Travelers Property Casualty Company of America et al v. Centex Homes, No. 3:2011cv03638 - Document 321 (N.D. Cal. 2019)
Court Description: ORDER DENYING MOTIONS FOR LEAVE TO FILE MOTIONS FOR RECONSIDERATION, GRANTING REQUEST FOR JUDICIAL NOTICE, AND STAYING TRIALby Judge Charles R. Breyer. (crblc2, COURT STAFF) (Filed on 1/22/2019)
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Travelers Property Casualty Company of America et al v. Centex Homes Doc. 321 1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 9 TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, et al., Plaintiffs, 10 United States District Court Northern District of California 11 12 13 v. CENTEX HOMES, Defendant. Case No. 11-cv-03638-CRB Related Cases: 3:12-cv-00371-CRB; 13cv-00088-CRB ORDER DENYING MOTIONS FOR LEAVE TO FILE MOTIONS FOR RECONSIDERATION, GRANTING REQUEST FOR JUDICIAL NOTICE, AND STAYING TRIAL 14 Plaintiff Travelers Property Casualty Company of America (“Travelers”) seeks 15 reconsideration of four orders in three related cases between Travelers and its insured, 16 Centex Homes (11-3638 Dkt. 314; 12-371 Dkt. 242; 13-88 Dkt. 158). These orders are: 17 18 19 20 21 • An Order issued January 11, 2013 (12-371 Dkt. 87) (the “January Order”) • Orders issued August 26, 2013 (11-3638 Dkt. 200; 12-371 Dkt. 150; 13-88 Dkt. 65) (the “August Orders”) • An Order issued May 30, 2013 (12-371 Dkt. 127; 13-88 Dkt. 42) (the “May Order”) • An Order issued October 7, 2015 (11-3638 Dkt. 235) (the “October Order”) 22 Defendant Centex Homes urges the Court to deny Travelers’ Motions and to take Judicial 23 Notice of pending state court proceedings. 12-371 Dkt. 236. 24 For the reasons that follow, the Court DENIES Travelers’ Motions for Leave to File 25 Motions for Reconsideration, GRANTS Centex’s Request for Judicial Notice, and, in light 26 of the ongoing state court proceeding, STAYS the forthcoming trial pending resolution of 27 the California state court appeal. 28 Dockets.Justia.com Factual Background 1 This case arises from several state construction defect actions filed against Centex 2 Homes in California. Centex is a general contractor that contracts with subcontractors to 3 build homes in California. 12-cv-371 Dkt. 150 at 2. Those actions included, as relevant 4 here, the Adkins, Garvey, Acupan, and Conner construction defect lawsuits. Travelers 5 Consolidated Br. at 8. Centex tendered the defense of those actions to Travelers pursuant 6 to insurance contracts between the two parties. See id. at 3. The Court has repeatedly 7 summarized the factual allegations in this case, see, e.g., 12-371 Dkt. 150; 11-3638 Dkt. 8 200, and thus the Court presumes the parties’ familiarity with the factual background of 9 this case. 10 Procedural Background 11 United States District Court Northern District of California Travelers brought, as relevant here, three lawsuits, docketed as 11-cv-3638, 12-cv12 371, and 13-cv-88. The cases were eventually placed before Judge Conti. See 13-cv-88 13 Dkt. 43. He consolidated two of these matters but did not require that the parties file 14 consolidated pleadings, dockets 12-cv-371 and 13-cv-88. 13-88 Dkt. 43; 12-371 Dkt. 128. 15 He left the third, 11-cv-3638, separate because it was closer to trial than the other two 16 cases. 11-3638 Dkt. 188. 17 Travelers now seeks reconsideration of several orders, briefly summarized as 18 follows. 19 August Orders. Centex sought reconsideration of an order issued on April 8, 2013, 20 in which the Court granted in part and denied in part the parties’ cross motions for partial 21 summary judgment. 11-3638 Dkt. 170. Centex argued that the April 8 order was 22 inconsistent with the California Court of Appeal’s decision in J.R. Marketing, L.L.C. v. 23 24 25 Hartford Casualty Insurance Co., 158 Cal. Rptr. 3d 41 (Cal. Ct. App. 2013) (“J.R. Marketing”). 11-3638 Dkt. 195. In the two August Orders, one in 11-3638, Dkt. 200, and one in 12-371, Dkt. 150, and 13-88, Dkt. 65, Judge Conti granted Centex’s motion for 26 reconsideration and concluded that Travelers forfeited its right to control the defense of the 27 Garvey and Adkins actions, because of its initial refusal to provide coverage, and of the 28 2 1 Acupan and Connor actions, because of its delays in accepting tender. Id.; see also 11- 2 3638 Dkt. 200. October Order. The Court then stayed the proceedings because the California United States District Court Northern District of California 3 4 Supreme Court took the appeal from J.R. Marketing. 