance of its work on the Levine residence or when the Levines terminated Haas Corp. 19 Jury Inst. No. 37. “Real property” was defined to include “fixtures, such as buildings.” Jury Inst. 20 No. 38. As to Exclusion J(6), jury instructions provided: 15 16 17 21 22 23 24 25 26 27 28 Exclusion “J(6)” precludes coverage for property damage to property that must be restored, repaired or replaced because Haas Corp.’s or its subcontractor’s work was incorrectly performed on the property. Exclusion “J(6)” only precludes coverage for property damage arising out of the ongoing operations performed by Haas Corp. or Haas Corp.’s subcontractors on the Levine residence. The policy holds that operations are completed at the earliest of the following times: (1) after the work that caused the damage has been put to its intended use by any person, including a worker on the construction project, or (2) when Haas Corp. refused to continue performance of its work on the Levine residence or when the Levines terminated Haas Corp. 11 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 2 Jury Inst. No. 39. Defendants argue that these exclusions could not apply to the stucco damage because the 3 OSB and wall framing had been put to its intended use by the stucco subcontractor before the 4 stucco was damaged. Def. Mot. at 12. They rely on Mr. Kelley’s testimony to establish that the 5 defective framing and OSB was put to its intended use before the stucco cracked. Id. at 13. 6 Defendants further argue that these jury instructions were not consistent with California authority 7 holding that these exclusions do not apply when the insured’s work injures other property. Id. at 8 13. They contend that these exclusions applied only to the defective work itself, and not to other 9 parts of the property; thus, these exclusions did not apply to the damaged stucco. Id. at 14. 10 ProBuilders argues that the Levine action judgment included many items, other than the United States District Court Northern District of California 11 stucco damage, for which these exclusions potentially precluded coverage. Pl. Opp. at 21. A 12 spreadsheet created by Mr. Kelley showed items that were defective or unfinished, thus the jury 13 could have properly applied these exclusions to one or more defects. Id. at 21-22. 14 This court finds that jury instructions pertaining to exclusions J(5) and J(6) were proper 15 and appropriate. The instructions accurately reflected the language stated in the exclusion 16 provisions. Given the totality of the evidence presented at trial, the jury could reasonably 17 conclude that these exclusions applied to any defect that resulted from the bad framing. 18 Moreover, the case law cited by Defendants is unpersuasive because they are either not binding or 19 inapposite to the matter at hand. Accordingly, a new trial is not warranted on this basis. 20 2. 21 Under Exclusion L, the policy would not apply to: 22 23 24 25 Exclusion L Property damage to your work or any part of it and included in the products-completed operations hazard. This Exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor. ProBuilders Policy at 5. 26 27 28 12 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 Jury instructions provided: 2 For such property damage, it applies only to work that was actually performed by Haas Corp, including its employees, and then applies only if that property damage was caused by work performed by Haas Corp. It does not apply to property damage to work performed by subcontractors, even if Haas Corp caused the damage. It also does not apply to property damage caused by work performed by subcontractors, even if the damaged property is Haas Corp’s work. 3 4 5 6 Jury Inst. No. 40. 7 Defendants argue that this exclusion did not apply to the stucco damage because a 8 subcontractor, not an employee, did the stucco work. Def. Mot. at 14. Moreover, the jury could 9 have relied on this exclusion because ProBuilders invoked it in its closing argument. Id. 10 ProBuilders argues that the Levine action judgment included many items of damages in United States District Court Northern District of California 11 addition to stucco, such as problems with the framing for which this exclusion potentially applied. 12 Pl. Opp. at 20. This exclusion was relevant with respect to the problems with the framing because 13 the court instructed the jury, at Defendants’ insistence, that the framers were R.J. Haas Corp. 14 employees. Id. 15 This court finds that the jury instruction pertaining to exclusion (L) was proper. The 16 instruction accurately reflected the language stated in the exclusion provision. Moreover, as 17 discussed above, this court took judicial notice that the subcontractors were Mr. Haas’s 18 employees. Given the evidence presented at trial, the jury could reasonably conclude that this 19 exclusion applied. Accordingly, a new trial is not warranted on this basis. 