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National Union Fire Insurance Company of Pittsburgh, Pa and American v. Ready Pac Foods

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA


March 18, 2011

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA AND AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY, PLAINTIFF/INTERVENING
PLAINTIFF,
v.
READY PAC FOODS, INC. AND TACO BELL CORP., DEFENDANT/INTERVENING
DEFENDANT. TACO BELL CORP., THIRD-PARTY PLAINTIFF,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, THIRD-PARTY DEFENDANT.

The opinion of the court was delivered by: Honorable Ronald S.W. Lew Senior, U.S. District Court Judge

ORDER re: PLAINTIFF-IN-INTERVENTION AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY'S MOTION TO AMEND THE COURT'S DECEMBER 28, 2010 ORDER GRANTING PARTIAL SUMMARY JUDGMENT [164] AND INTERVENING DEFENDANT AND THIRD-PARTY PLAINTIFF TACO BELL CORPORATION'S MOTION TO CERTIFY THE COURT'S DECEMBER 28, 2010 ORDER FOR INTERLOCUTORY REVIEW [163]

On March 02, 2011, Plaintiff-in-Intervention American Guarantee & Liability Insurance Company's Motion to Amend the Court's December 28, 2010 Order Granting Partial Summary Judgment and Intervening Defendant and Third-Party Plaintiff Taco Bell Corporation's Motion to Certify the Court's December 28, 2010 Order for Interlocutory Review came on for regular calendar before this Court. The Court having reviewed all papers submitted pertaining to these Motions and having considered all arguments presented to the Court, NOW FINDS AND RULES AS FOLLOWS:

I. Plaintiff-In-Intervention American Guarantee & Liability Insurance Company's Motion To Amend The Court's December 28, 2010 Order Granting Partial Summary Judgment

A. Legal Standard

Under Federal Rule of Civil Procedure 60(a), the court may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record. The court may do so on motion or on its own, with or without notice. Fed. R. Civ. P. 60(a).

Pursuant to Federal Rule of Evidence 201(a), the Court may take judicial notice of adjudicative facts only. Fed. R. Evid. 201(a). A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. Fed. R. Evid. 201(b). A court must take judicial notice if a party requests it and supplies the court with the requisite information. Fed. R. Evid. 201(d).

B. Analysis

As a preliminary matter, the Court GRANTS Plaintiff-in-Intervention American Guarantee's Request for Judicial Notice, pursuant to Federal Rule of Evidence 201, of the facts establishing the priority of coverage as between National Union policy number BE 5191146 (the "National Union Policy"), St. Paul policy number QI02100125 (the "St. Paul Policy"), and American Guarantee policy number AEC 5086682 02 (the "American Guarantee Policy"). Specifically, the Court takes judicial notice of the fact that the first layer of excess liability coverage was afforded by the National Union Policy, that the second layer of excess liability coverage was afforded by the St. Paul Policy, and that the third layer of excess liability coverage was afforded by the American Guarantee Policy.

The Court GRANTS Plaintiff-in-Intervention American Guarantee's Motion to Amend the Court's December 28, 2010 Order Granting Partial Summary Judgment pursuant to Federal Rule of Civil Procedure 60(a). The Court issues an Amended Order to correct the clerical error. The Amended Order reflects that Third-Party Defendant St. Paul issued to Ready Pac a second layer excess liability policy and that the American Guarantee Policy is a third layer excess liability policy.

II. Intervening Defendant And Third-Party Plaintiff Taco Bell Corporation's Motion To Certify The Court's December 28, 2010 Order For Interlocutory Review

A. Legal Standard

28 U.S.C. § 1292(b), which governs interlocutory decisions, states: when a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is a substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order.

28 U.S.C. § 1292(b). The Supreme Court has held that "federal law expresses the policy against piecemeal appeals" and therefore interlocutory appeals should be strictly construed. Switzerland Cheese Ass'n v. E. Horne's Market, Inc., 385 U.S. 23, 24 (1966).

B. Analysis

The Court DENIES Intervening Defendant and Third-Party Plaintiff Taco Bell Corporation's Motion to Certify the Court's December 28, 2010 Order for Interlocutory Review. The Court finds that Intervening Defendant and Third-Party Plaintiff Taco Bell has not met its burden in proving all of the required elements for certification under 28 U.S.C. § 1292(b).