11-3638 Dkt. 224. After the 5 California Supreme Court issued its decision—discussed in some detail below—the Court 6 issued the October Order, granting Centex’s motion for reconsideration and finding “that 7 Travelers lost its right to control Centex’s defense in the Acupan and Conner actions.” 11- 8 3638 Dkt. 235. 9 January Order. In case 12-371, Chief Judge Hamilton dismissed with prejudice 10 Traveler’s reimbursement claim against third-party counsel Newmeyer and Dillion LLP 11 16 (“Newmeyer”) because: [A]n insurer is not authorized under Buss v. Superior Court, 16 Cal. 4th 35 (1997), to seek reimbursement from a policyholder’s attorney. Travelers assert[ed] that under California Penal Code § 500(c)(4), it is allowed to recover restitution of any money it has overpaid as a result of fraud on the part of its insured, and that for this reason, ‘the legal theory set forth in the complaint is of no consequence.’ The court is not persuaded, not least because Penal Code § 500, which applies to ‘transmission of money to foreign countries,’ does not include a subsection (c), and in any event does not appear applicable. 17 January Order at 2. 12 13 14 15 May Order. In this order, Judge Conti addressed another round of motions to 18 19 dismiss and strike, concluding that California law (1) does not allow an insurer to bring a 20 claim for reimbursement against non-insuree parties Newmeyer and RGL, a third party 21 administrator, see Buss v. Superior Court, 16 Cal. 4th 35, 39 (1997); and (2) Travelers 22 failed to establish that it had a contractual or fiduciary relationship with Centex’s counsel 23 or RGL. May Order. The May Order then dismissed with prejudice Travelers’ claims for 24 breach of fiduciary duty as to RGL and Travelers’ claim for reimbursement against RGL 25 and Newmeyer. May Order at 19. 26 27 28 II. LEGAL STANDARD “Reconsideration is appropriate if the district court (1) is presented with newly 3 1 discovered evidence, (2) committed clear error or the initial decision was manifestly 2 unjust, or (3) if there is an intervening change in controlling law.” See Sch. Dist. No. 11 v. 3 ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993); see also Navajo Nation v. Confederated 4 Tribes & Bands of the Yakama Indian Nation, 331 F.3d 1041, 1046 (9th Cir. 2003) 5 (“Whether or not to grant reconsideration is committed to the sound discretion of the 6 court.”). 7 8 United States District Court Northern District of California 9 III. DISCUSSION Central to Travelers’ position is its claim that Hartford overruled J.R. Marketing, 10 and that the Court’s previous orders that relied on or reference J.R. Marketing are in 11 consequence incorrect. See generally Travelers Consolidated Br. Centex does not dispute 12 that Hartford overruled J.R. Marketing in part, but the disagrees as to how much of J.R. 13 Marketing was overruled. Centex Consolidated Br. at 1. As this disagreement is core to 14 Travelers’ argument as to all four orders, it is worth discussing these two cases before 15 exploring how they affect the challenged orders. 16 J.R. Marketing & Hartford 17 1. 18 J.R. Marketing In J.R. Marketing, the California Court of Appeal considered an appeal by 19 defendants in an action for reimbursement of allegedly excessive fees in an insurance 20 dispute. 158 Cal. Rptr. 3d at 44. In that case, the insurer, Hartford, refused to defend the 21 insured, J.R. Marketing, when J.R. Marketing was sued and tendered the complaints to 22 Hartford. Id. at 44-45. J.R. Marketing then sued Hartford, represented by third-party 23 counsel, Squire and Harrington. Id. at 45. Hartford then reconsidered its position on its 24 duty to defend in the underlying suits and agreed to provide a defense. Id. But Hartford 25 refused to pay the defense costs that J.R. Marketing had already incurred or to provide 26 independent counsel (also known under California law as “Cumis” counsel, see San Diego 27 Navy Fed. Credit Union v. Cumis Ins. Soc’y, Inc., 208 Cal. Rptr. 494 (Ct. App. 1984)). 28 J.R. Marketing, 158 Cal. Rptr. 3d at 45. J.R. Marketing then moved for summary judgment 4 1 “on the issue of whether Hartford owed them a duty to defend, including a duty to provide 2 independent counsel.” Id. The trial court granted summary judgment to the insured. Id. It: 3 4 [O]rdered Hartford to pay the insured cross-defendants’ outstanding invoices within 15 days and to pay all future reasonable and necessary defense costs within 30 days of receipt. Acknowledging a right of reimbursement, the enforcement order provided, to the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursement after resolution of the [one of the underlying matters]. 