20 3. 21 Under Exclusion M, the policy would not apply to: 22 23 24 25 26 27 28 Exclusion M Property damage to impaired property or property that has not been physically injured arising out of: (1) A defect, deficiency, inadequacy or dangerous condition in your product or your work; or (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms. This exclusion applies to property which is otherwise not physically injured or damaged but which must be demolished, removed, repaired, replaced, altered or damaged in order to remove, repair or 13 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 replace your work or your product. ProBuilders Policy at 5. 2 Jury instructions provided: 3 4 5 6 7 8 9 10 If ProBuilders proves by a preponderance of the evidence that a portion of the Levine action judgment was for property damage to impaired property or property which has not been physically injured arising out of: (1) a defect, deficiency, inadequacy or dangerous condition in R.J. Haas Corp.’s product or work; or (2) a delay or failure by R.J. Haas Corp. or anyone acting on behalf of R.J. Haas Corp. to perform a contract or agreement in accordance with its terms, then ProBuilders does not have a duty to indemnify that portion of the judgment. Jury Inst. No. 41. Defendants argue that this jury instruction was improper because the exclusion did not United States District Court Northern District of California 11 apply. Def. Mot. at 15. This exclusion applied only to “impaired property” or “property which 12 has not been physically injured;” here, however, the stucco was physically injured. Id. Moreover, 13 Defendants contend that if the jury were instructed on this exclusion, then it should have been 14 worded differently. Id. They believe the jury instruction should have read: “This exclusion does 15 not apply if defective work caused physical injury to the Levine house.” Id. This new language 16 would not have applied the exclusion to the stucco. Id. Defendants argue that its proposed 17 instruction was consistent with California authority. Id. The evidence showed that the exclusion 18 did not support the jury verdict because the defective OSB installation caused physical injury to 19 the stucco, and this exclusion did not apply to that stucco damage. Id. at 16. 20 ProBuilders argues that the Levine action judgment included many items for which this 21 exclusion potentially precluded coverage. Pl. Opp. at 20. At trial, evidence was introduced 22 concerning many aspects of R.J. Haas Corp.’s defective work for which this exclusion may have 23 applied. Id. at 20-21. 24 This court finds that jury instructions pertaining to exclusion M were proper. The 25 instruction accurately reflected the language stated in the exclusion provision. Given the evidence 26 presented at trial, the jury could reasonably conclude that this exclusion applied to defects 27 28 14 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 discussed at trial. Moreover, the case law cited by Defendants is unpersuasive because they are 2 either not binding or inapposite. Accordingly, a new trial is not warranted on this basis. 3 4. 4 Defendants argue that evidence at trial and California law would justify finding 5 ProBuilders liable for bad faith even if the jury determined there was no coverage. Def. Mot. at 6 17. Thus, the court erred for refusing to provide Defendants’ proposed jury instruction no. 49 7 based on this theory. Id. 8 Defendants’ Proposed Jury Instruction No. 49 Defendants’ proposed jury instruction no. 49 provided: 9 10 United States District Court Northern District of California 11 12 13 14 15 16 Even if ProBuilders did not owe Haas or Haas Corp any duty to defend, pay the judgment, or settle the Levine lawsuit, ProBuilders can still be found liable for breach of the implied covenant of good faith and fair dealing if Haas proves the following: 1. ProBuilders exercised control over the defense of Haas or Haas Corp., or exercised control over whether Haas or Haas Corp could enter into any agreements with the Levines to resolve any of the disputes between them; 2. ProBuilders did not exercise this control with due care or in good faith; 3. Haas sustained injury as a result of ProBuilders’ failure to exercise this control with good faith or in fair dealing. Dkt. No. 317, Defendants’ Proposed Jury Instructions. 