United Specialty Insurance Company v. Bani Auto Group, Inc. et al, No. 5:2018cv01649 - Document 60 (N.D. Cal. 2018)
Court Description: ORDER DENYING 25 , 29 DEFENDANTS MOTIONS TO DISMISS; GRANTING 25 , 29 DEFENDANTS MOTIONS TO STAY. Signed by Judge Beth Labson Freeman on 10/23/2018. (blflc2S, COURT STAFF) (Filed on 10/23/2018)
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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 8 UNITED SPECIALTY INSURANCE COMPANY, Plaintiff, 9 v. 10 11 BANI AUTO GROUP, INC., et al., Case No. 18-cv-01649-BLF ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS; GRANTING DEFENDANTS’ MOTIONS TO STAY [Re: ECF 25, 29] United States District Court Northern District of California Defendants. 12 Before the Court are Defendants’ motions to dismiss or stay this action until resolution of 13 14 the San Mateo County Superior Court case entitled Patrick Elizabeth Joy Wright, et al. v. Club 15 Sportiva, Inc., et al., No. 17-CIV-02816 (the “Wright Action”). See Wright Mot., ECF 25; Bani 16 Mot., ECF 29. Plaintiff United Specialty Insurance Company opposes both motions in largely 17 identical oppositions. Wright Opp., ECF 28; Bani Opp., ECF 53. The Court heard argument on 18 the motions on October 4, 2018. As set forth below, the Court DENIES Defendants’ motions to 19 dismiss and GRANTS Defendants’ motions to stay. 20 21 I. BACKGROUND The facts relevant to the present action date back to June 2017. On June 26, 2017, 22 Defendants Patrice Wright, Johnathan Wright, Nicholas Wright, and Christopher Wright 23 (collectively, “the Wrights”) filed a wrongful death action in San Mateo County Superior Court 24 against Defendants Club Sportiva, Inc., Drive a Dream, Inc., and Bani Auto Group, Inc., as well as 25 the California Department of Transportation entitled Patrick Elizabeth Joy Wright, et al. v. Club 26 Sportiva, Inc., et al., No. 17-CIV-02816 (the “Wright Action”). Compl. ¶ 21, ECF 1. The 27 operative complaint in the Wright action, the Second Amended Complaint (id., Ex. 3 (“Wright 28 1 SAC”), ECF 1-3)1, filed on January 11, 2018, names as defendants Defendants Club Sportiva, 2 Inc., Drive a Dream, Inc., Bani Auto Group, Inc., and Sia Bani (collectively, “Bani Defendants”), 3 as well as the Department of Transportation and Doe defendants. The Wright SAC alleges that the Bani Defendants ran an “Exotic Car Tour,” whereby United States District Court Northern District of California 4 5 individuals could lease or rent exotic vehicles and tour California roads. Wright SAC ¶ 10. On 6 September 6 and 7, 2016, David Michael Wright “rented a certain 2010 Ferrari California from 7 [Bani Defendants]” and participated in the Exotic Car Tour, during which the vehicle lost traction 8 “due to an over heat-cycled and dangerously hardened right rear tire that was fitted on the 9 vehicle.” Id. ¶ 16. The Wright SAC alleges that Defendant Club Sportiva “engaged in the rental 10 of luxury cars to members of the general public for individual use or in the Exotic Car Tour,” id. ¶ 11 1, and that Defendants Bani Auto Group, Inc. and Sia Bani “engaged as an auto dealer and in the 12 business of renting and leasing passenger cars.” Id. ¶¶ 2, 3. It also alleges that the Bani 13 Defendants “are all agents, servants and employees of all the other Defendants.” Id. ¶ 7. Due to 14 these alleged action, the Wrights brought the following causes of action against each Bani 15 Defendant: (1) Negligence; (2) Products Liability; (3) Breach of Express Warranty; (4) Breach of 16 Implied Warranty; and (5) Failure to Warn. See generally id. The Wright SAC asserts two discernible theories of liability. The first arises from the 17 18 alleged defect in the Ferrari’s tires and the Bani Defendants’ failure to properly protect Mr. Wright 19 from the defect. See, e.g., id. ¶ 10 (alleging Bani Defendants knew or should have known tires 20 were defective); id. ¶ 23 (products liability claim based on “defects in [Ferrari’s] handling 21 characteristics, vehicle dynamics, suspension and tires due to an over heat-cycled right rear tire 22 that had become dangerously hardened”); id. ¶ 43 (failure to warn claim based on failure to warn 23 about “vehicle’s dangerous and defective tires”). The second theory of liability arises from the 24 alleged conditions of the roads travelled on the Exotic Car Tour and Bani Defendants’ failure to 25 properly protect Mr. Wright from these conditions. See, e.g., id. ¶ 11 (alleging the Bani 26 Defendants knew or should have known “through inspection of the proposed route, that the course 27 28 1 The SAC is erroneously labeled as the Third Amended Complaint. See Bani Mot. at 1. 