5 6 7 8 Id. (quotations and alterations omitted). It also concluded that “while Squire’s bills had to 9 be reasonable and necessary, Hartford was barred from invoking the protective provisions 10 afforded insurers under Civil Code section 2860 because it ‘has breached and continues to 11 United States District Court Northern District of California breach its defense obligations by (1) failing to pay all reasonable and necessary defense 12 13 costs incurred by the insured and by (2) failing to provide Cumis counsel.’” Id. (quoting trial court).1 14 After an underlying matter was resolved, Squire submitted its invoices to Hartford, 15 which paid them. Id. at 47. Hartford then filed a cross-complaint against Squire “asserting 16 causes of action for reimbursement of monies paid pursuant to the enforcement order, 17 18 19 20 21 unjust enrichment, accounting and rescission.” Id. Hartford alleged that “Squire submitted improper invoices to Hartford ‘under the auspices of the enforcement order,’ which caused it to pay in excess of $15 million in defense fees and costs.” Id. Squire, along with the insured as cross-defendants, demurred the cross-complaint “on the ground that each cause of action fails to allege facts sufficient to state a valid legal claim.” Id. The trial judge 22 dismissed the order, and Hartford appealed. Id. at 47-48. 23 The Court of Appeal addressed “one primary question”: “Does Hartford have a 24 quasi-contractual right rooted in common law to maintain a direct suit against . . . 25 independent counsel for certain cross-defendants in [an underlying] action, or Harrington, 26 27 28 1 California Civil Code § 2860 governs when insurance companies have a duty to provide independent counsel to their insured due to a conflict of interest. 5 1 an uninsured defendant in the Marin action . . . for reimbursement of excessive or 2 otherwise improperly-invoiced defense fees and costs?” Id. at 48. The Court of Appeals 3 determined the answers to those questions was “no.” Id. It reasoned as follows. United States District Court Northern District of California 4 Under California law, “an insurer has the right to control defense and settlement of 5 a third party action against its insured, and to otherwise directly participate in the litigation 6 on the insured’s behalf, so long as no conflict of interest arises between the insurer and the 7 insured.” Id. In J.R. Marketing, there was undisputedly such a conflict of interest. Id. In 8 such cases, the “insured is entitled under Civil Code section 2860 to independent [Cumis] 9 counsel at the insurer’s expense.” Id. at 49. In other words, “there is no attorney-client 10 relationship between Cumis counsel and the insurer.” Id. (quoting Assurance Co. of 11 America v. Haven 38 Cal. Rptr. 2d 25, 33 (Cal. App. 1995)). 12 Section 2860 provides certain protections for the insurer, for instance “limits the 13 rate of fees an insurer may be obligated to pay to ‘the rates which are actually paid by the 14 insurer to attorneys retained by it in the ordinary course of business in the defense of 15 similar actions in the community where the claim arose or is being defended.’” Id. (quoting 16 Cal. Civ. Code § 2850(c)). But, J.R. Marketing cautioned, “these protective rules come 17 with an important caveat. ‘[T]o take advantage of the provisions of [section] 2860, an 18 insurer must meet its duty to defend and accept tender of the insured’s defense, subject to a 19 reservation of rights.’” Id. (quoting Atmel Corp. v. St. Paul Fire & Marine, 426 F. Supp. 2d 20 1039, 1047 (N.D.Cal. 2005) (alterations in original)). When an insurer fails to meet that 21 duty, “the insurer forfeits the protections of section 2860, including its statutory limitations 22 on independent counsel’s fee rates and resolution of fee disputes.” Id. 23 The Court of Appeal held that “Hartford failed to meet its duty to defend and accept 24 tender of the defense in the Marin matter, thereby . . . forfeiting its right to rely on the 25 statutory protections of section 2860 and to otherwise control the defense.” Id. Against that 26 background, the court considered “Hartford’s asserted right to seek reimbursement in a 27 direct suit against Squire.” Id. 28 It began that inquiry by identifying two important principles: 6 1 4 First, with respect to claims that are at least partially covered under the relevant policy, an insurer’s duty to defend extends to the insured’s entire defense cost. And second, with respect to claims not even potentially covered under the relevant policy, an insurer, like Hartford, does indeed have a right to seek reimbursement of its cost to defend such claims once the underlying suit has been resolved. 