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Atain Specialty Insurance Co. v. Hernandez

United States District Court, Ninth Circuit

January 23, 2014

ATAIN Specialty Insurance Company f/k/a USF Insurance Company, a Michigan corporation, Plaintiff,
Jesse Hernandez dba Tarp Services, Alvin M. Roberts, Shirley M. Roberts, and Roberts Alvin M. & Sr Trust, Defendants.


MORRISON C. ENGLAND, Jr., Chief District Judge.

Through this action, proceeding on the operative First Amended Complaint, Plaintiff Atain Specialty Insurance Company[1] ("Atain") seeks rescission of an insurance policy issued to Defendant Jesse Hernandez ("Hernandez"), as well as declaratory judgments that Atain has no duty to defend or indemnify Hernandez in an underlying state court action. Presently before the Court is Hernandez's Motion for Dismiss or Stay Proceedings ("Motion"). Mot., Nov. 19, 2013, ECF No. 17. Atain filed a timely opposition. Opp'n, Dec. 5, 2013, ECF No. 30. For the reasons set forth below, the Motion is DENIED IN PART and GRANTED IN PART.


This action arises from a dispute over insurance coverage for a fire that took place on September 16, 2008, in a warehouse on land owned by Defendants Alvin and Shirley Roberts, in Galt, California. At the time of the fire, Hernandez leased the warehouse and used it to store materials for, and to facilitate, his equipment rental business. Another individual, Albert Hung ("Hung"), used the warehouse to store materials and facilitate his artificial flower business. Hernandez's daughter, Maria, and his granddaughter, Jacqueline Gonzalez Jiminez[3], died in the fire. At the time of the fire, Hernandez was insured under a general liability policy he purchased from Atain in May 2008.

As a result of the fire, the Hung action and the Gonzalez action were brought against the Roberts in state court. Hernandez is a plaintiff in both actions. The Hung action charges the Roberts with wrongful death, personal injuries, and loss of property based on theories of general negligence, premises liability, and products liability. The Gonzalez action charges the Roberts with wrongful death based on general negligence and premises liability. The Roberts filed a cross-complaint in the Gonzalez action ("the cross-complaint), naming Hernandez as a cross-defendant. The Roberts' claims against Hernandez include comparative indemnity, equitable indemnity, implied indemnity, contractual indemnity, apportionment of fault, declaratory relief, and contribution. The Hung action and the Gonzalez action were then consolidated into a single action, which has not yet concluded.

On October 14, 2010, Hernandez tendered defense of the claims asserted against Hernandez in the cross-complaint to Atain. Atain accepted the tender of defense of the claims subject to a reservation of rights, based on two provisions in the policy-the Joint Venture exclusion and the "Classification Limitation." The Joint Venture exclusion precludes coverage for persons or organizations with respect to the conduct of a current or past partnership, joint venture, or limited liability company that is not shown as a named insured in the Policy's Declarations. The Classification Limitation limits coverage for liability arising only out of the classifications described on the Policy's Declarations, which in Hernandez's case stated "rental stores."

Then, Allied Insurance, the Roberts' insurance company, filed the case Allied v. Roberts[4] before this Court. Allied sued all of the parties involved in the state court actions, including Hernandez, for rescission of the homeowner's policy issued to the Roberts. This Court stayed the Allied action on June 20, 2011, pursuant to Montrose Chemical Corporation v. Super. Ct. (Montrose I) , 6 Cal.4th 287, 301 (1993).

Finally, Atain filed this suit against Hernandez and the Roberts, seeking to rescind the general liability policy. According to Atain, Hernandez made several material misrepresentations that entitle Atain to rescission of the policy and/or a declaratory judgment that Atain has no duty to defend or indemnify Hernandez with regard to any claim asserted against him in the cross-complaint. Defendant Hernandez now seeks a stay of this case, pending the outcome of the state court case.


A federal district court has broad discretion in deciding whether to issue a stay. Fed. Sav. & Loan Ins. Corp. v. Molinaro , 889 F.2d 899, 902 (9th Cir. 1989). Indeed, "[a] trial court may, with propriety, find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case." Leyva v. Certified Grocers of Cal., Ltd. , 593 F.2d 857, 863 (9th Cir. 1979). This rule "does not require that the issues in such proceedings are necessarily controlling of the action before the court." Id . at 863-64. Nonetheless, "[w]here it is proposed that a pending proceeding be stayed, the competing interests which will be affected by the granting or refusal to grant a stay must be weighed." CMAX, Inc. v. Hall , 300 F.2d 265, 268 (9th Cir. 1962). "Among these competing interests are the possible damage which may result from the granting of a stay, the hardship or inequity which a party may suffer in being required to go forward, and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay." Id.

Additionally, "district courts possess discretion in determining whether and when to entertain an action" seeking a declaratory judgment. Wilton v. Seven Falls Co. , 515 U.S. 277, 282 (1995). "In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration." Id . at 288.


Hernandez contends that the Court must stay this case under Montrose, as there are competing or overlapping factual determinations to be made in this case and the cross-complaint. In the alternative, Hernandez requests that the Court decline to exercise subject matter ...

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