2 1 selected for the Exotic Car Tour was dangerous and contained dangerous conditions”); id. ¶ 43 2 (failure to warn claim based on failure to warn about “pavement edge drop-offs”). United States District Court Northern District of California 3 On March 16, 2018, Plaintiff United Specialty Insurance Company (“USIC”) brought the 4 present action against Defendants. In the Wright Action, Defendants Bani Auto and Sia Bani 5 tendered their defense to USIC, which was accepted pursuant to a reservation of rights. Compl. ¶ 6 24. USIC issued an auto dealers policy to Bani Auto Group, Inc. and Sia Bani & Company, LLC 7 as the first named insureds effective from June 17, 2016 to June 17, 2017 (“the Policy”). Id. ¶ 15. 8 The Policy was later amended to add Bani Investments, LLC d/b/a Bani Auto Group as a named 9 insured. Id. In applying for this policy, Defendant Bani Auto Group stated that “it engaged in 10 20% ‘Retail’ and 80% ‘CAR STORAGE’” and that it did not “Loan, Lease or Rent autos to 11 others.” Id. ¶¶ 13, 14. 12 The Policy provides coverage for claims made against insureds for “bodily injury,” which 13 includes “death resulting from” bodily injuries. Id. ¶ 16. The Policy also requires USIC to 14 provide a defense to its insureds in actions asserting such claims. Id. The Policy defines 15 “insureds” in part as employees of insureds. Id. The Policy also includes three exclusions and a 16 limitation of coverage endorsement relevant to this action: 17 (1) Athletic or Sports Participants, Sponsors, or Observers (the “Sports Exclusion”) “Bodily injury” to any person while practicing for; promoting; participating in; observing; or officiating at: a. Any sports or athletic contest; or b. Any athletic endeavor; or c. Any sports or athletic exhibition; whether: d. You sponsor, either by providing financial, promotional or technical support or by only lending the use of your name, or by assisting in the planning, promotion or execution of that event, contest or exhibition, or e. You are not a sponsor but you or your “employees” or guests are participants. 18 19 20 21 22 23 24 25 26 27 28 (2) Tires a. “Bodily injury” or “property damage” arising out of or resulting from: (1) The sale, installation or repair of used, recapped or retread tires; or (2) Tires, which at the time of sale, are older than recommended by manufacturer’s guidelines; or (3) Tires that have been recalled; or (4) The inspection or lack of inspection of any tires; or 3 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (5) The failure of any “insured” or anyone else for whom any “insured” is or could be held liable to issue warnings relating to the condition of any tires; or (6) Any other cause of action or chain of events arising out of or as a result of a.(1), a.(2) or a.(3) above. b. We shall have no duty to defend or indemnify claim, demand, “suit”, action, litigation, arbitration, alternative dispute resolution, or other judicial or administrative proceeding seeking damage, equitable relief or administrative relief of any actual or alleged injury described in item a. above. (3) Leased, Rented or Loaned Autos (“Leased Autos Exclusion”) Any covered “auto”: (1) Leased to others; or (2) Rented to others; or (3) Loaned to others. Any “auto” bearing a dealer plate or tag in which the dealer plate or tag has been: (1) Leased to others; or (2) Rented to others; or (3) Loaned to others. (4) “Limitation of Coverage – Schedule of Operations” SCHEDULE OF OPERATIONS Description of Operations 7812 – Auto Storage – No Repair 7358 – Consignment