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Acceptance Insurance Company v. American Safety Risk Group

August 8, 2011

ACCEPTANCE INSURANCE COMPANY,
PLAINTIFF,
v.
AMERICAN SAFETY RISK GROUP, INC. ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: M. James Lorenz United States District Court Judge

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND/OR RETENTION PARTIAL SUMMARY JUDGMENT

In this equitable contribution action between liability insurers the parties filed cross-motions for summary judgment. For the reasons which follow, Plaintiff's motion is GRANTED IN PART AND DENIED IN PART, and Defendants' motion is DENIED.

Plaintiff defended its insured Bay Area Construction Framers, Inc. ("Bay Area") in the underlying construction defect litigation, and paid a settlement on behalf of Bay Area. Bay Area had contracted with Davidon Homes ("Davidon"), a general contractor, for framing work at a residential development project known as the Portola Meadows Townhomes ("Project"). Three other framing subcontractors worked on the Project. Bay Area's work was completed in 1998. Bay Area was insured under commercial liability polices obtained from Plaintiff for the period September 17, 1993 to August 15, 2000, from Defendant American Safety Risk Retention Group, Inc. ("ASRRG") for the period August 15, 2000 to October 1, 2001, and from Defendant American Safety Indemnity Company ("ASIC") for the period October 1, 2001 to October 1, 2002.

On May 21, 1999 Portola Meadows Townhomes Association ("Portola Association") gave a construction defect notice to Davidon pursuant to California Civil Code Section 1375 ("Calderon Notice") complaining of a wide variety of defects, including plumbing, electrical, framing and grading defects. (Joint Exh. J at 194.) On April 10, 2001 the Portola Association filed a construction defect lawsuit against Davidon ("Portola Action") complaining of the same defects. (Pl.'s Req. for Judicial Notice Exh. A at 3-4.) Bay Area was not a named party in that action. (See id. & Joint Exh. M (first am. compl.).) On June 11, 2001 Davidon filed a cross-complaint against Bay Area and other subcontractors. (Joint Exh. N.) Plaintiff defended Bay Area in the Portola Action. Defendants declined coverage. On March 4, 2003 the Portola Association filed a second amended complaint and added more alleged defects to the action. (Pl.'s Req. for Judicial Notice Exh. D.) Amendments to the second amended complaint were filed in April 7 and May 23, 2003. (Id. Exh. E & F.) On August 16, 2004 Plaintiff settled the Portola Action on Bay Area's behalf for $510,000. (See Joint Exh. P.) On August 26, 2004, the court in the Portola Action issued an Order Determining Good Faith Settlement. (Joint Exh. Q.)

Plaintiff filed a complaint in state court against Defendants for indemnity, contribution and declaratory relief under California law. The case was removed to federal court based on diversity jurisdiction. Ultimately, the parties filed cross-motions for summary judgment.

Federal Rule of Civil Procedure 56 empowers the court to enter summary judgment on factually unsupported claims or defenses, and thereby "secure the just, speedy and inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 327 (1986). If summary judgment is not rendered on the whole action, the court "may enter an order stating any material fact -- including an item of damages or other relief -- that is not genuinely in dispute and treating the fact as established in the case." Fed. R. Civ. Proc. 56(g).

Summary judgment or adjudication of issues is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). A fact is material when it affects the outcome of the Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" of material fact arises if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

The burden on the party moving for summary judgment depends on whether it bears the burden of proof at trial. "When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial. In such a case, the moving party has the initial burden of establishing the absence of a genuine issue of fact on each issue material to its case." See C.A.R. Transp. Brokerage Co., Inc. v. Darden Restaurants, Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citations omitted). When the moving party would not bear the burden at trial, then it can meet the burden on summary judgment by pointing out the absence of evidence with respect to any one element of the claim or defense. See Celotex, 477 U.S. at 325.

If the movant meets its burden, the burden shifts to the non-movant to show summary adjudication is not appropriate. Celotex, 477 U.S. at 317, 324. The non-movant does not meet this burden by showing "some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-movant must go beyond the pleadings to designate specific facts showing there are genuine factual issues which "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson, 477 U.S. at 250.

When ruling on a summary judgment motion, the non-movant's evidence is to be believed, and all justifiable inferences are to be drawn in its favor. Anderson, 477 U.S. at 255. "A party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence." Fed. R. Civ. Proc. 56(c)(2). Determinations regarding credibility, the weighing of evidence, and the drawing of legitimate inferences are jury functions, and are not appropriate for resolution by the court on a summary judgment motion. Anderson, 477 U.S. at 255.

