State Farm Fire And Casualty Company v. Arbor Vineyards Homeowners Association et al, No. 3:2010cv00504 - Document 38 (D. Or. 2011)
Court Description: OPINION AND ORDER: Defendants' motion to abate 21 is granted. Plaintiff's motion to dismiss the counterclaims 15 is granted. (see formal opinion) Signed on 1/18/11 by Magistrate Judge Dennis J. Hubel. (kb)
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State Farm Fire And Casualty Company v. Arbor Vineyards Homeowners Association et al Doc. 38 1 2 3 4 5 6 7 8 9 IN THE UNITED STATES DISTRICT COURT 10 FOR THE DISTRICT OF OREGON 11 PORTLAND DIVISION 12 13 14 15 16 17 18 19 20 21 22 STATE FARM FIRE AND CASUALTY COMPANY, ) ) ) Plaintiff, ) ) v. ) ) ARBOR VINEYARDS HOMEOWNERS ) ASSOCIATION, an Oregon ) corporation; ARBOR VINEYARDS, ) LLC, an Oregon limited liabil-) ity company, formerly known as) ARBOR OAKS, LLC; WEST HILLS ) DEVELOPMENT COMPANY, INC., an ) Oregon corporation; WALTER E. ) REMMERS, an individual; and ) DENNIS E. SACKOFF, an ) individual, ) ) Defendants. ) ) No. CV-10-504-HU OPINION & ORDER 23 24 25 26 27 28 Diane L. Polscer Brian C. Hickman GORDON & POLSCER, L.L.C. Suite 650 9755 S.W. Barnes Road Portland, Oregon 97225 Attorneys for Plaintiff / / / 1 - OPINION & ORDER Dockets.Justia.com 1 2 3 Daniel E. Zimberoff Kathleen A. Profitt BARKER MARTIN, P.S. 319 S.W. Washington Street Suite 420 Portland, Oregon 97204-2635 4 Attorneys for Defendant Arbor Vineyards Homeowners Ass'n 5 6 7 Michael E. Farnell James L. Guse PARSONS FARNELL & GREIN, LLP 1030 S.W. Morrison Street Portland, Oregon 97205 8 9 10 Attorneys for Defendants Arbor Vineyards, LLC, West Hills Development Company, Remmers, and Sackoff HUBEL, Magistrate Judge: 11 Plaintiff State Farm Fire and Casualty Company brings this 12 declaratory judgment action against defendants Arbor Vineyards 13 Homeowners Association (HOA), Arbor Vineyards, LLC, West Hills 14 Development Company, Inc., Walter Remmers, and Dennis Sackoff (the 15 Arbor LLC defendants). 16 indemnify defendants pursuant to an insurance policy, in a pending 17 state court case. 18 The action concerns plaintiff's duty to All defendants move to abate the action.1 Plaintiff also 19 moves to dismiss two counterclaims brought against it by the Arbor 20 LLC defendants. 21 judgment by a Magistrate Judge in accordance with Federal Rule of 22 Civil Procedure 73 and 28 U.S.C. § 636(c). 23 abate and the motion to dismiss. All parties have consented to entry of final 24 25 I grant the motion to BACKGROUND The HOA and the Arbor LLC defendants are litigants in a 26 27 28 1 The motion was filed by the Arbor LLC defendants. In a separate September 24, 2010 filing, the HOA joined the motion to abate (docket #31). 2 - OPINION & ORDER 1 pending lawsuit in Washington County. The HOA filed an Amended 2 Complaint in that action on January 19, 2010. In the instant case, 3 plaintiff alleges that the underlying lawsuit involves claims by 4 the HOA for alleged misconduct in the building, selling, and 5 managing, prior to turnover, of 101 common wall residential units 6 ("the Townhouses"), located in the Arbor Vineyards Planned Unit 7 Development.2 8 In the Complaint in this case, plaintiff states that it has 9 accepted the tender of defense of the underlying action from the 10 Arbor LLC defendants and is currently participating in the defense 11 subject to a reservation of rights.3 12 dispute exists between plaintiff and the Arbor LLC defendants 13 concerning the scope and extent of plaintiff's duty to indemnify 14 the potential insureds under the policy plaintiff issued to the HOA 15 for the period July 23, 2003, through July 23, 2010. But, plaintiff alleges, a 16 Plaintiff alleges that subject to its reservation of the right 17 to assert additional coverage defenses following resolution of the 18 underlying lawsuit, it "limits its request for declaratory relief 19 to issues that can be decided as a matter of law by reference only 20 to the Policy, the Underlying Complaint and undisputed facts." 21 Compl. at ¶ 18. 