United States District Court, E.D. California
CALIFORNIA DEPARTMENT OF TOXIC SUBSTANCES CONTROL and the TOXIC SUBSTANCES CONTROL ACCOUNT, Plaintiffs,
JIM DOBBAS, INC. a California corporation; CONTINENTAL RAIL, INC., a Delaware corporation; DAVID VAN OVER, individually; PACIFIC WOOD PRESERVING, a dissolved California corporation; WEST COAST WOOD PRESERVING, LLC., a Nevada limited liability company; and COLLINS & AIKMAN PRODUCTS, LLC, a Delaware limited liability company, Defendants.
ORDER RE: MOTION TO INTERVENE AND SET ASIDE
WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE
Department of Toxic Substances Control and the Toxic
Substances Control Account (collectively “DTSC”)
sought recovery of costs and interest incurred during the
cleanup of a wood preserving operation in Elmira, California
against multiple defendants under the Comprehensive
Environmental Response, Compensation, and Liability Act
(“CERCLA”), 42 U.S.C. § 9601 et seq. (First
Am. Compl. (“FAC”) at ¶ 19.) DTSC obtained
an entry of default against a canceled Delaware corporation,
defendant Collins & Aikman Products, LLC (“C&A
Products”) in 2015 after it failed to respond to
DTSC's First Amended Complaint. (Docket No. 129.)
Presently before the court is The Travelers Indemnity
Company's (“Travelers”) motion to intervene
as a defendant in this matter and vacate default against its
insured, C&A Products. (Mot. to Intervene and Vacate
Default (“Mot.”) at 2 (Docket No. 196).)
Motion to Intervene
seeks to intervene as of right or, in the alternative,
permissively under Federal Rule of Civil Procedure Rule 24.
(Mot. at 6.)
order to intervene as of right, the party must demonstrate
that it has an interest in the litigation and that interest
would be practically impaired if the intervention was not
granted. Cal. Dep't. of Toxic Substances Control v.
Commercial Realty Projects, Inc., 309 F.3d 1113, 1119
(9th Cir. 2002) (quoting United States v. State of
Washington, 86 F.3d 1499, 1503 (9th Cir. 1996)).
Ordinarily, insurance companies do not have an interest in
actions between those they insure and another party when they
deny coverage and refuse to provide a defense. Gray v.
Begley, 182 Cal.App.4th 1509, 1522 (2d Dist. 2010).
“an insurer providing a defense under a reservation of
rights has not lost its right to control the
litigation” and thus retains an interest in the action.
Hyundai Motor Am. v. Nat'l Union Fire Ins. Co. of
Pittsburgh, No. SACV 08-00020-JVS (RNBx), 2010 WL
11468348, at *3 (C.D. Cal. Oct. 26, 2010) (citing Gray, 182
Cal.App.4th at 1523-24)). Under California law, where the
insured defendant is “legally incapacitated”
because of suspension or cancelation, the insurer can
intervene in the action under a reservation of rights because
“if an insurer were unable to intervene . . . the
insurer would be deprived of any opportunity to
‘contest its insured's fault or the available
damages.'” B.G.N. Fremont Square Ltd. v.
Chung, No. CV 10-9749 GAF (RZx), 2011 WL 13129968, at *5
(C.D. Cal. Sep. 27, 2011) (citing APL Co. Pte. Ltd. v.
Valley Forge Ins. Co., No. C 09-05641 MHP, 2010
WL 1340373, at *4 (N.D. Cal. Apr. 5, 2010).
here, Travelers has both disclaimed coverage and any duty to
defend C&A Products (See Decl. of Alexander E.
Potente (“Potente Decl.”) at Exs. B & C
(Docket Nos. 197-2, 197-3)) and refused to provide a defense
under a reservation of rights. (Decl. of Laura J. Zuckerman
(“Zuckerman Decl.”) at 2 (Docket No. 215-1).)
Accordingly, Travelers forfeited any direct interest in the
action and the court will not permit it to intervene as of
permissive intervention may be granted by the district court
under its broad discretion. Perry v. Schwarzenegger,
630 F.3d 898, 905 (9th Cir. 2011) (per curiam). Courts may
consider the “nature and extent of the intervenors'
interest” and “whether intervention will prolong
or unduly delay the litigation.” Id. at 905
(citing Spangler v. Pasadena Bd. of Educ., 552 F.2d
1326, 1329 (9th Cir. 1977)). For the reasons above, the court
finds Travelers does not have an interest in this litigation
and its intervention would only serve to prolong the action.
The court will not permit Travelers to intervene
permissively, and the court will deny Travelers' motion
to intervene. II. Motion to Vacate Default Under Federal Rule
of Civil Procedure Rule 55(c), a court may set aside an entry
of default for good cause. To determine good cause, a court
will consider: (1) whether the party seeking to set aside
default engaged in culpable conduct that led to the default;
(2) whether the party had a meritorious defense; and (3)
whether reopening the default would prejudice the other
party. United States v. Signed Personal Check No. 730 of
Yubran Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010)
(internal quotations omitted). “[A] finding that any
one of these factors is true is sufficient reason for the
district court to refuse to set aside the default.”
to the Signed Personal Check No. 730 of Yubran Mesle
considerations, even if Travelers were permitted to
intervene, it has failed to establish good cause to set aside
C&A Products' default. First, although there is no
claim that Travelers itself engaged in any culpable conduct,
the conduct of its insured corporation, through its duly
authorized receiver, can be considered culpable. C&A
Products was a Delaware limited liability company. Under
Delaware law, a cancelled limited liability company can be
sued if the Delaware Court of Chancery appoints a trustee or
receiver for the company. 6 Del. C. § 18-805. The Court
of Chancery's appointed receiver, Brian Rostocki, had
“the power, but not the obligation, to defend, in the
name of Collins & Aikman Products, LLC, any claims made
against it in DTSC v. Dobbas.” In re Collins
& Aikman Prods., LLC, No. 10348-CB, 2014 WL 6907689, at
*1-2 (Del. Ch. Dec. 8, 2014) (Docket No. 73-1). Mr. Rostocki
accepted service of DTSC's First Amended Complaint and
failed to respond, leading to the entry of default. (Docket
Travelers has not offered or suggested any meritorious
defense that C&A Products would have to the complaint if
its default were set aside. Travelers' disagreement with
Mr. Rostocki's decision not to respond does not rise to
the level of a “meritorious defense” necessary to
show good cause. Further, the court expresses no opinion as
to the merits of Travelers' own declaratory relief action
against DTSC, except to note that the relief sought in that
action would not constitute a defense which C&A Products
could assert to liability in this action.
Travelers has failed to show that reopening the default would
not prejudice DTSC. The harm here is “greater”
than “simply delaying the resolution of the
case.” TCI Grp. Life Ins. Plan v. Knoebber,
244 F.3d 691, 701 (9th Cir. 2001), overruled on other grounds
by Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S.
141 (2001). DTSC sought entry of default against C&A
Products in 2015. Neither C&T Products nor Travelers did
anything to attempt to set aside that default for over three
years. DTSC relied in good faith on that default and incurred
the litigation expenses associated with preparing and filing
a motion for entry of judgment on that default. Accordingly,
the court will deny Travelers' motion to vacate entry of
THEREFORE ORDERED that Traveler's Motion to Intervene and
Motion to Vacate Default (Docket No. 196) be, and the same
thereby is, DENIED.