Courts have parsed Section 1292(b) into a three-part test, assessing (1) whether a decision involves a controlling question of law; (2) whether there exists a substantial ground for difference of opinion; and (3) whether immediate appeal may speed ultimate resolution of the case. See, e.g., Loritz v. CMT Blues, 271 F.Supp. 2d 1252, 1253-54 (S.D. Cal. 2003).

1. Controlling Issue of Law/ May Materially Advance The Termination Of The Litigation An issue is "controlling" if "resolution of the issue on appeal could materially affect the outcome of litigation in the district court." In re Cement Antitrust Litig., 673 F.2d 1020, 1026 (9th Cir. 1982) (citing U.S. Rubber Co. v. Wright, 359 F.2d 784, 785 (9th Cir. 1966)). "Although resolution of the issue need not necessarily terminate an action in order to be 'controlling,' ... it is clear that a question of law is 'controlling' if reversal of the district court's order would terminate the action." Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 24 (1990).

"The third requirement for an interlocutory appeal, that the appeal must be likely to materially speed the termination of the litigation, is closely linked to the question of whether an issue of law is 'controlling,' because the district court should consider the effect of a reversal on the management of the case." L.H. Meeker v. Belridge Water Storage Dist., 2007 WL 781889, at *6 (E.D. Cal. March 13, 2007) (citing In re Cement, 673 F.2d at 1026).

Accordingly, the Court will jointly address the first and third elements necessary for certification under Section 1292(b). The Court will then address the second element of whether there exists a substantial ground for difference of opinion.

The Court finds that the issue of whether the insurance policies issued to Ready Pac by National Union, St. Paul, and American Guarantee cover the damages asserted by Taco Bell for the decline in patronage at Taco Bell restaurants as a result of the

E. coli outbreak is a controlling question of law and that resolution of this issue on appeal could materially affect the outcome of this litigation as it would adjudicate a substantial category of damages.

In the Ninth Circuit, "all that must be shown in order for a question to be 'controlling' is that resolution of the issue on appeal could materially affect the outcome of litigation in the district court." In re Cement, 673 F.2d at 1026. See U.S. Rubber Co., 359 F.2d at 785.

Taco Bell has identified five different types of loss/injury it allegedly suffered as a result of the E. coli outbreak,*fn1 which are the subject of the declaratory relief action currently before this Court. Taco Bell's fifth category of loss for the alleged decline in patronage at Taco Bell restaurants as a consequence of the bodily injuries suffered by Taco Bell customers and property damage to Taco Bell food products (the "Lost Patronage Claim") relates to a significant portion of damages alleged by Taco Bell to be covered under Ready Pac's insurance policies. Accordingly, the Court finds that disposition of the merits of the Lost Patronage Claim, would materially alter the outcome of the litigation.

Therefore, the Court finds that the Court's December 28, 2010 Order does involve a controlling question of law proper for certification for appeal under 28 U.S.C. § 1292(b). However, while an immediate appeal would allow for resolution of the largest portion of damages and materially advance the termination of this litigation, the Court finds that Taco Bell has not met its burden in proving all of the required elements for certification under 28 U.S.C. § 1292(b). Specifically, the Court finds that Intervening Defendant and Third-Party Plaintiff Taco Bell has not met its burden in proving that there is a substantial ground for difference of opinion to warrant certification of the Court's December 28, 2010 Order under 28 U.S.C. § 1292(b).

2. Substantial Ground For Difference Of Opinion Substantial grounds for a difference of opinion required to certify an order for interlocutory review arise when an issue involves one or more difficult and pivotal questions of law not settled by controlling authority. See 28 U.S.C. § 1292(b).

It is clear that California law controls the interpretation of the language in the insurance policies at issue in this declaratory relief action. Federal courts sitting in diversity apply the forum state's substantive law regarding declaratory relief. See, e.g., Valley Forge Ins. Co. v. APL Co. Pte. Ltd., 2010 WL 960341, *4, n. 5 (C.D. Cal. 2010). More specifically, in a diversity action, the forum state's law governs the interpretation of the insurance policy. Bell Lavalin, Inc. v. Simcoe and Erie General Ins. Co., 61 F.3d 742, 745 (9th Cir. 1995).

