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Qbe Specialty Insurance Company, A North Dakota Corporation v. Tlc Safety Consultants

July 26, 2012

QBE SPECIALTY INSURANCE COMPANY, A NORTH DAKOTA CORPORATION,
PLAINTIFF,
v.
TLC SAFETY CONSULTANTS, INC., (DOCKET NO. 34) ET AL., DEFENDANTS.



The opinion of the court was delivered by: Sheila K. Oberto United States Magistrate Judge

ORDER GRANTING IN PART AND DENYING IN PART TLC SAFETY CONSULTANT, INC.'S MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

On November 1, 2011, Defendant TLC Safety Consultants, Inc. ("TLC") filed a motion for summary judgment (Doc. 34.) TLC's motion was heard on June 13, 2012. Michael D. Ott, Esq., appeared on behalf of Defendant TLC, Jose Masso, Esq., appeared on behalf of Plaintiff QBE Specialty Insurance Company ("QBE"), and Stephanie Grewal, Esq., appeared on behalf of Defendant Pipkin Detective Agency, Inc. ("Pipken"). (See Doc. 43.) For the reasons set forth below, TLC's motion for summary judgment is GRANTED in part and DENIED in part.

II. FACTUAL BACKGROUND

A. Plaintiff's Complaint

On February 11, 2011, QBE filed this civil action against Defendants TLC and Pipkin asserting claims for breach of contract, negligence, subrogation, indemnity, and declaratory relief. QBE seeks to recover damages and costs incurred by it and its insured, Safe Harbor Adult Day Health Care Center, Inc. ("Safe Harbor") in defending and settling a civil action for negligence brought by Josephine Diaz against Safe Harbor.

Safe Harbor was an adult health care center located in Fresno, California. Safe Harbor provided day health care services for adults suffering from various mental and physical disabilities. In providing services, Safe Harbor employed van drivers to transport its clients/patients to and from the Safe Harbor facility. (Complaint ("Cmplt.") Doc. 1, ¶ 10.)

On September 21, 2005, Safe Harbor hired Gilbert Garcia Chavez to work as a van driver. (Cmplt., Doc. 1, ¶ 11.) Prior to hiring Mr. Chavez, Safe Harbor entered into a "partly oral and partly written agreement with TLC" pursuant to which TLC was to perform a pre-employment background check on Mr. Chavez and advise Safe Harbor during the hiring process. (Cmplt., Doc. 1, ¶ 12.) According to the allegations in the complaint, TLC was responsible for contacting Mr. Chavez's prior employers, ensuring that Mr. Chavez underwent alcohol and drug testing, obtaining Mr. Chavez's California Department of Motor Vehicles driver history, ensuring Mr. Chavez was properly licensed to transport individuals with disabilities, as well as advising Safe Harbor with respect to information discovered during the pre-employment screening. (Cmplt., Doc. 1, ¶ 12.) TLC examined Mr. Chavez' California Department of Motor Vehicles driver history and allegedly advised Safe Harbor that Mr. Chavez was properly licensed. (Cmplt., Doc. 1, ¶ 15.) TLC did not advise Safe Harbor of any administrative actions taken by the Department of Motor Vehicles with respect to Mr. Chavez' California driver's license. (Cmplt., Doc. 1, ¶ 15.)

At the time the complaint was filed, Josephine Diaz was a 47-year-old woman diagnosed with a high functioning developmental disability with an IQ estimated to range from 40 to 56. (Cmplt., Doc. 1, ¶ 9.) In January 2006, she enrolled as a participant in Safe Harbor's adult day health care program. Between January 2008 and July 2008, she was transported between her home and Safe Harbor's facility by its van, operated at times by Mr. Chavez. (Cmplt., Doc. 1, ¶ 22.) On or about July 28, 2008, Mr. Chavez' employment with Safe Harbor was terminated. (Cmplt., Doc. 1, ¶ 23.) Subsequently, on August 18, 2008, Ms. Diaz reported to Safe Harbor personnel that she had had repeated sexual encounters with Mr. Chavez. (Cmplt., Doc. 1, ¶ 24.) Following Ms. Diaz' disclosure, Mr. Chavez was charged with five felonies. (Cmplt., Doc. 1, ¶ 25.) Mr. Chavez entered a guilty plea and was sentenced to a five-year prison term. (Cmplt., Doc. 1, ¶ 25.)

