The Burlington Insurance Company v. Diamond Partners, Inc. et al, No. 1:2010cv00100 - Document 32 (E.D. Cal. 2011)
Court Description: FINDINGS and RECOMMENDATIONS recommending that 27 Motion for Default Judgment be GRANTED. The Court hereby RECOMMENDS that: 1) Plaintiff's request for a judgment declaring that the Assault and Battery Exclusion in its insurance contract with Diamond applies to preclude coverage for the Godbout action be GRANTED; and 2) Plaintiff's request for reimbursement of defense costs in the Godbout action be GRANTED in the amount of $30,696.02. The matter is referred to Judge O'Neill; Objections to F&R due within 15 days of service of this recommendation; signed by Magistrate Judge Sheila K. Oberto on 1/25/2011. (Timken, A)
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The Burlington Insurance Company v. Diamond Partners, Inc. et al Doc. 32 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA – FRESNO DIVISION 10 11 BURLINGTON INSURANCE COMPANY, 12 FINDINGS AND RECOMMENDATIONS THAT PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT BE GRANTED Plaintiff, 13 v. 14 15 CASE NO. 1:10-cv-00100-LJO-SKO DIAMOND PARTNERS, INC., dba THE OTHER BAR; et al., (Docket No. 27) 16 Defendants. 17 OBJECTIONS DUE: 15 DAYS / 18 19 I. INTRODUCTION 20 On January 21, 2010, Plaintiff Burlington Insurance Company ("Plaintiff" or "Burlington") 21 filed a complaint seeking declaratory relief regarding the terms of an insurance policy it issued to its 22 insured, Defendant Diamond Partners, Inc. ("Diamond"). According to the complaint, Burlington 23 entered into a written insurance contract with Diamond, issuing to Diamond policy number 24 327B000078 ("the Policy"). The effective dates of the Policy were from April 5, 2007, to April 5, 25 2008. The Policy includes Endorsement No. BG-G-042 0203 which contains an Assault or Battery 26 Exclusion. The Assault or Battery Exclusion states that coverage under the Policy does not apply 27 to bodily injury "[a]rising out of assault and battery, or out of any act or omission in connection with 28 the prevention or suppression of an assault or battery." (Doc. 1, ¶ 10; Doc. 30-4 at 48.) Dockets.Justia.com 1 On or about August 28, 2009, Defendants Jacqueline Godbout, Anthony Godbout, Kenneth 2 Godbout, and the children of Kenneth Godbout ("Godbout Defendants") filed a complaint in state 3 court ("Godbout" or "Godbout action") against several parties, including Burlington's insured, 4 Diamond. The Godbout complaint alleges that Kenneth Godbout was seriously injured when he 5 "was assaulted while visiting The Other Bar1 during early hours of January 3, 2008." (Doc. 1, ¶ 8; 6 Doc. 30-2, ¶ 7.) The complaint further alleges that "Kenneth's injuries could have been prevented 7 had the defendants employed security personnel and/or prohibited others who have been known to 8 cause 'trouble' from entering the bar." (Doc. 1, ¶ 8; Doc. 30-2, ¶ 21.) Burlington asserts that the only 9 claims against Diamond in the Godbout action are negligence claims based on Diamond's alleged 10 failure to employ reasonable measures to secure the safety of its customers at The Other Bar. (Doc. 11 1, ¶ 8.) 12 Burlington asserts that the Godbout action is not covered under Diamond's commercial 13 liability policy because it involves conduct subject to the Assault or Battery Exclusion. (Doc. 1, 14 ¶ 10.) While Burlington agreed to participate in Diamond's defense against the Godbout action, it 15 did so subject to a complete reservation of rights, including, but not limited to, the right to seek a 16 declaration that no coverage exists under the policy due to the Assault or Battery Exclusion and that 17 Burlington is entitled to reimbursement of all sums incurred in defense of the Godbout action. (Doc. 18 1, ¶ 9.) 19 On January 21, 2010, Burlington filed suit against its insured, Diamond, and the Godbout 20 Defendants. (Doc. 1.) Burlington's complaint seeks a declaratory judgment that, pursuant to the 21 terms of the Policy, Burlington has no duty to defend or indemnify Diamond with regard to the 22 Godbout action. Burlington also seeks reimbursement for defense costs paid for the benefit of 23 Diamond in the Godbout action. (Doc. 1, ¶¶ 16-17.) 