Executive Risk Indem. v. Pacific Educational Serv.

• Decision Date: 25 August 2006
• Docket Number: Civ. No. 05-00727 SOM/LEK.
• Citation: 451 F.Supp.2d 1147
• Parties: EXECUTIVE RISK INDEMNITY, INC., a corporation, Plaintiff, v. PACIFIC EDUCATIONAL SERVICES, INC., a corporation; David Monroe, an individual; Denise A. Criswell, an individual; Steven Criswell, an individual, Defendants, and Rebecca S.P. Yee and Benjamin T. Fujimoto, Intervenors.
• Court: U.S. District Court — District of Hawaii

451 F.Supp.2d 1147

EXECUTIVE RISK INDEMNITY, INC., a corporation, Plaintiff, v. PACIFIC EDUCATIONAL SERVICES, INC., a corporation; David Monroe, an individual; Denise A. Criswell, an individual; Steven Criswell, an individual, Defendants and Rebecca S.P. Yee and Benjamin T. Fujimoto, Intervenors.

Civ. No. 05-00727 SOM/LEK.

United States District Court, D. Hawaii..

August 25, 2006.

COPYRIGHT MATERIAL OMITTED

Barbara J. Kirschenbaum, Chad P. Love, Love & Kirschenbaum, LLC, Honolulu, HI, H. Paul Breslin, Archer & Norris, Walnut Creek, CA, for plaintiff.

David C. Farmer, Jeffrey E. Brunton, Department of Commerce and Consumer

Affairs-Hi Office of Consumer Protection, Honolulu, HI, for intervenors.

ORDER DENYING INTERVENORS' MOTION TO ABSTAIN; ORDER DENYING PLAINTIFF'S MOTION TO STRIKE NEW ARGUMENT INTERVENORS RAISED FOR THE FIRST TIME IN THEIR REPLY MEMORANDUM IN SUPPORT OF THEIR MOTION TO ABSTAIN; ORDER DENYING INTERVNORS' ALTERNATIVE MOTION FOR CERTIFICATION OF QUESTION; ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION. FOR PARTIAL SUMMARY JUDGMENT; ORDER DENYING INTERVNORS' COUNTER-MOTION FOR PARTIAL SUMMARY JUDGMENT

MOLLWAY, District Judge.

I. INTRODUCTION.

Plaintiff Executive Risk Indemnity, Inc. ("Executive Risk") seeks a declaration that it owes no duty under an insurance policy issued to Defendants Pacific Educational Services ("PacEd"), Denise A. Criswell. ("Criswell"), and David Monroe ("Monroe") (collectively, "Defendants"). Criswell and Monroe were the president and director of PacEd, respectively, which registered the Hawaii College of Pharmacy ("College") as its trade name in September 2003. In December 2004, Executive Risk issued its Power Source Directors and Officers Liability Policy No. 6801-9329 ("the Policy") to PacEd. Although the College was never accredited, Defendants allegedly told prospective students that the College would be accredited. Thereafter, Defendants enrolled students and collected tuition from them.

On July 27, 2005, the State of Hawaii Office of Consumer Protection ("the State") filed suit against Defendants in Hawaii state court, alleging that they had failed to make mandatory disclosures regarding the College's accreditation status; misrepresented the College's affiliations, initial class size, and structural facilities; retaliated against students; and systematically breached contracts. In that state court action, the State prays for, among other things, restitution.

Defendants tendered the state court action to Executive Risk, which agreed to defend them subject to a reservation of rights. In November 2005, Executive Risk brought the present action,¹ asking for a ruling that it has no obligation to defend or indemnify Defendants in the state court action. This court allowed intervention by Intervenors Rebecca S.P. Yee and Benjamin T. Fujimoto (collectively, "Intervenors"), who are receivers appointed by the state court to oversee the College.

Before this court are five motions: (1) Intervenors' motion for abstention; (2) Executive Risk's motion to strike an argument raised in Intervenors' reply memorandum supporting their motion to abstain; (3) Intervenors' motion for certification of question to the Hawaii Supreme Court; (4) Executive Risk's motion for partial' summary judgment; and (5) Intervenors' counter-motion for partial summary judgment.

The court declines to abstain from hearing this case.

The court also denies Executive Risk's motion to strike an argument by Intervenors, given the opportunity the court gave the parties to supplement their arguments.

The court denies Intervenors' motion for certification of question to the Hawaii Supreme Court.