Ms. Diaz then initiated a civil action against both Safe Harbor and Mr. Chavez as defendants. Ms. Diaz' amended complaint for negligence alleged that Safe Harbor negligently hired Mr. Chavez. (Cmplt., Doc. 1, ¶ 26.) Safe Harbor tendered its defense of the civil action to QBE, Safe Harbor's insurer. (Cmplt., Doc. 1, ¶ 27.) During the course of the state court civil action, Safe Harbor and QBE learned for the first time that (1) Mr. Chavez was arrested in December 2003 for assault with a deadly weapon and abuse of a co-habitant following a domestic dispute with his spouse (Cmplt., Doc. 1, ¶ 29); (2) a felony complaint was filed against Mr. Chavez in February 2004 alleging one count of abuse of a co-habitant (Cmplt., Doc. 1, ¶ 29); (3) Mr. Chavez' driver's license permitting him to operate a school bus was revoked on August 27, 2004, for acts of moral turpitude as a result of Mr. Chavez' 2003 arrest for domestic violence (Cmplt., Doc. 1, ¶ 30); (4) Mr. Chavez did not possess a special endorsement/certificate to his driver's license permitting him to lawfully transport individuals with disabilities (Cmplt., Doc. 1, ¶ 31); (5) the special endorsement/certificate to transport individuals with disabilities is only issued after a criminal screening is performed by the California Department of Justice and/or the Federal Bureau of Investigation (Cmplt., Doc. 1, ¶ 32); and that (6) Safe Harbor could not lawfully hire or employ Mr. Chavez absent the special endorsement/certificate (Doc. 1, ¶ 33).

Based upon this information, Safe Harbor -- via QBE -- settled the state-court action filed by Ms. Diaz against Safe Harbor for the sum of $850,000.00. (Cmplt., Doc. 1, ¶ 34.) Safe Harbor assigned to QBE all its claims, rights, and causes of action against TLC and Pipkin for their conduct in the course of the pre-employment screening and investigation of Mr. Chavez. (Cmplt., Doc. 1, ¶ 35.)

QBE filed a complaint asserting the following claims against TLC: (1) breach of contract; (2) negligence; (3) express subrogation; (4) equitable subrogation; (5) implied indemnity; (6) express indemnity; (7) equitable indemnity; (8) contribution; and (9) declaratory relief. As to the breach of contract claim, QBE alleged that TLC and Safe Harbor entered into a partly oral and partly written agreement. The terms of the agreement required TLC to perform "a pre-employment background check on Mr. Chavez and advise Safe Harbor during the hiring process so as to ensure that Safe Harbor complied with all applicable California and Federal regulations concerning the transport of individuals with disabilities." (Cmplt., Doc. 1, ¶ 12.) Specifically, TLC was alleged to be responsible "for contacting Mr. Chavez' prior employers, ensuring Mr. Chavez underwent alcohol and drug testing, obtaining Mr. Chavez' California Department of Motor Vehicles driver history, ensuring Mr. Chavez was properly licensed to transport individuals with disabilities, as well as advising Safe Harbor with respect to any information discovered during the foregoing pre-employment screening process." (Cmplt., Doc. 1, ¶ 12.) QBE alleges that TLC breached the contract in the following ways:

[B]y failing to adequately contact Chavez's prior employer at the Dos Palos Oro Loma Joint School District so as to discover and apprise Safe Harbor of Chavez's prior misconduct in pursing his lips in a kissing fashion at two female students. (Cmplt., Doc. 1, ¶ 37.)

[B]y failing to advise Safe Harbor that Chavez's endorsement/certificate permitting him to operate a school bus was revoked on August 27, 2004[,] pursuant to Cal. Veh. Code § 13370 due to Chavez's 2003 arrest for domestic violence. (Cmplt., Doc. 1, ¶ 38.)

[B]y failing to determine and ensure that Chavez possessed the special endorsement/certificate, mandated by Cal. Veh. Code § 12523.6(a)(1), to his driver license permitting him to lawfully transport individuals with disabilities. (Cmplt., Doc. 1, ¶ 39.)

[B]y failing to advise Safe Harbor that Chavez did not possess the special endorsement/certificate, mandated by Cal. Veh. Code § 12523.6(a)(1), to his driver license permitting him to lawfully transport individuals with disabilities. (Cmplt., Doc. 1, ¶ 40.)

[B]y failing to determine and ensure that Chavez underwent a criminal screening performed by the California Department of Justice and/or the Federal Bureau of Investigation in order for the foregoing special endorsement/certificate permitting the transport of disabled individuals to issue under Cal. Veh. Code § 12523.6(b). (Cmplt., Doc. 1, ¶ 41.)