22 its potential indemnity obligations to the potential insureds." 23 Id. at ¶ 19. 24 / / / Plaintiff seeks six "legal declarations regarding 25 26 2 A copy of the underlying complaint is attached as Exhibit 2 to the Complaint in this case. 27 3 28 A copy of the insurance policy is attached as Exhibit 1 to the Complaint. 3 - OPINION & ORDER 1 2 STANDARDS I. Declaratory Judgment Act 3 The Declaratory Judgment Act permits a federal court to 4 declare the rights of parties "to a case of actual controversy 5 within its jurisdiction." 6 seeking federal declaratory relief must first present an actual 7 controversy within the meaning of Article III of the United States 8 Constitution. 9 1220, 1222 (9th Cir 1998). 10 11 12 13 28 U.S.C. § 2201(a). A complaint Government Employees Ins. Co. v. Dizol, 133 F.3d The Complaint must also fulfill statutory jurisdictional prerequisites. Id. Finally, [i]f the suit passes constitutional and statutory muster, the district court must also be satisfied that entertaining the action is appropriate. This determination is discretionary, for the Declaratory Judgment Act is deliberately cast in terms of permissive, rather than mandatory, authority. 14 Id. at 1222-23. 15 In determining whether entertaining the action is appropriate, 16 the factors from Brillhart v. Excess Insurance Company of America, 17 316 U.S. 491 (1942), "remain the philosophic touchstone for the 18 district court." Dizol, 133 F.3d at 1225. They are: (1) avoiding 19 needless determinations of state law issues; (2) discouraging 20 litigants from filing declaratory actions as a means of forum 21 shopping; and (3) avoiding duplicative litigation. Id. In 22 addition, other considerations may be relevant: (1) whether the 23 declaratory action will settle all aspects of the controversy; (2) 24 whether the declaratory action will serve a useful purpose in 25 clarifying the legal relations at issue; (3) whether the 26 declaratory action is being sought merely for the purposes of 27 procedural fencing or to obtain a res judicata advantage; (4) 28 4 - OPINION & ORDER 1 whether the use of a declaratory action will result in entanglement 2 between the federal and state court systems; (5) the convenience of 3 the parties; and (6) the availability and relative convenience of 4 other remedies. Id. at 1225 n.5. 5 While the presence of "parallel state proceedings involving 6 the same issues and parties pending at the time the federal 7 declaratory action is filed" results in a "presumption that the 8 entire suit should be heard in state court[,]" "there is no 9 presumption in favor of abstention in declaratory actions 10 generally, nor in insurance coverage cases specifically." 11 1225. 12 require a district court to refuse federal declaratory relief." 13 Id. 14 diversity jurisdiction to bring a declaratory judgment action 15 against an insured on an issue of coverage." 16 II. 17 Id. at "The pendency of a state court action does not, of itself, Accordingly, nothing prevents an insurer "from invoking Id. Motion to Dismiss On a motion to dismiss, the court must review the sufficiency 18 of the complaint. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). 19 All allegations of material fact are taken as true and construed in 20 the light most favorable to the nonmoving party. 21 Ass'n, Inc. v. City & County of San Francisco, 277 F.3d 1114, 1120 22 (9th Cir. 2002). 23 allegations as truthful. 24 (9th Cir. 1992). American Family However, the court need not accept conclusory Holden v Hagopian, 978 F.2d 1115, 1121 25 A motion to dismiss under Rule 12(b)(6) will be granted if 26 plaintiff alleges the "grounds" of his "entitlement to relief" with 27 nothing 28 recitation of the elements of a cause of action[.]" "more than 5 - OPINION & ORDER labels and conclusions, and a formulaic Bell Atlantic 1 Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation 2 omitted). 3 relief above the speculative level, . . . on the assumption that 4 all the allegations in the complaint are true (even if doubtful in 5 fact)[.]" "Factual allegations must be enough to raise a right to Id. (citations and footnote omitted). 