24 On January 22, 2010, Diamond was served with Burlington's complaint. When Diamond 25 failed to respond to the complaint, the Clerk of Court entered a default against Diamond on April 26 27 1 The Other Bar is the property of Diamond and is insured under the commercial general liability policy Diamond purchased from Burlington. (See Doc. 30-4 at 4.) 28 2 1 15, 2010. (Doc. 9.) Burlington was unable to serve the Godbout Defendants with the summons and 2 complaint. Accordingly, on June 18, 2010, the Court issued an order allowing Burlington to serve 3 the Godbout Defendants by publication. (Doc. 19.) 4 On September 7, 2010, Burlington filed certificates of service by publication as to the 5 Godbout Defendants. (Docs. 20, 21.) On September 8, 2010, after the Godbout Defendants failed 6 to respond to the complaint, Burlington requested entry of default against them. The Clerk entered 7 the default of Jacqueline Godbout and Anthony Godbout on September 9, 2010. (Docs. 25, 26.) 8 On November 3, 2010, Burlington filed a Motion for Default Judgment against Diamond and 9 the Godbout Defendants.2 Burlington requests that the Court enter a monetary judgment against 10 Diamond in the amount of $30,696.02 and a declaratory judgment that the Assault or Battery 11 Exclusion applies to preclude coverage for defense or indemnity related to the Godbout action. 12 On December 1, 2010, a hearing was held, and the Court noted that Burlington's complaint 13 contained references to documents that were purportedly attached to the complaint and incorporated 14 by reference. However, these documents, including the complaint in the Godbout action and the 15 insurance policy upon which Burlington is seeking a declaratory judgment, were not attached to the 16 complaint. The Court requested further briefing regarding whether the failure to attach these 17 documents affected the sufficiency of Burlington's complaint. (See Doc. 28.) 18 On December 22, 2010, Burlington submitted additional briefing, copies of the insurance 19 policy at issue, and a certified copy of the complaint in the underlying Godbout action. (Doc. 30.) 20 II. DISCUSSION 21 A. Legal Standard 22 Federal Rule of Civil Procedure 55(b) permits a court-ordered default judgment following 23 the entry of default by the clerk of the court under Rule 55(a). It is within the sole discretion of the 24 25 26 27 2 Burlington's Motion for Default Judgment requested that the Court enter the default of Jacqueline Godbout and Anthony Godbout in their individual capacity, but also in their roles as conservators of Kenneth Godbout and guardian ad litem of the children of Kenneth Godbout. Burlington has withdrawn its request for entry of default judgment against the Godbout Defendants in their capacity as conservators and against Anthony Godbout in his capacity as guardian ad litem. 28 3 1 court as to whether default judgment should be entered. See Aldabe v. Aldabe, 616 F.2d 1089, 1092 2 (9th Cir. 1980). A defendant's default by itself does not entitle a plaintiff to a court-ordered 3 judgment. See id. Instead, the Ninth Circuit has determined that a court should consider seven 4 discretionary factors, often referred to as the "Eitel factors," before rendering a decision on default 5 judgment. See Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). The Eitel factors include 6 the following: (1) the possibility of prejudice to the plaintiff, (2) the merits of the plaintiff's 7 substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action, 8 (5) the possibility of a dispute concerning material facts, (6) whether the default was due to 9 excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring 10 decisions on the merits. See id. 11 A plaintiff is required to prove all damages sought in the complaint. See Televideo Sys., Inc. 12 v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1992). In addition, any relief sought may not be 13 different in kind from, or exceed in amount, what is demanded in the complaint. Fed. R. Civ. P. 14 54(c). If the facts necessary to determine the damages are not contained in the complaint, or are 15 legally insufficient, they will not be established by default. See Cripps v. Life Ins. Co. of N. Am., 16 980 F.2d 1261, 1267 (9th Cir. 1992). 