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Mga Entertainment, Inc., et al. v. the Hartford Insurance Group

April 18, 2012

MGA ENTERTAINMENT, INC., ET AL. PLAINTIFFS,
v.
THE HARTFORD INSURANCE GROUP, ET AL., DEFENDANTS.



The opinion of the court was delivered by: David O. Carter United States District Judge

O

ORDER RULING ON MOTIONS:

1)GRANTING IN PART AND DENYING IN PART EVANSTON DEFENDANTS' MOTION FOR RELIEF FROM JUDGMENT [Dkt. 636]

2)DENYING EVANSTON DEFENDANTS' MOTION FOR LEAVE TO AMEND ANSWER AND COUNTERCLAIMS [Dkt. 633]

3)GRANTING LEXINGTON DEFENDANTS' MOTION FOR RELIEF FROM JUDGMENT [Dkt. 590]

Before the Court are three motions. The Court: (1) GRANTS IN PART and DENIES IN PART the Evanston Defendants' Motion for Relief from Judgment (Dkt. 636); (2) DENIES the Evanston Defendants' Motion of Leave to File Amended Answer and Cross-Claims (Dkt. 633); and (3) GRANTS the Lexington Defendants' Motion to Clarify and Amend Order (Dkt. 590) filed by National Union Fire Insurance Company ("National"), Chartis Specialty Insurance Company ("Chartis") (collectively, "Umbrella Insurers"), and Lexington Insurance Company ("Lexington"). Because the parties are familiar with the facts of the case, the Court does not recount them here.

I.The Court Will Reconsider Its Prior Order Given that All Parties Are Unhappy With It

The Evanston Defendants, Lexington, and the Umbrella Insurers have moved for relief from judgment of the Court's prior order ("Prior Order") (Dkt. 521), although on different grounds.

a.The Parties Have Failed State the Correct Legal Standard By Which Their Motions Should Be Evaluated

As an initial matter, the Court notes that not a single opening brief by any movant in any of these motions provided the correct legal standard under which to evaluate whether the movant was entitled to relief. See Evanston Defs. Mem. in Opp'n and Cross-Motion for Relief From J. (Dkt. 637) at 1:7 (blithely referencing "Rule 60(b) and 59(e)" but failing to mention any case law regarding these rules and entirely ignoring Local Rule 7-18); Lexington Defs. Mem. in Support of Mot. for Relief From J. (Dkt. 590) at 1:9 (same); Evanston Defs. Mem. in Support of Mot. for Leave to File Amended Answer and Counterclaims (Dkt 634) at 5-7 (curiously devoting pages to Federal Rule of Civil Procedure 15, despite the fact that Rule 16 applies).

While the Court is happy to reconsider its prior rulings, the Court is not inclined to consider any more motions that fail to provide the correct legal standard. In this case the Court has already had to contend with one motion to reconsider -- disguised as a mere correction of a typo -- that failed to state the correct legal standard. See MGA Entm't v. Hartford Ins. Group, EDCV 08-0457-DOC, 2012 WL 528313 at *1, 2012 U.S. Dist. LEXIS 20459 at *1 (C.D. Cal. Feb. 16, 2012) (analyzing motion titled "Request for Correction" as a motion for reconsideration and amendment of the Court's prior order). In addition, the Court has been subjected to multiple summary judgment motions in which the Evanston Defendants failed to mention the controlling substantive state law. See MGA Entm't, Inc. v. Hartford Ins. Group, 2012 U.S. Dist. LEXIS 24000 (C.D. Cal. Feb. 24, 2012) (denying summary judgment because movants "neither cite nor discuss the controlling law").

As it appears inevitable that the parties will continue to file motions in this case, they are highly encouraged to: (1) include a section in their briefs entitled "Legal Standard" which accurately describes the Federal Rule of Civil Procedure under which they are moving and, if relevant, the accompanying Local Rule; and (2) explain in the body of their brief how the facts or substantive law satisfy that legal standard.*fn1

b.Nonetheless, the Court Will Reconsider Its Prior Order

Federal Rule of Civil Procedure 60(b)(6) provides for relief from judgment based on "any other reason that justifies relief." Fed. R. Civ. P. 60(b)(6); Phelps v. Alameida, 569 F.3d 1120, 1131 n.12 (9th Cir. 2009). Here, the reason justifying relief is that both the movant and non-movant insurers involved in the motion resolved by the Prior Order now seek reconsideration, and all the other parties in this case -- the other insurer as well as the mutual insured -- have joined in at least one of these motions. While the definition of a compromise may be that every party is equally unhappy, the Court reconsiders its Prior Order due to an abundance of caution that its decision was not just a compromise, but also bad law.

