Cypress Insurance Company v. SK Hynix America, Inc.RESPONSEW.D. Wash.March 6, 20191 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANT SK HYNIX AMERICA, INC.’S RESPONSE RE UNCLEAN HANDS DEFENSE (2:17-CV-00467-RAJ) Page 1 BIRD, MARELLA, BOXER, WOLPERT, NESSIM, DROOKS, LINCENBERG & RHOW, P.C. 1875 Century Park East, 23rd Floor Los Angeles, California 90067-2561 (310) 201-2100 Hon. Richard A. Jones UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE CYPRESS INSURANCE COMPANY, as subrogee of Microsoft Corporation, Plaintiff, vs. SK HYNIX AMERICA, INC., Defendant. Civil Action No. 2:17-CV-00467-RAJ DEFENDANT SK HYNIX AMERICA, INC.’S RESPONSE TO PLAINTIFF’S OBJECTIONS PROPOSED JURY INSTRUCTION NO. 23 AND MOTION TO EXCLUDE REFERENCE TO “UNCLEAN HANDS” DEFENSE Date: March 6, 2019 Case 2:17-cv-00467-RAJ Document 247 Filed 03/06/19 Page 1 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANT SK HYNIX AMERICA, INC.’S RESPONSE RE UNCLEAN HANDS DEFENSE (2:17-CV-00467-RAJ) Page 2 BIRD, MARELLA, BOXER, WOLPERT, NESSIM, DROOKS, LINCENBERG & RHOW, P.C. 1875 Century Park East, 23rd Floor Los Angeles, California 90067-2561 (310) 201-2100 On March 6, 2019, Plaintiff Cypress Insurance Company’s (“Cypress”) moved, for the first time, to preclude Defendant SK Hynix America, Inc. (“Hynix”) from pursuing an unclean hands defense based on Cypress’s breach of contract claim. (Dkt. No. 246.) Hynix pleaded its unclean hands affirmative defense back in June 2017, (Dkt. No. 22), yet Cypress has never previously objected or moved to strike Hynix’s affirmative defense. Hynix also provided proposed jury instructions on its unclean hands defense to Cypress in February, and in Cypress’s formal objection to that proposed response, Cypress again failed to raise its latest argument that the unclean hands defense is unavailable. (Dkt. No. 217 at 96.) More importantly, Hynix is not pursuing an unclean hands defense to Cypress’s breach of contract claim. Rather, Hynix’s unclean hands defense is a defense to Cypress’s ability to pursue this action as a subrogee of Microsoft based on Microsoft’s inequitable conduct. As Microsoft’s subrogee, Cypress is subject to the same defenses that Hynix has against Microsoft. Mutual of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wash. 2d 411, 424 (2008) (en banc) (“An insurer entitled to subrogation ‘stands in the shoes’ of the insured and is entitled to the same rights and subject to the same defenses as the insured.”); Sequoia Ins. Co. v. Royal Ins. Co., 971 F.2d 1385, 1394 (9th Cir. 1992) (“As Brock’s subrogee, Sequoia is subject to all the defenses Royal could have asserted against Brock as the insured.”). Accordingly, the unclean hands of Microsoft flows through to Cypress and is an equitable defense Hynix can pursue against Cypress. Further, Cypress contends that it has subrogation rights, either as a contractual or equitable subrogee of Microsoft. (See Dkt. No. 168 at 7-9.) But regardless of the type of subrogation Cypress pursues, “whether arising by operation of law or under contract, subrogation is an equitable remedy subject to equitable defenses.” Transamerica Title Ins. Co. v. Johnson, 103 Wash. 2d 409, 417 (1985) (en banc). As a result of these subrogation principles, Cypress is barred from recovery as a subrogee under the doctrine of unclean hands due to Microsoft’s inequitable conduct in the insurance claims handling process. “The unclean hands doctrine ‘closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant.’” Hoang v. Amazon.com, Inc., 2013 WL 11319007, Case 2:17-cv-00467-RAJ Document 247 Filed 03/06/19 Page 2 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANT SK HYNIX AMERICA, INC.’S RESPONSE RE UNCLEAN HANDS DEFENSE (2:17-CV-00467-RAJ) Page 3 