17 Defendants contend that, in the state court case, Mr. Haas had the opportunity to enter into 18 a stipulation about damages that had no figure for disgorgement. Id. If Mr. Haas had entered into 19 the stipulation, disgorgement would not have been tried. Id. Defense counsel Minoletti 20 recommended signing the stipulation, and ProBuilders conceded that Mr. Haas wanted to enter 21 into the stipulation. Id. ProBuilders insisted on the right to withhold consent, and when Minoletti 22 sent the stipulation to ProBuilders, it told Minoletti that he was not permitted to sign it. Id. 23 Defendants argue that under California law, these facts supported bad faith liability even if there 24 was no coverage. Id. at 18. Moreover, Defendants argue that under the policy, ProBuilders 25 exercised control over whether Mr. Haas could sign the stipulation, giving ProBuilders discretion 26 about whether or not to settle. Id. The implied covenant of good faith and fair dealing governed 27 28 15 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 ProBuilders’ exercise of its discretion to withhold consent to the stipulation. Id. at 18-19. 2 Defendants argue that they established that ProBuilders exercised its control over defense and 3 settlement in a way that injured Mr. Haas, thus ProBuilders should have been held liable for the 4 injury Mr. Haas and Haas Corp. sustained as a result, even if indemnity coverage was lacking. Id. 5 at 19. 6 Consequently, Defendants argue that proposed jury instruction No. 49 was consistent with this theory. Id. The court appeared to believe that this proposed instruction was unnecessary 8 because ProBuilders had a right to defend. Id. at 19-20. Defendants included this claim in the 9 joint pretrial conference statement, and requested a jury instruction on this theory before a pretrial 10 conference. Id. at 20. This issue was properly reserved for trial, and the record contains evidence 11 United States District Court Northern District of California 7 that would allow the jury to award damages under this theory. Id. Defendants contend that this 12 court should grant a new trial so that a jury can decide whether Mr. Haas is entitled to recover 13 under this theory. Id. 14 In opposition, ProBuilders argues that the evidence presented at trial did not support a 15 finding that its conduct rose to the level of bad faith. Pl. Opp. at 23. ProBuilders requested more 16 information from Mr. Haas’ defense counsel regarding the proposed stipulated judgment, and 17 ProBuilders did not receive this information. Id. ProBuilders argues that Defendants failed to 18 provide any evidence that the Levines agreed to the stipulation, thus Defendants failed to show 19 harm caused by ProBuilders’ request for more information. Id. The court agrees that requesting 20 additional information did not amount to bad faith, and Defendants did not show harm caused by 21 ProBuilder’s request. 22 ProBuilders further argues that the jury found there was no coverage under the policy, thus 23 under California law, ProBuilders could not be held liable for bad faith failure to settle. Id. 24 ProBuilders cites to Jury Instructions Nos. 52 and 53 to argue that these jury instructions informed 25 the jury of the law. Id. at 23-24. 26 27 28 16 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT Jury Instruction No. 52 provided: 1 2 Ronald Haas claims that he was harmed by ProBuilders’ breach of the obligation of good faith and fair dealing because ProBuilders failed to accept a reasonable settlement demand in a lawsuit against him. To establish this claim, Haas must prove all of the following by a preponderance of the evidence: 1. That the Levines brought a lawsuit against Haas for a claim that was covered by ProBuilders’ insurance policy; 2. That ProBuilders failed to accept a reasonable settlement demand for an amount within policy limits; and 3. That a monetary judgment was entered against Haas for a sum greater than the policy limits. ... A settlement demand is reasonable if ProBuilders knew or should have known at the time the settlement demand was rejected that the potential judgment was likely to exceed the amount of the settlement demand based on Levine’s injuries or loss and Haas’s probable liability. 3 4 5 6 7 8 9 10 Jury Instruction No. 53 provided: United States District Court Northern District of California 11 12 The insurer’s duty to indemnify applies to only claims that are covered by the policy. Thus, an insurer has a duty to accept a reasonable settlement offer only with respect to a covered claim (i.e. a claim for which the insurer owes the insured a duty of indemnity). Where there is no coverage under the policy, an insurer has no potential liability for failing to accept a settlement offer even where that insurer breaches its duty to defend. Thus, if you determine that ProBuilders had no duty to indemnify the Levine action judgment, pursuant to the terms of the ProBuilders policy, then ProBuilders is not liable for any portion of the Levine action judgment, and did not act in bad faith for failing to settle the Levine action. 13 14 15 16 17 This court finds that it did not err in declining to use Defendants’ proposed jury instruction 18 19 No. 49. Under California law, an insurer cannot be found in bad faith unless policy benefits are 20 due. See Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1034 (9th Cir. 2008) 21 (“California law is clear, that without a breach of the insurance contract, there can be no breach of 22 the implied covenant of good faith and fair dealing.”). As the jury found no coverage, no benefits 23 were due. Accordingly, this is not a basis for a new trial. 