Thus, the Court GRANTS all parties' Motions for Relief from Judgment to the extent they ask the Court to reconsider its Prior Order (Dkt. 521). See MGA Entm't, Inc. v. Hartford Ins. Group, ED CV 08-0457-DOC, 2012 WL 628203, 2012 U.S. Dist. LEXIS 23998 (C.D. Cal. Feb. 24, 2012). However, in reconsidering its Prior Order, the Court concludes that not all the parties are entitled to the specific changes in the Prior Order that they seek. Section II of this order addresses the parties' arguments regarding the specific changes to the Prior Order.

Section III addresses the Evanston Defendants' separate motion for leave to amend their answer and cross-claims.

II.The Court Makes Several Changes to the Prior Order

For the reasons stated below, the Court changes its Prior Order (Dkt. 521) to: (1) add an explanation as to why the pie is $38.9 million and not larger; (2) decrease the denominator from 9 to 7; (3) reduce the amounts Lexington and the Umbrella Insurers overpaid by the amounts they received in settlement with C & F; (4) add an explanation as to why the Evanston Defendants' have an equitable subrogration liability to Chartis; (6) increase the amount the Evanston Defendants owe Chartis and National; and (6) reduce the prejudgment interest on the Evanston Defendants' equitable subrogation liability from 10 to 7 percent.

a.The Court's Prior Order

The Court's Prior Order (Dkt. 521) granted summary judgment to Lexington and the Umbrella Insurers on their respective equitable contribution and equitable subrogation claims against the Evanston Defendants.

Equitable contribution is a cause of action to "apportion a loss between two or more insurers who cover the same risk . . . so that each pays its fair share and one does not profit at the expense of the others." Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th 1279, 1296, 77 Cal. Rptr. 2d 296, 306 (1998); Monticello Ins. Co. v. Essex Ins. Co., 162 Cal. App. 4th 1376, 76 Cal. Rptr. 3d 848, 856 (2008). Under California law, "[t]here is no single method of allocating defense or indemnity costs among co-insurers." Golden Eagle Ins. Co. v. Insurance Co. of the West, 99 Cal. App. 4th 837, 854, 121 Cal. Rptr. 2d 682, 693 (2002). The Court adopted the commonly-used "time on the risk" method, which provides for "apportionment based upon the relative duration of each primary policy as compared with the overall period of coverage during which the 'occurrences' 'occurred.'" See id.

Under the "time on the risk" method, courts determine a specific insurer's "fair share" by calculating: (1) a denominator, which is the total number of insurance policies that created a duty to defend the insured in the underlying action; (2) a numerator, which is the total number of insurance policies that created a duty to defend and are owned by the specific insurer whose share the Court is calculating; (3) a fair share fraction, which is the numerator divided by the denominator; and (4) the pie, which is the total amount of defense fees the insured incurred in the underlying action for which the insurers owed a duty to defend. The specific insurer's "fair share" is the fair share fraction multiplied by the pie.

Regarding Lexington's equitable contribution claim, the Court calculated Lexington and Evanston's respective fair shares by calculating:

(1) a denominator of 9, which is the total of two Hartford Policies (calendar years 1999 and 2000), two Lexington policies (calendar years 2001 and 2002), three C & F policies (calendar years 2003, 2004, 2005), and two Evanston policies (2006, 2007) [9 = 2 Hartford 2 Lexington 3 C & F 2 Evanston.]. See Order (Dkt. 521) at 17.

(2) a numerator of 2 for Lexington, reflecting the two Lexington policies that the court had previously held created a duty to defend, and 2 for Evanston, reflecting the two Evanston policies that the court had previously held created a duty to defend. See id.