6 To survive a motion to dismiss, the complaint "must contain 7 sufficient factual matter, accepted as true, to state a claim to 8 relief 9 plaintiff pleads factual content that allows the court to draw the that is plausible inference on is "when liable for the 11 misconduct alleged." 12 (2009) the 13 complaint that states a plausible claim for relief survives a 14 motion to dismiss." 15 "well-pleaded facts" which "permit the court to infer more than the 16 mere possibility of misconduct." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 quotation 17 defendant meaning reasonable 18 the face[,]" 10 (internal that its omitted). Id. at 1950. Additionally, "only a The complaint must contain Id. DISCUSSION I. Declaratory Judgment Act 19 The Ninth Circuit has "consistently held that a dispute 20 between an insurer and its insureds over the duties imposed by an 21 insurance contract satisfies Article III's case and controversy 22 requirement." 23 is found when an insurer brings a declaratory judgment action 24 regarding its duty to defend and indemnify. 25 States Ins. Co. v. Kearns, 15 F.3d 142, 144 (9th Cir. 1994). 26 is the case here. Dizol, 133 F.3d at 1222 n.2. A case or controversy See, e.g., American Such 27 Statutory jurisdictional requirements are also met because 28 there is complete diversity between the parties and the amount in 6 - OPINION & ORDER 1 controversy is more than $75,000. Thus, statutory jurisdiction is 2 proper under 28 U.S.C. § 1332(a). As to the Brillhart factors, on 3 balance, I find that entertaining the action is appropriate. 4 II. Motion to Abate 5 In a 2001 Findings & Recommendation, subsequently adopted by 6 Judge Haggerty, I discussed at some length the relevant analysis 7 under Oregon law for resolving motions to stay an action by an 8 insurer seeking declarations about its duty to defend and/or 9 indemnify a potential insured in an underlying action. The Home 10 Indemnity Co. v. Stimson Lumber Co., 229 F. Supp. 2d 1075, 1087-88 11 (D. Or. 2001). 12 Insurance Co. v. Wilson's Distributing Service, Inc., 138 Or. App. 13 166, 908 P.2d 827 (1995), the relevant Oregon case on the issue, 14 indicated that there were two required questions in the stay 15 analysis: 16 17 18 19 I concluded that a fair reading of North Pacific (1) whether the insurer could develop facts in a declaratory judgment action, commenced before the underlying tort action is concluded, that would negate the insurer's duty to defend; and (2) does the declaratory judgment action force an insured to prematurely litigate the insured's potential liability in underlying tort claims and require the insured to take inconsistent positions? 20 The Home, 229 F. Supp. 2d at 1088. 21 In support of the motion to abate, the Arbor LLC defendants 22 argue that as in Wilson's Distributing, this matter should be 23 abated pending resolution of the underlying case because it is 24 clear that the Arbor LLC defendants will be placed in an untenable, 25 conflicted position if forced to respond substantively to 26 plaintiff's claims. Plaintiff acknowledges the controlling law, 27 but notes that a concurrent coverage action is barred only if it 28 7 - OPINION & ORDER 1 would force the insured to abandon its denial of liability in the 2 underlying lawsuit or to produce evidence tending to establish such 3 liability. 4 881, 890-91 (9th Cir. 5 Distributing court held 6 determination of the duty to indemnify prior to the resolution of 7 the underlying case when an insurer attempts to place the insured 8 in the conflicted position of being required to abandon its denial 9 of liability in order to obtain coverage). 10 See American States Ins. Co. v. Dastar Corp., 318 F.3d 2003) that (noting a trial that court the should Wilson's stay a Plaintiff argues that because it seeks legal rulings only, and 11 does 12 declaratory relief is expressly limited to avoid any possibility 13 that this coverage action will require the Arbor LLC defendants to 14 abandon their denial of underlying liability or come forward with 15 evidence tending to establish such liability. 