Ferrari, Alvarez, Olsen & Ottoboni v. Home Ins. Co.
| Decision Date | 08 August 1991 |
| Docket Number | Nos. 89-16299,89-16397,s. 89-16299 |
| Citation | 940 F.2d 550 |
| Parties | FERRARI, ALVAREZ, OLSEN & OTTOBONI, a California professional corporation; Edward M. Alvarez, an individual, Plaintiffs-counter-defendants-Appellees, v. The HOME INSURANCE COMPANY, a New Hampshire corporation, Defendant-counter-claimant-Appellant. FERRARI, ALVAREZ, OLSEN & OTTOBONI, a California professional corporation; Edward M. Alvarez, an individual, Plaintiffs-counter-defendants-Appellants, v. The HOME INSURANCE COMPANY, a New Hampshire corporation, Defendant-counter-claimant-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Kevin M. Fong, Pillsbury, Madison & Sutro, San Jose, Cal., for plaintiffs-counter-defendants-appellees-appellants.
Walter T. Johnson, Lillick & Charles, San Francisco, Cal., for defendant-counter-claimant-appellant-appellee.
Appeal from the United States District Court for the Northern District of California.
Before SCHROEDER, CANBY, and NOONAN, Circuit Judges.
Home Insurance Company appeals the district court order remanding this case to the state court from which it was removed. The law firm of Ferrari, Alvarez, Olsen & Ottoboni, and a member of the firm, Edward Alvarez, (collectively "the Law Firm" or "plaintiffs"), cross-appeal the district court's ruling denying their request for costs and fees pursuant to 28 U.S.C. Sec. 1447(c). The central issue on appeal is whether the Law Firm and Home Insurance orally agreed to litigate bad-faith claims in state court. We reverse on Home Insurance's appeal and affirm on the Law Firm's cross-appeal.
The Home Insurance Company was the professional liability carrier for the Law Firm from January 20, 1984, to January 20, 1986. During the period of coverage, the Law Firm was sued by Hayden Leason for losses incurred in an investment. The suit Prior to trial, the independent counsel advised Home Insurance that the Leason action was defensible. As trial commenced, however, the counsel informed Home Insurance that there were serious liability problems and advised it to settle the case. A series of settlement conferences took place from February 6, 1989, the date trial commenced, to February 13, the date on which Leason accepted the settlement offer. On February 10, Home Insurance and the Law Firm orally agreed to pay various amounts to Leason to settle the action. They also agreed to resolve the liability as between Home Insurance and the Law Firm, for the settlement payment in a state court declaratory relief action to be filed in Santa Clara Superior Court. This agreement is the subject of the present appeal. Although Leason did not accept the settlement offer of February 10, Home Insurance and the Law Firm agreed that their oral agreement to repair to state court to resolve liability for any moneys paid in settlement remained intact.
against the firm included claims of fraud, conspiracy, negligence, and RICO violations. Home Insurance defended the Law Firm, subject to a written reservation of rights. Home Insurance hired independent counsel to represent the Law Firm and Alvarez.
A settlement was reached on February 13, 1989, after Home Insurance and the Law Firm increased the amount of the settlement offer. The Law Firm and Home Insurance presented the confidential settlement agreement to the court. The parties explained that they had agreed to resolve liability for the settlement payment in a declaratory relief action to be filed in state court. The court accepted the agreement and ordered the agreement sealed.
On March 17, 1989, the Law Firm brought an action in Santa Clara Superior Court, California, against the Home Insurance Company. The plaintiffs' amended complaint contained eight causes of action alleging breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, negligent misrepresentation, negligence, and bad-faith denial of the existence of a contract.
On April 14, 1989, Home Insurance filed a notice of removal in the Federal District Court for the Northern District of California. Home Insurance asserted that, although it had agreed to litigate a declaratory relief action in Santa Clara Superior Court, it had not agreed to litigate bad-faith claims in the state court.