24 D. 25 26 27 28 Conclusion At oral argument, Defendants argued that all of these components cumulatively created confusion to the jury, prejudice, and unfairness. The court finds, however, that these components 17 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 separately or cumulatively do not rise to afford the extraordinary relief sought by Defendants. At 2 trial, it was proven that Mr. Haas lied to ProBuilders and, thus, it is reasonable to assume that the 3 jury found little veracity in his testimony. If the jury did this, there was no reason to go further. 4 Therefore, the jury’s finding of no coverage was reasonable. None of Defendants’ arguments are sufficiently persuasive to warrant a new trial. The jury 5 6 verdict did not weigh against the evidence, there was no confusing or unfair prejudicial evidence 7 presented at trial, the jury instructions were proper, and these components considered collectively 8 or separately do not afford the relief sought. Therefore, Defendants’ Motion for a New Trial is 9 DENIED. 10 IV. ProBuilders filed a Motion for an Amended Partial Judgment, or in the alternative, a 11 United States District Court Northern District of California PLAINTIFFS’ MOTION FOR AMENDED PARTIAL JUDGMENT 12 Motion to Vacate Judgment. See Dkt. No. 369, Plaintiffs’ Motion (“Pl. Mot.”). ProBuilders 13 contends that the court made an error when it entered Judgment and closed the file because the 14 Judgment does not take into account ProBuilders’ two rescission-related claims, which have not 15 been tried. Id. at 1. 16 A. 17 Procedural Background In its Second Amended Complaint, ProBuilders asserted four claims against Defendants: 18 (1) Declaratory Relief – Duty to Defend/Indemnify; (2) Restitution/Reimbursement of Defense 19 Fees/Costs; (3) Declaratory Relief – Rescission; and (4) Restitution/Reimbursement of Defense 20 Fees/Costs. See Dkt. No. 48, Second Amended Complaint. In January 2014, the jury entered its 21 special verdict. See Dkt. No. 338. ProBuilders contends the jury’s verdict is dispositive as to 22 Defendants’ duty to indemnify and bad faith claims, but it is not dispositive as to ProBuilders’ 23 two-rescission related claims (Third and Fourth Claims). Pl. Mot. at 3. 24 In February 2014, ProBuilders filed a motion for entry of judgment on a separate 25 document. See Dkt. No. 344. ProBuilders requested this court to enter judgment as to some, but 26 not all, of the claims set forth in the Second Amended Complaint. See id. at 1. The remaining 27 28 18 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 claims that the court did not adjudicate concerned the two rescission-related claims. See id. The 2 motion was fully briefed. See Dkt. Nos. 345, 346. 3 On February 28, 2014, the court held a status conference where the court considered 4 ProBuilders’ motion for entry of judgment. See Dkt. No. 347. At that status conference, the 5 undersigned judge stated the following: 6 In considering your pleadings and looking at the totality of the circumstances here vis-à-vis the jury’s verdict in this case and what remains, that is, the rescission trial, I do find that to go forward with the rescission trial is not timely, nor is it appropriate given the jury’s findings and the jury’s verdict. 7 8 9 It does not appear to the court that it would be efficient to try the issue of rescission, which was ProBuilder’s issue, and go forward on the basis. And as I recall, this rescission trial was ProBuilders’s issue and request for a bench trial that ProBuilders requested. 10 United States District Court Northern District of California 11 12 The jury’s findings in this case indicate that there was no coverage in the case as we all know. That further diminishes any need for a trial in regards to the rescission issue on the insurance policy at this time. 13 14 And there is, the court finds, there is no just reason to delay the entry of judgment. ... There is, as I have indicated, no need for the rescission trial, the court finds, based on the facts and circumstances and posture of the case currently. 15 16 17 18 Dkt. No. 350 at 3-4. In a subsequent pretrial conference order, the court terminated ProBuilders’ 19 motion for entry of judgment, vacated the bench trial scheduled for March 2014, and set a deadline 20 for the parties to notify the court whether they were interested in pursuing mediation. See Dkt. 21 No. 348. 22 In April 2014, a settlement conference was held between the parties with Magistrate Judge 23 Jacqueline Scott Corley; the parties did not settle. Pl. Mot. at 4. In May 2014, the parties filed a 24 Joint Case Management Statement stating that the parties did not believe they could negotiate a 25 resolution. See Dkt. No. 347. 