Sales 7358 – Dealers – Used Autos $ Included $ Included $ Included Coverage available under this policy is available only if the following additional requirements are met: A. The coverage provided by Section I – Covered Autos Coverages, paragraph D., Covered Autos Liability Coverages and Section II – General Liability Coverages, Coverage A. Bodily Injury and Property Damage Liability and Coverage B. Personal and Advertising Injury, applies only if the actual and/or alleged “bodily injury”, “property damage” or “personal and advertising injury” is caused by or results from the operations shown in the Schedule above. However, for Section I – Covered Autos Coverages, paragraph D., Covered Autos Liability Coverage, if this limitation is deemed to be unenforceable, the maximum Limit of Insurance for Covered Autos Liability Coverage is the financial responsibility limit of the state where the “accident” or “loss” occurred. 27 B. The coverage provided by Section III – Acts, Errors, or Omissions Liability Coverages, A. Coverage applies only if the “act, error or omission” caused by or resulting from the operations shown in the Schedule above. 28 Coverage for operations not shown above can only be covered if agreed to, in 26 4 writing by us as evidenced by an endorsement to this policy. 1 2 See id. ¶¶ 17–18. See generally id., Ex. 2 (“Policy”), ECF 1-2. Based on this policy and the facts alleged in the Wright SAC, USIC brings the following 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 claims in this action: (1) Policy Rescission; (2) Declaratory Relief re No Duty to Defend; (3) Declaratory Relief re No Duty to Defend; (4) Declaratory Relief re No Duty to Indemnify; (5) Declaratory Relief re No Duty to Indemnify; (6) Recoupment of Defense Expenses; and (7) Recoupment of Indemnity Payments. See Compl. ¶¶ 25–44. Specifically, USIC seeks rescission of the policy because Defendants Bani Auto, Sia Bani LLC, Bani Investments, and Sia Bani allegedly made material misrepresentations on their application for the Policy, including that they did not lease, loan, or rent vehicles or run Exotic Car Tours. See id. ¶ 26. USIC also seeks declaratory relief that it has no duty to defend or indemnify the Bani Defendants under the four exceptions listed above or Defendant Club Sportiva as an insured. See id. ¶¶ 29–40. Finally, it seeks recoupment of defense expenses and indemnity payments made in the Wright Action. See id. ¶¶ 41–44. On May 25 and June 8, 2018, respectively, the Wrights and the Bani Defendants moved to 15 16 dismiss or stay this action pending resolution of the Wright Action. 2 II. 17 Defendants move to stay or dismiss this action pursuant to the jurisprudential principles 18 19 20 enumerated by the United States Supreme Court in Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1942). The Declaratory Judgment Act states that “[i]n a case of actual controversy within its 21 22 23 24 25 26 27 28 MOTION TO DISMISS OR STAY UNDER BRILLHART AND COLORADO RIVER jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a) (emphasis added). As a preliminary matter, the Act requires that there be an actual case or controversy over which the district court has subject matter jurisdiction. Id.; Gov’t Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1998) (en banc). Both of these requirements are met, as this Court has 2 The Court need not and does not take judicial notice of any adjudicative facts and thus denies Defendants’ requests for judicial notice. See Wright Req. Judicial Not. ISO Mot., ECF 25-3; Bani Req. Judicial Not. ISO Mot., ECF 30; Wright Req. Judicial Not. ISO Reply, ECF 48-1. 