Opinion
Case No. 13-0360 SC Case No. 13-0984 SC
04-29-2013
TRAVELERS CASUALTY INSURANCE COMPANY OF AMERICA and TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, Plaintiffs, v. AMERICAN HOME REALTY NETWORK, INC. and JONATHAN J. CARDELLA, Defendants. AMERICAN HOME REALTY NETWORK, INC., Plaintiff, v. TRAVELERS CASUALTY INSURANCE COMPANY OF AMERICA and TRAVELERS INDEMNITY COMPANY OF CONNECTICUT, Defendants.
ORDER DENYING MOTION TO DISMISS
AND DENYING MOTION TO REMAND
I. INTRODUCTION
The underlying actions in the above-captioned cases concern two disputes between the same parties. The first dispute concerns whether Travelers Casualty Insurance Company of America and Travelers Indemnity Company of Connecticut (collectively "Travelers") may bring an action for declaratory relief and reimbursement against Defendants American Home Realty Network, Inc. ("AHRN") and AHRN's president Jonathan J. Cardella ("Cardella") (collectively "Defendants") based on duties to defend in two underlying insurance disputes. The second dispute concerns a related case, American Home Realty Network, Inc. v. Travelers Casualty Insurance Co. of America, No. 13-0984 SC (N.D. Cal.) (the "Related Case"), brought first in state court and then removed to this Court, in which AHRN seeks declaratory relief regarding Travelers' purported duty to defend in one of the aforementioned underlying insurance disputes. Related Case ECF Nos. 1 ("Notice of Removal"), 12 ("Order Relating Case").
For brevity's sake, future references to documents from the Related Case simply refer to its abbreviated name followed by the ECF number for that case's document, e.g., "Related Case ECF No. 1." Citations to documents from the case involving AHRN's motion to dismiss use a reference to the ECF number alone.
Now before the Court is Defendants' motion to dismiss Travelers' complaint for declaratory judgment and reimbursement, ECF Nos. 1 ("Compl."), 16 ("MTD"), and AHRN's motion to remand the Related Case, Related Case ECF No. 14 ("Mot. to Remand"). Both motions are fully briefed. ECF Nos. 26 ("Opp'n to MTD"), 33 ("Reply ISO MTD"); Related Case ECF Nos. 19 ("Travelers Opp'n to Remand"), 23 ("AHRN's Reply ISO Remand"). All of the motions are appropriate for decision without oral argument, Civ. L.R. 7-1(b). For the reasons explained below, the Court DENIES Defendants' motion to dismiss Travelers' complaint and DENIES Defendants' motion to remand the Related Case.
Travelers also moved for leave to file a sur-reply in support of its oppositions to the motions to remand and dismiss filed in this matter and the Related Case. ECF No. 38. AHRN did not object. The Court DENIES this motion as moot because Travelers prevails in this action.
II. BACKGROUND & PROCEDURAL HISTORY
A. Background
The following facts are taken from Travelers' complaint and the parties' requests for judicial notice. The two Travelers plaintiffs are insurance corporations. Compl. ¶¶ 3-4. AHRN obtained three general commercial insurance policies from Travelers. See id. ¶¶ 9-16. One policy was issued to AHRN for the policy period July 23, 2010 to July 23, 2011 (the "AHRN Policy"). Id. ¶ 9. Two policies were issued to Neighborhubs LLC, which is AHRN's corporate owner: one for the policy period March 20, 2011 to March 20, 2012 and the other from March 20, 2012 to March 20, 2013 (collectively the "Neighborhubs Policies"). Id. ¶¶ 10-11.
The Court GRANTS both parties' requests for judicial notice because the documents in question insurance policies, case filings, and so forth -- all are either incorporated by reference or matters of public record. ECF Nos. 15 ("Travelers RJN"), 17 ("AHRN RJN ISO MTD"), 29 ("Travelers RJN ISO Opp'n"); Related Case ECF Nos. 20 ("Travelers Remand RJN"), 24 ("AHRN Remand RJN").
The present dispute arises from two underlying actions. On March 28, 2012, Metropolitan Regional Information Systems, Inc. ("Metropolitan") sued AHRN and Cardella in the United States District Court for the District of Maryland (the "Metropolitan Action," No. 8:12-cv-00954-AW). In that action, Metropolitan asserts claims against AHRN for direct, induced, and contributory copyright infringement; false designation of origin; unfair competition under the Lanham Act; conversion; unjust enrichment; and, as to Cardella, vicarious copyright infringement. Compl. ¶¶ 17-24. On April 18, 2012, Regional Multiple Listing Services of Minnesota, Inc., d.b.a. NorthstarMLS ("Regional") sued AHRN in the United States District Court for the District of Minnesota (the "Regional Action," No. 0:12-cv-00965-JRT-FLN). In that action, Regional asserts claims against AHRN for copyright infringement. Compl. ¶¶ 25-32.