5 Id. at 49-50 (internal citations omitted). But, it observed, neither principle resolves “against 6 whom may an insurer assert this right.” Id. at 50 (emphasis in original). 2 3 United States District Court Northern District of California 7 Hartford argued that under California law, “a right of restitution lies, independent of 8 a contractual relationship, between any person who has suffered loss and the person who 9 has been unjustly enriched thereby,” and so “insurers are entitled to reimbursement from 10 independent counsel of those costs to prevent counsel’s unjust enrichment by the insurer.” 11 Id. at 50-51 (citing Buss v. Superior Court, 16 Cal. 4th 35, 47-48 (1997); Durell v. Sharp 12 Healthcare, 108 Cal. Rptr. 682, 699 (Cal. App. 2010)). 13 The Court of Appeal disagreed. It reasoned that Hartford’s argument ignored the 14 “important caveat governing restitution claims,” that “the fact that one person benefits 15 another is not, by itself, sufficient to require restitution. The person receiving the benefit is 16 required to make restitution only if the circumstances are such that, as between the two 17 individuals, it is unjust for the person to retain it.” Id. at 51 (citations omitted). Here, 18 allowing an insurer’s fee arrangement preferences to retroactively be imposed on Cumis 19 counsel when the insurer previously forfeited the protections of § 2860 would “afford the 20 insured . . . more rights in a fee dispute with independent counsel than the insurer that has 21 not waived such protections.” Id. at 52. The court thus held that: 22 [B]y providing legal services to cross-defendants, Squire did not confer any benefit upon Hartford. Rather, Squire conferred a benefit on its clients—to wit, cross-defendants. That Hartford paid Squire for those services does not change this fact. There simply is no legal basis here for the restitution claim that Hartford has asserted against Squire. Here, it is the insured cross defendants—rather than independent counsel—that the insurer should look to for reimbursement if it believes the fees were incurred to defend claims that were not covered by the insurer’s policies[.] 23 24 25 26 27 Id. at 53. 28 7 1 The Court of Appeal also noted that its holding was a limited one, and explicitly 2 stated that “we have no reason to, and do not, take a position as to whether an insurer 3 would have the right to maintain a direct suit against independent counsel for fraudulent 4 billing practices in connection with the underlying defense of its insured.” Id. 5 6 United States District Court Northern District of California 7 Hartford Hartford then appealed to the California Supreme Court. Hartford, 61 Cal. 4th. The 8 Court defined the “narrow question” presented as: “From whom may a [commercial 9 general liability (CGL)] insurer seek reimbursement when: (1) the insurer initially refused 10 to defend its insured against a third-party lawsuit; (2) compelled by a court order, the 11 insurer subsequently provided independent counsel under a reservation of rights—so- 12 called Cumis counsel to defend its insured in the third party suit; (3) the court order 13 required the insurer to pay all ‘reasonable and necessary defense costs,’ but expressly 14 preserved the insurer’s right to later challenge and recover payments for ‘unreasonable and 15 unnecessary’ charges by counsel; and (4) the insurer now alleges that independent counsel 16 ‘padded’ their bills by charging fees that were, in part, excessive, unreasonable, and 17 unnecessary?” Id. at 992 (internal citations omitted). 