No. C 03-05417 MHP.
November 15, 2004
MEMORANDUM AND ORDER Motion to Reconsider
On October 30, 2003, plaintiffs Crab Boat Owners Association, Robert Miller, Larry Collins, and John Tarantino filed a complaint alleging a breach of Hartford Insurance Company's duty to defend plaintiffs in Dooley et al. v. Crab Boat Owners Association et al., C 02-0676 MHP, a separate lawsuit before this court. Plaintiffs allege that defendants' refusal to defend constituted a breach of its insurance contract and a violation of the contract's implied covenant of good faith and fair dealing. Defendants filed a motion to dismiss plaintiffs' complaint on December 31, 2003. This court subsequently granted defendants' motion to dismiss the Hartford Financial Services Group and The Hartford as defendants in the action, but denied the defendants' motion to dismiss plaintiffs' contract-based claims. With leave from the court, defendants now move for reconsideration of the portion of this court's order denying defendants' motion. Having read the parties' papers and considered their arguments, the court hereby enters the following memorandum and order.
Defendants insured plaintiffs under a standard Comprehensive General Liability (CGL) policy, which protects against bodily injury or property damage caused by "occurrences." Defs' Mot. to Dismiss, Exh.1.A, at 1. The policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Defs' Mot. to Dismiss, Exh.1.A, at 11. The relevant coverage ran from June 27, 2001, until June 27, 2002. On February 1, 2002, a commercial fisherman, John Dooley, and his crew-members filed suit against Crab Boat Owners Association (CBOA) and several other Bay area fishermen's associations for conspiring to fix the price of crab and for threatening and retaliating against members of the trade whose continued fishing interfered with the price-fixing scheme.See Defs' Mot. to Dismiss, Exh. 2. The Dooley plaintiffs filed an amended complaint on June 27, 2002, repeating the earlier allegations of antitrust violations and intentional torts and alleging additional costs and lost revenue resulting from defendants' conduct. See Defs' Mot. to Dismiss, Exh. 3.
Plaintiffs are currently litigating the underlying action in this court as defendants. On October 30, 2003, plaintiffs filed a complaint with the California Superior Court, demanding that defendants comply with their contractual duty to defend by indemnifying plaintiffs for damages incurred in the underlying lawsuit. Defendants removed the action to federal court on diversity jurisdiction grounds and filed a motion to dismiss for failure to state a claim on which relief could be granted, asserting that plaintiffs' alleged conduct did not constitute an "occurrence" within the meaning of the policy. See Defs' Mot. to Dismiss, at 3. Defendants also moved to dismiss Hartford Financial Services Group (HFSG) and "The Hartford" as parties for defective summons and service of summons. Id. at 3-4.
By order filed July 20, 2004, this court granted in part, denied in part, defendants' motion to dismiss. On September 7, 2004, this court granted leave to file a motion for reconsideration under Civ. L.R. 7-9(a). Defendant now moves for reconsideration of the portion of the order denying dismissal of plaintiffs' contract-based claims. Plaintiffs oppose this motion and, in the alternative, ask this court to grant the third-party plaintiffs leave to amend their complaint. Lastly, defendants seek judicial notice of the existence of specific deposition testimony by the third-party plaintiffs, though not notice of the truth of the matter asserted therein. LEGAL STANDARD
I. Motion to Reconsider
Where the court's ruling has not resulted in a final judgment or order, reconsideration of the ruling may be sought under Rule 54(b) of the Federal Rules of Civil Procedure, which provides that any order which does not terminate the action is subject to revision at any time before the entry of judgment. See Fed.R.Civ.P. 54(b). In the Northern District of California, no motion for reconsideration may be brought without leave of court. See Civ. L.R. 7-9(a). Reconsideration is appropriate if "the district court (1) is presented with newly discovered evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in controlling law." School Dist. No. 1J, Multinomah County v. ACandS, Inc., 5 F.3d 1255, 1262-63 (9th Cir. 1993), cert. denied, 512 U.S. 1236 (1994).