Executive Risk and Intervenors have opposing motions for partial summary judgment on the issue of whether Executive Risk has a duty to defend and/or indemnify Defendants in the state court action. The parties' dispute turns on whether the Policy covers claims for restitution. Concluding that the Policy does not cover restitution, the court grants that portion of Executive Risk's motion for partial summary judgment asking for a declaration that it has no duty to defend or indemnify Defendants. However, the court denies Executive Risk's requests for reimbursement of defense costs and Rule 54(b) certification. The court also denies Intervenors' counter-motion for partial summary judgment.

II. LEGAL STANDARD.

A. Motion to Abstain.

The Declaratory Judgment Act embraces both constitutional and prudential concerns. Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1222 (9th Cir.1998). "A lawsuit seeking federal declaratory relief must first present an actual case or controversy within the meaning of Article III, section 2 of the United States Constitution." Id. The lawsuit must also fulfill statutory jurisdictional prerequisites. Id. "If the suit passes constitutional and statutory muster, the district court must also be satisfied that entertaining the action is appropriate." Id. "This determination is discretionary, for the Declaratory Judgment Act is `deliberately cast in terms of permissive, rather than mandatory, authority.'" Id. (quoting Pub. Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 250, 73 S.Ct. 236, 97 L.Ed. 291 (1952)).

B. Motion to Certify Question.

"The Supreme Court of the United States has approved of the limited use of certified questions to state supreme courts when a federal court case involves an important question of state law which is both unclear under state legal precedent and would be determinative in the instant case." Pai `Ohana v. United. States, 875 F.Supp. 680, 699 (D.Haw.1995). However, "where there is `sufficient state law to enable this court to make an informed decision on the issues,'"certification is inappropriate. See id. at 700; Richardson v. City & County of Honotulu, 802 F.Supp. 326, 344 n. 30 (D.Haw.1992). "The decision to certify a state law question is within the sound discretion of the federal district court." Pai `Ohana, 875 F.Supp. at 700.

C. Motion for Summary Judgment.

Summary judgment shall be granted when

the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Fed.R.Civ.P. 56(c); see also Porter v. Cal. Dep't of Corr., 383 F.3d 1018, 1024 (9th Cir.2004); Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir.2000). One of the principal purposes of summary judgment is to identify and dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Summary judgment must be granted against a party that fails to demonstrate facts to establish what will be an essential element at trial. See id. at 323, 106 S.Ct. 2548. A moving party without the ultimate burden of persuasion at trial—usually, but not always, the defendant—has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir.2000). The burden initially falls upon the moving party to identify for the court "those portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact." T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987) (citing Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548).

"When the moving party has carried its burden under. Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (footnote omitted). The nonmoving party may not rely on the mere allegations in the pleadings and instead "must set forth specific facts showing that there is a genuine issue for trial." Porter, 383 F.3d at 1024 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "[I]f the factual context makes the non-moving party's claim implausible, that party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue for trial." Cal. Arch'l Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir.1987) (citing Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct. 1348).

III. BACKGROUND FACTS.

The underlying facts in this case are not in dispute.

In September 2003, PacEd registered the trade name "Hawaii College of Pharmacy" with the State of Hawaii Business Registration Division. Complaint filed in State v. Pacific Educational Services, et al., Civ. No. 05-1-1356-07 SSM (Haw. 1st Cir.Ct. July 27, 2005) ("State Complaint") ¶ 7. Criswell "is the president, chief executive officer and chairman of the [PacEd] board of directors," and Monroe "is the secretary and a director" of PacEd. State Complaint ¶¶ 5-6.

Upon learning of PacEd's trade name registration, the State notified Defendants of the requirements in Haw.Rev.Stat. chapter 446E for "Unaccredited Degree Granting Institutions." State Complaint ¶ 8. Defendants assured the State that the College had "NO current students enrolled as we will not enroll or officially accept students into the program until the application for pre-candidacy to the American Council on Pharmaceutical Education [("ACPE")] has been submitted and approved for site visit and enrollment practices and procedures." State Complaint ¶ 9. Defendants further stated, "We will not begin the process of educating pharmacists in the State of Hawaii without positive action via the application process per ACPE." State Complaint ¶ 9. Notwithstanding their assurances, Defendants allegedly misrepresented the accreditation status of the College, enrolled students, and collected tuition and other fees.

In December 2004,...