Here, Taco Bell has not met its burden in proving

that there is a substantial ground for difference of opinion with regard to how the California Supreme Court would view coverage for Taco Bell's economic damages. The Court determined, through its December 28, 2010 Order, that California law as set forth in Geddes & Smith, Inc. v. St. Paul-Mercury Indemnity Co., 51 Cal. 2d 558 (1959)("Geddes I"), Geddes & Smith, Inc. v. St. Paul-Mercury Indemnity Co., 63 Cal. 2d 602, 609 (1965)("Geddes II"), and Hogan v. Midland National Insurance Co., 3 Cal. 3d 553 (1970)("Hogan") remains good law in California and controls with respect to the issue of coverage for the claims for lost profits due to the alleged decline in patronage at Taco Bell restaurants. The Court finds that Taco Bell's argument that the Court misinterpreted California law amounts to Taco Bell's strong disagreement with the Court's interpretation and application of California legal authority.

However, in ruling on motions to certify pursuant to 28 U.S.C. § 1292(b), "[a] party's strong disagreement with the Court's ruling is not sufficient for there to be a substantial ground for difference of opinion" sufficient to satisfy Section 1292(b)'s second criteria. Couch v. Telescope, Inc., 611 F.3d 629, 633 (9th Cir. 2010). See Judicial Watch, Inc. v. Nat'l Energy Policy Dev. Group, 233 F.Supp. 2d 16, 31 (D.D.C. 2002) ("[D]efendants' conviction of the correctness of their position is insufficient to carry them over the high threshold posed by the standard governing certification for interlocutory appeal.").

Furthermore, interlocutory review "should not be used merely to provide a review of difficult rulings in hard cases." McCann v. Communications Design Corp., 775 F. Supp. 1506, 1534 (D. Conn. 1991)(citing U.S. Rubber Co., 359 F.2d at 785). Instead, interlocutory appeals under Section 1292(b) are to be permitted "sparingly," i.e., only in "exceptional" and "extraordinary" circumstances. See James v. Price Stern Sloan, Inc., 283 F.3d 1064, 1068, n. 6 (9th Cir. 2002) (noting that such certification is appropriate only "in rare circumstances").

The Court's December 28, 2010 ruling is based on established precedent from the California Supreme Court. Taco Bell's reliance on out-of-state cases and decisions from other circuits as well as an unpublished Central District Court ruling does not support a claim that there is a substantial ground for a difference of opinion regarding this Court's interpretation of California law. With regard to Taco Bell's reliance on AIU Insurance Co. v. Superior Court, 51 Cal. 3d 807 (1990)("AIU Insurance") and Globe Indemnity Co. v. California, 43 Cal. App. 3d 745 (1974)("Globe"), these cases did not specifically address the issue before this Court of whether a claim for lost profits and loss of goodwill constitutes a claim for damages because of property damage. Neither AIU Insurance nor Globe involved intangible economic loss claims for lost profits or loss of goodwill.

Additionally, while AIU Insurance is a California Supreme Court decision, Globe is not. Therefore, Globe cannot support a claim of substantial ground for difference of opinion. It is a California Court of Appeal decision and Geddes I, Geddes II, and Hogan are all California Supreme Court decisions, which this Court is bound to follow given that California law governs the interpretation of insurance policies. Chalk v. T-Mobile USA, Inc., 560 F.3d 1087, 1092 (9th Cir. 2009). Moreover, the California Supreme Court, in Waller v. Truck Insurance Exchange, Inc., 11 Cal. 4th 1, 17-18 (1995), expressly held that "a complaint seeking to recover damages of this nature from an insured, falls within the scope of insurance coverage only where those intangible economic losses provide 'a measure of damages to physical property which is within the policy's coverage.'"

Accordingly, the Court finds that Taco Bell has failed to meet its burden in proving that there is a substantial ground for difference of opinion to warrant certification of the Court's December 28, 2010 Order under 28 U.S.C. § 1292(b).

Furthermore, the Court cannot certify a question of law when not all three elements of Section 1292(b) have been met, despite the order involving a controlling question of law and the fact that certification would materially advance the termination of litigation. See Couch, 611 F.3d at 633. Satisfaction of all statutory requirements set forth in Section 1292(b) is mandatory, and certification granted where each of these criteria is not satisfied renders the district court's certification "jurisdictionally defective." Id.

Accordingly, the Court finds that Intervening Defendant and Third-Party Plaintiff Taco Bell has not met its burden in proving all of the required elements for certification under 28 U.S.C. § 1292(b) and therefore DENIES its Motion to Certify the Court's December 28, 2010 Order for Interlocutory Review.

IT IS SO ORDERED.


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