5 1 subject matter jurisdiction pursuant to 28 U.S.C. § 1332, and there is a dispute between Plaintiff 2 and Defendants concerning the scope and applicability of the Policy and USIC’s duty to defend 3 the Bani Defendants. Even so, the language of the Declaratory Judgment Act is “deliberately cast 4 in terms of permissive, rather than mandatory, authority,” Public Serv. Comm’n of Utah v. Wycoff 5 Co., 344 U.S. 237, 250 (1952) (J. Reed, concurring), and a district court is vested with the 6 discretion to dismiss declaratory judgment actions based on prudential concerns. A motion to 7 dismiss an otherwise appropriate suit for declaratory judgment is accordingly addressed to 8 discretion of the court. Brillhart, 316 U.S. at 494; Dizol, 133 F.3d at 1225. United States District Court Northern District of California 9 However, the Ninth Circuit has recognized that “when other claims are joined with an 10 action for declaratory relief (e.g., bad faith, breach of contract, breach of fiduciary duty, rescission, 11 or claims for other monetary relief), the district court should not, as a general rule, remand or 12 decline to entertain the claim for declaratory relief.” Dizol, 133 F.3d at 1225. The fundamental 13 question the Court must answer is whether the non-declaratory claims “exist independent of any 14 request for purely declaratory relief”—that is, whether the non-declaratory claims “would continue 15 to exist if the request for a declaration simply dropped from the case.” Snodgrass v. Provident 16 Life & Acc. Ins. Co., 147 F.3d 1163, 1168 (9th Cir. 1998) (per curiam). The Ninth Circuit has 17 held that claims for rescission are independent of declaratory claims, such that district courts have 18 a “‘virtually unflagging’ obligation to exercise jurisdiction.” First State Ins. Co. v. Callan 19 Assocs., Inc., 113 F.3d 161, 163 (9th Cir. 1997) (quoting Colorado River Water Conservation 20 Dist. v. United States, 424 U.S. 800, 816 (1976)); see also United Nat. Ins. Co. v. R&D Latex 21 Corp., 242 F.3d 1102, 1113 (9th Cir. 2001). This Court is bound by those decisions in this case. 22 Because USIC asserts a claim for rescission, the Court cannot dismiss the claims under Brillhart. 23 Instead, where there are mixed declaratory relief claims and independent claims, the Court 24 must analyze whether it may dismiss or stay the claims under the jurisdictional doctrine set forth 25 in Colorado River, 424 U.S. at 816. See Scotts Co. LLC v. Seeds, Inc., 688 F.3d 1154, 1159 (9th 26 Cir. 2012) (finding district court abused its discretion when it applied Brillhart instead of 27 Colorado River where some claims were independent). The Court must find “exceptional 28 circumstances” to abstain from hearing claims under the Colorado River doctrine. 424 U.S. at 813. 6 United States District Court Northern District of California 1 The Ninth Circuit has enumerated various factors for determining whether exceptional 2 circumstances exist under Colorado River. See R.R. St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d 3 966, 978 (9th Cir. 2011) (listing factors). Most importantly here, exceptional circumstances 4 require that the state court proceeding and federal proceeding be “sufficiently parallel[]” and 5 “substantially similar.” Id. at 982. “[T]he existence of a substantial doubt as to whether the state 6 proceedings will resolve the federal action precludes a Colorado River stay or dismissal.” Id. 7 (internal quotation omitted). Here, there is substantial doubt that the Wright Action and this action 8 are sufficiently parallel. USIC is not a party to the Wright Action, and the tort claims in that suit 9 are distinct from the contract and insurance claims brought in this suit. See Hanover Ins. Co. v. 10 Poway Acad. of Hair Design, Inc., 174 F. Supp. 3d 1231, 1236 (S.D. Cal. 2016). Resolution of 11 the Wright Action will clearly not resolve USIC’s rescission or recoupment claims. As such, the 12 Court cannot dismiss under Colorado River. For these reasons, the motions to dismiss are DENIED. 13 14 15 III. MOTION TO STAY UNDER LANDIS Defendants alternatively move to stay this action pursuant to California law governing 16 declaratory relief actions under Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287 17 (1993), or pursuant to the Court’s inherent powers to stay proceedings as set forth in Landis v. 18 North American Co., 299 U.S. 248 (1936). See generally Bani Mot.; Wright Mot. 19 As an initial matter, the Court finds that the appropriate standard to apply in this case is the 20 Landis standard, not the Montrose standard. This Court has diversity jurisdiction over these 21 claims pursuant to 28 U.S.C. § 1332. Compl. ¶ 1. Federal courts sitting in diversity apply federal 22 procedural law and state substantive law. See Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). 