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Nat'l Bank of Cal. v. Progressive Cas. Ins. Co.

United States District Court, C.D. California

April 3, 2013

NATIONAL BANK OF CALIFORNIA, Plaintiff,
v.
PROGRESSIVE CASUALTY INSURANCE COMPANY, Defendant

Page 920

For National Bank of California, a California corporation, Plaintiff: Kyle M Fisher, LEAD ATTORNEY, John N MacLeod, Marci A Reichbach, Friedman Goldberg LLP, Santa Rosa, CA.

For Progressive Casualty Insurance Company, an Ohio corporation, Erroneously Sued As Progressive Casualty Insurance Corporation, Defendant: David J Billings, David T DiBiase, Anderson McPharlin & Conners LLP, Los Angeles, CA.

Page 921

ORDER RE MOTIONS FOR PARTIAL SUMMARY JUDGMENT

Jesus G. Bernal, United States District Judge.

Before the Court are (1) Plaintiff National Bank of California's (" the Bank" ) Motion for Partial Summary Judgment as to Defendant Progressive Casualty Insurance Company's (" Progressive" ) Fifth Affirmative Defense (Doc. No. 22); (2)the

Page 922

Bank's Motion for Partial Summary Judgment as to the Issue of Cessation and Progressive's Third and Eighth Affirmative Defenses (Doc. No. 40); and (3) Progressive's Motion for Partial Summary Judgment on the Issue of Pre-Tender Fees and the Bank's Claim for Breach of the Covenant of Good Faith and Fair Dealing (Doc. No. 60).

After considering all papers submitted in support of and in opposition to the motions, as well as the arguments advanced by counsel at the April 1, 2013 hearing, the Court (1) DENIES the Bank's Motion for Summary Judgment on Progressive's Fifth Affirmative Defense and GRANTS summary judgment in favor of Progressive on its Fifth Affirmative Defense; (2) DENIES AS MOOT the Bank's Motion for Summary Judgment as to the Issue of Cessation; (3) DENIES the Bank's Motion for and Progressive's Request for Summary Judgment on Progressive's Third and Eighth Affirmative Defenses; (4) GRANTS Progressive's Motion for Summary Judgment as to the Issue of Pre-Tender Fees; and (5) DENIES Progressive's Motion for Summary Judgment as to the Bank's claim for Breach of the Covenant of Good Faith and Fair Dealing.

I. BACKGROUND

A. Procedural Background

On May 14, 2012, the Bank filed its Complaint against Progressive in the California Superior Court for the County of Los Angeles, alleging claims for breach of contract and breach of the covenant of good faith and fair dealing. (See Notice of Removal (" Not." ), Ex. A (" Complaint" ) (Doc. No. 1).) Progressive removed the action to this Court on June 13, 2012. (Not.) The Bank filed its First Amended Complaint (" FAC" ) on November 5, 2012 (Doc. No. 18), and Progressive filed its Answer and Affirmative Defenses to the FAC on November 16, 2012 (Doc. No. 19.)

The Bank filed its Motion for Partial Summary Judgment as to Progressive's Fifth Affirmative Defense (" MSJ" or " Bank MSJ 1" ) [1] on December 19, 2012, along with its Statement of Undisputed Facts (" SUF" or " Bank MSJ 1 SUF" ) (Doc. No. 23); Declaration of Marci A. Reichbach, attaching various exhibits (Doc. No. 24); a Declaration of Steven L. Bergh, attaching various exhibits (Doc. No. 25); a Declaration of Henry P. Homsher, attaching one exhibit (the Directors & Officers Liability Policy at the center of this dispute) (Doc. No. 26); and a Declaration of Stephen S. Monroe, attaching various exhibits (Doc. No. 27). On January 11, 2013, Progressive filed its Opposition (" Opp'n" or " Bank MSJ 1 Opp'n" ) (Doc. No. 33), along with its Statement of Genuine Issues (" SGI" or " Bank MSJ 1 SGI" ) (Doc. No. 35); a Declaration of David J. Billings, attaching various exhibits (Doc. No. 34); and a Request for Judicial Notice (" RJN" ) of the California Superior Court's ruling on the Bank's motion to compel arbitration in the underlying litigation (Doc. No. 36). [2] The Bank filed its Reply on January 18, 2013 (" Reply" or " Bank MSJ 1 Reply" ) (Doc. No. 39), along with its Reply Statement of Undisputed Facts (" Reply SUF" or " Bank MSJ 1 Reply SUF" ) (Doc. No. 39-1.)

