Choy v. Redland Ins. Co.

• Decision Date: 14 November 2002
• Docket Number: No. B154372.,B154372.
• Court: California Court of Appeals Court of Appeals
• Parties: Anthony CHOY, Plaintiff and Appellant, v. REDLAND INSURANCE COMPANY, et al., Defendants and Respondents.

127 Cal.Rptr.2d 94

103 Cal.App.4th 789

Anthony CHOY, Plaintiff and Appellant, v. REDLAND INSURANCE COMPANY, et al., Defendants and Respondents.

No. B154372.

Court of Appeal, Second District, Division 3.

November 14, 2002.

Review Denied February 11, 2003.

Knapp, Petersen & Clarke, Gwen Freeman and Mitchell B. Ludwig, Glendale, for Plaintiff and Appellant.

Koletsky, Mancini, Feldman & Morrow, Roy A. Koletsky, Los Angeles, and Raymond C. Dion for Redland Insurance Company and Acceptance Insurance Company, Defendants and Respondents.

Lewis Brisbois Bisgaard & Smith, LLP, Kenneth C. Feldman, Bartley L. Becker, Los Angeles, and Jeffry A. Miller, San Diego, for Zinder, Blackburn, Park, Clements & Keenan, Mercer & Zinder, Kevin H. Park, North Hollywood, and Zinder, Blackburn & Park, Defendants and Respondents.

CROSKEY, Acting P.J.

Anthony Choy, the plaintiff below (Choy), appeals from judgment on the pleadings and the resulting dismissal with prejudice of his complaint against the defendants Redland Insurance Company (Redland), Acceptance Insurance Company (AIC; collectively, insurer defendants), Zinder, Blackburn, Park, Clements & Keenan, Mercer & Zinder, Kevin Park and Zinder, Blackburn & Park (attorney defendants). The trial court granted the motion of the insurer and attorney defendants on the ground of a lack of jurisdiction to proceed because the trial court held that Choy's complaint arose from and was based upon matters that were within the exclusive jurisdiction of the federal bankruptcy court.

After a review of the record and the relevant statutory and case law, we have concluded that the trial court's ruling was correct. We will therefore affirm.

FACTUAL AND PROCEDURAL BACKGROUND¹

On January 31, 2000, Choy filed this action against the insurer and attorney defendants. He alleged two causes of action: (1) intentional infliction of emotional distress and (2) abuse of process. In support of those claims he alleged the following facts.

On November 17, 1994, Choy was severely injured in a motor vehicle accident. Prior to the accident, Shamrock Tires, Inc. (Shamrock) had sold to Choy a "lift kit" to modify and install lifters on his pickup truck. In the litigation Choy filed following his accident,² he alleged that the lifters were defective and caused the chassis of his pickup truck to separate from the cab when the truck was pushed into the center divider of the freeway by a big rig.

During Choy's prosecution of the underlying action against the several defendants, all of whom took the position that the accident was due entirely to Choy's own negligence, there were a number of settlements. The manufacturer of the lift kit accepted a policy limits offer to settle and paid $1 million; similarly, the distributor, paid $6 million. Choy alleges, however, that such settlements covered only a portion of his total damages; for example, his economic damages alone totaled $10 million. Choy also asserts that "a neutral and disinterested judge" had placed a value of $20 million to $40 million on his case.

Shamrock, whom Choy claims was highly culpable because it had sold him the lift kit with bolts that were of the wrong size, refused to accept a policy limits settlement offer. Shamrock carried liability insurance with Redland.³ On June 2, 1998, Choy made a written demand to settle his claims against Shamrock for the $500,000 policy limits of the Redland policy. This settlement was rejected by Redland. The attorney defendants had been retained by Redland to provide a defense for Shamrock and one of them, Kevin Park (Park), communicated Redland's rejection of the offer to Choy's counsel. Thereafter, Choy made a second settlement offer under which Choy would give Shamrock (which was apparently insolvent) a covenant not to execute (on any judgment that might be obtained in the underlying action) in exchange for Shamrock's assignment to Choy of its rights against Redland; Choy also offered his commitment to cooperate with Shamrock "to preserve Shamrock's own first party claims against Redland for emotional distress and punitive damages." This offer was likewise rejected. Park delivered Redland's rejection to Choy's counsel without, according to Choy's allegations, ever communicating the offer to Shamrock.