17 Finally, once the court clerk enters a default, the well-pleaded factual allegations of the 18 complaint are taken as true, except for those allegations relating to damages. See Televideo Sys., 19 Inc., 826 F.2d at 917. 20 B. Analysis 21 1. 22 The first Eitel factor, prejudice to Plaintiff, weighs in favor of granting the motion for default 23 judgment. If Defendants never file a responsive pleading, the case will not be put before the Court 24 on its merits, and Plaintiff would be denied a judicial determination as to whether there is a duty to 25 indemnify and defend Diamond and whether it is entitled to reimbursement for the cost of defense 26 in the Godbout action. Due to this potential for prejudice, this factor weighs in favor of entering a 27 default judgment. Prejudice to Plaintiff 28 4 1 2. 2 The next relevant Eitel factors include the merits of the substantive claims pled in the 3 complaint as well as the general sufficiency of the complaint. In weighing these factors, courts 4 evaluate whether the complaint is sufficient to state a claim that supports the relief sought. See 5 Danning v.Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978); see also DIRECTV, Inc. v. Huynh, 503 F.3d 6 847, 854 (9th Cir. 2007) ("[A] defendant is not held to admit facts that are not well-pleaded or to 7 admit conclusions of law.") (internal quotation marks omitted). Merits of Plaintiff's Substantive Claims and the Sufficiency of the Complaint 8 At the December 1, 2010, hearing, the Court noted that several of the documents referred to 9 in the complaint and incorporated by reference, including the insurance policy at issue and the 10 complaint in the underlying Godbout action, were not actually attached to the complaint. The Court 11 requested that Burlington file a supplemental brief addressing whether this deficiency impacted the 12 sufficiency of its complaint and whether those documents could be introduced for purposes of 13 deciding Burlington's motion for default judgment. (See Doc. 28.) 14 On December 22, 2010, Burlington provided the Court with additional argument regarding 15 the propriety of default judgment in light of the deficiency noted by the Court. Burlington asserts 16 that, even though the insurance policy and the underlying Godbout complaint were mistakenly not 17 attached to the complaint, there are sufficient factual allegations in the complaint to support its 18 request for default judgment. Second, Burlington argues that, even if the complaint were insufficient 19 for the lack of documents that were referred to but not attached, Burlington can produce those for 20 purposes of consideration of its motion for default judgment. The Court agrees. 21 a. Claim for Declaratory Relief 22 In its complaint, Burlington alleges that it has no duty to defend Diamond pursuant to the 23 terms of the Assault or Battery Exclusion contained in its insurance policy with Diamond. (Doc. 1, 24 ¶ 10.) The Assault or Battery Exclusion states that the insurance contract does "not apply to bodily 25 injury '[a]rising out of assault or battery, or out of any act or omission in connection with the 26 prevention or suppression of an assault or battery.'" (Doc. 1, ¶ 11; Doc. 30, at 48.) Pursuant to this 27 exclusion, Burlington's complaint seeks a judicial declaration that, pursuant to the insurance policy, 28 it has no duty to defend or indemnify Diamond in connection with the Godbout action. (Doc. 1, 5 1 ¶¶ 12-15.) 2 Pursuant to California law, a complaint for declaratory relief must demonstrate the following: 3 (1) a proper subject of declaratory relief and (2) an actual controversy involving justiciable questions 4 relating to the rights or obligations of a party. Brownfield v. Daniel Freeman Marina Hosp., 5 208 Cal. App. 3d 405, 410 (1989). 6 7 Some of the proper subjects for declaratory relief are delineated in Section 1060 of the California Code of Civil Procedure, as set forth below in relevant part: 8 Any person interested under a written instrument, excluding a will or a trust, or under a contract, or who desires a declaration of his or her rights or duties with respect to another . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties . . . [regarding] any question of construction or validity arising under the instrument or contract. 9 10 11 Cal. Civ. Proc. Code § 1060. 12 The "actual controversy" requirement pertains to the existence of a present controversy 13 "relating to the legal rights and duties of the respective parties pursuant to the contract." Brownfield, 14 208 Cal. App. 3d at 410 (internal quotation marks omitted). Where the allegations of the complaint 15 indicate that the controversy is only conjectural, anticipated to arise in the future, or an attempt to 16 solicit an advisory opinion from the court, the "fundamental basis of declaratory relief is lacking." 17 Id. 18 Although the Godbout complaint and the insurance policy were not attached to the complaint 19 in this action, Burlington has alleged the existence of such documents in the complaint and has 20 referred to and quoted from the relevant portions of each document. Burlington has, therefore, set 21 forth in its complaint that it has an insurance contract with Diamond under which it seeks declaratory 22 relief and that this is a proper subject for declaratory relief. Cal. Civ. Proc. Code § 1060. (Doc. 1, 23 ¶ 6.) Burlington has alleged the portion of the insurance contract that it claims excludes coverage 24 for defense costs and indemnity for the issues presented in the Godbout action. (Doc. 1, ¶ 11.) 25 Specifically, the insurance policy excludes coverage for bodily injury and property damage that 26 "[a]rises out of assault or battery, or out of any act or omission in connection with the prevention or 27 suppression of an assault or battery." (Doc. 1, ¶ 10.) Burlington contends that the policy, therefore, 28 6 1 excludes any duty to defend or indemnify Diamond with respect to the underlying Godbout action. 2 Burlington alleges that the Godbout action involves only negligence claims based on Diamond's 3 alleged failure to employ reasonable measures to secure the safety of its customers. (Doc. 1, ¶ 9.) 4 Burlington asserts that, because it has provided a defense to Diamond under a reservation of rights, 5 there is an actual and justiciable controversy among Burlington and Diamond and the Godbout 6 Defendants regarding the application of the insurance policy with regard to defense and indemnity. 7 (Doc. 1, ¶ 11.) Therefore, Burlington has sufficiently set forth allegations supporting a cause of 8 action for declaratory relief, even though the documents referred to in the complaint and incorporated 9 by reference were not actually attached to the complaint. 10 Moreover, following the December 1, 2010, hearing, Burlington filed copies of the complaint 11 in the Godbout action and the insurance policy further establishing the truth and sufficiency of the 12 allegations in the complaint. Fed. R. Civ. P. 55(b)(2) (court may conduct hearings or make referrals 13 to establish the truth of any allegation by evidence); see Televideo Sys., Inc., 826 F.2d at 917-18 14 (affirming default judgment where district court "exceeded the requirements of [Rule 55] by taking 15 extensive evidence on all allegations in the complaint including damages"). 16 b. Claim for Reimbursement of Defense Costs 17 "Standard comprehensive or commercial general liability insurance policies, provide, in 18 pertinent part, that the insurer has a duty to indemnify the insured for those sums that the insured 19 becomes legally obligated to pay as damages for any covered claim." Buss v. Super. Ct., 16 Cal. 4th 20 35, 45 (1997). Further, these policies provide that the insurer has a duty to defend the insured in any 21 action brought against the insured seeking damages for any covered claim. Id. "The insurer's duty 22 to indemnify runs to claims that are actually covered, in light of the facts proved." Id. On the other 23 hand, the insurer's duty to defend is broader than its duty to indemnify in that the former "runs to 24 claims that are merely potentially covered, in light of facts alleged or otherwise disclosed." Id. In 25 a mixed action, where some claims are potentially covered while others are not, the insurer has a 26 duty to defend the entire action. Id. at 47-48. Where claims are at least potentially covered, the 27 insurer may not seek reimbursement for defense costs. Id. at 49. Where claims are not even 28 potentially covered, however, the insurer may seek reimbursement for defense costs. Id. at 50. 