23 Because a stay of an action is procedural, not substantive, the Court applies Federal law to 24 determine whether to grant a stay. Accord James River Ins. Co. v. W.A. Rose Constr., Inc., No. 25 18-CV-02030-SI, 2018 WL 3023408, at *4 (N.D. Cal. June 18, 2018); AIX Specialty Ins. Co. v. 26 FerraTex, Inc., No. 16-CV-01023-SBA, 2017 WL 4856869, at *7 & n.2 (N.D. Cal. June 9, 2017); 27 Scottsdale Ins. Co. v. Grant & Weber, No. CV-16-610-MWF, 2016 WL 7469636, at *3 (C.D. Cal. 28 Apr. 21, 2016). That said, California law can help inform the Court’s application of the Landis 7 1 factors to this case. District courts have the “discretionary power to stay proceedings.” Lockyer v. Mirant 2 3 Corp., 398 F.3d 1098, 1109 (9th Cir. 2005) (citing Landis, 299 U.S. at 254). This power is 4 “incidental to the power inherent in every court to control the disposition of the cases on its docket 5 with economy of time and effort for itself, for counsel, and for litigants.” Landis, 299 U.S. at 254. 6 The court may “find it is efficient for its own docket and the fairest course for the parties to enter a 7 stay of an action before it, pending resolution of independent proceedings which bear upon the 8 case.” Dependable Highway Exp., Inc. v. Navigators Ins. Co., 498 F.3d 1059, 1066 (9th Cir. 9 2007) (quoting Levya v. Certified Grocers of Cal., Ltd., 593 F.2d 863–64 (9th Cir. 1979)). In determining whether to grant a stay, “the competing interests which will be affected by United States District Court Northern District of California 10 11 the granting or refusal to grant a stay must be weighed.” CMAX, 300 F.2d at 268 (citing Landis, 12 299 U.S. at 254–55). “Among these competing interests are [1] the possible damage which may 13 result from the granting of a stay, [2] the hardship or inequity which a party may suffer in being 14 required to go forward, and [3] the orderly course of justice measured in terms of the simplifying 15 or complicating of issues, proof, and questions of law which could be expected to result from a 16 stay.” Id. In addition, the “proponent of a stay bears the burden of establishing its need.” Clinton 17 v. Jones, 520 U.S. 681, 708 (1997) (citing Landis, 299 U.S. at 255). If there is “even a fair 18 possibility” of harm to the opposing party, the moving party “must make out a clear case of 19 hardship or inequity in being required to go forward.” Landis, 299 U.S. at 255. The Court discusses each factor in turn. 20 21 22 A. Possible Prejudice from Granting Stay USIC argues that it will be prejudiced by a stay for two reasons. First, it has an interest in 23 “avoiding the payment of defense costs not actually owed.” Bani Opp. at 15; Wright Opp. at 14. 24 And second, knowing which party—USIC or Bani Defendants—is “liable for a judgment” can 25 help “facilitate settlement and avoid the complexity of a settlement contingent on a subsequent 26 resolution of the coverage issues.” Bani Opp. at 15; Wright Opp. at 14. 27 Numerous courts in this district have held these reasons do not establish prejudice 28 sufficient to warrant a stay. See, e.g., United Specialty Ins. Co. v. Meridian Mgmt. Grp., Inc., No. 8 1 15-CV-01039-HSG, 2016 WL 1534885, at *2 (N.D. Cal. Apr. 15, 2016) (“If the Coverage Action 2 ultimately is determined in USIC’s favor, USIC will be able to recover the costs and fees of 3 defending Meridian after the underlying action is resolved.”); State Nat’l Ins. Co., Inc. v. US-SINO 4 Inv., Inc., No. 5:13-CV-05240-EJD, 2015 WL 5590842, at *5 (N.D. Cal. Sept. 23, 2015) (granting 5 stay in part because Plaintiff insurer would not be “preclude[d] from seeking reimbursement of 6 defense fees and costs” after the state action resolved). In accordance with those courts, this Court 7 finds that this factor does not weigh against a stay, as USIC can be fully reimbursed for the funds 8 it spends in defending Bani Defendants should such reimbursement be warranted. 