(3) a fair share fraction of 2/9 for Lexington, and 2/9 for Evanston. See id.

(4) a pie of $38,906,029, which is the total amount of defense fees that Lexington and the Umbrella Insurers paid the insured as of October 7, 2009, in the underlying action for which Lexington and Evanston owed a duty to defend. See id. at 26.

The Order calculated Evanston's "fair share" for purposes of equitable contribution as $8,645,784, which is the 2/9 fair share fraction multiplied by the $38,906,029 pie. The Order then divided this fair share between Lexington and the Umbrella Insurers. See id.

b.The Parties' Motions for Relief From Judgment

The parties seek the following specific changes to the Court's Prior Order (Dkt. 521). Lexington and the Umbrella Insurers, joined by another insurer Crum & Forster ("C & F") and their mutual insured, MGA Entertainment ("MGA"), argue that this Court should change the denominator from 9 to 7. The Evanston Defendants argue that this Court should: (1) increase the pie to roughly $155 million, which is the total that all insurers -- primary insurers (Evanston, Lexington, C & F and non-party Hartford) and the Umbrella Insurers -- have paid MGA as of the Evanston Defendants' recent settlement with MGA; (2) retain the denominator of 9; (3) reduce the amounts Lexington and the Umbrella Insurers overpaid by the amounts they received in settlement with C & F; (4) eliminate the Evanston Defendants' liability to Chartis; and (5) reduce the prejudgment interest from 10 to 7 percent.

c.The Pie Is Only $38.9 Million Because that Sum Reflects the Total Fees Paid By Party Insurers Before Evanston Agreed to A Denominator of 7, Not Including Overages

The Court rejects the Evanston Defendants' argument that the pie should be increased from $38.9 to $155 million. However, the Court will add an explanation to the Prior Order as to why the pie is $38.9 million and not larger. Accordingly, the Court DENIES the Evanston Defendants' Motion for Relief from Judgment to the extent it seeks to increase the pie and ADDS the following to the Prior Order's (Dkt. 521):

In its Prior Order, the Court allocated Lexington and Evanston's respective fair shares of a "pie" of $38,906,029. Although the Evanston Defendants did not dispute this pie in their previous briefing, they now argue that the pie should be increased to include all the payments to the insured by all insurers in this action, including payments to MGA by Evanston due to a recent settlement and by a non-party insurer, Hartford. The Court rejects the Evanston Defendants argument because a legally-significant event occurred in November 2009 that merits treating the insured's defense fees as two "pies": Evanston's agreement to allocate future payments to MGA among the other insures using a denominator of 7. Evanston's November 2009 agreement created at least two "pies": (1) a pie comprised of $38,906,029, which is the total amount of payments to MGA by Lexington and the Umbrella Insurers prior to the Evanston Defendants' November 2009 agreement, not including "overages"*fn2 ; and (2) a pie comprised of other fees incurred by MGA that are subject to Evanston's November 2009 agreement.

Where insurers have "agreed among themselves on the method of allocation" of an insured's defense costs, those insurers are "bound by [their] choices." Scottsdale Ins. Co. v. Century Sur. Co., 182 Cal. App. 4th 1023, 1037, 105 Cal. Rptr. 3d 896, 907 (2010) (rejecting insurer's argument "that it can agree to one method of allocation with every other insurer on the risk, but obtain a different method of allocation . . . when seeking equitable contribution"); see also 64 A.L.R. 213 ("Although, of course, co-obligors cannot, by any agreement among themselves, affect their liability to the common creditor, they may regulate their rights and liability as among themselves; and in determining the rate or proportion of contribution, their contract fixing the same will be followed."). A formal contract is not necessary to show an insurer's agreement to allocate the defense costs; rather, an insurer is bound by even a handwritten scrawl on an attorney's bill. See Scottsdale, 182 Cal. App. 4th at 1034, 1034 n.27 (holding that insurer in equitable contribution case was "bound by" its prior statements regarding the fraction it paid of certain defense costs, including "a handwritten notation on a bill stating 'Ok to pay . . . 1/2 share'").