BIRD, MARELLA, BOXER, WOLPERT, NESSIM, DROOKS, LINCENBERG & RHOW, P.C. 1875 Century Park East, 23rd Floor Los Angeles, California 90067-2561 (310) 201-2100 at *3 (W.D. Wash. Mar. 18, 2013). Accordingly, to pursue an unclean hands defense against Cypress, Hynix need only show (1) inequitable conduct on behalf of Microsoft that flows through to Cypress, and (2) that inequitable conduct relates to the right obtained and being enforced by Cypress. See Trade Associates, Inc. v. Fusion Technologies, Inc., 2011 WL 1485491, at *2 (W.D. Wash. Apr. 18, 2011) (“Stated in other terms, the unclean hands doctrine bars recovery by a plaintiff (1) whose behavior is tainted with inequitableness or bad faith (2) that occurred in acquiring the right he now asserts.”) Here, Cypress is attempting to recover insurance proceeds paid to cover Microsoft’s loss from the Wuxi fire. Yet evidence of Microsoft’s unclean hands— such as withholding or misrepresenting information in the insurance claims handling process based on alleged losses from the Wuxi fire—makes clear that the very right Cypress is seeking to enforce and which it gained from Microsoft—a subrogation action for breach of contract—“is tainted with inequitableness or bad faith.” See Trade Associates, Inc., 2011 WL 1485491, at *2 (W.D. Wash. Apr. 18, 2011). In other words, Cypress obtained the right of subrogation from Microsoft as a result of the insurance claim made by Microsoft, but that right is tainted by the inequitable conduct of Microsoft in the insurance claims process. Now, Cypress seeks to enforce its subrogation right where that right was obtained through Microsoft’s bad faith and unclean hands. For these reasons, Hynix respectfully requests that the Court deny Cypress’s belated motion to strike Hynix’s unclean hands defense and allow the jury to decide this issue based on the evidence presented at trial. Case 2:17-cv-00467-RAJ Document 247 Filed 03/06/19 Page 3 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANT SK HYNIX AMERICA, INC.’S RESPONSE RE UNCLEAN HANDS DEFENSE (2:17-CV-00467-RAJ) Page 4 BIRD, MARELLA, BOXER, WOLPERT, NESSIM, DROOKS, LINCENBERG & RHOW, P.C. 1875 Century Park East, 23rd Floor Los Angeles, California 90067-2561 (310) 201-2100 DATED this 6th day of March, 2019 /s/ Alex Baehr Alex Baehr (WSBA #24320) SUMMIT LAW GROUP 315 5th Ave. S Suite 1000 Seattle, Washington 98104 Phone (206) 676-7039 Local Counsel for SK Hynix America, Inc. /s/ Ekwan E. Rhow Ekwan E. Rhow (pro hac vice) Timothy B. Yoo (pro hac vice) Jen C. Won (pro hac vice) BIRD, MARELLA, BOXER, WOLPERT, NESSIM, DROOKS, LINCENBERG & RHOW, P.C. 1875 Century Park East, 23rd Floor Los Angeles, California 90067-2561 Phone (310) 201-2100 Fax (310) 201-2110 Counsel for SK Hynix America, Inc. Case 2:17-cv-00467-RAJ Document 247 Filed 03/06/19 Page 4 of 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANT SK HYNIX AMERICA, INC.’S RESPONSE RE UNCLEAN HANDS DEFENSE (2:17-CV-00467-RAJ) Page 5 BIRD, MARELLA, BOXER, WOLPERT, NESSIM, DROOKS, LINCENBERG & RHOW, P.C. 1875 Century Park East, 23rd Fl., Los Angeles, California 90067 Tel: (310) 201-2100 CERTIFICATE OF SERVICE I hereby certify that on March 6, 2019, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system, which will send notification of such filing to all participants in this case who are registered CM/ECF users. I further certify that all participants to this case are registered with the CM/ECF system, and therefore no participant need be served by conventional methods. /s/ Jen C. Won BIRD, MARELLA, BOXER, WOLPERT, NESSIM, DROOKS, LINCENBERG & RHOW, P.C 1875 Century Park East, 23rd Floor Los Angeles, California 90067-2561 Phone (310) 201-2100 Fax (310) 201-2110 Counsel for SK Hynix America, Inc. Case 2:17-cv-00467-RAJ Document 247 Filed 03/06/19 Page 5 of 5