9 United States District Court Northern District of California 10 B. Possible Hardship or Inequity from Denying Stay The Court next considers the possible harm that could arise from going forward. CMAX, 11 300 F.2d at 268. The Court must consider potential prejudice to both the Bani Defendants and the 12 Wrights. As the alleged insureds, the Bani Defendants arguments are three-fold. First, they argue 13 that they will be forced to litigate on two fronts, expending substantial resources in both cases. 14 Bani Mot. at 9. Second, they argue that the results of this case might collaterally estop them from 15 contesting issues in the Wright Action. Id. And finally, they argue that this action could force 16 them to take an inconsistent position with their position in the Wright Action, especially since they 17 might be forced to help the Wrights generate new theories of liability against them that fall outside 18 the Policy. Id. The Wrights, who are not the insured in the underlying action, assert their own 19 hardships. Namely, they argue that they “will be deprived of prosecuting their action in their 20 chosen state court forum, they must incur significant attorneys fees and costs fighting the 21 declaratory relief action, and will have their efforts split between two separate cases.” Wright 22 Reply at 6–7, ECF 48. 23 As to the Bani Defendants’ two-front war argument, “[c]ourts are split on whether the 24 second Landis factor favors granting a stay . . . where a defendant contends that it will be 25 prejudiced in a third party action if required simultaneously to litigate coverage with its insurer.” 26 Evanston, 2011 WL 13220156, at *7–*8 (citing cases). Many courts have held such an argument 27 insufficient to demonstrate prejudice. See, e.g., United Specialty, 2016 WL 1534885, at *2 (noting 28 that Ninth Circuit has held that “defending a suit without more does not constitute a clear case of 9 1 hardship or inequity within the meaning of Landis.” (quoting Lockyer, 398 F.3d at 1112)); accord 2 Scottsdale Ins., 2016 WL 7469636, at *5. Likewise, the estoppel argument is not particularly 3 persuasive, considering estoppel issues are a consideration seemingly any time a stay is 4 considered. By contrast, the Bani Defendants’ argument that they might be forced to take 5 inconsistent positions is more persuasive. To best argue that the Policy exclusions do not apply, 6 the Bani Defendants might benefit from reading the Wright SAC expansively, arguing for various 7 theories of their own liability in the Wright Action. The need to take conflicting positions could 8 thus cause prejudice absent a stay. The potential prejudice to the Wrights is more apparent. The Wrights are not the insured, United States District Court Northern District of California 9 10 but USIC has named them in this action nonetheless. While the need for the insured to fight a 11 two-front war is a questionable source of prejudice, the need for the plaintiffs in the underlying 12 action to fight such a war or to face issues of collateral estoppel is more substantial because it 13 “deprive[s] [them] of the right to have factual issue adjudicated in their chosen forum—state 14 court.” See US-SINO, 2015 WL 5590842, at *5. The Wrights chose to bring their tort suit in state 15 court but are now being forced to reallocate resources from that action to this federal action. This 16 prejudice is even more stark when the Court considers that this action has little, if anything, to do 17 with the Wrights at all. Thus, the Wrights would suffer substantial prejudice should this action not 18 be stayed. This factor thus weighs in favor of a stay. 19 20 21 C. Orderly Course of Justice The Court now addresses the third, and last, of the Landis factors—whether a stay will 22 complicate or simplify the issues before it. The parties spend most of their time arguing this 23 factor, albeit under the umbrella of California law. The parties essentially agree that the key 24 question here is whether