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Atain Specialty Insurance Company v. Slocum

United States District Court, E.D. California

December 18, 2019

ATAIN SPECIALTY INSURANCE COMPANY, a Michigan corporation, Plaintiff
RAYMOND SLOCUM, an individual d/b/a Mountain Property Service, et al., Defendants


         This is an insurance dispute that arises between Plaintiff Atain Specialty Insurance Co. (“Atain”) and its insureds, Defendants Raymond Slocum and Matthew Marvin both doing business as Mountain Property Services (collectively “MPS”). MPS is being sued in state court by co-defendant Adrian Porter (who is a minor). Atain seeks a declaration under 28 U.S.C. § 2201 that it owes no duty defend MPS against Porter's claims. The Court previously denied motions to dismiss by Defendants, but did so without prejudice. Currently before the Court are renewed Rule 12(b)(6) and 12(c) motions by Porter and a motion to dismiss by MPS. For the reasons that follow, the motions will be granted.


         From the Complaint, Porter's family rented a cabin from the DeBenedetto's at Shaver Lake, California for a weekend getaway. Prior to the family's arrival at the cabin, the owners of the cabin hired MPS to perform tree cutting services and to clear away brush at the cabin. After the family's arrival, on July 1, 2017, Porter fell into a smoldering pile of debris/slash pile on the cabin's premises that had been left by MPS. Porter sustained injuries from falling into the debris, and Porter's family sued MPS in state court (hereinafter the “State Case”).

         The State Case alleges in part that MPS “was negligent in the use and/or maintenance of the property by creating a condition that was an unreasonable risk of harm (i.e. having the burn pile unattended); and (2) MPS “knew or, through the exercise of reasonable care, should have known about the dangerous condition that the burn pile created [and] failed to repair this condition, protect patrons against harm from this burn pile or give adequate warning of the dangers of a smoldering burn pile.” From these allegations, Porter seeks several million dollars in damages under theories of general negligence and premises liability (including sub-counts for negligence and failure to warn).

         After MPS was served with the State Case complaint, it tendered its defense to Atain. Atain had issued a commercial general liability policy to MPS that was in effect from August 2016 to August 2017 (“the Policy”).

         On May 4, 2018, Atain accepted MPS's tender under a reservation of rights. The reservation of rights explains that Atain has concerns over its obligations to defend and indemnify based on the definition of the term “occurrence, ” an exclusion for bodily injuries “arising out of” “all controlled burns and fire mitigation operations, ” application of the classification limitation endorsement (which provides coverage only for specifically identified classifications/activities), application of an exclusion regarding contractual liability, and application of a $500 deductible. See Complaint Ex. 3.

         On February 20, 2019, Atain filed this action for declaratory relief. Atain contends that the State Case complaint does not allege the potential for coverage under the Policy, while MPS and Porter contend that the State Case complaint alleges both potential and actual coverage. The Complaint alleges that there is no duty to defend and no duty to indemnify because: (1) the state complaint does not allege an “occurrence, ” (2) the classification limitation applies to preclude coverage, and (3) the exclusion for designated ongoing operations applies.

         On July 8, 2019, the Court denied Defendants' respective motions to dismiss. See Doc. No. 24. As in the current motions, Defendants requested that the Court either dismiss this case under the discretion provided by 28 U.S.C. § 2201 or stay this matter pending resolution of the State Case. The Court held in part that the Defendants had not adequately demonstrated that identical factual or legal matters would be decided in both this case and the State Case. However, the Court denied the motions without prejudice to refiling and demonstrating that identical issues would be decided in both cases. The current motions to dismiss ensued.


         Rule 12(b)(6)

         Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. See Mollett v. Netflix, Inc., 795 F.3d 1062, 1065 (9th Cir. 2015). In reviewing a complaint under Rule 12(b)(6), all well-pleaded allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Kwan v. SanMedica, Int'l, 854 F.3d 1088, 1096 (9th Cir. 2017). However, complaints that offer no more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Johnson v. Federal Home Loan Mortg. Corp., 793 F.3d 1005, 1008 (9th Cir. 2015). The Court is “not required to accept as true allegations that contradict exhibits attached to the Complaint or matters properly subject to judicial notice, or allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Seven Arts Filmed Entm't, Ltd. v. Content Media Corp. PLC, 733 F.3d 1251, 1254 (9th Cir. 2013). To avoid a Rule 12(b)(6) dismissal, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678; Mollett, 795 F.3d at 1065. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678; Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). “If a motion to dismiss is granted, “[the] district court should grant leave to amend even if no request to amend the pleading was made . . . .” Ebner v. Fresh, Inc., 838 F.3d 958, 962 (9th Cir. 2016). However, leave to amend need not be granted if amendment would be futile or the plaintiff has failed to cure deficiencies despite repeated opportunities. Garmon v. County of L.A., 828 F.3d 837, 842 (9th Cir. 2016).

