The opinion of the court was delivered by: Richard Seeborg United States District Judge
ORDER DENYING MOTION TO DISMISS, GRANTING MOTION FOR SUMMARY JUDGMENT, AND DENYING RELIEF FROM AUTOMATIC ADMISSIONS
In two related cases, Plaintiff Chartsis Specialty Insurance Company ("Chartsis") seeks 26 declaratory judgments that it need not defend nor indemnify defendants Telegraph Hill Properties, 27
Inc., its principal and president W.B. Coyle, and its subsidiary THP-SF, Inc. in a case now pending 28 against them in the Superior Court for the City and County of San Francisco, Ferguson et al. v. W.B.
Coyle et al., No. CGC-11-512746. The Ferguson case challenges the apportionment of the sale 2 proceeds of an apartment in San Francisco owned as a tenancy in common (TIC) by Black Ice 3
Partners, LLC, in turn owned by multiple investors including Coyle. Chartsis argues that Coyle 4 owned 15% or more of the property that is the subject of the Ferguson case, and coverage in such 5 situations is excluded under the insurance policy. 6
Two sets of nearly identical motions have been brought in both Chartsis v. Telegraph Hill Properties and Coyle and Chartsis v. THP-SF.Defendants move the court to exercise its discretion 8 under the Declaratory Judgment Act ("DJA") to dismiss, or in the alternative, to stay this case 9 pending the resolution of the Ferguson case in state court. Plaintiffs move for summary judgment 10 on the basis that defendants, in failing to respond to requests for admission, automatically admitted that they owned 15% or more of the subject property. Defendants move for relief from such automatic admissions and their failure to make
Procedure 26. For the reasons discussed below, the motions to dismiss are denied, the motions for relief from admissions are denied, and the motions for summary judgment are granted.
Coyle is the President of Telegraph Hill Properties, a real estate company in San Francisco.
He was formerly a licensed real estate broker and remains the
qualified person who made THP-SF, a 18 subsidiary of Telegraph Hill
Properties, eligible to hold a real estate broker's license. Chartsis
19 entered into a contract with Telegraph Hill Properties to provide
it with a claims-made real estate 20 professional liability policy for
"real estate services" including "property management services" and
"real estate agent/broker services." The policy covers the named
insured Telegraph Hill Properties 22 as well as its officers,
including Coyle. Although Chartsis disputes that THP-SF is an insured
under 23 the policy, Chartsis has assumed that THP-SF qualifies as an
insured for the purposes of these 24 motions. Policy exclusion "w"
bars coverage for any claim "arising out of or resulting, directly or
25 indirectly, from the purchase of property by, or the sale . . . of
property developed, constructed or 26 owned by: (1) any insured; (2)
any entity in which any insured has or had a financial interest or a
27 contemplated financial interest." Exclusion w does not apply if, at
the time of the sale or lease, the 28 insured's ownership interest was
less than 15%.
defendants in the Ferguson case and Chartsis subsequently assumed their defense. Chartsis and the 3 defendants dispute whether Coyle owned an interest in the property that is the subject of the Ferguson case of 15% or more, such that exclusion w would apply thereby relieving Chartsis of any 5 duty to defend or indemnify. The Ferguson plaintiffs have alleged a scheme by defendants to 6 induce them to enter into an investment venture with Coyle-Black Ice Partners, LLC-which 7 purchased, developed, and sold the property commonly known as 2876 Washington Street in San 8 Telegraph Hill Properties, Coyle, and THP-SF (collectively, "defendants") were named as Francisco, California. Telegraph Hill Properties and THP-SF allegedly acted in concert with Coyle 9 to serve as real estate broker to the transactions involving the subject property. The Ferguson 10 complaint avers that Coyle breached the Black Ice operating agreement and his fiduciary duties as managing member of it. It brings causes of actions against all defendants for breaches of their fiduciary duties as brokers, agents, and property managers in connection with the development and sale of the property, for fraudulently inducing plaintiffs to enter the Black Ice operating agreement, and for negligence in the sale of the property. The Ferguson plaintiffs also seek an accounting as to 15 all defendants related to the purchase, management, and sale of the property.
The Ferguson plaintiffs were co-owners of Black Ice with Coyle and seek reimbursement for their alleged share of the sale proceeds from 2876 Washington, which Black Ice owned. They 18 dispute that Coyle is entitled to his claimed 28% of the proceeds from the sale of the property, 19 averring that he failed to make the initial capital contribution to Black Ice that would have entitled 20 him to such a share. In their briefing, both Coyle and Chartsis characterize the Ferguson plaintiffs 21 as contending that Coyle is entitled to at most 20% (rather than 28%) of Black Ice's proceeds from 22 the sale of 2876 Washington, pointing to the operative complaint's allegation that Coyle represented 23 he would contribute $100,000 toward Black Ice's initial capital of $500,000. See Ferguson Third 24
Chartsis takes the position that the Ferguson case will not answer the question of Coyle's ownership share of 2876 Washington, because plaintiffs in that case do not seek equitable relief 27 retroactively establishing their ownership shares in the property at the time it was sold. Rather,
Amended Complaint ("TAC"), Case No. 11-05696, Dkt. 40-10, ¶58(h).