16 argues, the Wilson's Distributing bar to adjudicating coverage 17 actions does not prevent this action from proceeding. 18 not seek any factual determinations, its request for Thus, plaintiff Both plaintiff and the Arbor LLC defendants present arguments 19 regarding the propriety of a stay: plaintiff contends that if the 20 action is abated, it will be unable to properly assess damages and 21 liability for a global mediation conference to be held in December 22 2010. 23 relief action involves only the duty to indemnify, there is no harm 24 to plaintiff to wait until the underlying lawsuit has concluded 25 before proceeding with this coverage action. 26 defendants continue, the detriment to them is clear because they 27 will 28 jeopardizing their defenses. The Arbor LLC defendants note that because the declaratory continue to 8 - OPINION & ORDER incur fees in this And, the Arbor LLC action while possibly 1 While the parties make generalized arguments about the pros 2 and cons of a stay, the "conflicted position" issue is a fact- 3 intensive inquiry for each case. 4 declarations sought by plaintiff in its Complaint and discussing 5 whether moving forward with litigation over these declarations now 6 would force the Arbor LLC defendants to "prematurely litigate 7 [their] 8 require [them] to take inconsistent positions." 9 The six declarations are as follows: 10 11 potential liability in Thus, I start by reciting the [the] underlying [action] Because all claims against the potential insureds are based on conduct prior to July, 2005, no coverage is available under policy years incepting in or after July, 2005. 12 13 14 Because the Policy did not incept until July 23, 2003, and because coverage is limited to damages arising from occurrences during the Policy period, no coverage is available for damages arising from the potential insureds' conduct prior to July 23, 2003. 15 16 17 18 19 20 21 22 23 Because the potential insureds only potentially qualify as insureds in their roles as directors, officers and/or real estate managers of Association, no coverage is available for any damages arising out of the potential insureds' conduct in other roles, specifically including, but not limited to, the potential insureds' roles in designing, developing, building, marketing and selling the Townhouses. No coverage is available to the potential insureds under Policy Option DO because: (1) Option DO was not in effect during the time the potential insureds were directors and/or officers of the Association; (2) all coverage under that Option is barred pursuant to the Developer/Sponsor Exclusion Endorsement; and (3) there has not been a timely "occurrence" pursuant to paragraph 5(b) of Option DO. 24 25 26 27 28 Pursuant to the Professional Services Exclusion, no coverage is available for damages arising from the potential insureds' rendering or failure to render professional services, including but not limited to, accounting, supervisory and/or inspection services. For example, and without any limitation, the exclusion bars coverage for all damages arising from the potential insureds' alleged failure to discover and/or disclose 9 - OPINION & ORDER and 1 construction defects and associated damages as well as all damages arising from the potential insureds' alleged mishandling of defendant Association's financial affairs. 2 3 Pursuant to Exclusion 14, no coverage is available for loss of use damages, arising out of the potential insureds' improper work and/or failure to provide proper warnings or instructions, to portions of the Townhouses that have not been physically inured. 4 5 6 Compl. at ¶ 19A, 19B, 19C, 19D, 19E, 19F. 7 Initially, 8 problematic. 9 rather, in a declaration regarding any "conduct" is The policy does not speak in terms of "conduct," but terms of property damage and occurrences. Thus, 10 declarations that seek a determination of "conduct" suggest that 11 the Arbor LLC defendants must bring forth facts in this case, 12 forcing 13 underlying case which can put them in a conflicted position. 