Pan Pacific Retail Properties v. Gulf Ins.

• Citation: 471 F.3d 961
• Decision Date: 26 October 2006
• Docket Number: No. 04-56394.,04-56394.
• Parties: PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation; Western Properties Trust, a real estate trust, Plaintiffs-Appellants, v. GULF INSURANCE COMPANY, a Connecticut corporation; Twin City Fire Insurance Company, a Minnesota corporation; Does, 1-50, inclusive, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

471 F.3d 961

PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation; Western Properties Trust, a real estate trust, Plaintiffs-Appellants, v. GULF INSURANCE COMPANY, a Connecticut corporation; Twin City Fire Insurance Company, a Minnesota corporation; Does, 1-50, inclusive, Defendants-Appellees.

No. 04-56394.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 2006.

Filed October 26, 2006.

Amended December 21, 2006.

COPYRIGHT MATERIAL OMITTED

Michael Bruce Abelson, Abelson Herron LLP, Los Angeles, CA, for plaintiffs-appellants Pan Pacific Retail Properties, Inc. and Western Properties Trust.

David T. DiBiase, Anderson, McPharlin & Connors LLP, Los Angeles, CA, for defendant-appellee Gulf Insurance Company. Stephen H. Sutro, Duane Morris LLP, San Francisco, CA, for defendant-appellee Twin City Fire Insurance Company.

Appeal from the United States District Court for the Southern District of California; William Q. Hayes, District Judge, Presiding. D.C. No. CV-03-00679-WQH.

Before ALEX KOZINSKI and RONALD M. GOULD, Circuit Judges, and RICARDO S. MARTINEZ,^* District Judge.

ORDER AND AMENDED OPINION ORDER

The Appellee Gulf Insurance Company's Petition For Panel Rehearing is GRANTED. The opinion of the court filed October 26, 2006 and published at 466 F.3d 867 is hereby AMENDED as follows:

After the second to last sentence in the opinion, stating "We remand for further proceedings consistent with this opinion," add a new footnote stating:

We leave undisturbed the district court's grant of summary judgment dismissing Pan Pacific's claims for breach of the covenant of good faith and fair dealing and violation of California Business & Professions Code § 17200. See Lunsford v. American Guar. & Liab. Ins. Co., 18 F.3d 653, 656 (9th Cir.1994) (applying California law and reversing district court's summary judgment that there was no coverage under insurance policy, but holding as a matter of law that the insurer did not deny coverage in bad faith where insurer investigated the insureds' claim and based denial on a reasonable construction of its policy).

Pursuant to General Order 5.3(a), subsequent petitions for rehearing or rehearing en banc may be filed concerning this amendment.

IT IS SO ORDERED.

OPINION

GOULD, Circuit Judge.

Appellants Pan Pacific Retail Properties, Inc. ("Pan Pacific") and Western Properties Trust ("Western") challenge their insurers' denial of coverage for an underlying shareholder class action. Pan Pacific and Western were each insured under a Directors' and Officers' Liability and Company Indemnification Policy ("D & O Policy"). Pan Pacific was insured by Appellee Gulf Insurance Company ("Gulf"). Western was insured by Appellee Twin City Fire Insurance Company ("Twin City"). Gulf and Twin City assert that all costs and expenses arising out of the underlying shareholder lawsuit were uninsurable as a matter of public policy because, according to the insurers, the suit only sought and recovered the disgorgement of additional consideration that the shareholders allege should have been paid by Pan Pacific to Western's shareholders in the merger of Pan Pacific and Western. Twin City additionally contends that Western, its insured under the Twin City policy, may not recover any insurance proceeds because Pan Pacific had fully indemnified Western from any claims resulting from the merger.

We conclude that summary judgment was incorrect on the issue of whether the settlement paid by Pan Pacific to Western's shareholders to settle the remaining claims was entirely restitutionary relief, in light of the conflicting evidence as to the nature of these claims, and we reverse summary judgment on this ground. We affirm the grant of summary judgment to Twin City on the ground that Western was fully compensated from any loss by Pan Pacific's payment of the settlement and any other costs or expenses.

I

In October 2000, Pan Pacific and Western proposed a merger transaction in a joint proxy statement and prospectus, whereby all shares of Western would be acquired by Pan Pacific with consideration paid in Pan Pacific stock. A class action brought by shareholder Bryant Bennett on behalf of all Western shareholders challenged many aspects of the merger. The Bennett complaint, which was filed in the Superior Court of California, Alameda County, alleged that Pan Pacific, Western and their directors and officers were liable for breaches of fiduciary duty, abuse of control, fraud and deceit, negligent misrepresentation, constructive fraud, unjust enrichment, and for four statutory violations under state law.¹ The complaint alleged, inter alia, that the Bennett defendants breached their fiduciary obligations to the shareholders by failing to negotiate the highest possible price for the Western shares, by engaging in related transactions between Pan Pacific and Western that created a conflict of interest, and by failing to disclose all material information to the shareholders before they voted overwhelmingly to approve the merger.

