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Travelers Indemnity Company of Connecticut v. Centex Homes

United States District Court, N.D. California

January 5, 2015

TRAVELERS INDEMNITY COMPANY OF CONNECTICUT; and ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiffs,
v.
CENTEX HOMES; and CENTEX REAL ESTATE CORPORATION, Defendants.

ORDER GRANTING MOTION TO DISMISS

SAMUEL CONTI, District Judge.

I. INTRODUCTION

Now pending before the Court is Defendants Centex Homes and Centex Real Estate Corporation's (collectively "Defendants" or "Centex") motion to dismiss Plaintiffs' First Amended Complaint, ECF No. 20 ("FAC"), for lack of subject-matter jurisdiction and failure to state a claim. Plaintiffs Travelers Indemnity Company of Connecticut ("Travelers Indemnity") and St. Paul Fire and Marine Insurance Company ("St. Paul") oppose the motion. The motion is fully briefed[1] and suitable for decision without oral argument pursuant to Civil Local Rule 7-1(b). For the reasons set forth below, Defendants' motion to dismiss is GRANTED. Plaintiffs' equitable reimbursement and breach of contract claims are DISMISSED WITHOUT PREJUDICE. Plaintiffs' declaratory relief claims are DISMISSED WITHOUT PREJUDICE to the extent that they are premised on Centex's violation of its duty to cooperate.

II. BACKGROUND

This is one of a large number of similar insurance disputes between these parties. Centex builds homes. FAC ¶ 3. Travelers Indemnity and St. Paul (collectively "Plaintiffs") are insurers. Id . ¶¶ 1-2. Travelers Indemnity issued two insurance policies to Golden State Carpet Service, Inc. (the "Golden Carpet Policies"), and St. Paul issued insurance to Mike McCall Landscape, Inc. (the "Mike McCall Policy"). Id . ¶¶ 8, 10. The Golden Carpet Policies granted Travelers Indemnity the right to retain counsel of its choosing in representing the insured (or any additional insureds) and included a covenant requiring the insured to cooperate with Travelers Indemnity in the investigation or settlement of any covered claim or lawsuit against the insured. Id . ¶ 9. The Golden Carpet Policies also prohibited the insured from voluntarily making any payment towards its defense without Travelers Indemnity's consent. Id . The Mike McCall Policy granted St. Paul the right to retain counsel of its choosing to represent the insured (or any additional insureds) and required the insured to cooperate with St. Paul in any defense covered by the policy. Id . ¶ 11.

In January 2014, several owners of homes in Brentwood, California filed suit against Centex in California state court, alleging a number of construction defects (the "Underlying Action"). Id . ¶ 12. On May 2, 2014, Centex tendered the Underlying Action to Plaintiffs as an additional insured under the Golden Carpet Policies and the Mike McCall Policy. Id . ¶ 13. Plaintiffs responded on May 23, 2014 by agreeing to defend Centex under a reservation of rights and asserting its right to retain counsel of its choice. Id . ¶¶ 14-16. Plaintiffs appointed David Lee to represent Centex in the Underlying Action. Id . ¶¶ 14, 17. On June 18, 2014, Centex responded to Plaintiffs' reservation of rights letters by asserting its right to independent counsel. Centex also insisted that Plaintiffs pay the fees of Centex's independent counsel, Newmeyer & Dillon ("Newmeyer"). Centex informed Plaintiffs that if they refused to pay Newmeyer's fees, Centex would agree to allow Mr. Lee to defend the action only if Plaintiffs agreed to pay Mr. Lee's fees as well as all vendor invoices in the action. Centex also claimed that conflicts exist between Mr. Lee and Centex, and informed Plaintiffs that Centex would file a motion to disqualify counsel and reserved its right to seek reimbursement for Newmeyer's fees. Id . ¶ 17.

In response to Centex's letter, Plaintiffs filed this lawsuit in federal court. Plaintiffs seek declaratory relief under California law, in the form of a declaration that, with respect to both the Golden Carpet and Mike McCall policies, (1) Plaintiffs have the right to control Centex's defense in the Underlying Action; (2) Centex is not entitled to the appointment of independent counsel; (3) Centex has breached its duty to cooperate; and (4) Centex's appointment of independent counsel constitutes a voluntary payment for which Plaintiffs are not obligated to reimburse Centex. Id . ¶¶ 21, 26. Plaintiffs also seek equitable reimbursement for any fees they have paid or will pay in defending Centex in the underlying action. Centex now moves to dismiss.

III. LEGAL STANDARD

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id . (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The allegations made in a complaint must be both "sufficiently detailed to give fair notice to the opposing party of the nature of the claim so that the party may effectively defend against it" and "sufficiently plausible" such that "it is not unfair to require the opposing party to be subjected to the expense of discovery." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

IV. DISCUSSION

A. Diversity Jurisdiction

The only basis for subject-matter jurisdiction that Plaintiffs assert is diversity jurisdiction under 28 U.S.C. Section 1332. FAC ¶ 6. Section 1332 provides for federal jurisdiction in cases between parties of diverse citizenship in which the amount in controversy exceeds $75, 000. Jurisdiction is determined at the time a lawsuit is filed. Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 570-71 (2004). The amount in controversy is ordinarily determined from the face of the pleadings. If a defendant raises a factual challenge to jurisdiction, dismissal is warranted only if it appears to a legal certainty that the required amount cannot be recovered. Pachinger v. MGM Grand Hotel-Las Vegas, Inc., 802 F.2d 362, 363-64 (9th Cir. 1986).

There is no dispute that the parties in this case are diverse, but Centex argues that the amount in controversy does not exceed $75, 000, for two reasons. First, Centex argues that Plaintiffs improperly aggregate the claims by the two plaintiffs against the two defendants in this case. Second, Centex asserts that, at ...


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