The undisputed evidence submitted by both parties for the motion resolved by the Prior Order shows that the Evanston Defendants agreed to a denominator of 7 in November 2009. The Lexington Defendants submitted an affidavit stating that "on or around November 2009, Evanston . . . began to contribute 2/7ths of MGA's defense costs invoiced to its insurers . . . ." Schmidt Decl. (Dkt. 335) at ¶ 9. In addition, the Lexington Defendants submitted evidence that, "as of October 7, 2009, the Evanston Defendants had not yet begun to participate in MGA's defense."*fn3 Evanston Defs. Statement of Genuine Issues Regarding National and Chartis (Sealed Dkt. 423) at 26. Finally, the Evanston Defendants do not dispute that "[a]fter the Court held that [Crum & Forster and Evanston] had a duty to defend" -- a decision which was issued on June 24, 2009 -- "Crum & Forster and Evanston agreed to contribute 3/7 and 2/7 shares of MGA's defense costs going forward." Evanston Defs. Statement of Genuine Issues Regarding Lexington (Sealed Dkt. 403) at 36; Evanston Defs. Statement of Genuine Issues Regarding National and Chartis (Sealed Dkt. 423) at 35.

The Evanston Defendants' Motion for Relief from Judgment does not mention their November 2009 agreement and instead argues that the Prior Opinion's holding that Evanston and Lexington had "an equal and undivided duty" to defend their mutual insured, MGA, requires the Court to adopt the Evanston Defendants' proposed pie. Evanston Defs. Mem. in Opp'n and Cross-Motion (Dkt. 637) at 4-5. In Centennial Insurance v. US Fire Insurance, the court expressly rejected the same argument by a defendant insurer in an equitable contribution action. Centennial Ins. Co. v. United States Fire Ins. Co., 88 Cal. App. 4th 105, 114, 105 Cal. Rptr. 2d 559, 564 (2001). The defendant insurer argued that its method for calculating each insurer's fair share was best "because each of the insurers in this case owed their mutual insured . . . a 'complete duty to defend' the entire claim." Id. The court rejected the argument because it "confuses the rules applicable to equitable contribution among insurers with those pertinent to the relationship between an insurance carrier and its own insured." Id. at 114-15. The court explained that an insurer's duty to defend its insured is "governed by the contract of insurance between [those] parties," whereas an insurer's right to equitable contribution from other insurers is based in equitable principles, not contract. Id. at 115. This Court follows the excellent logic of Centennial and rejects the Evanston Defendants' argument that the Court is bound to adopt their method of allocation for this equitable contribution action simply because this Court has found that the insurers involved in this action each owed a duty to defend.

Thus, Evanston's November 2009 agreement to adhere to a denominator of 7 for future fees created at least two "pies": (1) a pie comprised of $38,906,029, which is the total amount paid to MGA by Lexington and the Umbrella Insurers prior to the Evanston Defendants' November 2009 agreement, not including "overages"; and (2) a pie comprised of other fees incurred by MGA that are subject to Evanston's November 2009 agreement.*fn4 The Court's Prior Order addressed only the $38.9 million pie because that was the only sum on which any party moved. The Court appropriately refrained from conflating the $38.9 million pie and the other pie because the analysis would be different; whereas the Evanston Defendants were free to argue any denominator regarding the $38.9 million pie, they were bound by their agreement to a denominator of 7 for the other pie.

Because the Court concludes that there are at least two pies, the Court does not address the parties' other arguments regarding whether the Evanston Defendants' recent settlement with MGA included overages and whether Evanston is solely liable for these overage fees. See Lexington Defs. Opp'n (Dkt. 652) at 6-8. These sums belong to a different pie than the $38,906,029 pie which is the subject of the present litigation.

d.The Court Reduces the Denominator From 9 to 7 to Prevent an Inequitable Result, Namely, the Evanston Defendants Benefitting From Their Failure to Implead the Non-Party Insurer Hartford

The Court changes the denominator in its Prior Order from 9 to 7 to prevent an inequitable result, namely, the Evanston Defendants benefitting from their failure to implead the non-party insurer Hartford. Accordingly, the Court GRANTS the Lexington Defendants' Motion for Relief from Judgment. The Court VACATES the Prior Order's (Dkt. 521) holding that the denominator in this ...


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