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Wallis v. Centennial Insurance Company

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA


December 9, 2009

DALE M. WALLIS, D.V.M., JAMES L. WALLIS, AND HYGIEIA BIOLOGICAL LABORATORIES, INC., A CALIFORNIA CORPORATION, PLAINTIFFS,
v.
CENTENNIAL INSURANCE COMPANY, INC., A NEW YORK CORPORATION, ATLANTIC MUTUAL INSURANCE CO., INC., A NEW YORK CORPORATION, DEFENDANTS.

AND RELATED COUNTER-CLAIMS AND THIRD-PARTY COMPLAINT.

MEMORANDUM AND ORDER RE: MOTION FOR STAY PENDING FINAL SETTLEMENT DOCUMENTATION AND SCBA FEE ARBITRATION AND DEMAND FOR BOND

Plaintiffs Dale M. Wallis ("Dr. Wallis"), James L. Wallis ("Mr. Wallis"), and Hygieia Biological Laboratories, Inc. ("Hygieia") brought this action against defendants Centennial Insurance Company Inc. and Atlantic Mutual Insurance Co. Inc. alleging breach of insurance contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty relating to plaintiffs' veterinarian professional liability policy ("Policy"). Plaintiffs now seek a stay of this action pending the completion of Cumis arbitration proceedings and also pending documentation and implementation of a partial settlement in the underlying state court action. Plaintiffs also move for an order requiring the defendants post a bond in the amount of $1,200,0000.00 to cover anticipated unpaid Cumis fees.

A. Request for Stay Pending Final Settlement and Arbitration

In its April 16, 2009 Order, this court granted the defendants' motion, in part, to compel binding arbitration regarding Cumis counsel fees pursuant to California Civil Code § 2860(c). (April 16, 2009 Order.) Presently before the Sacramento County Bar Association ("SCBA") is the question of whether that arbitration forum has jurisdiction to hear the Cumis fee dispute. This court retained jurisdiction over other issues not squarely involving the calculation of Cumis counsel fees. (Id.) On July 20, 2009, an agreement for settlement of the underlying state court action was reached in a mediated partial settlement agreement. (Mot. Stay, Decl. Joanna R. Mendoza ¶ 2.) A formal settlement agreement has not yet been approved, and the state court has issued an extended stay to allow time to resolve several procedural issues in that case before the settlement is finalized. (Mot. Stay, Decl. Joanna R. Mendoza ¶ 4.)

The plaintiff moves for a stay of this action pending a final settlement and pending completion of the Cumis fee arbitration proceedings. Defendants do not oppose the motion.

Therefore, the motion for stay will be granted.

B. Request for Bond or Writ of Attachment Pending Attorney

Fee Arbitration Rule 64 of the Federal Rules of Civil Procedure provides, in pertinent part, that "all remedies providing for seizure of person or property for the purpose of securing satisfaction of the judgment ultimately to be entered in the action are available under the circumstances and in the manner provided by the law of the state in which the district court is held...." Fed. R. Civ. P. 64. Thus, Rule 64 "permits state seizure provisions to be used in federal courts...." Reebok Int'l v. Marnatech Enters., 970 F.2d 552, 558 (9th Cir. 1992); Pos-A-Traction, Inc. v. Kelly-Springfield Tire Co., 112 F. Supp. 2d 1178, 1181 (C.D. Cal. 2000) (noting that Rule 64 incorporates state law for prejudgment seizures of property). Among the specific seizure remedies provided by Rule 64 are arrest, attachment, garnishment, replevin and sequestration.

Section 483.010(a) of the California Code of Civil Procedure states that an attachment may be issued on "a claim or claims for money, each of which is based on a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five-hundred dollars ($500) exclusive of costs, interest and attorney's fees." Cal. Civ. P. Code 483.010(a).

California Code of Civil Procedure § 484.090 provides that before an attachment order is issued, the court must find that: (1) the claim upon which the attachment is based is one upon which an attachment may be issued; (2) the applicant has established "the probable validity" of the claim upon which the attachment is based; (3) the attachment is not sought for a purpose other than the recovery on the claim upon which the request for attachment is based; and (4) the amount to be secured by the attachment is greater than zero. In order to establish "the probable validity" of the claim, the applicant must show that it is more likely than not it will obtain a judgment against the defendant on its claim. Cal. Civ. P. Code § 481.190.