26 27 28 19 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT On May 27, 2014, the court entered a Judgment in this action: 1 2 This action having been tried to a jury and a verdict having been rendered, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that judgment shall be entered in accordance with that verdict, in favor of Plaintiff ProBuilders Specialty Insurance Company, RRG. The clerk shall CLOSE this file. 3 4 5 6 Dkt. No. 358, Judgment. On the same day, the court vacated the case management conference 7 scheduled for May 30, 2014. See Dkt. No. 359. On May 29, 2014, the parties sent a letter to the 8 court jointly requesting a case management conference in order to discuss with the court issues 9 concerning the judgment and a briefing schedule for future motions. See Dkt. No. 360. The court denied the parties’ request. See Dkt. No. 362. ProBuilders, thus, filed the instant motion. 11 United States District Court Northern District of California 10 B. Discussion In the instant motion, ProBuilders contends that the Judgment was entered in error because 12 13 it did not take into account ProBuilders’ rescission-related claims. Pl. Mot. at 1. Thus, 14 ProBuilders request the following in order of preference: 15 1. rescission-related claims; or, in the alternative, 16 17 That the court enter a partial judgment pursuant to Rule 54(b) and stay ProBuilders’ two 2. That the court vacate the judgment pursuant to Rule 60 and: (1) set a briefing schedule to 18 brief the two rescission-related claims and possibly permit limited supplemental live 19 testimony, or (2) schedule a bench trial for ProBuilders’ two rescission-related claims. 20 Id. at 9-10. ProBuilders states that it filed the instant motion because it is concerned that upon appeal, 21 22 the Ninth Circuit may hold that it has no jurisdiction because the two rescission-related claims 23 were not adjudicated. Dkt. No. 376, Plaintiff’s Reply (“Pl. Reply”) at 1. It argues that a final 24 judgment gives the impression that ProBuilders has abandoned its two rescission-related claims, 25 which it has not. Id. at 2. Thus, ProBuilders presents the court with two options. 2 26 27 28 2 A third option was briefly mentioned: The court can amend the Judgment to state that 20 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT 1 First, the court can enter partial judgment and stay the two-rescission related claims. 2 ProBuilders argues that if the court were to conduct a rescission bench trial, it would presumably 3 base its ruling on the testimony and evidence admitted in the jury trial. Pl. Mot. at 7. Regardless 4 of which party wins the rescission bench trial, if Defendants succeed in their appeal of the jury 5 special verdict, then new factual evidence will be admitted into the record. Id. This court would 6 then need to conduct a separate jury trial and subsequent bench trial based on the new evidence, 7 resulting in a waste of judicial resources for the rescission bench trial. Id. Also, ProBuilders 8 argues that to protect its Seventh Amendment right to a jury trial, a final resolution of the jury’s 9 verdict is required before the rescission bench trial. Id. Therefore, ProBuilders contends that a rescission bench trial should be stayed to see whether Defendants are successful in overturning the 11 United States District Court Northern District of California 10 jury’s special verdict. Id. at 8. 12 An alternative option is for the court to vacate the entry of judgment because it is 13 premature to enter a final judgment when ProBuilders’ two rescission-related claims have not been 14 resolved. Id. at 9. While this is an option, ProBuilders argues that it is not the preferred option 15 because it is better for judicial economy to proceed with an appeal rather than engaging in further 16 litigation. Id. 17 In a one-page opposition brief, Defendants oppose the motion. Dkt. No. 374, Defendants’ 18 Opposition (“Def. Opp.”) at 1. Defendants argue that there is no need for a rescission trial, which 19 is the reason the court entered judgment without trying rescission. Id. Moreover, the parties agree 20 that should the existing judgment be reversed on appeal, it would then be appropriate to litigate 21 rescission. Id. 22 In recognizing the importance of proceeding with the appellate process, this court agrees 23 that the final Judgment entered in this case gives the impression that all of ProBuilders’ claims 24 have been adjudicated when they, in fact, have not been. ProBuilders’ two rescission-related 25 claims have not been tried or adjudicated in any form. Accordingly, ProBuilders’ Motion to 26 27 28 Defendants take nothing. Pl. Mot. at 9. 21 Case No. 5:10-CV-05533-EJD ORDER DENYING DEFENDANTS’ MOTION FOR NEW TRIAL, GRANTING PLAINTIFF’S MOTION FOR AMENDED PARTIAL JUDGMENT

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