Defendants assert that the three policies cover claims against them in both the Metropolitan and Regional Actions. See id. ¶¶ 33, 38. On April 9, 2012, AHRN tendered the Metropolitan Action to Travelers and requested defense and indemnity under the AHRN Policy. Id. ¶ 33. On April 25, 2012, AHRN tendered the Regional Action to Travelers, likewise requesting defense and indemnity in that action. Id. ¶ 38.
Travelers declined to provide a defense in the Regional Action via an email dated May 8, 2012 and confirmed its declination by phone on May 22, 2012, the same day it accepted defense of the Metropolitan Action under a full reservation of rights. Id. ¶ 33. During the phone conversation about the Metropolitan Action, Travelers also advised AHRN's general counsel that it would file a complaint for declaratory relief regarding the duty to defend. Id. On that same day, Travelers filed an action for declaratory relief in this Court as to both the Metropolitan and Regional Actions, and for reimbursement as to the Metropolitan Action, all in reference to the AHRN Policy. See AHRN RJN ISO MTD, Ex. 1 ("First Federal Compl.").
Later, in a letter dated June 7, 2012, Travelers confirmed the acceptance with full reservations of the Metropolitan Action. Compl. ¶¶ 33-34. On June 19, 2012, it memorialized its declination to defend in the Regional Action in a letter to Defendants, id. ¶¶ 38-39.
Sometime between June and September 2012, AHRN also requested that Travelers defend and indemnify them in the Metropolitan and Regional Actions under the Neighborhubs Policies, but Travelers declined in a letter dated September 18, 2012. Id. ¶¶ 35-36, 40. On that same day, Travelers amended its complaint to request declaratory relief and reimbursement for both the Regional and Metropolitan Actions as to the Neighborhubs Policies as well as the AHRN Policy. See First Federal Compl. ¶¶ 32, 35.
B. Procedural History
On October 5, 2012, AHRN moved to dismiss or alternatively to stay Travelers' First Federal Complaint. Travelers RJN ISO Opp'n Ex. 5. AHRN challenged the complaint partly on jurisdictional grounds, contending that Travelers had failed to establish the $75,000 amount-in-controversy requirement necessary for federal courts to exercise subject matter jurisdiction in diversity cases. See id. at 14. This Court heard arguments on that motion on January 16, 2013 and dismissed Travelers' action for lack of subject matter jurisdiction on January 24, 2013. Travelers Cas. Ins. Co. of Am. v. Am. Home Realty Network, Inc., No. C 12-2637 PJH, 2013 WL 271668, 2013 U.S. Dist. LEXIS 9797 (N.D. Cal. Jan. 24, 2013) ("Travelers I"). The Travelers I Court held that Travelers' declaratory relief action, filed before Travelers notified AHRN of the decisions to defend or decline the underlying actions, could not satisfy the amount-in-controversy requirement because Travelers had incurred no defense costs at the time the complaint was filed. Id. at *4.
On the same day Travelers I was dismissed, AHRN filed a state court declaratory relief action regarding Travelers' duty to defend in the Regional Action. AHRN RJN ISO MTD, Ex. 4. On the following day, January 25, 2013, Travelers filed the instant complaint in federal court, seeking the same declaratory relief and reimbursement as to the Regional and Metropolitan Actions that it requested in the First Federal Complaint.
On March 4, 2013, Travelers agreed to defend AHRN in the Regional Action under a reservation of rights. See Related Case ECF No. 22 (Decl. of Pam Matsufuji ISO Opp'n to Remand ("Matsufuji Decl.")) ¶¶ 13, 14, Exs. 8, 9. The parties still dispute whether Travelers has a duty to defend for any period during the Regional Action's litigation, and if so, what timeframe that duty would cover. See, e.g., Travelers Opp'n to Remand at 12-14. Travelers removed AHRN's state court declaratory relief action to federal court on March 5, 2013. Related Case Notice of Removal. That case was related to this one on March 18, 2013. Related Case Order Relating Case.
Now AHRN moves to dismiss Travelers' complaint for declaratory relief and reimbursement, arguing as follows: (1) Travelers' claims regarding the Regional Action should be dismissed for lack of subject matter jurisdiction, and moreover, collateral estoppel prevents Travelers from rearguing the same matter after its previous litigation and decision on the merits; (2) additionally or alternatively, Travelers' complaint should be dismissed as to the Regional Action because AHRN filed its own declaratory relief action in state court before Travelers filed the instant action; (3) additionally or alternatively, the Court should exercise its discretion under the Declaratory Judgment Act ("DJA"), 28 U.S.C. § 2201, and dismiss Travelers' claims as to either the Regional Action alone or both underlying actions.