18 The Court then reversed the Court of Appeal, holding that “[i]f Cumis counsel, 19 operating under a court order that expressly provided that the insurer would be able to 20 recover payments of excessive fees, sought and received from the insurer payment for time 21 and costs that were fraudulent, or were otherwise manifestly and objectively useless and 22 wasteful when incurred, Cumis counsel have been unjustly enriched at the insurer’s 23 expense.” Id. at 992-93. The Court recognized that “[t]hough this restitutionary obligation 24 is often described as quasi-contractual, a privity of relationship between the parties is not 25 necessarily required;” rather, “the obligation [to pay restitution] arises when the 26 enrichment obtained lacks any adequate legal basis and thus cannot conscientiously be 27 retained.” Id. at 998 (internal citation omitted). 28 Relying on Buss, the Court then noted that “[w]hen the issuer of a CGL policy has 8 United States District Court Northern District of California 1 met its obligation to completely defend a ‘mixed’ action against its insured . . . the insurer 2 is entitled to restitution from the insured for those fees and costs that were solely 3 attributable to defending claims that clearly were not covered by the policy,” because “the 4 insurer never bargained to bear the costs of defending those claims that were manifestly 5 outside the policy’s coverage . . . . Under these circumstances . . . [Buss held that] it would 6 be unjust for the insured to retain the benefit of the insurer paying for defense costs that are 7 beyond the scope of the insurance contract.” Id. at 998-99 (citing Buss, 16 Cal. 4th at 47- 8 48).2 But, Buss left open a question: “who is ‘unjustly’ enriched if independent counsel 9 representing the insured, but compensated by the insurer, are allowed to retain payments 10 that were unreasonable and unnecessary for the insureds’ defense against any claim[?]” Id. 11 at 999. The Court concluded that, “on the assumption that counsel’s fees were excessive 12 and unnecessary and were not incurred for the benefit of the insured . . . . it is counsel who 13 should owe restitution of the excess payments received.” Id. The Court then took care to note what it was not deciding: 14 15 We emphasize that our conclusion hinges on the particular facts and procedural history of this litigation. As noted, the trial court’s . . . enforcement order foreclosed Hartford from “invok[ing] the rate provisions of [s]ection 2860,” but nevertheless admonished that counsel’s bills must be “reasonable and necessary,” and, citing cases that allow reimbursement actions based on restitution principles, expressly provided that Hartford could challenge Squire Sanders’s bills in a subsequent reimbursement action. This enforcement order was upheld on appeal and is now final. We thus assume its propriety for purposes of the question presented here. Our task is to determine only whether, taking as given that Hartford is entitled to challenge the reasonableness and necessity of counsel’s fees in a reimbursement action, Hartford may seek reimbursement directly from Squire Sanders. We conclude that it may, but express no view as to what rights an insurer that breaches its defense obligations might have to seek reimbursement directly from Cumis counsel in situations other than the rather unusual one before us in this case. 16 17 18 19 20 21 22 23 24 25 Id. at 999-1000. The Court thus “reversed insofar as it upheld the dismissal of Squire 26 27 28 A “mixed” action is an action in which an insurance policy “potentially” covers a claim against an insured. Hartford, 61 Cal. 4th at 991. In such cases, the insurer must defend against all claims, even if some of those claims fall outside the policy but may seek reimbursement from the insured as to the uncovered claims. Id. 2 9 1 2 3 4 United States District Court Northern District of California 5 Sanders from Hartford’s cross-suit,” and “otherwise affirmed.” Id. at 1008. With the foregoing in mind, the Court now turns to the orders for which Travelers seeks reconsideration. August Orders In the August Orders, decided after J.R. Marketing but before Hartford, Judge Conti 6 granted reconsideration of an April 2013 Order in which he had vacated in part a May 10, 7 2012 Order granting Centex’s prior motion for partial summary judgment. 12-371 August 8 Order at 2 (citing April 2013 Order, 11-3638 Dkt. 170). The August Order held that 9 “[p]rior to Travelers’ acknowledgement of its duty to defend, N&D could not have 10 plausibly owed Travelers a fiduciary duty, since during this period, N&D’s sole duty was 11 to Centex.” Id. at 18. The Court then limited Travelers’ claim for breach of fiduciary duty 12 only to the time after Travelers accepted the defense. Id. This Order thus held that 13 Travelers could not pursue causes of action for accounting or breach of fiduciary duty 14 against N&D for fees and costs incurred during the time period between Centex and 15 N&D’s tender and Travelers’ acceptance. Id. Similarly, in the 11-3638 August Order, the 16 Court granted Centex’s motion for reconsideration for the Acupan and Connor actions. 