this Court would have to make factual and legal determinations in this 25 case that would overlap with factual and legal determinations that the state court must make in the 26 Wright Action. See Montrose, 6 Cal. 4th at 909–10. USIC argues that the Court would not have 27 to make such determinations. According to USIC, this action does not overlap with the Wright 28 Action because (1) at issue in this action is not the Bani Defendants’ liability but rather “whether 10 1 the insureds made material misrepresentations in the Application for the Policy” (as to the 2 rescission claim); and (2) because the Court can determine issues of coverage based solely on 3 “comparison of two documents: the operative complaint filed by the Wrights and the Policy issues 4 by United Specialty” (as to the remaining claims). Wright Opp. at 11; Bani Opp. at 11–12. The 5 Defendants respond that this Court must make factual determinations that directly overlap with the 6 factual determinations that must be made in state court as to both the rescission claim and the 7 coverage issues for each exclusion and the status of Club Sportiva as an insured. See Wright Mot. 8 at 12–21; Bani Mot. at 7–8. United States District Court Northern District of California 9 Other courts have engaged in the same inquiry—asking whether the two cases factually 10 and/or legally overlap—to determine if a stay is appropriate. Compare United Specialty, 2016 WL 11 1534885, at *2 (granting stay where “several policy coverage disagreements, including the 12 applicability of coverage limitations, . . . rel[ied] on disputed underlying facts”) and US-SINO, 13 2015 WL 5590842, at *4 (granting stay where coverage determination based on exclusions would 14 require court to delve into “issues and factual determinations overlap[ping] with the state civil 15 proceedings,” including “facts surrounding the circumstances of the decedent’s accident”), with 16 Scottsdale Ins., 2016 WL 7469636, at *5 (denying stay where “Defendants ha[d] not provided any 17 examples of factual issues in the Underlying Action that would be determinative of factual issues 18 in [the federal] action”) and Evanston, 2011 WL 13220156, at *9–*10 (denying stay where 19 “neither party believe[d] the case turn[ed] on extrinsic information that may have been provided to 20 [the insurer] at the time the underlying actions were tendered, or on whether the allegations of the 21 state court plaintiffs ha[d] merit”). The Court thus determines whether there is sufficient factual 22 and legal overlap between the cases that staying this action will best serve judicial economy. 23 As to the rescission claim, USIC argues that the underlying facts have nothing to do with 24 Wright Action. According to USIC, the issues and facts in this case will turn on whether the 25 relevant Bani Defendants misrepresented at the time of applying that they did not engage in certain 26 activities that would have been material to USIC’s decision to insure them. See Bani Opp. at 12; 27 Wright Opp. at 11. But that argument is belied by the nature of this action and USIC’s arguments 28 thus far. This action was brought in response to the Wright Action, and USIC has consistently 11 United States District Court Northern District of California 1 argued that it will rely only on the Wright SAC and the Policy to make its arguments here. USIC 2 thus ostensibly intends to argue that because the relevant Bani Defendants engaged in the activities 3 alleged in the Wright SAC, they must have misrepresented their operations at the time they 4 applied to be insureds. This question thus turns on whether and to what extent the relevant 5 Defendants engaged in the actions alleged in the Wright SAC, such that the discovery in that case 6 will be directly relevant and duplicative here. 7 As to the exclusions, first, nothing in the Wright SAC or the Policy establishes whether the 8 Exotic Car Tour is properly classified as an athletic or sports event under the Sports Exclusion. At 9 most, the Wright SAC describes the Exotic Car Tour as a means of “experience[ing] six exotic 10 luxury cars over 120 miles of California’s best back roads.” Wright SAC ¶ 10. Undoubtedly 11 discovery is required to determine the nature of the event and whether it can appropriately be 12 classified as an athletic or sports event. Moreover, the policy only excludes such events if an 13 insured sponsors or participates in the event. Compl. ¶ 17. Thus, discovery would be required to 14 determine who organized, ran, and participated in the event. Both types of discovery will be at 15 issue in the state court as well, as they are relevant to the Wrights claims that Bani Defendants 16 caused Mr. Wright’s death. 