St. Paul Mercury Insurance Company v. McMillin Homes Construction, Inc. et al, No. 3:2015cv01548 - Document 21 (S.D. Cal. 2015)
Court Description: ORDER Granting 11 Motion to Dismiss Counterclaim; Granting Leave to Amend: The court grants the motion to dismiss the Counterclaim with 15 days leave to amend from the date of entry of this order. Signed by Judge Jeffrey T. Miller on 10/28/15. (dlg)
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St. Paul Mercury Insurance Company v. McMillin Homes Construction, Inc. et al Doc. 21 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 13 14 15 16 17 18 ST. PAUL MERCURY INSURANCE COMPANY, v. Plaintiff, CASE NO. 15cv1548 JM(BLM) ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM; GRANTING LEAVE TO AMEND MCMILLIN HOMES CONSTRUCTION, INC.; MCMILLIN HOMES, INC.; MCMILLIN MANAGEMENT SERVICES, LP; SERENO RESIDENTIAL INVESTORS, LLC; and IMPERIAL VALLEY INVESTORS, LLC, Defendants. _______________________________ 19 20 AND RELATED COUNTERCLAIM 21 22 23 24 25 26 27 28 Plaintiff St. Paul Mercury Insurance Company (“St. Paul”) moves to dismiss the Counterclaim (“CC”) filed by Defendants McMillin Homes Construction, Inc., McMillin Homes, Inc, McMillin Management Services, LP, Sereno residential investors, LLC, and Imperial Valley Investors, LLC. (collectively “Defendants”). Defendants oppose the motion. Pursuant to Local Rule 7.1(d)(1), the court finds the matters presented appropriate for decision without oral argument. For the reasons set forth below, the court grants the motion to dismiss and grants Defendants 15 days leave -1- 15cv1548 Dockets.Justia.com 1 to amend from the date of entry of this order. 2 3 BACKGROUND On July 13, 2015, St. Paul commenced this diversity action by alleging three 4 claims for relief: declaratory relief, breach of contract, and equitable reimbursement. 5 For the time period from May 19, 2003 to June 30, 2009, St. Paul issued a commercial 6 general liability policy (“Policy”) to Executive Landscape, Inc. Defendants are 7 additional insureds under the Policy. St. Paul’s claims arise from the following 8 generally described allegations. 9 Defendants developed and acted as the general contractor on a project known as 10 “Serano.” On May 12, 2012, various homeowners in the Sereno development, located 11 in the City of Calexico, California, filed a first amended complaint in the lawsuit 12 entitled Yanez v. Sereno Residential Investors, LLC. The homeowners commenced the 13 action in Imperial County Suerior Court, alleging several claims for construction 14 defects. The Yanez action was subsequently consolidated with a related construction 15 defect lawsuit, Vizcarra v. Sereno Residential Investors, LLC (unless otherwise noted, 16 both actions are collectively referred to as the “Yanez Action”). 17 On August 8, 2012, Defendants, through their legal representative Simpson 18 Delmore Greene (“SDG”), tendered the Yanez Action to St. Paul as an additional 19 insured under the Policy. (Compl. ¶16). On November 2, 2012, St. Paul agreed to fully 20 and completely defend Defendants in the Yanez Action as additional insureds under 21 the Policy, subject to a reservation of rights. 22 On June 26, 2013, St. Paul allegedly asserted its contractual right to retain 23 counsel of its choosing and advised Defendants that it retained the law firm of Clapp, 24 Moroney, Bellagamba, Vucinich, Beeman & Scheley (“Clapp”) to represent and defend 25 Defendants in the Yanez Action. Defendants allegedly refused, and continue to refuse, 26 to accept Clapp as counsel in the Yanez Action. 27 St. Paul seeks a declaration that (1) St. Paul has the right to control the defense 28 in the Yanez action; (2) Defendants are not entitled to the appointment of independent -2- 15cv1548 1 counsel under Cal. Civil Code §2860; (3) Defendants breached the Policy by refusing 2 to acknowledge St. Paul’s right to control the defense, including the selection of 3 counsel, and (4) St. Paul has no obligation under the Policy to pay any fees or costs 4 incurred by Defendants’ retained counsel. The breach of contract claim is based upon 5 allegations that Defendants refused to accept the counsel provided by St. Paul. Finally, 6 the third claim seeks equitable reimbursement for certain defense fees and costs paid 7 by St. Paul. 8 The Counterclaims 9 On August 13, 2015, Defendants and Counter-Claimants filed a Counterclaim, 10 alleging three claims for relief: (1) declaratory relief; (2) breach of contract; and 11 (3) breach of the implied covenant of good faith and fair dealing. As set forth in the 12 complaint, on August 8, 2012, Defendants tendered the Yanez Action to St. Paul. 13 Nearly four months later, on December 31, 2012, St. Paul agreed to defend Defendants 14 in the Yanez Action, subject to a full reservation of rights. (Counterclaim “CC” ¶27). 15 Counter-Claimants allege that St. Paul paid only a portion of the defense costs 16 incurred by SDG. On June 26, 2013, ten months after Defendants tendered its defense 17 to St. Paul, St. Paul retained Clapp to represent the defense. Shortly thereafter, on 18 July 22, 2013, Defendants provided St. Paul with a Joint Consent to Representation 19 (“Joint Consent”) pursuant to Cal. Civ, Code §2860. When St. Paul did not respond 20 to the Joint Consent, Defendants again provided the Joint Consent to St. Paul on 21 September 4, 2013, and December 13, 2013. On February 11, 2014, St. Paul advised 22 Defendants that it would only pay for defense fees incurred by Clapp, and not SDG. 23 Defendants allege that the delay between tender and the notification by St. Paul 24 that it would provide a defense constitutes a waiver and/or estopps St. Paul from 25 asserting its right to control the defense. Defendants further allege that St. Paul 26 fraudulently promised to provide a full, complete, and conflict-free defense but then 27 appointed Clapp knowing of the existence of an unidentified conflict. (CC ¶10). 