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MEDMARC INSURANCE COMPANY v. BERKELEY PROPERTIES

April 28, 2003

MEDMARC INSURANCE COMPANY, PLAINTIFF,
v.
BERKELEY PROPERTIES, INC., A CALIFORNIA CORPORATION AND DOES 1 THROUGH 100, DEFENDANTS.



The opinion of the court was delivered by: Maxine M. Chesney, United States District Judge.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
Before the Court is defendant Berkeley Properties, Inc's ("Berkeley") Motion to Dismiss Case, Stay Matter or Strike Causes of Action, filed February 14, 2003. Plaintiff Medmarc Insurance Company ("Medmarc") has filed opposition, to which Berkeley has replied. Berkeley has also filed a supplement to its reply, to which Medmarc has neither objected nor responded. Having considered the above-referenced papers filed in support of and in opposition to the motion, the Court finds the matter appropriate for decision on the papers, VACATES the hearing scheduled for April 4, 2003, and rules as follows.

BACKGROUND

The following facts are taken from Medmarc's First Amended Complaint ("FAC").

Medmarc issued to Andros Incorporated ("Andros") a commercial general liability insurance policy ("Policy"), and at Andros' request, issued to Andros' lessor, Berkeley, an "Additional Insured Endorsement — Managers or Lessors of Premises," which endorsement covered certain premises leased by Berkeley to a subsidiary of Andros. (See FAC ¶ 5, 6.) On May 21, 2000, a fire occurred at those premises, allegedly causing damage to nearby structures and the contents of such structures. (See id. ¶ 8.) On June 25, 2002, and July 17, 2002, respectively, Andros and Berkeley were named as defendants in two separate lawsuits filed in Alameda County Superior Court, each asserting claims for damage to the surrounding structures.*fn1 (See id.) Andros and Berkeley tendered the complaints and cross-complaints to Medmarc for defense under the Policy; Medmarc accepted the tender without reserving any right to disclaim coverage. (See id. ¶ 9, 10.)

At Medmarc's suggestion, Berkeley, through an attorney, William C. Reeves ("Reeves"), met with Genese Dopson Smith ("Smith"), an attorney who had been "retained as defense counsel" for Andros on or about May 23, 2000,*fn2 in order "to determine whether she could jointly represent both defendants." (See id., ¶ 8, 11.) On or about August 28, 2002, Reeves "represented to Ms. Smith that she could appropriately represent both entities in the context of providing a joint defense." (See id. ¶ 11.) On August 30, 2002, Smith filed a cross-complaint in the state tort action on behalf of both Andros and Berkeley against the other defendants. (See Reeves Decl. Ex. H).*fn3 In addition, on September 5 and September 18, 2002, Smith sent documents to Berkeley and Reeves, wherein Smith "memorialized much of her work product, i.e., her observations, the investigation undertaken by the experts she had retained . . . and, in substance, her `game-plan' for defending the claims in the [state] actions." (See FAC ¶ 12, 14.)

On October 1, 2002, Berkeley, for the first time, notified Medmarc of a conflict between Berkeley and Andros, and of Berkeley's intent to assert affirmative claims against Andros. (See id. ¶ 17.) Medmarc "agreed to appoint new, separate defense counsel for Berkeley," but Berkeley, through Reeves, refused to execute the documents permitting new defense counsel to substitute into the case. (See id. ¶ 18.) On February 7, 2003, Berkeley filed a First Amended Cross-Complaint against Andros for indemnification, contribution, breach of contract, negligence, strict liability and declaratory relief. (See Reeves Decl. Ex. J.)

On January 17, 2003, Medmarc filed the instant action on the basis of diversity jurisdiction, asserting three claims for declaratory relief pursuant to the Declaratory Judgment Act. On February 14, 2003, Medmarc filed its FAC. In its First Cause of Action, Medmarc seeks a declaration from this court that Berkeley, by refusing to cooperate with Medmarc, has "voided its rights" under the Policy. (See id. ¶ 19-24.) In its Second Cause of Action, Medmarc seeks a declaration that Medmarc is not obligated to pay for independent counsel selected by Berkeley. (See id., ¶ 25-31.) In its Third Cause of Action, Medmarc seeks a declaration that Mr. Reeves and his law firm, Morales & Gary, are precluded from representing Berkeley because of their improper receipt of work-product from Smith. (See id. ¶ 32-40.)

On February 14, 2003, Berkeley filed the instant motion, arguing that the Court should decline to exercise jurisdiction over the action under the Declaratory Judgment Act.*fn4 Alternatively, Berkeley seeks an order staying the first cause of action as premature and an order striking the third cause of action for lack of standing.

On April 3, 2003, one day before the scheduled hearing on the instant motion, Medmarc filed a declaratory relief action in Alameda County Superior Court, wherein it raises against Berkeley the identical three claims for declaratory relief raised herein. (See Suppl. to Berkeley Properties' Reply, Ex. P.)*fn5

DISCUSSION

A. Legal Standard

The Declaratory Judgment Act, codified at 28 U.S.C. § 2201, et seq., provides, in pertinent part:

In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such a declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
28 U.S.C.A. § 2201(a).*fn6 Under the Declaratory Judgment Act, a federal court has substantial discretion to decline to exercise jurisdiction over a declaratory action. See Wilton v. Seven Falls Co., 515 U.S. 277, 286-87 (1995). "The question for a district court presented with a suit under the Declaratory Judgment Act . . . is whether the questions in controversy between the parties to the federal suit, ...

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