North River Ins. Co. v. Marietta Cellars, Incorporated

Northern District of California, cand-4:2015-cv-03020

ORDER DENYING {{13}} MOTION to Dismiss; SCHEDULING CASE MANAGEMENT CONFERENCE. Case Management Statement due by 12/30/2015. Case Management Conference set for 1/8/2016 11:00 AM in Courtroom 5, 2nd Floor, Oakland. Signed by Judge Jeffrey S. White on 11/10/15.

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1 2 3 4 NOT FOR PUBLICATION 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 NORTH RIVER INSURANCE COMPANY, 8 Case No. 15-cv-03020-JSW Plaintiff, 9 ORDER DENYING MOTION TO v. DISMISS AND SCHEDULING CASE 10 MANAGEMENT CONFERENCE MARIETTA CELLARS, 11 INCORPORATED, Re: Docket No. 13 12 Defendant. Northern District of California United States District Court 13 14 Now before the Court for consideration is the motion to dismiss or stay, filed by 15 Defendant, Marietta Cellars, Incorporated ("Marietta"). The Court has considered the parties' 16 papers, relevant legal authority, the supplemental briefing submitted by the parties, and the record 17 in this case. The Court HEREBY DENIES Marietta's motion. 18 BACKGROUND 19 On March 27, 2015, Marietta submitted an insurance claim (the "Claim") pursuant to a 20 policy (the "Policy") issued to Plaintiff, North River Insurance Company ("North River"), through 21 North River's claims administrator Fairmont Specialty ("Fairmont"). (Compl. ¶¶ 1-2, 14-16, and 22 Exs. A, B.) 23 Marietta seeks coverage for the failure of a wood roof at a barrel storage building (the 24 "Storage Building") and the sagging of a wood roof of similar construction at a fermentation 25 building (the "Fermentation Building"). (Id. ¶ 1.) Fairmont hired an engineering expert, Seth 26 Bowles ("Bowles"), to investigate the Claim, and Bowles subsequently issued a report that 27 "stated, among other things, that the failure of the roof of the Storage Building, and the weakening 28 of the roof of the Fermentation Building, had been caused by the overloading of wood roof trusses 1 due to certain design defects in the original construction of those buildings in the 1990's." (Id. ¶ 2 3; see also id. ¶¶ 7-8, 32-52 and Ex. C.) 3 North River alleges that the Claim is not covered, and it relies on exclusions contained in 4 certain sections of the Causes of Loss-Special Form ("Special Form") of the Policy, specifically 5 exclusions it has defined as the "Collapse Exclusion" and the "Faulty Workmanship Exclusion." 6 (Id. ¶ 5; see also id. ¶¶ 19-22.) North River also alleges that Marietta contends that the Claim is 7 covered under the Policy based on the terms of the "Additional Coverage-Collapse" section of the 8 Special Form. (Id. ¶¶ 6, 23-24.) Between April 24, 2015 and June 3, 2015, the parties exchanged 9 correspondence about the status of the Claim. (Id. ¶¶ 53-66 and Exs. D-G.) 10 On June 29, 2015, North River filed its Complaint in this action, in which it asserts four 11 claims for declaratory relief, each of which seeks a declaration that there is no coverage under the 12 Policy. (Id. ¶¶ 67-78.) Northern District of California United States District Court 13 On October 2, 2015, North River formally denied the Claim. (Docket No. 27, Declaration 14 of Robert D. Hoffman, ¶ 5, Ex. Q.)1 15 The Court shall address additional facts as necessary in the analysis. 16 ANALYSIS 17 A. Applicable Legal Standards. 18 1. Federal Rule of Civil Procedure 12(b)(1). 19 Marietta moves to dismiss on the basis that the case is not ripe, which implicates this 20 Court's jurisdiction. A motion to dismiss for lack of subject matter jurisdiction under Federal 21 Rule of Civil Procedure 12(b)(1) may be "facial or factual." Safe Air for Everyone v. Meyer, 373 22 F.3d 1035, 1039 (9th Cir. 2004). When a defendant raises a facial challenge to subject matter 23 jurisdiction, a court "must accept as true all material allegations in the complaint, and must 24 construe the complaint in" a plaintiffs' favor. Chandler v. State Farm Mut. Auto Ins. Co., 598 25 F.3d 1115, 1121-22 (9th Cir. 2010). 26 When a defendant raises "factual attack," the moving party questions the veracity of the 27 28 1 The Court DENIES Marietta's request to strike this exhibit. 2 1 plaintiff's allegations that "would otherwise invoke federal jurisdiction." Safe Air for Everyone, 2 373 F.3d at 1039. The plaintiff's allegations are questioned by "introducing evidence outside the 3 pleadings." Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). "When the defendant raises 4 a factual attack, the plaintiff must support … jurisdictional allegations with 'competent proof,' 5 under the same evidentiary standard that governs in the summary judgment context." Id. (quoting 6 Hertz Corp. v. Friend, 559 U.S. 77, 96-97 (2010)). While the plaintiff typically has the burden of 7 proof to establish subject matter jurisdiction, "if the existence of jurisdiction turns on disputed 8 factual issues, the district court may resolve those factual disputes itself." Id. at 1121-22 (citing 9 Safe Air for Everyone, 373 F.3d at 1039-40). 10 2. The Declaratory Relief Act. 11 North River seeks relief under the Declaratory Relief Act (the "Act") which states, in 12 pertinent part: "[i]n a case of actual controversy within its jurisdiction, ... any court of the United Northern District of California United States District Court 13 States, upon the filing of an appropriate pleading, may declare the rights and other legal relations 14 of any interested party seeking such declaration, whether or not further relief is or could be 15 sought." 28 U.S.C. § 2201(a). The Act "embraces both constitutional and prudential concerns. A 16 lawsuit seeking federal declaratory relief must first present an actual case or controversy within 17 the meaning of Article III, section 2 of the United States Constitution." Government Employees, 18 Ins. Co. v. Dizol, 133 F.3d 1220, 1222 (9th Cir. 1998) ("Dizol"). This encompasses the 19 requirement that an action be ripe for review. American States Inc. Co. v. Kearns, 15 F.3d 142, 20 143 (9th Cir. 1994) ("Kearns"). The Act also requires that the lawsuit "fulfill statutory 21 jurisdictional prerequisites." Dizol, 133 F.3d at 1222-23. 22 If a court determines that the constitutional and statutory prerequisites are satisfied, the 23 court then determines whether it is appropriate to entertain the lawsuit. Id. This is because, the 24 Act is "'an enabling Act, which confers a discretion on the courts rather than an absolute right 25 upon the litigant[.]'" Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (quoting Public Serv. 26 Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952)). Since its inception, the Act "has been 27 understood to confer on federal courts unique and substantial discretion in deciding whether to 28 declare the rights of litigants." Wilton, 515 U.S. at 286. 3 1 B. The Court Denies the Motion to Dismiss. 2 Although the parties expend a lot of ink on their competing interpretations of the Policy, 3 the issue the Court must decide is whether an "actual controversy" exists.2 If one does, the Court 4 then must determine whether it should, in its discretion, entertain this action. 5 1. Actual controversy. 6 Marietta moved to dismiss on the basis that there was no actual controversy between the 7 parties at the time North River filed suit, because North River had not yet denied the Claim. As 8 set forth above, on October 2, 2015, North River formally denied the Claim.3 Marietta argues that 9 the fact that North River has denied the Claim does not render this dispute ripe, because there still 10 are factual issues to be resolved relating to the cause of the loss. The Court does not find 11 Marietta's arguments persuasive. 12 "[A] dispute between an insurer and its insured over the duties to defend and indemnify Northern District of California United States District Court 13 satisfies" the actual controversy requirement of the Act, "whether or not there is an underlying 14 state court action pending." American National Fire Ins. Co. v. Hungerford, 53 F.3d 1012, 1015- 15 16 (9th Cir. 1995), overruled on other grounds by Dizol, 133 F.3d at 1227. Although this is a first 16 party dispute about coverage, it raises similar issues, namely the parties' rights and obligations 17 under the Policy. Although Marietta has not filed a suit in state court against North River for 18 breach of contract, that fact would not dispositive of whether an actual controversy exists. 19 Based on the correspondence submitted in connection with this motion, it is evident that 20 there is a dispute over the interpretation of the Policy, including an issue raised by Marietta about 21 "hidden decay" as a basis for coverage. (See, e.g., Docket No. 15, Declaration of Samuel Barnum, 22 ¶ 6, Ex. C; Docket No. 20, Declaration of Robert Hoffman, ¶ 8, Ex. N.) Further, although there 23 may be disputes about what caused the loss in this case, it is clear that the events that gave rise to 24 2 25 Marietta does not dispute that the statutory prerequisites for jurisdiction are satisfied, because the parties are completely diverse and the amount in controversy exceeds $75,000. 