28 -3- 15cv1548 1 DISCUSSION 2 Legal Standards 3 Federal Rule of Civil Procedure 12(b)(6) dismissal is proper only in 4 "extraordinary" cases. United States v. Redwood City, 640 F.2d 963, 966 (9th Cir. 5 1981). Courts should grant 12(b)(6) relief only where a plaintiff's complaint lacks a 6 "cognizable legal theory" or sufficient facts to support a cognizable legal theory. 7 Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Courts should 8 dismiss a complaint for failure to state a claim when the factual allegations are 9 insufficient “to raise a right to relief above the speculative level.” Bell Atlantic Corp. 10 v. Twombly, 550 U.S. 544, 555 (2007) (the complaint’s allegations must “plausibly 11 suggest[]” that the pleader is entitled to relief); Ashcroft v. Iqbal, 556 U.S. 662 (2009) 12 (under Rule 8(a), well-pleaded facts must do more than permit the court to infer the 13 mere possibility of misconduct). “The plausibility standard is not akin to a ‘probability 14 requirement,’ but it asks for more than a sheer possibility that a defendant has acted 15 unlawfully.” Id. at 678. Thus, “threadbare recitals of the elements of a cause of action, 16 supported by mere conclusory statements, do not suffice.” Id. The defect must appear 17 on the face of the complaint itself. Thus, courts may not consider extraneous material 18 in testing its legal adequacy. Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482 19 (9th Cir. 1991). The courts may, however, consider material properly submitted as part 20 of the complaint. Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d 1542, 21 1555 n.19 (9th Cir. 1989). 22 Finally, courts must construe the complaint in the light most favorable to the 23 plaintiff. Concha v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 24 116 S. Ct. 1710 (1996). Accordingly, courts must accept as true all material allegations 25 in the complaint, as well as reasonable inferences to be drawn from them. Holden v. 26 Hagopian, 978 F.2d 1115, 1118 (9th Cir. 1992). However, conclusory allegations of 27 law and unwarranted inferences are insufficient to defeat a Rule 12(b)(6) motion. In 28 Re Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996). -4- 15cv1548 1 The Declaratory Relief Counter-Claim 2 Counter-Claimants seek a declaration that St. Paul (1) owes an immediate duty 3 to pay for “full, complete and conflict-free defense and indemnity in” Yanez; (2) is 4 obligated to pay for all reasonable unpaid attorneys’ fees and costs related to Yanez; 5 (3) owes a duty to provide independent and conflict-free counsel selected exclusively 6 by Counter-Claimants; (4) breached its obligations under the Policy; and (5) failed to 7 provide an “immediate, complete, and conflict-free defense to Counter-Claimants, 8 [and] has forfeited its right to appoint counsel and to control Counter-Claimant’s 9 defense.” (CC ¶41). 10 To obtain declaratory relief, Counter-Claimants must show an actual controversy 11 regarding a matter within the court’s subject matter jurisdiction. See Calderon v. 12 Ashmus, 523 U.S. 740, 745 (1998). There must exist an “actual controversy relating 13 to the legal rights and duties of the respective parties, not an abstract or academic 14 dispute. Centex Homes v. St. Paul Fire and Marine Ins. Co., 237 Cal.App.4th 23, 29 15 (2015). 16 Here, Counter-Claimants central allegation is that St. Paul was under a duty, 17 pursuant to Cal. Civ. Code §2860, to provide a full, complete, and “conflict-free” 18 defense counsel, and that it failed to do so. However, Iqbal and Twombly require more 19 than speculative allegations. Nowhere could the court locate in the CC the nature of 20 the alleged failure to provide “conflict-free” counsel. As noted in Iqbal,“threadbare 21 recitals of the elements of a cause of action, supported by mere conclusory statements, 22 do not suffice” to state a claim. Iqbal, 556 U.S. at 678. Counter-Claimants must set 23 forth plausible allegations showing that Clapp constituted conflicted counsel. 24 Next, Counter-claimants repeatedly argue that St. Paul waived its right to control 25 the defense by not immediately providing “conflict-free” counsel. The court notes that 26 waiver is an affirmative defense, and not a claim. See McKennon v. Nashville Banner 27 Pul’g Co., 513 U.S. 352, 360(1995). 28 Finally, absent additional allegations showing that St. Paul beached its duty to -5- 15cv1548 1 defend, and caused damage to Counter-Claimants, Counter-Claimants fail to state a 2 claim for either breach of contract or breach of the covenant of good faith and fair 3 dealing. The court notes that the Yanez action appears to involve numerous parties 4 represented by numerous insurers. It is unclear from the allegations whether the failure 5 to provide immediate “conflict-free” counsel is the cause of any harm to Defendants 6 or whether St. Paul was under any duty to accept joint representation as proposed by 7 Counter-Claimants. Lacking clarity, the court grants Counter-Claimants an opportunity 8 to file a First Amended Counterclaim. 9 In sum, the court grants the motion to dismiss the Counterclaim with 15 days 10 leave to amend from the date of entry of this order. 11 IT IS SO ORDERED. 12 DATED: October 28, 2015 13 Hon. Jeffrey T. Miller United States District Judge 14 15 cc: All parties 16 17 18 19 20 21 22 23 24 25 26 27 28 -6- 15cv1548
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