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The Bank filed its Motion for Partial Summary Judgment as to the Issue of Cessation and Progressive's Third and Eighth Affirmative Defenses (" MSJ" or " Bank MSJ 2" ) on January 24, 2013, along with its Statement of Undisputed Facts (" SUF" or " Bank MSJ 2 SUF" ) (Doc. No. 40-1); a Declaration of Marci A. Reichbach, attaching various exhibits (Doc. No. 42); a Declaration of Steven L. Bergh, attaching various exhibits (Doc. No. 43); a Declaration of Henry P. Homsher, attaching various exhibits (Doc. No. 44); and a Declaration of Stephen S. Monroe, attaching various exhibits (Doc. No. 45). On March 1, 2013, Progressive filed its Opposition (" Opp'n" or " Bank MSJ 2 Opp'n" ) (Doc. No. 58), along with its Statement of Genuine Issues (" SGI" or " Bank MSJ 2 SGI" ) (Doc. No. 58-1); a Declaration of David J. Billings, attaching various exhibits (Doc. No. 58-2); and a Request for Judicial Notice of three court filings (Doc. No. 62), which the Court grants as the court filings are judicially noticeable. The Bank filed its Reply on March 18, 2013 (" Reply" or " MSJ 2 Reply" ) (Doc. No. 77), along with its Reply Statement of Undisputed Facts (" Reply SUF" or " MSJ 2 Reply SUF" ) (Doc. No. 77-1) and Evidentiary Objections (Doc. No. 77-2).

Progressive filed its Motion for Partial Summary Judgment on the Issue of Pre-Tender Fees and the Bank's Claim for Breach of the Covenant of Good Faith and Fair Dealing (" MSJ" or " Progressive MSJ" ) on March 1, 2013, along with its Statement of Undisputed Facts (" SUF" or " Progressive MSJ SUF" ) (Doc. No. 60-1); a Declaration of David DiBiase, attaching various exhibits (Doc. No. 60-2); a Declaration of John Cullen, attaching various exhibits (Doc. No. 60-3); a Declaration of David Billings (Doc. No. 60-4), attaching various exhibits (Doc. Nos. 60-4, 5, 6, 7); and a Request for Judicial Notice of three court filings (Doc. No. 62), which the Court grants as the court filings are judicially noticeable. On March 11, 2013, the Bank filed its Opposition (" Opp'n" or " Progressive MSJ Opp'n" ) (Doc. No. 69), along with its Statement of Genuine Issues and Additional Undisputed Facts (" SGI" or " Progressive MSJ SGI" ) (Doc. No. 69-1); Evidentiary Objections (Doc. No. 69-2); a Declaration of John N. MacLeod, attaching various exhibits (Doc. No. 69- 3); a Declaration of Stephen S. Monroe, attaching various exhibits (Doc. No. 69-4); and a Declaration of Steven L. Bergh, attaching various exhibits (Doc. No. 69-5). On March 18, 2013, Progressive filed its Reply (" Reply" or " Progressive MSJ Reply" ) (Doc. No. 75) and Reply to the Bank's Statement of Additional Undisputed Facts (" Reply SGI" or " Progressive MSJ Reply SGI" ) (Doc. No. 76).

B. Preliminary Matters

1. Federal Rule of Civil Procedure 56(f)

In its oppositions to the Bank's two MSJs, Progressive asks the Court to deny the motions and instead grant summary judgment on those issues in Progressive's favor. (See Bank MSJ 1 Opp'n at 2; Bank MSJ 2 Opp'n at 2.) Under Rule 56(f), [3] the Court may independently grant summary judgment in favor of the nonmoving party. Progressive's SGIs filed with its oppositions include Statements of Additional Undisputed Facts (" Bank MSJ 1 SAUF" and " Bank MSJ 2 SAUF" ), which the Bank replies to in its Reply SUFs. The Court relies on these filings in determining whether the submitted evidence is sufficient to grant summary judgment in favor of the nonmoving party under Rule 56(f).

Page 924

II. LEGAL STANDARD

A motion for partial summary adjudication is governed by the same standard as a motion for summary judgment. Green v. Sun Life Assur. Co. of Canada, 383 F.Supp.2d 1224, 1226 (C.D. Cal. 2005). A court shall grant a motion for summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party must show that " under the governing law, there can be but one reasonable conclusion as to the verdict." Anderson, 477 U.S. at 250.