14 them to prematurely develop facts relevant to the To the extent that the proposed declarations do not encompass 15 the 16 advisory opinion based on purely hypothetical situations. 17 there might be a concrete dispute between plaintiff and defendants 18 regarding 19 proposed declarations as currently structured by plaintiff to limit 20 the potential conflicts for the Arbor LLC defendants, are divorced 21 from the actual facts and thus, are abstract and advisory. 22 Arbor LLC the defendants' scope of conduct, the they insurance essentially policy's seek an While coverage, the It is well recognized that courts do not issue advisory 23 opinions. 24 ("the federal courts established pursuant to Article III of the 25 Constitution do not render advisory opinions."); Kittel v. Thomas, 26 620 F.3d 949, 951 (9th Cir. 2010) (federal courts may not issue 27 advisory opinions). 28 See, e.g., Laird v. Tatum, 408 U.S. 1, 13-14 (1972) Additionally, the law recognizes that questions regarding an 10 - OPINION & ORDER 1 insurer's duty to indemnify are based on the actual facts in the 2 underlying litigation, not the alleged facts. See e.g., Bituminous 3 Cas. Corp. v. Kerr Contractors, Inc., No. CV-10-78-MO, 2010 WL 4 2572772, at *5 (D. Or. June 22, 2010) (noting that under Oregon 5 law, unlike the duty to defend, liability for indemnity derives 6 from factual determinations separate from the allegations in the 7 complaint); Ledford v. Gutoski, 319 Or. 397, 8 (1994) ("Even when an insurer does not have a duty to defend based 9 on the allegations in the initial complaint, the facts proved at 10 trial on which liability is established may give rise to a duty to 11 indemnify if the insured's conduct is covered."). 12 plaintiff concedes that as this case moves forward, it is likely to 13 seek 14 inefficient 15 declarations is issued now. additional declarations, resolution of the resulting issues 403, 877 P.2d 80, 84 in if a a Moreover, piecemeal decision on and some 16 On balance, litigating the requested declarations at this 17 point either has the potential to force the Arbor LLC defendants to 18 take conflicting positions, and is likely to result in an advisory 19 opinion. 20 that plaintiff will seek additional declarations later as the 21 underlying case develops, the better option is to stay the case 22 pending resolution of the underlying case. 23 motion to abate. 24 III. 25 Neither result is acceptable. Combined with the fact Thus, I grant the Motion to Dismiss In their Answer, the Arbor LLC defendants bring two 26 counterclaims against plaintiff: 27 breach of the implied covenant of good faith and fair dealing. 28 Plaintiff moves to dismiss the claims for failure to state a claim. 11 - OPINION & ORDER breach of fiduciary duty and 1 In support of the fiduciary duty claim, the Arbor LLC 2 defendants contend that plaintiff's defense of the Arbor LLC 3 defendants in the underlying litigation has created a special 4 relationship between plaintiff and the Arbor LLC defendants that 5 requires an enhanced duty of care and imposes fiduciary obligations 6 on plaintiff. 7 defendants allege that contrary to plaintiff's enhanced duty of 8 care to defendants, and in violation of its fiduciary obligations 9 to 10 11 Arbor LLC Defts' Answer at ¶ 28. defendants, coverage. plaintiff filed this suit, The Arbor LLC seeking to limit Id. at ¶ 30. The Arbor LLC defendants contend that they cannot defend 12 against the 13 litigating the facts of the underlying dispute. 14 contend 15 defendants in the "conflicted positive" of trying legal and factual 16 matters that are at issue in the underlying litigation in violation 17 of Wilson's Distributing. 18 defendants allege, plaintiff has placed its own interests above 19 those of its insured. 