II. Motion to Dismiss
"A motion to dismiss for failure to state a claim is viewed with disfavor and is rarely granted." Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 249 (9th Cir. 1997) (internal quotes omitted). Nonetheless, dismissal is proper in "extraordinary" cases. United States v. Redwood City, 640 F.2d 963, 966 (9th Cir. 1981). A motion to dismiss will be denied unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Parks Sch. of Bus. Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); Fidelity Fin. Corp. v. Federal Home Loan Bank of San Francisco, 792 F.2d 1432, 1435 (9th Cir. 1986). In deciding a motion to dismiss, a court accepts all material allegations in the complaint as true and construes all evidence in the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). The court need not, however, accept as true conclusory allegations, unwarranted deductions of fact or unreasonable inferences.Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
Although the court is generally confined to considering the allegations in the pleadings, when the complaint is accompanied by attached documents, such documents are deemed part of the complaint and may be considered in determining whether dismissal is proper without transforming the motion into one for summary judgment. See Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987); Hal Roach Studios, Inc. v. Richard Feiner Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir. 1989). In deciding such motions, the court may also consider facts that are properly the subject of judicial notice. See MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986). Judicially noticeable facts include those that are not subject to reasonable dispute because they are either generally known within the court's jurisdiction or can be determined by resort to sources whose accuracy cannot reasonably be questioned. See Fed.R.Evid. 201.
III. Duty to Defend
An insurer's duty to defend is broader than its duty to indemnify. See CNA Cas. of Cal. v. Seaboard Sur. Co., 176 Cal. App. 3d 598, 605 (1986). When the dispute concerns the scope of coverage, not the effect of an exclusion, the burden of proof rests initially on the insured to show that an event is a risk of the type the policy covers. Royal Globe Ins. Co. v. Whitaker, 181 Cal. App. 3d 532, 538 (1986). Because the final decision regarding coverage often depends on factual determinations made at trial, an insurer must defend a suit which potentially seeks damages within the policy coverage. See Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 275 (1966). Whether the insurer owes a duty to defend turns initially on comparing the allegations in the complaint with the terms of the policy. See Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287, 295 (1993). An insurer must also consider facts extrinsic to the pleadings. See Gray, 65 Cal. 2d at 276-77. If the complaint, taken together with extrinsic evidence, alleges only intentional torts that would compel a finding of intentional wrongdoing, the insurer is relieved of its defense duty. See Gray, 65 Cal. 2d at 275 n. 15.
As defendants allege neither newly discovered evidence nor an intervening change in law, the court must determine whether it committed legal error in denying the motion to dismiss plaintiffs' contract-based claims. Defendants contend that the court committed clear legal error by failing to "consider the element of intentional conduct that is essential to a claim for trespass to chattels." Def's Mot. ¶ 1. In addition, defendants seek reconsideration of the court's conclusion that the underlying complaint in the Dooley action did not allege intentional actions, specifically, the cutting of the third-party plaintiffs' crab pot lines. Id. at ¶ 2.
Plaintiffs do not contest the legal requirement of intent in a trespass to chattels claim. Rather, plaintiffs argue that the facts alleged in the Dooley complaint, as currently written, are sufficient to trigger the duty to defend. See Pls' Opp'n at 4-5. In addition, they argue that the motion to reconsider is moot due to a recent expression by third-party plaintiffs of their intent to amend the Dooley complaint. See Pls' Opp'n at 1-3. If this court grants defendants' motion and sees it necessary to dismisses all contract-based claims in this case, plaintiffs seek leave for the third-party Dooley plaintiffs to amend their complaint. See Pls' Opp'n at 9.
A. Third-Party Plaintiffs' Trespass to Chattels Claim
It is clear that California law requires intent as an element of trespass to chattels. See Intel Corp. v. Hamidi, 30 Cal. 4th 1342, 1350-51 (2003) (holding that under California tort law, trespass to chattels "lies where an intentional interference with the possession of personal property has proximately caused injury.") Plaintiffs do not substantively dispute this contention, and the court acknowledges legal error on this point. Applying that corrected standard, the question remains as to whether defendants have a duty to defend plaintiffs by reason of the trespass to chattels cause of action.
