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Century Surety Co. v. Master Design Drywall

October 21, 2009

CENTURY SURETY COMPANY, AN OHIO CORPORATION, PLAINTIFF,
v.
MASTER DESIGN DRYWALL, INC.; PACIFIC LATH & PLASTER; DOES 1-100, DEFENDANTS.



The opinion of the court was delivered by: Honorable Larry Alan Burns United States District Judge

ORDER DENYING MOTION TO DISMISS; ORDER DENYING MOTION FOR SUMMARY JUDGMENT WITHOUT PREJUDICE [Dkt. No. 7.]

Plaintiff Century Surety Company ("Century") seeks the rescission of an insurance policy it issued to Defendant Master Design Drywall ("Master Design") on the grounds that Master Design misrepresented the full nature of its business when it applied for the policy. Specifically, Century alleges that Master Design represented it only does interior drywall and wallboard work, when in fact it does exterior lath and plaster work. Lath and plaster work is riskier, and Century maintains that had it known Master Design sought coverage for such work, it would not have issued the insurance policy at issue, or it would have issued the policy under materially different terms. Master Design doesn't deny that it does lath and plaster work. Its position is that Century knew (or should have known) this all along, and it's too late now to seek rescission.

Now before the Court is Master Design's motion to dismiss Century's complaint for failure to state a claim. This motion is pled, in the alternative, as a motion for summary judgment because it is accompanied by and relies on external evidence -- that is, evidence that is not part of the pleadings.*fn1 That evidence consists of a declaration of Master Design's owner and president Mary Kathawa, along with five exhibits, including a copy of the "Accord Application" for the insurance policy at issue.

I. Motion for Summary Judgment

A. Legal Standard

"A motion to dismiss made under Federal Rule of Civil Procedure 12(b)(6) must be treated as a motion for summary judgment under Federal Rule of Civil Procedure 56 if either party to the motion to dismiss submits materials outside the pleadings in support or opposition to the motion, and if the district court relies on those materials." Anderson v. Angelone, 86 F.3d 932, 934 (9th Cir. 1996). See Fed. R. Civ. P. 12(d).*fn2 It is up to the Court to decide whether it will consider or reject such material.

When a motion to dismiss is converted to a motion for summary judgment, however, the general rule is that the non-moving party must be allowed to conduct discovery in order to oppose it. Inlandboatmens Union of Pacific v. Dutra Group, 279 F.3d 1075, 1083 (9th Cir. 2002). A motion to dismiss isn't automatically converted into a motion for summary judgment "whenever matters outside the pleading happen to be filed with the court and not expressly rejected by the court." North Star Int'l v. Arizona Corporation Comm'n, 720 F.2d 578, 582 (9th Cir. 1983). See also E.E.O.C. v. Creative Networks, LLC, Case No. CV 05- 3032, 2006 WL 3834286 at *3 (D. Ariz. Dec. 29, 2006) (refusing to convert motion to dismiss into motion for summary judgment, based on documents extraneous to complaint, because preliminary stages of discovery and Rule 26(a) disclosures had not occurred); Trew v. Volvo Cars of North America, LLC, Case No. CIV-S-051379, 2006 WL 306904 at *5 (E.D. Cal. Feb. 8, 2006) (declining to consider declarations attached to motion to dismiss and convert it to a motion for summary judgment on grounds plaintiff hadn't had sufficient time for discovery); Meridian Project Systems, Inc. v. Hardin Const. Co., LLC, Case No. CIV--04-2728, 2005 WL 2615523 at *1 n.1 (E.D. Cal. Oct. 14, 2005) (declining to convert motion to dismiss into motion for summary judgment when discovery was in its infancy).

That there must be a meaningful opportunity for discovery before the Court will convert a motion to dismiss into a motion for summary judgment and rule on it is affirmed in Fed. R. Civ. P. 56(f), which relates to summary judgment motions and reads: "If a party opposing the motion shows by affidavit that, for specified reasons, it cannot present facts essential to justify its opposition, the court may: (1) deny the motion; (2) order a continuance to enable affidavits to be obtained, depositions to be taken, or other discovery to be undertaken; or (3) issue any other just order."

B. Discussion

Master Design would have the Court, on the basis of a declaration submitted by its owner and five attached documents, grant summary judgment in its favor. That would be premature. No discovery has taken place in this case, and the Court will not make a summary judgment ruling on the thin evidentiary record before it. Master Design filed its motion to dismiss, or in the alternative for summary judgment, just one month after this case was filed. Conversion is not favored under these circumstances. Rubert-Torres v. Hospital San Pablo, Inc., 205 F.3d 472, 475 (1st Cir. 2000) (disfavoring conversion when the motion comes quickly after the complaint is filed and when "discovery is in its infancy and the non-movant is limited in obtaining and submitting evidence to counter the motion"). Rule 12(d) explicitly requires that in the event of conversion "[a]ll parties must be given a reasonable opportunity to present all the material that is pertinent to the motion." Fed. R. Civ. P. 12(d).

Century has not had this opportunity. In order to file a timely opposition brief just over one month after Master Design filed its motion, Century was unable to take meaningful discovery and thoroughly contest a motion for summary judgment. Consistent with Fed. R. Civ. P. 56(f), Century's counsel submitted an affidavit to the Court in which he testified that Master Design has made no Rule 26 disclosures, there have been no depositions, and with the exception of the documents attached to Kathawa's declaration, no documents have been produced. (See Dollinger Dep. at 2.) The Court agrees with Century that Master Design's attempt to seek summary judgment at this point in the litigation is premature. Master Design's motion for summary judgment is DENIED, but WITHOUT PREJUDICE.

II. Motion to Dismiss

A. Legal Standard

A motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6) challenges the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering such a motion, the Court accepts all allegations of material fact as true and construes them in the light most favorable to the non-moving party. Cedars-Sinai Med. Ctr. v. Nat'l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). That said, a complaint's factual allegations "must be enough to raise a right to relief above the speculative level . . . ." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). "[S]ome threshold of plausibility must be crossed at the outset" before a case can go forward. Id. at 558 (internal quotations omitted). "A claim has facial plausibility when the ...


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