Generally, the burden is on the moving party to demonstrate that it is entitled to summary judgment. See Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998) (citing Anderson, 477 U.S. at 256-57); Retail Clerks Union Local 648 v. Hub Pharmacy, Inc., 707 F.2d 1030, 1033 (9th Cir. 1983). The moving party bears the initial burden of identifying the elements of the claim or defense and evidence that it believes demonstrates the absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Because summary judgment is a " drastic device" that cuts off a party's right to present its case to a jury, the moving party bears a " heavy burden" of demonstrating the absence of any genuine issue of material fact. See Avalos v. Baca, No. 05-CV-07602-DDP, 2006 WL 2294878 (C.D. Cal. Aug. 7, 2006) (quoting Nationwide Life Ins. Co. v. Bankers Leasing Ass'n, Inc., 182 F.3d 157, 160 (2d Cir. 1999)).

Where the non-moving party has the burden at trial, however, the moving party need not produce evidence negating or disproving every essential element of the non-moving party's case. Celotex, 477 U.S. at 325. Instead, the moving party's burden is met by pointing out that there is an absence of evidence supporting the non-moving party's case. Id.; Horphag Research Ltd. v. Garcia, 475 F.3d 1029, 1035 (9th Cir. 2007). " [A] summary judgment motion may properly be made in reliance solely on the 'pleadings, depositions, answers to interrogatories, and admissions on file.'" Celotex, 477 U.S. at 324 (quoting Fed.R.Civ.P. 56(c)).

The burden then shifts to the non-moving party to show that there is a genuine issue of material fact that must be resolved at trial. Fed.R.Civ.P. 56(c); Celotex, 477 U.S. at 324; Anderson, 477 U.S. at 256. The non-moving party must make an affirmative showing on all matters placed in issue by the motion as to which it has the burden of proof at trial. Celotex, 477 U.S. at 322; Anderson, 477 U.S. at 252. See also William W. Schwarzer, A. Wallace Tashima & James M. Wagstaffe, Federal Civil Procedure Before Trial § 14:144. A genuine issue of material fact will exist " if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248.

In ruling on a motion for summary judgment, a court construes the evidence in the light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007); Barlow v. Ground, 943 F.2d 1132, 1135 (9th Cir. 1991); T.W. Elec. Serv. Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630-31 (9th Cir. 1987).

III. THE BANK'S MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO PROGRESSIVE'S FIFTH AFFIRMATIVE DEFENSE

A. Undisputed Facts

The following material facts are sufficiently supported by admissible evidence

Page 925

and are uncontroverted. They are " admitted to exist without controversy" for purposes of the Bank's MSJ 1. L.R. 56-3 (facts not " controverted by declaration or other written evidence" are assumed to exist without controversy); Fed.R.Civ.P. 56(e)(2) (stating that where a party fails to address another party's assertion of fact properly, the court may " consider the fact undisputed for purposes of the motion" ).

1. The Directors & Officers Liability Policy

Progressive issued a Directors & Officers Liability Policy to the Bank on October 30, 2010 (" Policy" ). (SUF ¶ 1; SGI ¶ 1; Homsher Decl., Ex. A (" Policy" ).) The Policy contains three documents: the Declarations Page (" Declarations" (Policy at 4-6)); [4] the standard policy (" D& O Policy" (id. at 7-23); and the attached Endorsements that modify the standard policy (id. at 24-56). The Declarations Page sets forth that " Defense Costs are included within the Limit of Liability." (Id. at 4.) [5] Item 6 of the Declarations states under the heading " Defense Option" that " [i]t shall be the duty of the Insured and not the duty of the Insurer to defense Claims unless the 'Insurer's Duty to Defend' is designated 'yes' below." (Id.) The only duty to defend designated " yes" is " Employment Practices Liability," the following are designated " no" : D& O Liability, Broad Form Lender Liability, Securities Liability, Fiduciary Liability, Bankers Professional Liability, and Privacy Liability. (Id.)