In its claim for trespass to chattels, the underlying complaint in the Dooley lawsuit alleges only intentional acts committed in furtherance of intended consequences. See Defs' Mot. to Dismiss, Exh.3 (alleging that "the buoy lines to 647 of the crab pots had intentionally been cut," "[d]efendants cut the lines to the Plaintiffs' crab pots. . . .," and seeking relief on the basis of allegedly "willful and malicious" interference with third-party plaintiffs' crab pots). These factual allegations support the third-party plaintiffs' trespass to chattels cause of action. However, they threaten the viability of plaintiffs' claim in the present action that defendants have a duty to defend them in the line-cutting incidents under their insurance contract covering "occurrences." Plaintiffs make two arguments that defendants indeed have a duty to defend them to the trespass charges: (1) that there is nevertheless a theoretical possibility that damages will be awarded to plaintiffs on a negligence theory, and (2) that an "occurrence" under the meaning of the contract should cover an intentional act with unintended consequences. See Pls' Opp'n at 4-9.
The plaintiffs' first argument is that the underlying complaint's allegation of trespass to chattels opens the "possibility" that plaintiffs could be found liable in the underlying action for accidental acts causing property damage, which would fall under the insurance policy's definition of "occurrence." See Pls' Opp'n at 3-4. Plaintiffs correctly argue that the "duty to defend arises when the facts alleged in the underlying complaint give rise to a potentially covered claim regardless of the technical legal cause of action pleaded by the third party." Barnett v. Fireman's Fund, 90 Cal. App. 4th 500, 510 (2001). They contend that the allegation of property damage and the theoretical possibility that crab pots can be lost by accident both trigger the potential that plaintiffs will be found liable under a negligence theory. See Pls' Opp'n at 5-6. However, the underlying complaint seeks relief for trespass to chattels solely on the basis of plaintiffs' allegedly "willful and malicious" interference with third-party plaintiffs' crab pots. See Defs' Mot. to Dismiss, Exh. 3, at 32. No factual allegations suggest that the crab pot lines were or could have been severed unintentionally. An insurer has a duty to defend based on the potential for additional causes of action to arise from the facts alleged or the extrinsic evidence provided, not on abstract speculation as to new facts which may arise.See Dobrin v. Allstate Ins. Co., 897 F.Supp. 442, 444-45 (C.D. Cal. 1995) (finding a possibility of coverage based on facts already pled in the complaint, as well as supporting extrinsic evidence); Mullen v. Glen Falls Ins. Co., 73 Cal.App.3d 163 (1977) (identifying the crucial question as "whether [the insurer] was in possession of factual information which gave rise to potential liability under its policy"). Plaintiff has presented no factual allegations nor extrinsic evidence of facts that would give rise to the possibility of coverage.
Additionally, the trespass to chattels count largely reiterates the factual allegations of the conversion claim. See Defs' Mot., Exh. 3, at 31-32. Indeed, from the perspective of the law, so similar are the two torts that trespass to chattels has been called "the little brother of conversion." Prosser Keeton, Torts (5th ed. 1984) § 14, 85-86. Since California courts have concluded that conversion cannot be an "occurrence" or "accident" within the meaning of insurance policies, see Collin v. American Empire Co., 21 Cal. App. 4th 787, 814 (1994), it seems logical for trespass to chattels to be similarly characterized.
Consequently, it would be improper for this court to give jury instructions permitting the jury to find defendant liable for negligence in the underlying action. See CACI 2101. See also Intel, 30 Cal. 4th at 1350-51. By alleging intentional misconduct with intent to injure and failing to provide extrinsic evidence supporting an alternative theory of negligence, plaintiffs cannot bring the actions at issue in this case under the policy coverage for accidents. Plaintiffs' contention that a Dooley amendment of the pleadings will resolve this gap in the factual allegations will be addressed in the next section.