In response, the plaintiffs filed a motion to remand the case to state court on the ground that the oral venue agreement included any and all disputes arising out of the Leason settlement, including an action for bad faith. The parties submitted declarations in support of their positions. The attorneys representing Home Insurance declared that the parties never discussed the possibility of a bad-faith action and that therefore Home Insurance had agreed only to litigate an action for declaratory relief in state court. Home Insurance also offered the transcript of the settlement proceedings in the Leason action. According to Home Insurance, the transcripts support its position because each of the attorneys present described the contemplated action as an action for declaratory relief. The Law Firm's attorneys submitted declarations stating that the parties had frequently discussed bad-faith claims during the settlement negotiations. According to these attorneys, Home Insurance expressly agreed that the declaratory relief action would include bad-faith claims.
On August 25, 1989, the district court granted the motion to remand and denied the plaintiffs' motion to award costs.
The Law Firm argues that the remand order is not reviewable because the district court remanded the case on the ground that Home Insurance waived the right to remove by seeking relief in the state court. The Law Firm cites Schmitt v. Insurance Co. of North America, 845 F.2d 1546 (9th Cir.1988), in support. In Schmitt, we characterized a district court order remanding on this basis as a remand order issued pursuant to 28 U.S.C. Sec. 1447(c) and therefore unreviewable on appeal. 1 If the plaintiffs' characterization of the remand order were correct, we would agree that, under Schmitt, the order is not reviewable. However, we conclude that the plaintiffs have incorrectly identified the basis of the court's decision.
We determine the basis of authority for remand by examining the substance of the remand order. Schmitt, 845 F.2d at 1549. In the present case, the district court's order demonstrates that the district court remanded the case on the basis of its interpretation of the venue selection agreement. The court noted that the Law Firm advanced only one argument to support its motion for remand--that the parties had entered into a venue agreement to litigate all disputes arising out of the Leason settlement in state court. The court determined that it had jurisdiction to decide whether a forum selection agreement existed and on what terms. The court then construed the agreement in the plaintiffs' favor, determined that the agreement was enforceable, and gave effect to the agreement by remanding the case.
The only support for the Law Firm's position that the remand order is based on section 1447(c) is the court's citation to Schmitt. It is not clear whether the district court cited Schmitt in support of its decision or in explaining the applicable law. The reference to Schmitt, however, does not alter our conclusion. A court's characterization of its authority for remand is not binding. See Clorox Co. v. United States District Court for Northern Dist. of California, 779 F.2d 517, 520 (9th Cir.1985).
We believe that Pelleport Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273 (9th Cir.1984), is controlling. In Pelleport, the district court remanded a breach of contract action on the ground that a forum selection clause contained in that contract required litigation in state court. Id. at 275. We held that an order remanding to state court on the basis of an interpretation of a forum selection agreement is reviewable on appeal. Id. at 276-77.
The plaintiffs point to one sentence in Pelleport which states:
Once the fact of remand is separated from the reason for its issuance, however, it becomes clear that the district court did not merely remand this case to state court; it reached a substantive decision on the merits apart from any jurisdictional decision.
Id. at 276 (emphasis added). Relying on this sentence, the Law Firm argues that Pelleport is distinguishable from the present case. The plaintiffs assert that, in Pelleport, the district court "reached a decision on the merits" because the forum selection clause was contained in the contract that was the subject of the dispute. The plaintiffs contend that in the present case, the court's interpretation of the forum selection agreement was separate from the merits of the insurance claims.
The plaintiffs mischaracterize our holding in Pelleport. The district court in Pelleport did not reach the merits of the plaintiffs' breach of contract claim. Rather, the court made a "substantive decision on the merits" when it interpreted the forum selection clause. The fact that the forum selection clause was contained in the contract was not a factor in our decision. Our analysis made no mention of this fact. 2 The district court in Pelleport did exactly what the district court here did; as in Pelleport, the remand here is appealable. 3
Home Insurance argues that the district court erred by allocating to Home the burden of proving that the Forum Selection Agreement did not encompass an action for bad faith. Home Insurance and the Law Firm agree that the Law Firm, as the party relying on the oral agreement, had the burden of proving all the material allegations of the agreement. See, e.g., Gregory v. Hamilton, 77 Cal.App.3d 213, 220, 142 Cal.Rptr. 563, 567 (1978); Pasqualetti v. Galbraith, 200 Cal.App.2d 378, 383, 19 Cal.Rptr. 323, 325 (1962).
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