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Travelers Property Casualty Company of America v. Mountain Movers Engineering Co., Inc.

United States District Court, S.D. California

May 3, 2017

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, a Connecticut corporation, Plaintiff,
v.
MOUNTAIN MOVERS ENGINEERING COMPANY, INC., a California corporation; et al., Defendants.

          ORDER GRANTING IN PART, DENYING IN PART, DEFENDANTS' MOTION FOR LEAVE TO FILE COUNTERCLAIMS [DOC. NO. 41]

          Hon. Marilyn L. Huff, United States District Judge

         On April 3, 2017, Defendants Old Republic General Insurance Corporation (“ORGENCO”) and Pacific Building Group (“PBG”) (collectively, “Defendants”), filed a motion for leave to file counterclaims. (Doc. No. 41.) Defendants seek to assert claims against Travelers Property Casualty Company of America (“Plaintiff”), including both direct causes of action as judgment creditors and claims assigned to ORGENCO by Defendant Mountain Movers (“Mountain”). (Id.) On April 24, 2017, Plaintiff opposed Defendants' motion. (Doc. No. 43.) Defendants filed a reply on April 26, 2017. (Doc. No. 44.) /// ///

         BACKGROUND

         The following facts are taken from the allegations in Defendants' proposed counterclaims. (Doc. No. 41-1.) Defendant PBG was the general contractor hired to complete an improvement of real property located in Carlsbad, California (the “Carlsbad Property”). (Id. at ¶ 11.) PBG subsequently contracted Mountain to perform work in connection with the improvement. (Id. at ¶ 13.) As part of the agreement between PBG and Mountain, Mountain agreed to indemnify PBG for any claims arising from Mountain's performance. (Id. at ¶ 14.) Mountain also agreed to reimburse PBG for any loss, including extra expenses and attorneys' fees, related to Mountain's failure to perform. (Id. at ¶ 15.) As part of its contractual obligations, Mountain obtained a commercial general liability insurance policy, No. DTE-CO-9323B76 (the “Traveler's Policy”), from Plaintiff. (Id. at ¶ 16.)

         On September 8, 2012, while working at the Carlsbad Property, Mountain damaged a sewer cleanout, causing a sewer backup and flooding an adjacent building. (Id. at ¶¶ 17-18.) Plaintiff was notified promptly of the damage but did not participate in, or fund, the repairs. (Id. at ¶ 20.) The total cost of the damage was $141, 880.61, of which ORGENCO paid $131, 880.61 (representing the cost minus a $10, 000 deductible). (Id. at 22.) Mountain agreed to reimburse PBG for the $10, 000 deductible. (Id. at ¶ 23.)

         On October 8, 2012, Plaintiff informed Mountain that the Traveler's Policy did not cover the September 8, 2012 damage because the policy included a Pollution Exclusion, as well as a Bacteria/Fungi Exclusion. (Id. at ¶ 24.) On October 19, 2012, Defendants submitted a claim to Plaintiff for the costs they incurred and were told that Plaintiff was in the process of investigating the claim. (Id. at ¶¶ 25-26.) On December 11, 2012, Plaintiff informed Defendants the Pollution Exclusion precluded coverage under the Traveler's Policy because the accident involved sewage. (Id. at ¶ 27.)

         Following the denial of coverage, Defendants filed suit in state court, seeking indemnification and reimbursement from Plaintiff and Mountain. (Id. at 28.) Mountain retained The Law Offices of Gregory Hout to defend it and, although Plaintiff agreed to pay for Mountain's defense, Plaintiff's payments were late and sporadic. (Id. at ¶ 31.) Throughout the course of the litigation, Plaintiff repeatedly claimed that the September 8, 2012 incident was excluded from coverage and refused Defendants' settlement offers. (Id. at ¶¶ 36-41.)

         On May 31, 2016, Defendants offered to settle with Mountain for a stipulated judgment of $372, 000 against Mountain in exchange for a covenant not to execute the judgment against Mountain. (Id. at ¶ 46.) Mountain reviewed the settlement offer and forwarded it to Plaintiff. (Id. at ¶ 48.) Plaintiff refused to fund the settlement offer and threatened to sue Mountain if it settled with Defendants. (Id. at ¶ 49.) On August 2, 2016, Mountain entered into the Settlement Agreement with Defendants. (Id. at 34-44.) As part of the Agreement, Mountain also assigned all of its claims against Plaintiff to ORGENCO. (Id. at ¶ 52.)

         On August 24, 2016, Plaintiff filed a complaint in federal court against Defendants alleging causes of action for (1) declaratory judgment that there was no duty to defend the underlying state court action, (2) declaratory judgment that there has been satisfaction of the duty to defend in the underlying action, (3) declaratory judgment that coverage was voided by an unauthorized settlement agreement; and (4) unjust enrichment. (Doc. No. 1 ¶¶ 21-44.)

         By the present motion, Defendants move pursuant to Federal Rule of Civil Procedure 15 for leave to file counterclaims against Plaintiff. Defendants' proposed counterclaims allege eleven causes of action, including (1) a judgment creditor action pursuant to California Insurance Code Section 11580, (2) an action for breach of contract, (3) multiple actions for breach of the implied covenant of good faith and fair dealing, (4) a declaratory judgment action seeking to disqualify Plaintiff's counsel, and (5) an action for punitive damages.

         DISCUSSION

         I. LEGAL STANDARDS FOR A MOTION TO AMEND PLEADINGS

         Federal Rule of Civil Procedure 15(a) allows a party leave to amend its pleading once as a matter of right within twenty-one days after service of a responsive pleading. Fed.R.Civ.P. 15(a). Thereafter, “a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.” Id. In the Ninth Circuit, this policy is “applied with extreme liberality.” Owens v. Kaiser Foundation Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001) (quoting Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990)).

         “The court considers five factors in assessing the propriety of leave to amend-bad faith, undue delay, prejudice to the opposing party, futility of amendment, and whether the plaintiff has previously amended the complaint.” United States v. Corinthian Colleges, 655 F.3d 984, 995 (9th Cir. 2011) (citing Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004)); accord In re W. States Wholesale Natural Gas Antitrust Litig., 715 F.3d 716, 738 (9th Cir. 2013). The five factors do not share “equal weight” and “it is the consideration of prejudice to the opposing party that carries the greatest weight.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). ÔÇťAbsent prejudice, or a strong showing of any of the remaining [] factors, there exists a presumption under Rule 15(a) in ...


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