Several cases among plaintiffs' cited precedent to the contrary derive from the construction of exclusionary clauses, as opposed to the scope of policy coverage. See Gray, 65 Cal.2d. at 263 (concerning an exclusionary clause for intentional acts);Mullen v. Glen Falls Ins. Co., 73 Cal.App.3d 163 (1977) (construing an exclusionary clause, in combination with extrinsic evidence that would weigh in favor of coverage, in favor of the insured); and Meyer v. Pacific Employer Insurance Co., 233 Cal.App.2d 331, 327 (1965) (finding a duty to defend based on the unexpected consequences of intentional actions where a policy exclusion excluded non-accidental acts). Defendants draw a valid distinction between case law regarding policy coverage and the reach of policy exclusion clauses. See Merced Mutual, 213 Cal.App. at 47 (distinguishing Gray v. Zurich and other cases on the basis that "[i]n each of these cases, damages of the type covered by the policy had undisputably occurred, and the insurer relied upon an unclear exclusionary clause in asserting it was not obligated to defend the insured. Here, on the other hand, the question concerns the basic scope of the coverage itself.")
Plaintiffs also argue that liability for trespass can theoretically arise not only from willful, deliberate acts but also from intentional acts producing unintentional consequences, and that therefore, defendants are potentially liable for damages covered under the policy. See Pls' Opp'n at 7-9. They assert that under California law, an intentional act leading to unintentional consequences constitutes an "accident" for the purposes of interpreting the meaning of "occurrence" in insurance policies. Although it is true that the intent necessary to prove trespass to chattels includes intentional behavior that only mistakenly causes harm as well as conduct committed willfully,see Restatement 2d Torts § 217(c), it does not follow that "innocent" intentional acts constitute accidents within the meaning of CGL policies. Compare Geddes Smith, Inc. v. St. Paul Mercury Indemnity Co., 51 Cal. 2d 558, 563-64 (1959) (holding that an accident is an unexpected, unforeseen, undesigned consequence and therefore an insured's mens rea and motive are relevant to determining whether his intentional conduct can constitute an accident), with Merced Mutual Ins. Co. v. Mendez, 213 Cal. App. 3d 41, 47-49 (1989) (holding that where an insured intended all of the acts resulting in the unexpected consequences, the event is not an accident merely because the insured did not intend such consequences).
Recent cases are nearly unanimous in finding that intentional acts causing unintentional damage are not accidents for the purposes of insurance coverage. See e.g., Ray v. Valley Forge Ins. Co., 77 Cal. App. 4th 1039, 1045-46 (1999) (interpreting "occurrence" defined as "accident" in a CGL policy to "require unintentional acts or conduct" and holding that the "[p]lain meaning of the word `accident' is an event occurring unexpectedly or by chance"); Mendez, 213 Cal. App. 3d at 48 (noting that the argument that the requisite intent applies not to one's actions, but to their consequences, "has been repeatedly rejected by the appellate courts"). See also Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1365 (9th Cir. 1991); Swain v. California Cas. Ins. Co., 99 Cal. App. 4th 1, 10 (2002). Current California authority thus instructs that mistakes of fact do not transform intentional actions into accidents, and it shows a marked trend towards focusing on the intent to perform an act rather than intent to generate specific consequences. See Allstate Ins. Co. v. Salahutdin, 815 F.Supp. 1309, 1312 (N.D. Cal. 1992) (holding that under California law, a policy covering "accidents" would not reach a tort where defendant mistakenly believed she was acting legally); Allstate Ins. Co. v. LaPore, 762 F.Supp. 768 (N.D. Cal. 1991) (holding that under California law, a policy covering "accidents" would not reach a tort where defendant did not intend to cause harm).