11- 17 3638 August Order at 16-17. 18 Travelers argues that Hartford is inconsistent with that conclusion. Travelers 19 Consolidated Br. at 19. And that is so, it urges, because Hartford permitted the insurance 20 company to seek fees from Cumis counsel from the date of tender, not the date of the 21 enforcement order. Id. Travelers argues that this holding requires this Court to permit 22 Travelers to pursue its claims against Newmeyer from the date of tender. Id. 23 The problem with Traveler’s position is that it ignores the California Supreme 24 Court’s explicit narrowing of its holding. Hartford confined its holding to “the particular 25 facts and procedural history of this litigation,” namely that there was an enforcement order. 26 Hartford, 61 Cal. 4th at 999. The enforcement order mattered, the Court reasoned, because 27 the existence of that order foreclosed the possibility that Squire was merely an incidental 28 beneficiary of Hartford’s payments. Id. at 1000-01. As to other situations, the Court took 10 1 “no view as to what rights an insurer that breaches its defense obligations might have to 2 seek reimbursement directly from Cumis counsel in situations other than the rather unusual 3 one before us in this case”—that is, a case in which there was an underlying enforcement 4 order. Id. at 999–1000. 5 Here, Travelers does not allege that there was an enforcement order. See generally 6 Travelers Consolidated Br.; see also Centex Consolidated Br. at 25. Hartford’s reasoning 7 based on an enforcement order thus has no application here. And Hartford took pains to 8 avoid reaching any broader holder. 61 Cal. 4th at 999-1000. Hartford’s holding, thus, does 9 not apply to the facts of this case, and thus does not constitute “an intervening change in 10 controlling law,” Sch. Dist. No. 11, 5 F.3d at 1263, that would require reconsideration. Nor is Travelers’ argument that the fact that the August Order repeatedly cited J.R. United States District Court Northern District of California 11 12 Marketing, which Hartford depublished, is alone sufficient to justify reconsideration 13 persuasive. See Travelers Consolidated Br. at 11-12. To be sure, Hartford did reverse J.R. 14 Marketing, but it only “reversed insofar as it upheld the dismissal of Squire Sanders from 15 Hartford’s cross-suit, and [] otherwise affirmed.” Hartford, 61 Cal. 4th at 1008. And it only 16 reached that decision based “on the particular facts and procedural history of this 17 litigation.” Id. at 999. The fact that the August Orders relied on J.R. Marketing in 18 concluding that Travelers could not bring a cause of action for breach of fiduciary duty 19 against Newmeyer does not inherently render that decision flawed. See August Order at 20 18. 21 In consequence, Travelers has not demonstrated an intervening change in the law 22 that would warrant granting its motion for reconsideration. The Motion for 23 Reconsideration of the August Orders is thus DENIED. 24 25 October Order In the October Order, Judge Conti addressed whether Travelers’ delay in accepting 26 tender in the Acupan and Conner actions amounted to a breach of the duty to defend and 27 whether, if so, that meant that Travelers lost its right to control Centex’s defense in those 28 actions. October Order at 9. The Court held that “a failure to provide counsel or to 11 United States District Court Northern District of California 1 guarantee the payment of legal fees immediately after an insurer’s duty to defend has been 2 triggered constitutes a breach of the duty to defend, even if the insurer later reimburses the 3 insured.” Id. (citing Montrose Chem. Corp. v. Superior Court, 6 Cal. 4th 287, 300 (1993)). 4 Travelers argues that Hartford nullifies the October Order because it, too, relied on 5 J.R. Marketing. October Order at 12; Travelers Consolidated Br. at 25. Specifically, 6 Travelers points to Hartford’s rejection of Squire’s argument that where “the insurer 7 wrongfully refused to defend the insured or to afford Cumis counsel, the insured may 8 proceed as he or she deems appropriate, and the insurer forfeits all right to control the 9 insured’s defense, including the right to determine litigation strategy.” 