Defendants also argue that the Court should dismiss Travelers' complaint if Travelers does not maintain or follow through on steps to minimize prejudice to AHRN or Cardella in the underlying actions as a result of this litigation. Based on the parties' arguments, this dispute is not ripe. The Court declines to address it here.
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Travelers opposes AHRN's motion to dismiss. It argues that the Court has subject matter jurisdiction over the instant matter because its defense costs will almost certainly exceed $75,000, and that the Court should not decline to hear Travelers' actions for declaratory relief. See generally Opp'n to MTD.
AHRN also seeks to remand the Related Case to state court, arguing -- essentially as it does in its motion to dismiss -- that (i) Travelers lacks removal jurisdiction because it fails to satisfy the amount in controversy requirement, and (ii) the Court should not exercise its discretion under the DJA and removal jurisdiction to hear Travelers' declaratory relief claims. See generally Related Case Mot. to Remand. Travelers opposes this motion for the same reasons it does AHRN's motion to dismiss.
III. LEGAL STANDARD
A. Motions to Dismiss
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The court's review is generally "limited to the complaint, materials incorporated into the complaint by reference, and matters of which the court may take judicial notice." Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1061 (9th Cir. 2008) (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).
B. Declaratory Judgments
Under the Declaratory Judgment Act, the Ninth Circuit applies a two-part test to determine whether jurisdiction over a claim for a declaratory relief is appropriate. Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 669 (9th Cir. 2005). The court must first determine if an actual case or controversy exists within its jurisdiction. Id. If so, the court must then decide whether to exercise its jurisdiction. Id.
District courts have "discretion in determining whether and when to entertain an action under the Declaratory Judgment Act." Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995). However, "there is no presumption in favor of abstention in declaratory actions generally, nor in insurance coverage cases specifically." Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998).
"The district court's discretion to hear declaratory actions over which it has jurisdiction is guided by the Supreme Court's announcements in [Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942)]." Dizol, 394 F.3d at 672. "The Brillhart factors are nonexclusive and state that, '[1] the district court should avoid needless determination of state law issues; [2) it should discourage litigants from filing declaratory actions as a means of forum shopping; and [3] it should avoid duplicative litigation.'" Id. (quoting Dizol, 133 F.3d at 1225) (alterations in original). "Essentially, the district court must balance concerns of judicial administration, comity, and fairness to the litigants." Id. (internal quotations omitted). The Ninth Circuit has also "noted additional and potentially relevant considerations," including "whether the declaratory action will serve a useful purpose in clarifying the legal relations at issue" and "whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a 'res judicata' advantage." Id.
IV. DISCUSSION
A. Subject Matter Jurisdiction
The parties do not dispute that the Court has subject matter jurisdiction over claims related to the Metropolitan Action. However, they disagree on whether the Court has subject matter over claims related to the Regional Action. Specifically, they dispute whether the amount in controversy in that action exceeds the $75,000 limit set by 28 U.S.C. § 1332(a). Defendants claim that the amount in controversy is either zero, since Travelers filed its complaint before making a coverage decision, or that it is under $75,000, since AHRN claims that its legal bills will go no higher. See MTD at 10-11. Travelers responds that because its complaint alleges an amount in controversy in excess of $75,000, based on projected defense costs for the entire Regional Action litigation -- not just the relatively short period that AHRN claims is at issue. See Opp'n to MTD at 9-14. AHRN responds by insisting that its facts are correct and unchanging, and arguing that collateral estoppel precludes this issue, since this Court already heard and decided the parties' arguments on this issue in Travelers I. Reply ISO MTD at 2-6.
While the issues presented in Travelers I's holding on the motion to dismiss were similar to those presented on the same motion here, the facts are not precisely the same, thereby making it improper for the Court to apply collateral estoppel here. Since the conclusion of Travelers I, Travelers has assumed the defense of the Regional Action, and the parties agree that AHRN has indeed incurred substantial fees and costs in that action. AHRN insists the amount in controversy can be no more than $58,998.20, while Travelers says that costs incurred plus future costs will be at least $76,000. See, e.g., Opp'n to Remand at 12-14, Reply ISO Remand at 7. In the parties' briefs on AHRN's motion to dismiss, the parties are not so precise on the numbers, but the arguments are the same. See Opp'n to MTD at 9-14; Reply ISO MTD at 2-6. The Court's findings on this issue take into account the facts and arguments from both of the motions now before the Court, since both motions argue essentially the same point.