Item 14 of the Declarations, under the heading " Endorsements," states that the " Policy is subject to the terms of the following Endorsements attached hereto and incorporated herein at the effective date of this Policy." (Id. at 5.) Item 14 then lists the four-digit form numbers that refer to the separately paginated forms attached to the end of the Policy, including Form No. 2264. (Id.) Form No. 2264 (" Fraud Exclusion Modification" ) contains the header, " Fraud/Violation of Law Exclusion Modification," and, on the next line, " Change 'final adjudication' to 'in fact.'" (Id. at 30.) The words of the headers appear in larger type than the text below it. (Id.) The Fraud Exclusion Modification states,

In consideration of the premium paid and in reliance upon all statements made and information contained in the Declarations and Application, the Insurer and the Insured agree that the " Fraud/Violation of Law Exclusion" is deleted and replaced as follows:
Fraud/Violation of Law Exclusion - The Insurer shall not be liable to make any payment for Loss, in connection with any Claim arising out of or in any way involving, in fact, any fraudulent, dishonest or criminal act or any willful violation of any civil or criminal statute, regulation or law by the Insured.
This Endorsement shall be effective as of 12:01 a.m. on 10/30/2010
Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the Policy other than as above stated.

(Id.)

This Endorsement purports to delete and replace the standard D& O Policy language, which appears under the header

Page 926

" Fraud/Violation of Law Exclusion," which states,

The Insurer shall not be liable to make any payment for Loss, other than Defense Costs, in connection with any Claim arising out of or in any way involving any fraudulent, dishonest or criminal act or any willful violation of any civil or criminal statute, regulation or law by the Insured, provided a final judgment or final adjudication establishes such fraudulent, dishonest, or criminal act or such willful violation of statute, regulation or law.

(Id. at 13.)

The Policy defines Loss as " Defense Costs and any amount which the Insured is legally obligated to pay resulting from a Claim, including damages, judgments, settlements, and pre- and post-judgment interest." (Id. at 10.) The Policy's final provision, aside from the attached Endorsements, states under the heading " Headings and Sub-Headings," " The descriptions in the headings and sub-headings of this Policy are solely for convenience and form no part of the terms and conditions of coverage." (Id. at 23.)

The Fraud Exclusion Modification quoted above and all other Endorsements were contained within the Policy at the time the Policy was executed by the Bank and Progressive. (See SUF ¶ 1; SGI ¶ 1; Homsher Decl. ¶ 3.)

2. Arbitrator's Findings and Award in Underlying Litigation

On January 19, 2011, Bruce Porter (" Porter" ), individually and as Trustee of the Porter Trust, and Tracey Corner, as Trustee of the Bruce Porter Insurance Trust (" Porter Parties" ), filed a lawsuit in the California Superior Court for the County of Los Angeles against the Bank, Zey Financial and Insurance Services (" Zey Financial" ), Igor Zey, and Lincoln National Life Insurance Company (" Lincoln Insurance" ). (See Monroe Decl. ¶ 1, 3, Ex. A (attaching the Complaint in Bruce Porter, et al. v. Zey Financial & Ins. Servs., Inc., et al. (Super. Ct. Los Angeles Cnty., 2011, No. SC-111109)).) The Porter Parties alleged claims for fraud, conspiracy to defraud, violation of Cal. Bus. & Profs. Code § 17200, breach of fiduciary duty, intentional infliction of emotional distress, and tort of another. (Monroe Decl., Ex. A.) The Porter Parties filed amended complaints (Monroe Decl., Exs. B-D), and the Zey parties filed a cross-complaint and an amended cross-complaint against the Bank, seeking indemnity and damages. (Id. ¶ 5; Exs. E-F.)

The dispute was designated for arbitration upon the Bank's motion and, on February 17, 2011, the Arbitrator, Jack M. Newman (" Arbitrator" ), issued his final Findings and Award (" Award." ) (Monroe Decl., Ex. K.) On May 25, 2012, the California Superior Court for the County of Los Angeles issued an order confirming the Award, and entered a judgment on July 19, 2012. (See Bank MSJ 2 Monroe Decl., Ex. O (July 19, 2012 Judgment) (Doc. No. 45-3).) The Court adopts the Arbitrator's factual findings, none of which is disputed by the parties or contradicted by the submitted evidence. (See SUF ¶ ¶ 10-18; SGI ¶ ¶ 10-18). See Amaro v. Cont'l Can Co., 724 F.2d 747, 753 (9th Cir. 1984) (stating that district courts defer as appropriate to an " arbitrator's findings on factual matters" ); Carpenters 46 N. Cal. Counties Conf. Bd. v. Zcon Builders, 96 F.3d 410, 413 (9th Cir. 1996) (stating that an arbitrator's factual findings receive deferential review in the Ninth Circuit).

At the outset, the Arbitrator summarized the dispute as the Bank's seeking repayment of its $685,000 loan from Tracey Porter, in her capacity as the Trustee of the Bruce Porter Life ...


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