[B]y failing to advise Safe Harbor that Chavez was required to undergo a criminal screening performed by the California Department of Justice and/or the Federal Bureau of Investigation in order for the foregoing special endorsement/certificate permitting the transport of disabled individuals to issue under Cal. Veh. Code § 12523.6(b). (Cmplt., Doc. 1, ¶ 42.)

[B]y failing to advise Safe Harbor that pursuant to Cal. Veh. Code § 12523.6(d), Safe Harbor could not lawfully hire or employ Chavez without the foregoing special endorsement/certificate. (Cmplt., Doc. 1, ¶ 43.)

QBE's claim as to TLC's negligence is predicated on the duties arising out of the agreement with Safe Harbor, and the alleged breaches of those duties are the same as those alleged in the contract action.

B. Procedural Background

Discovery in this case was opened on May 18, 2011. Non-expert discovery was set to close on June 29, 2012. (Doc. 17.) On May 15, 2012, prior to the close of discovery, TLC filed a motion for summary judgment. (Doc. 34.) The motion was predicated on deposition testimony offered by Ms. Joanie Ballantyne, Safe Harbor's owner. Ms. Ballantyne was deposed in two separate sessions, the first on March 13, 2012, and the second on May 16, 2012 -- one day after TLC's motion for summary judgment was filed. At the May 16, 2012, deposition, Ms. Ballantyne made corrections to her March 13, 2012, deposition that materially affected TLC's pending motion for summary judgment. In opposing the motion, QBE relied on many of the corrections made by Ms. Ballantyne.

In response to Ms. Ballantyne's additional testimony and to the arguments raised by QBE in its opposition papers, TLC filed a reply brief and submitted additional evidence for consideration. QBE did not object to the submission of this evidence, did not request to file a sur-reply, and was provided an opportunity to address TLC's reply papers and additional evidence at the June 13, 2012, hearing. Thus, as discussed in this order, the evidence submitted in support of TLC's reply brief will be considered by the Court. See Provenz v. Miller, 102 F.3d 1478, 1483 (9th Cir. 1996), cert. denied 522 U.S. 808 (1997) ("Where new evidence is presented in a reply to a motion for summary judgment, the district court should not consider the new evidence without giving the [non]-movant an opportunity to respond.").

III. DISCUSSION

A. Legal Standard

Summary judgment is appropriate when it is demonstrated that there exists 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(a); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Fortyune v. Am. Multi-Cinema, Inc., 364 F.3d 1075, 1080 (9th Cir. 2004). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying the portions of the declarations (if any), pleadings, and discovery that demonstrate an absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). A fact is "material" if it might affect the outcome of the suit under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986); United States v. Kapp, 564 F.3d 1103, 1114 (9th Cir. 2009). A dispute is "genuine" as to a material fact if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. Anderson, 477 U.S. at 248; FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010).

Where the moving party will have the burden of proof on an issue at trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find other than for the movant. Soremekun, 509 F.3d at 984. Where the non-moving party will have the burden of proof on an issue at trial, the movant may prevail by presenting evidence that negates an essential element of the non-moving party's claim or by merely pointing out that there is an absence of evidence to support an essential element of the non-moving party's claim. See James River Ins. Co. v. Schenk, P.C., 523 F.3d 915, 923-24 (9th Cir. 2008). If a moving party fails to carry its burden of production, then "the non-moving party has no obligation to produce anything, even if the non-moving party would have the ultimate burden of persuasion." Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies,

Inc., 210 F.3d 1099, 1102-03 (9th 2000). If the moving party meets its initial burden, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually exists. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); Nissan Fire, 210 F.3d at 1103. The opposing party cannot "'rest upon the mere allegations or denials of [its] pleading' but must instead produce evidence that 'sets forth specific facts showing that there is a genuine issue for trial.'" Estate of Tucker v. Interscope Records, Inc., 515 F.3d 1019, 1030 n.14 (9th Cir. 2008) (quoting Fed. R. Civ. P. 56(e)).

The opposing party's evidence is to be believed, and all reasonable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party. See Anderson, 477 U.S. at 255; Matsushita, 475 U.S. at 587; Stegall v. Citadel Broad., Inc., 350 F.3d 1061, 1065 (9th Cir. 2003). Nevertheless, inferences are not drawn out of the air, and it is the opposing party's obligation to produce a factual predicate from which the inference may be drawn. See Sanders v. City of Fresno, 551 F. Supp. 2d 1149, 1163 (E.D. Cal. 2008); UMG Recordings, Inc. v. Sinnott, 300 F. Supp. 2d 993, 997 (E.D. Cal. 2004). "A genuine issue of material fact does not spring into being simply because a litigant claims that one exists or promises to produce admissible evidence at trial." Del Carmen Guadalupe v. Agosto, 299 F.3d 15, 23 (1st Cir. 2002) (internal quotation marks and citations omitted); See Galen v. Cnty. of L.A., 477 F.3d 652, 658 (9th Cir. 2007); Bryant v. Adventist Health Sys./West, 289 F.3d 1162, 1167 (9th Cir. 2002). Further a "motion for summary judgment may not be defeated . . . by evidence that is 'merely colorable' or 'is not significantly probative.'" Anderson, 477 U.S. at 249-50; Hardage v. CBS Broad., Inc., 427 F.3d 1177, 1183 (9th Cir. 2006), as amended in 436 F.3d 1050 (9th Cir. 2006).