"Attachment is a prejudgment remedy which requires a court to make a preliminary determination of the merits of a dispute. It allows a creditor who has applied for an attachment following the statutory guidelines and established a prima facie claim to have a debtor's assets seized and held until final adjudication at trial." Lorber Indus. v. Turbulence, Inc., 175 Cal. App. 3d 532, 535 (1985). The burden is on the moving party to establish grounds for an order of attachment. Loeb and Loeb v. Beverly Glen Music, Inc., 166 Cal. App. 3d 1110, 1116 (1985). Attachment is a purely statutory remedy, which is subject to strict construction. Jordan-Lyon Prods., Ltd. v. Cineplex Odeon Corp., 29 Cal. App. 4th 1459, 1466 (1994).

Plaintiffs request that this court order a bond or writ of attachment*fn1 in the amount of $1,200,000.00 to ensure that the defendants can and will pay all Cumis fees determined to be owed through the arbitration compelled by this court. In support of this motion, plaintiffs allege that during mediation discussions, defendant's counsel advised the parties that Atlantic Mutual is operating in "run out" mode and that Atlantic Mutual may not have sufficient funds to pay out claims after early 2010. (Mot. Stay Decl. Joanna R. Mendoza ¶ 8.) Plaintiffs fear that if a bond is not issued, defendants may unable to pay any judgment later issued by this court, and that plaintiffs will be left with a worthless insurance policy and liability for over $1,000,000.00 in attorneys fees. (Id.) Plaintiffs further allege that the delay in beginning arbitration after this court's April 16, 2009 Order compelling arbitration, and subsequent motions before the SCBA challenging that organization's jurisdiction to arbitrate the Cumis fee dispute, are due to defendants' efforts to "run out the clock" on this litigation to avoid paying any potential award of Cumis fees that may be awarded by the arbitration forum. (Id.)

As of September 21, 2009, the amount of unpaid attorney fees for plaintiffs' Cumis counsel amounts to $1,073,693.13, and plaintiffs estimate that they will total over $1,200,000.00 by the time Cumis counsel's defense of plaintiffs in the underlying state court action is completed through the settlement process. (Mot. Stay Decl. Joanna R. Mendoza ¶ 6; Mot. Stay 4.) However, defendants assert that they do not owe this amount or any other amount because they have already paid more than the reasonable value of the services rendered by Cumis counsel in defense of the underlying state court action. (Opp. Mot. Stay 9); see Cal. Civil Code § 2860.

Plaintiffs have not made a sufficient showing that would establish the "probable validity" of the claim upon which the attachment is based as required by section 484.090(a)(2). Specifically, plaintiff's request for a bond or attachment has focused almost exclusively on the alleged bad faith actions of the defendants. This is not the heart of the fee dispute between plaintiffs and defendants currently before the SCBA for arbitration. The dispute is whether defendants actually owe any of the unpaid fees billed. Although plaintiffs have provided the court with a redacted version of their most recent invoice from Cumis counsel, and had available a set of unredacted invoices during oral argument for the court's review, they have not presented any evidence that would allow the court to determine whether the additional fees claimed are in fact due to plaintiffs. Plaintiffs have not, therefore, established that it is more likely than not that they will prevail on the Cumis fee issue, and their request for attachment must be denied.

What remains is plaintiffs' loosely-pled motion for a bond. Defendants object to the motion to post bond on the ground that Local Rule 65.1-151 does not provide for courts to require security for damages, which in this case are the Cumis counsel fees. Besides attachment, Local Rule 65.1-151 allows for security for costs and for a supersedeas bond. (Eastern District Local Rule 65.1-151.) Plaintiffs provide no statutory authority for the proposition that this court has the power to issue a bond for damages. Rather, plaintiffs analogize to the power to require a bond to ensure that costs can be paid if that party is unsuccessful and is taxed costs. (Mot. Stay 5 (citing Anderson v. Steers, Sullivan, McNamar & Rogers, 998 F.2d 405 (7th Cir. 1993)).) In this case, plaintiffs request a bond to ensure that damages are paid should plaintiffs receive a favorable ruling in the Cumis fee arbitration. To do so would circumvent the pleading standards required to attach the defendants' assets pending the outcome of this litigation. Therefore, plaintiffs' motion for a bond will be denied.

IT IS THEREFORE ORDERED that plaintiffs' motion for stay pending final settlement and arbitration be, and the same hereby is, GRANTED.

IT IS FURTHER ORDERED that plaintiffs' motion for attachment and/or bond pending attorney fee arbitration is hereby DENIED.


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