The mere fact that the parties filed cross-motions "does not necessarily mean there are no disputed issues of material fact and does not necessarily permit the judge to render judgment in favor of one side or the other." Starsky v. Williams, 512 F.2d 109, 112 (9th Cir. 1975). "[E]ach motion must be considered on its own merits." Fair Hous. Council of Riverside County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001). Furthermore, the court must consider evidence submitted in support of and in opposition to both motions before ruling on either one.

ASRRG argues that summary judgment should be entered in its favor based on the doctrine of retraxit. On June 29, 2004 Bay Area filed a complaint against ASSRG*fn1 for breach of the insurance contract, declaratory relief and insurance bad faith stemming from ASSRG's denial of coverage relative to the Portola Action. It is undisputed that the action was voluntarily dismissed with prejudice on January 18, 2006. ASRRG contends that Bay Area's dismissal with prejudice of that action bars Plaintiff's current action against ASRRG for equitable contribution.

Common law retraxit is what is now called a dismissal with prejudice. Rice v. Crow, 81 Cal. App. 4th 725, 733 (2000). It is "a judgment on the merits preventing a subsequent action on the dismissed claim" and "invok[es] the principles of res judicata." Id. A judgment issued by a California court is entitled to the same preclusive effect in this court as it would be accorded in a California court. See NAACP v. Los Angeles Unified Sch. Dist., 750 F.2d 731, 736 (9th Cir. 1984) (citing 28 U.S.C. § 1738). Furthermore, federal courts apply the law of the state where the judgment was rendered to determine the preclusive effect of a state court judgment. Kremer v. Chem. Constr. Corp., 456 U.S. 461, 481-82 (1981). Under California law, the doctrine of res judicata has two aspects -- res judicata or claim preclusion and collateral estoppel or issue preclusion. Rice, 81 Cal. App. 4th at 734.

"Res judicata is applicable only to the same causes of action between the same parties or their privies." Here, the first action was filed by Bay Area, the insured, and the present action was filed by the insurer. Defendants argue that Plaintiff is in privity with Bay Area. They rely Barney v. Aetna Casualty and Surety Company, 185 Cal. App. 3d 966 (1986), for the proposition that an insured and its insurer are in privity for purposes of retraxit. Although the factual background in Barney notes that an insured plaintiff's related action was dismissed on the grounds of retraxit, the cited opinion did not review that dismissal or in any way discuss retraxit or its element of privity. Accordingly, Defendants' reliance on Barney is misplaced.

Plaintiff argues that it is not in privity because "[a] privy is one who, after rendition of the judgment, has acquired an interest in the subject matter affected by the judgment through or under one of the parties, as by inheritance, succession or purchase." (Pl.'s Reply at 17, quoting, 81 Cal. App. 4th at 736.) Plaintiff claims that it does not fit this description, and Defendants do not dispute it. (See Defs' Reply.)

Furthermore, Plaintiff contends that the causes of action asserted in Bay Area's complaint and in this action are different. The rights asserted by Bay Area belonged to it exclusively based on its insurance contract with ASRRG, while the right asserted by Plaintiff against ASRRG in this action is based on a rule of equity and exists independently, as opposed to derivatively, of the insured's rights. (Pl.'s Opp'n at 17-18, citing Fireman's Fund Ins. Co. v. Maryland Cas., 65 Cal. App. 4th 1279, 1293-94.) Again, Defendants do not dispute this. (See Defs' Reply.) Based on the foregoing, Plaintiff's action against ASRRG is not barred under the doctrine of claim preclusion.

"Collateral estoppel is applicable to bar relitigation of issues previously litigated between the same parties on a different cause of action if the issues for which collateral estoppel is sought in the second action: (1) are identical to those litigated in the first action; (2) were actually litigated and necessarily decided in determining the first action; (3) are asserted against a participant in the first action or one in privity with that party; and (4) the former decision was final on the merits." Rice, 81 Cal. App. 4th at 735 (emphasis in original, citation omitted). Plaintiff argues that collateral estoppel does not apply here because the issues raised in this case were not "necessarily decided" in Bay Area's action. (Pl.'s Opp'n at 18.) Defendants do not dispute this. (See Defs' Reply.) When a case is voluntarily dismissed or settled, but a consent or stipulated judgment is not ...


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