Chartsis characterizes the Ferguson case as determining whether Coyle is entitled to 28% or 20% of the proceeds from the sale of the property. Whether Coyle is entitled to 20% or 28% of the 2 proceeds from the sale of 2876 Washington, Chartsis argues that Coyle has admitted he owned 28% 3 of Black Ice at the time of the sale, which equates to a 15% or more ownership interest in 2876 4
Washington, excluding the Ferguson case from being covered under the insurance policy. Even if 5 the state court found in Ferguson that Coyle actually owned only 20% of Black Ice at the time of the 6 sale of 2876 Washington, Chartsis believes this is also sufficient to establish that exclusion w 7 applies.*fn1 Therefore Chartsis argues that under no possible scenario can the Ferguson action result in 8 a factual finding that will affect the coverage questions presented in the pending declaratory 9 judgment actions against defendants. 10 case because both will require a factual finding of his percentage ownership of Black Ice, upon which his ownership of the subject property depends. Coyle, however, denies that his ownership interest in Black Ice equates to his ownership interest in the subject property, due to the fact that 2876 Washington is one of eight addresses held as TICs which constitute a single parcel of real 15 property with one title. A TIC is a somewhat unusual form of property ownership that is nonetheless prevalent in San Francisco. "The central characteristic of a tenancy in common is simply that each tenant is deemed to own by himself, with most of the attributes of independent 18 ownership, a physically undivided part of the entire parcel." Black's Law Dictionary, Tenancy (9th 19 ed. 2009). 1 located at 2870-2878 Washington Street and 2300-2304 Divisadero Street in San Francisco. See 22 Case No. 11-5696, Dkt. 44 ¶4. The property included one building with eight residential units, each 23 with its own address, of which 2876 Washington is one. See id. Coyle's plan was to "flip" the 24 property by finding eight buyers, each of whom would own an undivided interest in the entire 25 property and a contractual right to exclusive possession of one of the units as tenants in common. 26
Coyle believes that there is significant overlap between the issues here and the Ferguson Coyle has provided a declaration recounting his purchase of a single parcel of real property See id. Coyle was only able to secure buyers for five of the eight units. See id. at ¶5. Hades Group, 27 LLC, in which Coyle owns a 50% interest, purchased two of the unsold undivided interests in the 2 parcel (one of 12.125% and one of 12.250%) with accompanying contractual rights to occupy two 3 of the units, 2300 and 2304 Divisadero. Coyle describes these units as less desirable because 4 tenants who are difficult to evict under San Francisco's rent control ordinance resided in them. 5
2876 Washington. Coyle argues that, due to the nature of the TIC, to determine whether exclusion 7 w applies, the correct question is not whether he owned a 15% or greater interest in Black Ice, which 8 had the right to occupy 2876 Washington, but whether his 50% interest in the Hades Group and its 9 two undivided interests in the whole building combined with his uncertain ownership percentage of building of 15% or greater.
Coyle posits that determining his ownership interest in the building as a whole is for valuing TICs, under which the ac complicated further by special rules tual value of an interest in 14 a TIC is determined not by the record title percentage of the undivided interest in the whole 15 building, but by the value of that ownership interest plus the value of the right of occupancy of the unit under contract. Coyle argues that the values for the units owned by Hades and Black Ice are lower than the value of the undivided interests in the building that they owned because those units, 18 as noted above, were less desirable as they were occupied by long-term and difficult to evict tenants 19 paying below-market rent. Further, Coyle argues that the value of his interests in the units should be 20 discounted by 20-30% due to his fractional ownership of them through the LLCs, which in turn 21 makes them not readily saleable. Thus, under Coyle's accounting, his total interest in the building, 22 measured by his collective ownership shares of three units through Hades and Black Ice was less 23 than 11%, meaning the Ferguson case does not fall under exclusion w to the Chartsis policy. 24 25 than diligent in litigating these cases. Chartsis did not serve the initial disclosures required by Rule 26 26 until after it filed its motions for summary judgment, well past the deadline to do so, while 27 defendants never served theirs. Chartsis served requests for admission (RFAs) on defendants on Black Ice also purchased an undivided interest in 12.125% of the property with the right to occupy 6
Black Ice and its single undivided interest in the building give him a total interest in the entire
The barrage of motions presently before the court notwithstanding, the parties have been less September 26, 2012. Defendants, incorrectly assuming that their obligations to respond to these RFAs were excused either because Chartsis had thus far failed to serve its initial disclosures or 2 because there was an "understanding" that all deadlines were stayed pending ongoing mediation 3 efforts, did not serve responses to the RFAs on Chartsis. Federal Rule of Civil Procedure 36(a)(3) 4 dictates that if the party to whom an RFA is directed does not serve an answer or objection in 5 response upon the requesting party within 30 days, the matter is deemed admitted. See Fed. R. Civ. 6 Proc. 36(a)(3). RFA 15, served separately on each defendant, requested an admission that the 7 defendant owned 15% or more of the real property that is the subject of the Ferguson case. 8
9 that there is no triable issue of fact remaining over whether it has a duty to defend or indemnify 10 defendants in the Ferguson case, because defendants have admitted that they owned 15% or more of the subject property and therefore exclusion w applies. Defendants oppose the motion for summary admissions, as well as an extension of the
On the basis of these default admissions, Chartsis moves for summary judgment, arguing judgment and move for relief from their automatic 13 deadline in ...