Choy alleges that Redland was guilty of bad faith when it refused these settlement offers because Shamrock's liability was clear, "the damages to [Choy] were catastrophic, and the settlements paid by other defendants, although frequently encompassing `policy limits,' did not come close to fully compensating [Choy] for his injuries. A prudent insurer with knowledge of the facts known to Redland would have immediately tendered the $500,000 policy limits to settle this claim and protect its insured ... from potentially catastrophic exposure far in excess of the policy limits should the case against [Shamrock] proceed to trial. However, Redland unreasonably and in bad faith rejected [Choy's] offer to settle his claims ... for the $500,000 policy limits, leaving [Shamrock] exposed to catastrophic exposure far in excess of the Redland policy limits at trial." ⁴

In addition, Choy alleges that Park violated his professional responsibilities to Shamrock by the failure to communicate the offers to Shamrock and his representation of Redland's interests over those of Shamrock which, by virtue of the terms of the second offer, had a serious conflict of interest with Redland.

While the underlying action was still pending against Shamrock as the sole remaining non-settling defendant, and prior to the trial thereof, Shamrock filed a voluntary petition in bankruptcy under Chapter 7.⁵ Choy alleges that such bankruptcy filing served no rational or legitimate purpose, since the individual owners of Shamrock had contemporaneously filed personal voluntary petitions and, in due course, had received a discharge. The real purpose of such filing, according to Choy's complaint, was to frustrate his ability to seek and obtain a judgment against Shamrock in excess of the $500,000 limit of the Redland policy. The bankruptcy filing, Choy alleges, was done on the initiative of Redland, which paid all of the necessary filing fees, so that Redland could avoid liability for its bad faith conduct in rejecting Choy's earlier offers to settle.⁶

Choy alleges that he had a reasonable expectation of a judgment well in excess of Redland's policy limits, and that Redland's action in instigating an otherwise pointless bankruptcy petition on behalf of an insolvent corporation constituted a misuse of the bankruptcy process. In the words of Choy's complaint, Shamrock's bankruptcy petition was "filed not to protect or to benefit [Shamrock], but rather to protect Redland from incurring liability exceeding its policy limits as a result of [Choy's] claims against [Shamrock]...."⁷

Based on these allegations, Choy pled causes of action for (1) intentional infliction of emotional distress and (2) abuse of process, and sought substantial compensatory and punitive damages. Following discovery and multiple law and motion proceedings on August 24, 2001, the insurer and attorney defendants filed a motion for judgment on the pleadings. One of the issues raised in support of the motion was that both of the claims asserted by Choy in his complaint depended upon a determination that Shamrock's bankruptcy petition had been filed in bad faith and such a determination was within the exclusive jurisdiction of the federal bankruptcy court. As a result, the defendants urged, the trial court had no jurisdiction to proceed and the complaint should be dismissed.

After soliciting and receiving extensive and specific briefing on this issue, on October 22, 2001, the trial court heard oral argument and ruled in favor of the defendants, granting their motion. Thereafter, a judgment of dismissal was entered on November 30, 2001. Choy has prosecuted this timely appeal.

CONTENTIONS OF THE PARTIES

Choy, while recognizing the settled principle of law that a bankruptcy court has exclusive jurisdiction over claims for abuse of process which are asserted by or against a debtor in bankruptcy, argues that such rule has no application in a case, such as this one, where the claim is not asserted against the debtor, but rather against the debtor's insurer and attorneys. The insurer and attorney defendants argue that such a distinction is one without a difference, given the state of bankruptcy law.

We agree with this latter argument, as did the trial court.

DISCUSSIQN

1. Standard of Review

We review a judgment on the pleadings, such as the one before us, essentially the same way we would review the granting of a general demurrer without leave to amend. We test the sufficiency of the allegations of a plaintiffs complaint to state a viable cause of action. (Pang v. Beverly Hospital, Inc. (2000) 79 Cal.App.4th 986, 989, 94 Cal.Rptr.2d 643.) We assume the truth of all of the factual allegations (but not the contentions) and give them a liberal construction. (Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515-516, 101 Cal.Rptr.2d 470, 12 P.3d 720.) This requires resolution of a mixed question of law and fact that is predominantly one of law, that is, whether the factual allegations of the plaintiffs complaint are sufficient to constitute a cause of action. (Ibid.) The resolution of a question of this sort calls for an examination de novo. (Ibid.) The threshold and dispositive issues before us of jurisdiction and federal preemption also necessarily call for independent de novo review as issues of law.

2. Federal Preemption of Bankruptcy Remedies

The viability of Choy's claims, from the perspective of the jurisdictional issue, depends upon his right to litigate, in state court, the question of Shamrock's alleged "bad faith" bankruptcy petition. The defendants argue that Choy must fail because such a claim may not be litigated in state court due to federal preemption. "Federal...