Under 28 U.S.C. § 1332(a), diversity jurisdiction exists only "where the matter in controversy exceeds the sum or value of $75,000 exclusive of interest or costs." To dismiss for lack of this jurisdictional amount it must appear "to a legal certainty" that the claim is really for less than the jurisdictional amount. St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938). "A situation which typically meets the legal certainty test occurs where a rule of law or measure of damages limits the amount of damages recoverable." Morris v. Hotel Riviera, Inc., 704 F.2d 1113, 1115 (9th Cir. 1983). The party seeking federal court jurisdiction has the burden of proving that the amount in controversy requirement is satisfied under the legal certainty test. Gibbs v. Buck, 307 U.S. 66, 72 (1939). In a declaratory relief action the amount in controversy "is not what might have been recovered in money, but rather the value of the right to be protected or the injury to be prevented." Jackson v. Am. Bar Ass'n, 538 F.2d 829, 831 (9th Cir. 1976).
The Court finds that Travelers has shown, based on its pleadings, declarations, and arguments, that a duty to defend the Regional Action would result in costs totaling more than $75,000 -- this is the "injury to be prevented" under Jackson, 538 F.3d at 831. See Opp'n to Remand at 11-14 (citing Matsufuji Decl. ¶¶ 15, 16, Ex. 10; Decl. of Nicholas Boos ISO Opp'n to Remand ¶ 10, Ex. 3). The Court finds that Travelers has shown that a probability of its costs exceeding the amount in controversy requirement exists, even considering AHRN's insistence that the case will settle before bills reach that limit or that the billing should be limited to a timeframe in which billing could not reach $75,000. Id. Legal bills exceeding $75,000 are likely because the parties dispute the possibility of settlement, the litigation activity in the underlying action has been substantial, and if Travelers is indeed held to have a duty to defend that action its costs would be almost certainly more than $75,000. Id.; see also Kessloff v. State Farm Gen. Ins. Co., No. C-89-3330 SC, 1990 U.S. Dist. LEXIS 13571, at *3 (N.D. Cal. Mar. 26, 1990) (deciding a similar issue on a motion to remand). Given the disputes, the Court does not find it a "legal certainty" that Travelers' claim is for less than the jurisdictional amount. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). This finding applies to both AHRN's motion to dismiss and its motion to remand.
The Court accordingly declines to dismiss Travelers' claims for declaratory relief as to the Regional Action. The Court also finds unconvincing AHRN's argument that the "first-to-file" rule warrants dismissal of Travelers' Regional-related declaratory relief claims because AHRN's state court action for declaratory relief was filed first. See, e.g., Reply ISO MTD at 6-8. That rule might be found to apply when there are parallel state proceedings on the same issues pending at the time the federal declaratory action was filed. Dizol, 133 F.3d at 1220-23. However, the Court does not find that presumption warranted here since the state court action has long since been removed and related to the federal one.
B. Declaratory Judgment Actions
As to Travelers' DJA claims regarding the Regional and Metropolitan Actions, AHRN argues that the factors articulated in Dizol and Brillhart caution against the Court's exercising jurisdiction over those claims. For the reasons discussed below, the Court finds otherwise and exercises its discretion under the DJA to hear Travelers' claims for declaratory relief as to both underlying actions.
i. State Law Issues
"When parallel state proceedings involving the same issues and parties [are] pending at the time the federal declaratory action is filed, there is a presumption that the entire suit should be heard in state court." Am. Cas. Co. v. Krieger, 181 F.3d 1113, 1118 (9th Cir. 1999) (internal quotation omitted). A "needless decision of state law" may involve: an ongoing parallel state proceeding regarding the "precise state law issue," an area of law Congress expressly left to the states, or a lawsuit with no compelling federal interest (for instance, when a case is solely based on diversity). Cont'l Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1371-72 (9th Cir. 1991), overruled in part on other grounds by Dizol, 133 F.3d 1220. "However, there is no presumption in favor of abstention in declaratory actions generally, nor in insurance cases specifically." Dizol, 133 F.3d at 1226. Indeed, the district court is in the "best position to assess how judicial economy, comity and federalism are affected in a given case." Id. at 1226.
Defendants argue that because the underlying issues in this matter involve California insurance law, and state courts are best situated to "identify and enforce the public policies that form the foundation of such regulations," this factor favors dismissal. See Reply ISO MTD at 9 (quoting Emp'rs Reinsurance Corp. v. Karussos, 65 F.3d 796, 799 (9th Cir. 1995)). Travelers respond that federal court practice in granting declaratory relief in insurance issues belies this suggestion, and that in any event, whatever pending state law claims were at issue in Defendants' state law declaratory relief action are moot because Travelers has now removed that action and related it to this case. See Opp'n to MTD at 19.