17 Second, looking to the face of the Complaint would be insufficient to determine that the 18 Tires Exclusion absolves USIC wholesale of its duty to defend. Though one theory of liability 19 under the Wright SAC is a defective tire, the Wrights also allege the Bani Defendants failed to 20 protect Mr. Wright with respect to the road conditions. Id. ¶¶ 11, 43. Thus, discovery would be 21 required to determine whether there was a need to cover the Bani Defendants with respect to the 22 road conditions theory of liability. As in the state court action, discovery on this theory of liability 23 will require discovery into the road conditions themselves and the roles of the Defendants in the 24 event, including who was responsible for examining the road and running the event. 25 The Court considers the third and fourth exclusions together: the leased autos exclusion 26 and the limitation of coverage to certain activities, not including leasing or renting. Unlike the 27 other exclusions, this exclusion is clearly applicable on the face of the Wright SAC alone. In the 28 Wright SAC, each Defendant is alleged to have rented or leased the vehicle for the Exotic Car 12 1 Tour. See id. ¶¶ 1–3. However, while California law may hold that sufficient to warrant not 2 staying insurers’ claims of no duty to defend, see Montrose, 6 Cal. 4th at 299, the primary 3 question for this Court under Landis is whether a stay would conserve judicial resources. Though 4 USIC believes it could bring a summary judgment motion on just the Wright SAC and Policy 5 alone, the reality is that the Bani Defendants (and perhaps the Wrights) must provide evidence of 6 whether they, or any of them, did or did not rent or lease vehicles for the Exotic Car Tour. These 7 questions will also be necessary in the Wright Action, such that discovery there could resolve the 8 need for similar discovery in this case. Finally, USIC seeks to have this Court determine that Club Sportiva was not an insured. United States District Court Northern District of California 9 10 But again, this would require discovery into the relationship of the Bani Defendants. The Wright 11 SAC states that the Bani Defendants “are all agents, servants and employees of all the other 12 Defendants.” id. ¶ 7, and insureds’ employees are covered by the Policy, Compl. ¶ 16. Thus, on 13 its face, the Bani Defendants may be sufficiently related to warrant finding Club Sportiva to be an 14 insured. Discovery will be necessary to determine whether such a finding would be appropriate. 15 This same discovery will be at issue in the Wright Action, where the relationship of the Bani 16 Defendants will be critical to determining liability. 17 18 19 Accordingly, the Court finds that this third factor weighs in favor of granting a stay. IV. ORDER In light of the above, because two factors favor a stay and the third is neutral, the Court 20 finds that Defendants have met the burden of establishing the need for a stay. The Court thus 21 GRANTS Defendants’ motions to stay until the Wright Action is resolved. The parties are to file 22 a status report in this action every 180 days beginning from the date of this Order until the Wright 23 Action resolves. For the reasons stated above, Defendants’ motions to dismiss are DENIED. 24 IT IS SO ORDERED. 25 26 27 28 Dated: October 23, 2018 ______________________________________ BETH LABSON FREEMAN United States District Judge 13
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