On November 9, 2000, Western tendered notice of the Bennett lawsuit to Twin City which had issued a D & O Policy to Western.² The day after the merger closed on November 13, 2000, Pan Pacific tendered notice of the Bennett lawsuit to Gulf which had issued a D & O Policy to Pan Pacific. Both insurers denied coverage. Gulf's reasons, as set forth in its counsel's letter of December 21, 2000, included that: "Loss would not include . . . any award against or settlement by Pan Pacific representing increased consideration for its acquisition of [Western.]" Twin City stated in its letter of April 10, 2001, that: "If additional consideration were paid in connection with this matter, it would not constitute Loss."

On October 25, 2002, the state superior court issued an order partially granting the Bennett defendants' motion for summary adjudication. Because Bennett had not made a prior demand upon Western's board of directors, the superior court dismissed all derivative claims and allowed only direct claims to go forward. All claims in the Bennett action were dismissed except for the four claims based on violations of the California Corporations Code. The superior court stated that these statutory duties "run to the plaintiffs and not to the corporation." The claim for breach of fiduciary duty relating to the duty of disclosure was also permitted to go forward because the superior court held that shareholders had an individual "right to accurate information from their corporation." The Bennett action settled on February 7, 2003 for $975,000 plus $15,000 for administrative and notice costs.

On March 6, 2003, Pan Pacific and Western filed a complaint against Gulf and Twin City in the Superior Court of California, San Diego County. This complaint asserted claims of breach of contract, declaratory relief, breach of the covenant of good faith and fair dealing and unfair business practices, alleging that Gulf and Twin City unjustifiably refused to recognize any insurance coverage for the Bennett litigation. Gulf and Twin City removed the lawsuit to the United States District Court for the Southern District of California under diversity jurisdiction. On July 14, 2004, the district court granted summary judgment to Gulf and Twin City, concluding that the Bennett settlement was, as a factual matter, restitutionary relief that was uninsurable under California law. The district court also concluded that Gulf and Twin City did not breach their obligation to advance defense costs and expenses and were not required to reimburse expenses for the dismissed claims because these claims were also uninsurable as only seeking restitutionary relief. Finally, the district court held that Twin City was not obligated to pay any indemnification or reimbursement because its insureds, Western and its directors and officers, did not pay any damages, fees or costs as part of the Bennett litigation based on an indemnification agreement whereunder Pan Pacific agreed to pay all claims arising from the merger.

II

We review the district court's grant of summary judgment de novo. See Cornwell v. Electra Cent. Credit Union, 439 F.3d 1018, 1028 n. 4 (9th Cir.2006); see also Chevron USA, Inc. v. Cayetano, 224 F.3d 1030, 1037 (9th Cir.2000) (reversing grant of summary judgment because genuine issues of material fact remain "[n]otwithstanding the fact that both sides moved for summary judgment and agreed that summary judgment was appropriate one way or the other"). "Viewing the evidence in the light most favorable to the nonmoving party, we must determine whether there are genuine issues of material fact and whether the district court correctly applied the relevant substantive law." Cornwell, 439 F.3d at 1027 (quoting Oliver v. Keller, 289 F.3d 623, 626 (9th Cir.2002)). "If a reasonable jury viewing the summary judgment record could find by a preponderance of the evidence that[Appellants are] entitled to a verdict in [their] favor, then summary judgment was inappropriate." Id.

III

In granting summary judgment for the insurers, the district court decided that the settlement paid by Pan Pacific in the Bennett action was uninsurable because the payment as a factual matter only reflected additional consideration that was wrongfully withheld in the merger.

"It is well established that one may not insure against the risk of being ordered to return money or property that has been wrongfully acquired." Bank of the West v. Superior Court, 2 Cal.4th 1254, 1266, 833 P.2d 545, 10 Cal.Rptr.2d 538 (1992). In AIU Insurance Co. v. Superior Court, 51 Cal.3d 807, 799 P.2d 1253, 274 Cal.Rptr. 820 (1990), the California Supreme Court provided guidance as to the types of remedies that are considered uninsurable restitutionary relief. The supreme court first interpreted the term "damages" in comprehensive general liability policies as requiring "compensation, in money, recovered by a party for loss or detriment it has...