7 1 Burlington has pled facts indicating that this is not a "mixed" action for purposes of 2 determining reimbursement. As Burlington pointed out in its complaint, the only claims against its 3 insured in the Godbout action involve those for negligence arising out of the alleged failure to take 4 reasonable measures to secure the safety of its customers. (See Doc. 30-2.) Burlington alleges that, 5 under the applicable Assault or Battery Exclusion contained in the insurance contract, bodily injury 6 arising out of assault or battery, or out of any act or omission in connection with the prevention or 7 suppression of an assault or battery, is excluded from coverage. (Doc. 1, ¶ 10.) Therefore, 8 Burlington has sufficiently pled facts indicating that it is entitled to seek reimbursement for all of 9 its defense costs because none of the claims against its insured triggered the duty to defend, i.e., none 10 of the claims is even potentially covered in light of the Assault or Battery Exclusion. (Doc. 1, ¶ 17.) 11 Burlington also submitted a certified copy of the complaint in the Godbout action which 12 confirms that the only claims against Burlington's insured are for negligence arising out of 13 Diamond's alleged failure to prevent the assault and battery that gave rise to the underlying Godbout 14 action. (Doc. 30.) Burlington has also produced a copy of the insurance policy it issued to Diamond 15 that provides the full text of the Assault or Battery Exclusion upon which Burlington relies to 16 support its contention that there is no coverage for the Godbout action. (Doc. 30-4 at 48.) See 17 Televideo Sys., Inc., 826 F.2d at 917-18 (affirming default judgment where district court "exceeded 18 the requirements of [Rule 55] by taking extensive evidence on all allegations in the complaint 19 including damages"); see also Fed. R. Civ. P. 55(b)(2) (court may conduct hearings or make referrals 20 to establish the truth of any allegation by evidence). 21 Finally, Burlington has produced adequate proof of the costs it expended in defending 22 Diamond in the Godbout action through attorney billing records and invoices. (See Doc. 30-5, 23 Exhibit B.) 24 c. Conclusion 25 For the reasons stated above, the Court finds that Burlington's claims for declaratory relief 26 and for reimbursement of the costs of its defense are sufficiently pled. Danning, 572 F.2d at 1388 27 (merits of the claim and sufficiency of the complaint factors require that allegations "state a claim 28 on which the [plaintiff] may recover"). This factor weighs in favor of granting default judgment. 8 1 3. 2 The fourth Eitel factor, the sum of money at stake, weighs in favor of default judgment. 3 Default judgment is disfavored when a large amount of money is involved or is unreasonable in light 4 of the defendant's actions. See Truong Giang Corp. v. Twinstar Tea Corp., No. C 06-03594 JSW, 5 2007 WL 1545173, at *12 (N.D. Cal. May 29, 2007). Plaintiff seeks a declaratory judgment that it 6 has no duty to defend Diamond because of an applicable exclusion in its insurance policy. Plaintiff 7 also seeks approximately $30,696.02 for reimbursement of costs and fees incurred while defending 8 Diamond under a reservation of rights in the underlying Godbout action. The Sum of Money at Stake in the Action 9 The declaratory relief sought is not monetary. Further, the claim for reimbursement neither 10 involves a particularly large amount of money nor appears to be an unreasonable amount for the 11 costs of defending a negligence suit. This factor weighs in favor of granting default judgment. 12 4. 13 With regard to this factor, no genuine issues of material fact are likely to exist because the 14 allegations in the complaint are taken as true, Televideo Sys., 826 F.2d at 917-18, and Diamond and 15 the Godbout Defendants have submitted nothing to contradict the well-pled allegations. 