61 Cal. 4th at 1002. 10 Travelers argues that Hartford thus stands for the proposition that an insured does not 11 forfeit its right to control through delay, but may only lose a right through waiver, 12 estoppel, or forfeiture. Travelers Consolidated Br. at 25-27. 13 Again, Travelers overreads Hartford. While the Court did reject Squire’s argument, 14 it did so in the context of the “particular facts and procedural history of this litigation.” 15 Hartford, 61 Cal. 4th at 999. And California law is clear that, in general, “[u]nreasonable 16 delay in paying policy benefits or paying less than the amount due is actionable 17 withholding of benefits which may constitute a breach of contract as well as bad faith 18 giving rise to damages in tort.” Intergulf Dev. LLC v. Superior Court, 183 Cal. App. 4th 19 16, 20 (2010). Hartford did not purport to alter this general rule. See generally Hartford, 61 20 Cal. 4th. And so that general proposition—the basis for the October Order—remains 21 unaltered. Hartford is thus not an intervening change in law that can support a motion for 22 reconsideration. See Sch. Dist. No. 11, 5 F.3d at 1263. 23 Travelers additionally argues that the October Order was in error because “[i]n 24 holding that an insurer must accept the defense before the date upon which the answer 25 must be filed, the Court calculated the date upon which an answer would be due from the 26 date the complaint was filed rather than calculating from the date on which the complaint 27 was actually served on Centex.” Travelers Consolidated Br. at 22. And it urges that if the 28 Court had calculated from the date served, “Travelers acceptance of the defense of Centex 12 1 was timely in both actions because Centex was not forced to file answers before Travelers 2 accepted the defense.” Id. This argument is not the basis for a successful motion for 3 reconsideration, as it identifies no new evidence, injustice, or intervening change in law. 4 See Sch. Dist. No. 11, 5 F.3d at 1263. United States District Court Northern District of California 5 Travelers next argues that public policy demands reconsideration because 6 “Travelers be entirely disincentivized from reversing a denial [of coverage] and accepting 7 the defense if in doing so all of its rights were forfeited” because it had delayed 8 acceptance. Travelers Consolidated Br. at 27-28. Even were this true, this does not meet 9 the standard for reconsideration, as it identifies no new evidence, injustice, or intervening 10 change in law. See Sch. Dist. No. 11, 5 F.3d at 1263. So too with Travelers’ arguments that 11 Centex did not establish a forfeiture and failed to establish that Travelers waived its rights 12 to control the defense. Travelers Consolidated Br. at 28-29. Travelers already had the 13 opportunity to make these arguments to Judge Conti, and Travelers has identified nothing 14 that compels a different conclusion. See generally Travelers Consolidated Br. 15 In consequence, Travelers has not demonstrated anything that would warrant 16 granting its motion for reconsideration. The Motion for Reconsideration of the October 17 Order is thus DENIED. 18 January Order 19 Travelers further argues that under Hartford, Chief Judge Hamilton’s determination 20 “that an insurer is not authorized under Buss v. Superior Court, 16 Cal. 4th 35 (1997)[,] to 21 seek reimbursement from a policyholder’s attorney,” May Order at 2, cannot be sustained. 22 Travelers Consolidated Br. at 15-16. It contends that Hartford permits a claim for unjust 23 enrichment, and thus this Court should reconsider Judge Hamilton’s rejection of its claim 24 for reimbursement against Newmeyer and RGL on a theory of unjust enrichment. Id. at 16- 25 17. But Chief Judge Hamilton’s order was based on Travelers’ argument “that under 26 California Penal Code § 500(c)(4), it is allowed to recover restitution of any money it has 27 overpaid as a result of fraud on the part of its insured, and that for this reason, ‘the legal 28 theory set forth in the complaint is of no consequence.’” January Order at 2. Hartford did 13 1 not address whether California criminal law creates a private cause of action for restitution. 2 Id. Nor did that order does not rely on J.R. Marketing. Id. 3 4 an enforcement order. 