20 know, that suing its insured is prohibited by Oregon law. 21 Plaintiff's filing of this action allegedly constitutes a breach of 22 its fiduciary obligations to the Arbor LLC defendants. Id. that issues the raised filing Id. by of plaintiff this in this lawsuit Id. at ¶ 31. Id. puts case without They further the Arbor LLC In so doing, the Arbor LLC Plaintiff allegedly knows, or should Id. 23 As for the breach of the implied covenant of good faith and 24 fair dealing claim, the Arbor LLC defendants allege that the 25 insurance policy contains an implied contractual covenant of good 26 faith and fair dealing which requires that no party do anything to 27 injure the rights of another to receive the benefits of the 28 agreement. Id. at ¶ 34. They contend that plaintiff breached this 12 - OPINION & ORDER 1 covenant by filing suit against defendants during the course of the 2 underlying litigation seeking to limit coverage. Id. at ¶ 35. 3 Arbor 4 overlapping legal and factual issues and they cannot defend against 5 those issues without litigating substantially all of the facts in 6 the underlying dispute. 7 LLC defendants contend that plaintiff's case The raises Id. As with the breach of fiduciary duty claim, the Arbor LLC 8 defendants contend 9 defendants in the conflicted legal position of trying legal and 10 factual matters at issue in the underlying litigation, in order to 11 prove coverage under the policy, which, the Arbor LLC defendants 12 assert, 13 plaintiff has placed its own interests above those of its insured, 14 its filing of the lawsuit allegedly violates the implied covenant 15 of good faith and fair dealing. violates that the law plaintiff's in suit Wilson's puts the Distributing. Arbor LLC Because Id. at ¶ 36. 16 In support of its motion, plaintiff notes that no known case 17 has ever held that the mere act of filing a declaratory judgment 18 action to construe an insurance policy constitutes a breach of 19 fiduciary duty or a breach of the implied covenant of good faith 20 and fair dealing. 21 correctly notes that this Court, and the Ninth Circuit, have at 22 least implicitly recognized the insurer's right to bring a coverage 23 action while underlying litigation is still pending. 24 States, 318 F.3d at 891 (noting that insurer could "litigate the 25 indemnity issue without awaiting the resolution of the underlying 26 action"); Allstate Ins. Co. v. DeLoretto, No. CV-07-310-AA, 2007 WL 27 3408135, at *2-3 (D. Or. Nov. 16, 2007) (granting summary judgment 28 to insurer in coverage action filed while underlying litigation Plaintiff is correct. 13 - OPINION & ORDER Additionally, plaintiff American 1 still pending); Allstate Ins. Co. v. Hall, No. CV-06-653-BR, 2006 2 WL 2519608, at *5 (D. Or. Aug. 29, 2006) (denying an insured's 3 motion to dismiss because, among other reasons, the coverage action 4 "will not interfere with or directly impact the underlying state- 5 court action" and "will serve a useful purpose in clarifying the 6 legal relations at issue"). 7 The Arbor LLC defendants contend that their counterclaims 8 survive the motion because they have sufficiently pleaded all the 9 facts needed to support the claims and their allegations, taken as 10 true, support each element of each claim. The problem, however, is 11 that without some authority, I am unwilling to conclude that the 12 mere fact of filing the coverage action can constitute a breach of 13 fiduciary duty or a breach of the implied covenant of good faith 14 and fair dealing. 15 clarification of its coverage obligations while the underlying 16 lawsuit is pending is insufficient, as a matter of law, to support 17 the counterclaims. 18 I grant the motion to dismiss. That is, plaintiff's filing a complaint seeking Thus, even accepting the allegations as true, 19 20 21 22 CONCLUSION Defendants' motion to abate [21] is granted. Plaintiff's motion to dismiss the counterclaims [15] is granted. IT IS SO ORDERED. 23 Dated this 18th day of January, 2011. 24 25 /s/ Dennis J. Hubel 26 Dennis James Hubel United States Magistrate Judge 27 28 14 - OPINION & ORDER
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