26 3 On September 24 2015, the Court issued an Order requiring the parties to address "why the 27 fact that [North River] has not denied the Claim does not preclude the Court from finding that this case is ripe for adjudication." (Docket No. 25, Order Vacating Hearing and Requiring 28 Supplemental Briefing at 1:25-26.) North River's supplemental brief was due, and timely filed, on October 2, 2015, the date it denied the Claim. 4 1 the loss have occurred and are not speculative or hypothetical. Cf. Triyar Companies v. Lexington 2 Ins. Co., No. 12-CV-294, 2013 WL 3280033, at *3 (S.D. Tex. June 27, 2013). Finally, if an 3 "actual controversy" did not exist at the time the case was filed, based on the denial letter, the 4 Court concludes that it is now ripe and, thus, any defects regarding jurisdiction could be cured by 5 amendment. 6 Accordingly, the Court DENIES the motion to dismiss on this basis. However, it will 7 direct North River to file an amended complaint that includes allegations regarding the formal 8 denial of the Claim. 9 2. Discretion. 10 The next question the Court must address is whether it should exercise its discretion to 11 hear this action. In order to make that determination, a court "should avoid needless determination 12 of state law issues; it should discourage litigants from filing declaratory actions as a means of Northern District of California United States District Court 13 forum shopping; and it should avoid duplicative litigation." Dizol, 133 F.3d at 1225; see also id., 14 133 F.3d at 1225 n.5 (setting forth additional and overlapping factors for court to consider). 15 With respect to the first factor, the dispute will involve issues of state law and when "the 16 sole basis of jurisdiction is diversity of citizenship, the federal interest is at its nadir." Continental 17 Casualty Co. v. Robsac Indus., 947 F.2d 1367, 1371 (9th Cir. 1991), overruled on other grounds 18 by Dizol, 133 F.3d at 1277 (hereinafter "Robsac"). The Court finds that factor would weigh in 19 favor of dismissing the case. 20 However, this is not a situation where there is a parallel state court action pending. Thus, 21 the "duplicative litigation" factor is not an issue. In addition, and contrary to Marietta's argument, 22 the hidden decay issue has been raised and will be an issue going forward. Thus, the Court's 23 interpretation of the Policy and whether the Claim is, or is not, covered will "serve a useful 24 purpose in clarifying the legal relations at issue," and seems likely to "settle all aspects of the 25 controversy[.]" Dizol, 133 F.3d 1225 n.5 (quoting American States Ins. Co. v. Kearns, 15 F.3d 26 142, 145 (9th Cir. 1994) (Garth, J. concurring). 27 With respect to forum shopping, Marietta argues that this action is "reactive." "[F]ederal 28 courts should generally decline to entertain reactive declaratory actions." Dizol, 133 F.3d at 1225. 5 1 Ho owever "therre is no presu umption in favor fa of absteention in decclaratory acttions generallly, nor in 2 inssurance coveerage cases specifically."" Id. In adddition, unlikee the situation in the Robbsac case, it 3 doees not appeaar that there are a concernss about Northh River tryinng to obtain a federal forrum to pre- 4 em mpt an otherw wise non-rem movable statee court action. See Robssac, 947 F.2dd at 1372-733. Marietta 5 em mphasizes thaat this is a firrst-party insu urance dispuute over coveerage, and itt has not conntested that 6 div versity jurisd diction existss. 7 The Co ourt has conssidered the reelevant factoors and findss that they w weigh in favoor of 8 exeercising jurissdiction overr this action.. 9 Accord dingly, the Court DENIE ES Marietta'ss motion on this basis ass well. 10 CONCLU USION 11 For the foregoing reeasons, the Court C DENIE ES North Riiver's motionn to dismiss. North 12 Riv ver shall filee an amended d complaint by no later tthan Novemb mber 20, 20155, and Marieetta's answerr Northern District of California United States District Court 13 or other o respon nsive pleadin ng shall be fiiled and servved by Decem mber 11, 2015. The parrties shall 14 app pear for a caase managem ment conferen nce on Fridaay, January 88, 2016, at 11:00 a.m. T The parties 15 shaall file a join nt case manag gement confference stateement by no later than D December 30, 2015. 16 IT IS SO S ORDER RED. 17 Daated: Novem mber 10, 2015 18 19 ___________________________ JE EFFREY S. W WHITE 20 Unnited States D District Judgge 21 22 23 24 25 26 27 28 6