61 Cal. 4th at 999-1000. And so Travelers’ contention that “the 5 rationale that Travelers cannot seek reimbursement from N&D and RGL as a matter of law 6 simply because no contractual basis exists is no longer a valid argument based on this 7 change of law,” Travelers Consolidated Br. at 16, is, as above, an overly-broad reading of 8 the rather modest holding of Hartford. Hartford did not create a general cause of action for 9 reimbursement against defense counsel divorced from the particular facts of that case. See 10 11 United States District Court Northern District of California Moreover, again, Hartford expressly limited its holding to cases in which there was Hartford, 61 Cal. 4th at 999-1000. In consequence, Travelers has not demonstrated an intervening change in the law 12 that would warrant granting its motion for reconsideration. The Motion for 13 Reconsideration of the January Order is thus DENIED. 14 15 May Order The final order that Travelers asks this Court to reconsider is the May Order, in 16 which Judge Conti held that California law (1) does not allow an insurer to bring a quasi- 17 contract claim for reimbursement against non-insuree parties like Centex’s counsel or a 18 third party administrator like RGL, see Buss v. Superior Court, 16 Cal. 4th 35, 51 (1997); 19 and (2) Travelers failed to establish that it had a contractual or fiduciary relationship with 20 Centex’s counsel or RGL during the relevant time periods. See May Order. 21 Judge Conti’s reasoning in the May Order was functionally identical to Chief Judge 22 Hamilton’s reasoning in the January Order—in fact, he observed that Travelers’ argument 23 based on the California Penal Code and contract law and was “previously rejected in a 24 related case.” May Order at 14. And so the reasons why reconsideration is not warranted 25 there compel the same conclusion here. 26 In consequence, Travelers has not demonstrated an intervening change in the law 27 that would warrant granting its motion for reconsideration. The Motion for 28 Reconsideration of the May is thus DENIED. 14 Request for Judicial Notice (12-371 Dkt. 236) 1 Centex has alerted this Court that the parties are litigating substantially similar 2 issues in state court. Centex Consolidated Br. at 23-24. And it has requested this Court take 3 judicial notice of several documents from that case, Centex Homes v. Ad Land Ventures, 4 et al., Sacramento County Superior Court Case No. 34-2011-00112151. 12-371 Dkt. 236. 5 6 While a court generally “will not consider facts outside the record developed before the district court,” it “may take notice of proceedings in other courts, both within and 7 without the federal judicial system, if those proceedings have a direct relation to matters at 8 issue.” U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 9 248 (9th Cir. 1992) (quoting Daly–Murphy v. Winston, 837 F.2d 348, 351 (9th Cir. 1987); 10 see also St. Louis Baptist Temple, Inc. v. FDIC, 605 F.2d 1169, 1172 (10th Cir. 1979)). 11 United States District Court Northern District of California Pursuant to this rule, the Court now takes judicial notice of the following. A 12 Sacramento state-court jury has recently reached a verdict against Travelers. Request for 13 Judicial Notice; id. Exh. 2. That jury, via a special verdict form, rejected Travelers’ 14 argument that the billing arrangement between Centex and N&D was fraudulent. Id. Exh. 15 2. 16 Centex indicates that this case is currently on appeal. Centex Consolidated Br. at 17 18 19 20 23-24. And, it argues, “[o]nce this judgment becomes final . . . the jury’s rejection of Travelers’ billing-fraud theory will collaterally estop and preclude Travelers from relitigating the issue here or anywhere.” Id. In light of this pending state court appeal’s potential preclusive impact on this 21 case—and taking no position on whether or to what extent there will be such an impact—it 22 undermines the interests of judicial efficiency and economy to proceed to trial in these 23 matters at this time. The Court thus STAYS the forthcoming trial pending resolution of the 24 state-court proceedings. 25 26 Request for Certificate of Immediate Appeal (12-371 Dkt. 30) Lastly, Travelers requests that, if its motions for reconsideration are not granted, the 27 Court permit an interlocutory appeal on the August and October Orders. Travelers 28 15
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