The opinion of the court was delivered by: Honorable Ronald S.W. Lew Senior, U.S. District Court Judge
Plaintiff, Carolina Casualty Insurance Company's Motion to Set Aside Stay Based on Material
Before the Court is Plaintiff Carolina Casualty Insurance Company's ("Plaintiff") Motion to Set Aside Stay Based on Material Developments in the Underlying Action Demonstrating No Potential for Coverage . The Motion was originally set for hearing before Magistrate Judge Michael J. Seng in the Eastern District of California on December 13, 2011. Before the hearing, Magistrate Judge Seng recused himself from this Action, and the hearing was vacated . On January 9, 2012, however, the Ninth Circuit reassigned all further proceedings in this Action to this Court , and the Matter was taken under submission on February 8, 2012. Having reviewed all the papers and arguments submitted pertaining to this Motion, THE COURT NOW FINDS AND RULES AS FOLLOWS:
The Court hereby DENIES Plaintiff's Motion to Set Aside Stay.
This Action stems from a legal malpractice action, entitled James A. Bratton and Bratton Investments, LLC v. Timothy Jones, et al. ("Bratton Action" or "the Underlying Action"), filed in the Fresno County Superior Court by a third-party against Defendants from the instant Action, which include: Jones Helsley PC, Timothy Jones, Esq., Jack Hindmarsh, Esq. and Jack Hindmarsh PLC ("Defendants"). In the instant Eastern District of California Action, Plaintiff Carolina Casualty Insurance Company ("Plaintiff"), a legal malpractice insurer for Defendants, seeks a judicial declaration that it had no duty to defend or indemnify Defendants in the Underlying Action.
A. The Instant Eastern District Action
Plaintiff is an insurance company that provides legal malpractice insurance for attorneys. Defendants are two attorneys and their respective law firms that purchased insurance coverage from Plaintiff. In the instant Action, Plaintiff has sought declaratory relief that it has no duty to defend or indemnify Defendants from liability in the Underlying Action. Plaintiff asserts that two exclusions, Exclusions E and F, from Plaintiff's Lawyers Professional Insurance Policy No. 9904986 (the "CCIC Policy" or the "Policy") bar insurance coverage in the Underlying Action.
On October 21, 2010, Defendants filed a Motion for a Stay of All Proceedings Pending Resolution of Underlying Action . On January 13, 2011, Magistrate Judge Michael J. Seng issued Findings and Recommendations recommending that Defendants' Motion to Stay be Granted . However, Magistrate Judge Seng recommended that Plaintiff be given the right to seek relief from the stay "if and when it in good faith believes and represents that circumstances have changed so that the reasons for stay no longer exist, provided no such motion for relief from the stay be initiated for at least six months." On February 25, 2011, Eastern District Judge O'Neill adopted Magistrate Judge Seng's Recommendations after de novo review. On November 4, 2011, Plaintiff filed the present Motion to Set Aside Stay Based on Material Developments in the Underlying Action Demonstrating No Potential for Coverage .
On January 9, 2012, this case was reassigned to this Court for all further proceedings, including adjudication of the Present Motion .
In the Underlying Action, filed in the Fresno Superior County Court, third-parties James Bratton and his company, Bratton Investments LLC ("the Bratton plaintiffs") were allegedly involved in the development of certain real properties in Selma, Merced, and Kingsburg, California. In 2005, the Bratton plaintiffs engaged Defendant Timothy Jones, Esq. ("Defendant Jones") and his predecessor law firm to Defendant Jones Helsley PC ("Defendant J&H") to provide legal services in connection with the formation of various LLCs corresponding to each real estate development venture. The Bratton plaintiffs allege that Defendant Jack Hindmarsh, Esq. ("Defendant Hindmarsh"), an independent contract attorney that Defendant J&H retains for transactional work, also assisted with the formation of the LLCs. Defendant Hindmarsh PLC is the professional law corporation for Defendant Hindmarsh's law firm.
The Bratton plaintiffs allege that Defendant Jones, among others, performed all legal services necessary to form and create various LLCs, including Selma Crossings LLC ("Selma LLC") and Merced Gateway LLC ("Merced LLC"). When these LLCs were organized, Defendant Jones allegedly received a membership/ownership interest in both LLCs. Subsequently, in 2008, Defendant Jones allegedly transferred his interest in these two LLCs to Central Pacific Ventures LLC ("CPV"), an LLC in which Defendant Jones allegedly holds a fifty percent membership interest. The Bratton plaintiffs further allege that in late 2008, the Bratton plaintiffs transferred their ownership interest in both Selma LLC and Merced LLC to a third party. The Bratton plaintiffs allege that this was a proximate ...