Therefore, as a matter of California law, the intentional, willful acts of cutting the crab pot lines alleged in theDooley pleadings do not trigger defendants' duty to defend under the "occurrence" protections in plaintiffs' CGL policy. It was legal error for this court not to dismiss plaintiffs' contract-based claims on this basis.
B. Amendment to the Pleadings
Plaintiffs also argue that, even had the trespass count not invoked the possibility of liability for unintentional conduct, the steps taken by the third-party plaintiff to amend his complaint to include covered causes of action serves as independent grounds establishing defendants' duty to defend. Pls' Opp'n, Exh. 1. In the alternative, plaintiffs argue that if this court grants the defendants' motion to dismiss, the plaintiffs in the Dooley action should be permitted to amend their complaint to add a negligence cause of action. This court subsequently denied the Dooley parties leave to amend the pleadings based on a vague, speculative, and unsupported allegation of crab pot damage due to negligence.
The Federal Rules of Civil Procedure permit a plaintiff to amend his complaint, if the court grants leave or if the opposing party stipulates, at any time before the action concludes. See Fed.R.Civ.P. 15(a). Any party filing or moving to file an amended complaint must submit the entire revised complaint to this court. Civ. L.R. 10-1. Theoretically, an insurer's obligation to defend would always remain undetermined until final judgment. However, plaintiffs' assertion that the carrier always has an obligation to defend when the third-party plaintiff remains free to amend his complaint is misplaced. While true that an insured is entitled to a defense if the underlying complaint might be amended to create a potential liability covered under the policy, speculation about how a third-party plaintiff "might amend its complaint at some future date" is insufficient to catalyze an insurer's duty to defend. Upper Deck Co. LLC v. Federal Ins. Co., 358 F.3d 608, 615 (9th Cir. 2004) (holding that any amendment to the complaint must be supported by facts already in the complaint and that "only amendments that would include new causes of action clearly supported by the facts already pled in the complaint may support a finding of potential liability"). See also Dobrin v. Allstate Ins. Co., 897 F.Supp. 442, 443 (C.D. Cal. 1995); Quan v. Truck Ins. Exch., 67 Cal. App. 4th 583 (1998). There are no facts in the currentDooley complaint that would support a negligence cause of action and thus the allegations are insufficient to trigger a duty to defend.
The critical inquiry is whether the "facts alleged do fairly apprise the insurer that [the third-party] plaintiff is suing the insured upon an occurrence which . . . if true, gives rise to liability . . . under the terms of the policy." Gray, 65 Cal. 2d at 275; CNA Cas. of California v. Seaboard Sur. Co., 176 Cal. App. 3d 598, 607 (1986). Coverage depends not on the technical cause of action pleaded, but on the facts alleged in the underlying complaint or available to the insurer from extrinsic sources. See Gray, 65 Cal. 2d at 279; Swain, 99 Cal. App. 4th at 8. Most importantly, even if a proposed additional cause of action were properly before the court, "[a] general boilerplate pleading of negligence adds nothing to a complaint otherwise devoid of facts giving rise to a potential for covered liability." Swain, 99 Cal. App. 4th at 8.
Moreover, the underlying action has advanced well into discovery, and this court was loath to permit amendment at this stage absent a showing of good cause. An amendment alleging that the line-cutting was the result of negligence acts was inconsistent with the third-party plaintiffs' theory of the case, and it threatened to strip the antitrust and intentional tort claims of their persuasive force. See Low v. Golden Eagle Ins. Co., 99 Cal. App. 4th 109, 114 (2002) (holding that plaintiff impermissibly speculates when surmising an amendment to the third-party plaintiff's pleading that would "in effect substitute one cause of action for another"). Under the circumstances, this court denied leave to amend. The court can, of course, always revisit the insurer's duty to defend if the need arises. CONCLUSION
For the foregoing reasons, the court hereby amends its order of July 20, 2004 in the above-mentioned matter to GRANT defendants' motion to dismiss. It is thus unnecessary to consider defendants' request for this court to take judicial notice of the "existence" of specific deposition testimony.
IT IS SO ORDERED.