The Court finds that decision of Travelers' declaratory relief claims will necessarily involve application of California insurance law, and the only reason Travelers are in federal court is on diversity grounds, suggesting that the federal interest in this matter is at its nadir. See Robsac, 947 F.2d at 1371. However, since the related state action has been removed and related, there is no ongoing parallel state action, and so concerns about comity, economy, and federalism are somewhat lessened. See Dizol, 133 F.3d at 1226. The Court finds that this factor is neutral,
ii. Forum Shopping
"This factor usually is understood to favor discouraging an insurer from forum shopping, i.e., filing a federal court declaratory action to see if it might fare better in federal court at the same time the insurer is engaged in a state court action." Am. Cas. Co. of Reading, Pa. v. Krieger, 181 F.3d 1113, 1119 (9th Cir. 1999). This concern is particularly pertinent in reactive or defensive declaratory actions. Robsac, 947 F.2d at 1371.
Defendants argue that Travelers is engaged in forum shopping because it filed its action in federal court before issuing coverage positions on the underlying actions, suggesting that Travelers had planned its complaint in advance in order to secure a favorable jurisdiction early. See Reply ISO MTD at 9-10. Travelers, in turn, asserts that it has every right to be in federal court on jurisdictional grounds, that it informed Defendants of its coverage positions before filing its federal action, and that there has never been a parallel state action at the same time Defendants have been in federal court. See Opp'n to MTD at 19-20. Having considered these facts and the parties' arguments on the issue, the Court finds no evidence suggesting that Travelers is gaming the system by bringing its suit in this Court.
The Court finds that this factor favors the exercise of jurisdiction over Travelers' declaratory relief claims,
iii. Duplicative Litigation
The third Brillhart factor seeks to avoid duplicative litigation. "If there are parallel state court proceedings involving the same issues and parties pending at the time the federal declaratory action is filed, there is a presumption that the entire suit should be heard in state court." Dizol, 133 F.3d at 1225. "Ordinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties." Brillhart, 316 U.S. at 495. However, the pendency of a state court action does not require a district court to refuse federal declaratory relief, but the federal courts should generally decline to entertain reactive declaratory actions. Dizol, 133 F.3d at 1225.
The parties' arguments on this issue were mostly briefed before Travelers had removed AHRN's state court action and related it to this one. Those arguments are moot. Anticipating this result, Defendants suggest that "even if the San Francisco Superior Court complaint was removed, the existence of the pending Regional and Metropolitan Actions favor dismissal." Reply ISO MTD at 10. This argument is not compelling: the underlying actions concern, among other things, copyright infringement and unfair competition, not the duty to defend.
The Court finds that this factor favors the exercise of jurisdiction over Travelers' declaratory relief claims.
iv. Conclusion as to Declaratory Relief Claims
Based on consideration of the foregoing factors, the Court concludes that practicality, equity, and judicial economy are best served by exercising jurisdiction over Travelers' declaratory relief claims. This will provide for speedier adjudication of the parties' disputes, as opposed to splitting the actions piecemeal and -- most likely -- seeing them return to federal court, or be remanded to the state, in various positions of procedural disarray. Moreover, deciding the declaratory action now would clarify the parties' relations. Accordingly, Defendants' motion to dismiss as to these claims is DENIED.
C. AHRN's Motion to Remand
AHRN moves to remand its own case for declaratory relief against Travelers to state court, arguing that (1) the Court lacks subject matter jurisdiction and (2) additionally or alternatively, Travelers' removal was improper because the Brillhart and Dizol factors weigh against the Court's exercising its jurisdiction. See Mot. to Remand at 6-13. AHRN also asks for fees and costs because it claims Travelers' removal was improper as a matter of law. Id. at 13-14. The Court's analysis in Sections IV.A-B, supra, applies to AHRN's two arguments because they are essentially the same in both motions. Accordingly, the Court DENIES AHRN's motion to remand and DENIES AHRN's request for fees and costs associated with that motion.
V. CONCLUSION
For the reasons explained above, the Court DENIES Defendants American Home Realty Network, Inc. and Jonathan J. Cardella's motion to dismiss Travelers Casualty Insurance Company of America and Travelers Indemnity Company of Connecticut's complaint in Case No. 13-0360 SC. The Court also DENIES AHRN's motion to remand in Case No. 13-0984 SC.
IT IS SO ORDERED.
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UNITED STATES DISTRICT JUDGE