16 Additionally, Burlington has submitted additional evidence in support of its motion for default 17 judgment including the underlying complaint in the Godbout action and the insurance policy at issue 18 that supports Burlington's claims. In light of this, there is a reduced possibility of a dispute 19 concerning the material facts. The Possibility of a Dispute Concerning the Material Facts 20 5. 21 There are no facts in the record that evidence that Defendants' failure to appear or otherwise 22 defend against the motion for default judgment is the result of excusable neglect. This factor, 23 therefore, favors default judgment. 24 6. Whether Default Was Due to Excusable Neglect The Strong Policy Underlying the Federal Rules of Civil Procedure Favoring Decisions on the Merits 25 Where a complaint is legally insufficient, the policy favoring decisions on the merits protects 26 against a judgment where one may not be warranted. Here, however, the allegations of the complaint 27 along with additional evidence submitted by Burlington establish the sufficiency of the complaint 28 9 1 and the claim for reimbursement of defense costs. While this factor will almost always favor 2 denying default judgment, in this case the other factors outweigh the strong public policy favoring 3 decisions on the merits. 4 C. 5 Default Judgment Against Jacqueline and Anthony Godbout as Conservators of Kenneth Godbout, and Against Anthony Godbout as Guardian Ad Litem for the Children of Kenneth Godbout 6 Plaintiff's motion for default judgment also seeks a judgment against Anthony and Jacqueline 7 Godbout in their capacity as conservators of Kenneth Godbout and against Anthony Godbout in his 8 capacity as guardian ad litem of the children of Kenneth Godbout. 9 hearing the Court requested that counsel explain whether a default judgment could be entered against 10 the conservators of Kenneth Godbout and the guardian ad litem of the children of Kenneth Godbout 11 in light of Rule 55(b)(2) that states that a "default judgment may be entered against a minor or 12 incompetent person only if represented by a general guardian, conservator, or other like fiduciary 13 who has appeared." Fed. R. Civ. P. 55(b)(2) (emphasis added). At the December 1, 2010, 14 In its supplemental pleadings filed after the December 1, 2010, hearing, Burlington withdrew 15 its request for entry of default judgment against the Godbout Defendants in their capacity as 16 conservators and against Anthony Godbout in his capacity as guardian ad litem. (Doc. 30, at 1 n.1.) 17 In light of this, should the findings and recommendations be adopted by the district judge, Burlington 18 should advise the Court how it will proceed in this action against the Godbouts in their capacity as 19 conservators and guardian ad litem, e.g., whether dismissal of these defendants is appropriate. 20 21 22 23 IV. RECOMMENDATION Based on consideration of the declarations, pleadings, and exhibits to the present motion, the Court hereby RECOMMENDS that: 1. Plaintiff's request for a judgment declaring that the Assault and Battery Exclusion 24 in its insurance contract with Diamond applies to preclude coverage for the 25 Godbout action be GRANTED; and 26 27 2. Plaintiff's request for reimbursement of defense costs in the Godbout action be GRANTED in the amount of $30,696.02. 28 10 1 These findings and recommendations are submitted to the district judge assigned to this 2 action, pursuant to 28 U.S.C. § 636(b)(1)(B) and this Court's Local Rule 304. Within fifteen (15) 3 days of service of this recommendation, any party may file written objections to these findings and 4 recommendations with the Court and serve a copy on all parties. Such a document should be 5 captioned "Objections to Magistrate Judge's Findings and Recommendations." The district judge 6 will review the magistrate judge's findings and recommendations pursuant to 28 U.S.C. 7 § 636(b)(1)(C). The parties are advised that failure to file objections within the specified time may 8 waive the right to appeal the district judge's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 9 10 IT IS SO ORDERED. 11 Dated: ie14hj January 25, 2011 /s/ Sheila K. Oberto UNITED STATES MAGISTRATE JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11
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