Additionally, the court has discretion in appropriate circumstances to consider materials that are not properly brought to its attention, but the court is not required to examine the entire file for evidence establishing a material fact where the evidence is not set forth in the opposing papers with adequate references. See Simmons v. Navajo Cnty., 609 F.3d 1011, 1017 (9th Cir. 2010); Gordon v. Virtumundo, Inc., 575 F.3d 1040, 1058 (9th Cir. 2009); S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885, 889 (9th Cir. 2003); Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 2031 (9th Cir. 2001). If the nonmoving party fails to produce evidence sufficient to create a genuine issue of material fact, the moving party is entitled to summary judgment. Nissan Fire, 210 F.3d at 1103.

B. Undisputed Facts

For purposes of this motion, the following facts are not disputed by the parties. At all relevant times, QBE was the insurer of Safe Harbor Adult Day Health Care Center. (Doc. 34-1, Defendant's Statement of Undisputed Material Facts ("DUMF"), ¶ 2; Doc. 40, Plaintiff's Response to Defendant's Statement of Undisputed Material Facts ("PRDUMF"), ¶ 2.) At all times relevant, Joanie Ballantyne was the owner of Safe Harbor. (Doc. 34-1, DUMF ¶ 9; Doc. 40, PRDUMF ¶ 9.) In September 2005, Safe Harbor hired Mr. Chavez as a van driver. (Doc. 34-1, DUMF ¶ 3; Doc. 40, PRDUMF ¶ 3.) Ms. Diaz is a developmentally disabled individual who was a participant at Safe Harbor. (Doc. 34-1, DUMF ¶ 4; Doc. 40, PRDUMF ¶ 4.) As part of Mr. Chavez' duties for Safe Harbor, he was to transport Ms. Diaz between her home and Safe Harbor. (Doc. 34-1, DUMF ¶ 5; Doc. 40, PRDUMF ¶ 5.) Ms. Diaz sued Safe Harbor and Mr. Chavez for a sexual assault perpetrated by Mr. Chavez while he was working for Safe Harbor ("Diaz case"). (Doc. 34-1, DUMF ¶ 6; Doc. 40, PRDUMF ¶ 6.) On behalf of Safe Harbor, QBE settled Ms. Diaz' claims against Safe Harbor. (Doc. 34-1, DUMF ¶ 7; Doc. 40, PRDUMF ¶ 7.) QBE is now subrogated to Safe Harbor's claim for that settlement, and seeks to recover from TLC and Pipkin amounts paid to Ms. Diaz. (Doc. 34-1, DUMF ¶ 8; Doc. 40, PRDUMF ¶ 8.)

The parties do not dispute that the complaint alleges TLC failed to advise Safe Harbor regarding Mr. Chavez' "misconduct in pursing his lips in a kissing fashion to two female students" at the time he worked for Dos Palos (Doc. 34-1, DUMF ¶ 10; Doc. 40, PRDUMF ¶ 10),TLC failed to advise Safe Harbor that Mr. Chavez' bus certificate was revoked (Doc. 34-1, DUMF ¶ 11; Doc. 40, PRDUMF ¶ 11), and that TLC "should have told Safe Harbor about the certification requirement in the California Vehicle Code § 12523.6" (Doc. 34-1, DUMF ¶ 12; Doc. 40, PRDUMF ¶ 12).*fn1

C. Ms. Ballantyne's Second Deposition Testimony Will Not Be Disregarded as Sham

In its reply brief, TLC contends that Ms. Ballantyne's second-session deposition testimony, relied on by QBE in opposing TLC's motion for summary judgment, was taken after TLC's motion was filed and contradicts her first-session deposition testimony without explanation in an effort to create a disputed issue of material fact that defeats TLC's motion. As a result, TLC maintains that Ms. Ballantyne's second-session deposition testimony should be disregarded as sham for purposes of considering TLC's motion for summary judgment.