         Rule 12(c)

         Under Federal Rule of Civil Procedure 12(c), “[a]fter the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings.” Fed. R. Civ. Pro. 12(c). Because the motions are functionally identical, the same standard of review applicable to a Rule 12(b)(6) motion applies to a Rule 12(c) motion. Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). The non-moving party's allegations are accepted as true, and all reasonable inferences are drawn in the non-moving party's favor. Hines v. Youseff, 914 F.3d 1218, 1227 (9th Cir. 2019); Living Designs, Inc. v. E.I. DuPont de Nemours & Co., 431 F.3d 353, 360 (9th Cir. 2005). Any allegations made by the moving party that have been denied or contradicted are assumed to be false. See MacDonald v. Grace Church Seattle, 457 F.3d 1079, 1081 (9th Cir. 2006); Hal Roach Studios v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989).


         Defendants' Argument

         Defendants collectively argue that the Court should either decline to exercise jurisdiction or stay this matter. Defendants argue that if the Court retains jurisdiction, it will decide issues that will also necessarily arise and be decided in the State Case. Defendants argue that, because Atain contends that it owes no duty to defend because no “occurrence” (which is an “accident” within the meaning of the Policy), this Court will have to determine if an accident or something else occurred. The State Case will also examine the same evidence to determine if an “accident” occurred as part of a liability determination, including apportionment between the parties. Similarly, Atain contends that only activities covered by a “classification limitation” endorsement are covered by the Policy and that the burning scrub pile does not fit within that clause. The classification limitation defines covered activities as “yard service, “tree pruning, trimming, and removal, ” and “landscaping or debris removal.” All of the evidence and facts that bear on whether MPS was engaged in yard service, tree pruning, trimming, and removal, and landscaping or debris removal activities will be a part of this case and the State Case. Also, Atain argues that an exclusion for “controlled burns and fire mitigation operations” applies. These terms are not defined, but they have meaning under a series of California laws and regulations. Porter relies on these rules and regulations in the State Case as part of a negligence per se theory. Determining how the regulations and laws operate will affect both Porter's negligence claims and the interpretation of the exclusion. Relatedly, there are multiple regulations involved that generally have not been interpreted by state courts. It is unnecessary for the Court to review and opine on these novel state issues. Finally, Defendants reiterate their arguments from the previous motions to dismiss and argue that Atain is forum shopping, this case is unnecessarily duplicative of the State Case, this case will not resolve all aspects of the controversy between the parties, the legal relation between the parties will not be fully clarified, Atain would obtain an unjust res judicata advantage, this case unnecessarily entangles the federal and state court systems, and the Court should either dismiss or stay this matter.

         Plaintiff's Opposition

         Atain argues that Defendants have merely repeated the same arguments that they made in the prior motions without identifying any issue in the State Case that would be resolved in this case as part of a duty to defend analysis. Instead, MPS conflates the analysis of a duty to defend with liability issues related to the State Case. No adjudication of facts will be necessary in this case because the Court will be determining a duty to defend based on the Policy and the complaint in the State Case, not on any facts that will be proven at trial in the State Case. Further, with respect to interpreting statutes and regulations, the statutes and regulations apply to Porter's theory of liability against MPS and possibly to MPS's defenses, but these liability issues are irrelevant to determining whether the complaint shows the potential for coverage. Finally, Atain argues that the Court has already rejected the points raised by Defendants' motions.

         Legal Standard

         Pursuant to the Declaratory Judgment Act, federal courts “may declare the rights and other legal relations of any interested party” in a declaratory judgment action. 28 U.S.C. § 2201(a); R.R. St. & Co. v. Transp. Ins. Co., 656 F.3d 966, 975 (9th Cir. 2011). Two issues arise from this statute: whether the case is an actual case or controversy within the court's jurisdiction, and if so, whether the court should exercise that jurisdiction over the matter. Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 669 (9th Cir. 2005); American States Ins. Co. v. Kearns, 15 F.3d 142, 143 (9th Cir. 1994).

         With respect to the first issue, the case or controversy requirement is identical to Article III's case or controversy requirement. Robinson, 394 F.3d at 669; Kearns, 15 F.3d at 143. “If a case is not ripe for review, then there is no case or controversy, and the court lacks ...

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