"The general rule in the Ninth Circuit is that a party cannot create an issue of fact by an affidavit contradicting his prior deposition testimony." Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 266 (9th Cir. 1991). The sham-affidavit rule is necessary because, "if a party who has been examined at length in deposition could raise an issue of fact simply by submitting an affidavit contradicting his own prior testimony, this would greatly diminish the utility of summary judgment as a procedure for screening out sham issues of fact." Kennedy, 952 F.2d at 266 (quoting Foster v. Arcata Assocs., Inc., 772 F.2d 1453, 1462 (9th Cir. 1985)).

This rule, however, is in tension with the principle that a court's role in deciding a summary judgment motion is not to make credibility determinations or weigh conflicting evidence. Van Asdale v. Int'l Game Tech., 577 F.3d 989, 998 (9th Cir. 2009). "Aggressive invocation of the rule also threatens to ensnare parties who may have simply been confused during their deposition testimony and may encourage gamesmanship by opposing attorneys." Id. As a result, the Ninth Circuit has instructed that the sham-affidavit rule "be applied with caution." School Dist. No. 1J v. ACandS, Inc., 5 F.3d 1255, 1264 (9th Cir. 1993).

Specifically, the Ninth Circuit has "fashioned two important limitations on a district court's discretion to invoke the shame affidavit rule." Van Asdale, 577 F.3d at 998. First, the district court must make a factual determination that the contradiction was actually a sham. Id. Second, the inconsistency between a party's deposition testimony and subsequent affidavit must be clear and unambiguous to justify striking the affidavit. Id. at 998-99. Thus, "the non-moving party is not precluded from elaborating upon, explaining or clarifying prior testimony elicited by opposing counsel on deposition [and] minor inconsistencies that result from an honest discrepancy, a mistake, or newly discovered evidence afford no basis for excluding an opposition affidavit." Messick v. Horizon Indus., Inc., 62 F.3d 1227, 1231 (9th Cir. 1995).

One of the central issues in this case is the scope of the agreement between TLC and Safe Harbor -- in other words, the scope of the services TLC agreed to provide to Safe Harbor. As the owner of Safe Harbor, Ms. Ballantyne was questioned extensively at her first deposition by TLC's counsel regarding the terms of that agreement. TLC argues that Ms. Ballantyne stated multiple times in her first deposition that she hired TLC to assist Safe Harbor in complying with all the requirements of the California Department of Motor Vehicles ("DMV"), and only those requirements. Specifically, TLC cites to Ms. Ballantyne's first-session deposition testimony:

Q: What did you hire [TLC] to do?

A: To make sure that we met all the requirements of the DMV. (Doc. 34-3, Exh. A, Ballantyne Depo., 29:3-5.)

Q: . . . but does that basically describe everything that they had agreed to do? A: Yes. Make sure that we were in compliance with the DMV. (Doc. 34-3, Exh. A, Ballantyne Depo., 38:1-4.)

Q: And [TLC's] job was to make sure that that particular driver was in compliance with DMV requirements?

A: Absolutely. (Doc. 34-3, Exh A., Ballantyne Depo., 41:3-6.)

Q: Okay. And do you remember anything that was said at that in-service about what needed to be done?

A: Well, again, it was compliance to -- for DMV. That's was what I was interested in.

Q: Okay. How did you decide that that's what you needed was compliance with

DMV?

A: Well, because I felt that I wanted to be in compliance. I wanted everything to be squeaky clean. And that way, they presented that, that would keep my records, make sure that the records were updated, make sure that notification of the drivers, everything that we had to have for DMV. It was quite -- quite a bit of information. (Doc. 34-3, Exh. A, Ballantyne Depo., 41:18-42:5)

A: [Bill] told me that [TLC] would do everything that the DMV required. (Doc. 34-3, Exh. A, Ballantyne Depo., 66:13-14.)

Q: Okay. To your knowledge, was CHP ever involved in any -- having any requirements for your drivers or vans?

A: Well, I don't believe so. I think it was all DMV.

Q: And you know CHP and DMV are different things?

A: Yes.

Q: And you think all your contacts were DMV?

A: To my knowledge, yes.

Q: And all requirements you had to meet were DMV requirements?

A: That's my understanding.

Q: Okay. Where did you first get that understanding? Is that something you obtained when you were doing this work for yourself?

A: Well, yes. That's what I was told over the years. And then when I first met with Bill -- I believe that was his name -- he told me DMV. (Doc. 34-3, Exh. A, Ballantyne Depo., 67:1-18.)

A: . . . and then we talked about what [Bill] could do. And he assured me that everything that DMV ...


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