Fireman's Fund Ins. Co. v. National Bank of Cooperatives, No. 95-16252

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: FLETCHER
• Citation: 103 F.3d 888
• Parties: 96 Cal. Daily Op. Serv. 9424, 96 Daily Journal D.A.R. 15,487 FIREMAN'S FUND INSURANCE COMPANY, Plaintiff-Appellee, Interstate Fire & Casualty Company; Federal Insurance Company; National Union Fire Insurance Company of Pittsburgh, PA., Intervenors-Appellees, v. NATIONAL BANK OF COOPERATIVES, as Successor in Interest to the Texas Bank for Cooperatives, Defendant, and Aldus Marketing Association, Defendant-Appellant.
• Docket Number: No. 95-16252
• Decision Date: 26 December 1996

Page 888

103 F.3d 888 96 Cal. Daily Op. Serv. 9424, 96 Daily Journal
D.A.R. 15,487 FIREMAN'S FUND INSURANCE COMPANY, Plaintiff-Appellee,
Interstate Fire & Casualty Company; Federal Insurance
Company; National Union Fire Insurance Company of
Pittsburgh, PA., Intervenors-Appellees,
v.
NATIONAL BANK OF COOPERATIVES, as Successor in Interest to
the Texas Bank for Cooperatives, Defendant,
and
Aldus Marketing Association, Defendant-Appellant. No. 95-16252. United States Court of Appeals,
Ninth Circuit. Argued and Submitted Oct. 2, 1996.
Decided Dec. 26, 1996.

Page 890

Michael A. Barnes, Sonnenschein, Nath & Rosenthal, San Francisco, California, for plaintiff-appellee.

Mark G. Bonino, Ropers, Majeski, Kohn, Bentley, Wagner & Kane, Redwood City, CA; Ronald F. Remmel, Newton, Kastner & Remmel, Mountain View, CA, for intervenors-appellees.

John Steven Dwyre, San Antonio, TX, for defendant-appellant.

Appeal from the United States District Court for the Northern District of California, Vaughn R. Walker, District Judge, Presiding. D.C. No. CV-92-2667-VRW.

Before: SKOPIL and FLETCHER, Circuit Judges, and RHOADES, ^* District Judge.

FLETCHER, Circuit Judge:

Aldus Marketing Association ("Aldus"), a Texas corporation, appeals the district court's grant of summary judgment to Fireman's Fund Insurance Company ("Fireman's Fund"), Interstate Fire and Casualty Company ("Interstate"), and Federal Insurance Company ("Federal") (collectively, "insurers"). The insurers sought declaratory judgments that Aldus has no claims against them

Page 891

for coverage on policies issued to Lawrence Warehouse Systems or its successor, XLS, Inc. ("Lawrence/XLS"), a now-defunct California inventory control corporation against whom Aldus holds an arbitration award and judgment.

Aldus claims that the district court did not have personal jurisdiction over it because Aldus lacks the requisite minimum contacts with California. Aldus also challenges the district court's grant of summary judgment, claiming that a genuine issue of material fact exists as to whether Lawrence/XLS caused Aldus "property damage" within the terms of the policies issued to Lawrence/XLS by the insurers. Finally, Aldus contends that the district court erred in disregarding as untimely Aldus's motion to dismiss for failure to join Lawrence/XLS as an indispensable party. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

In 1986, Aldus entered into an agreement with Lawrence and the Texas Bank for Cooperatives, the predecessor to the National Bank for Cooperatives ("CoBank"). The agreement, known as the Certified Inventory Control Agreement ("CICA"), provided that Lawrence would certify the quantity and value of Aldus's peanut inventory. On the basis of Lawrence's certifications, CoBank would extend credit to Aldus, secured by the value of the peanut inventory. Lawrence agreed to compensate CoBank for losses up to $5,000,000.00 (later increased to $10,000,000.00) "sustained as a result of [CoBank's] reasonable reliance upon a material inaccurate representation ... on the last outstanding certificate." Paragraph 7 of the CICA obligated the parties to submit all disputes related to the agreement to binding arbitration in San Francisco, California.

Aldus retained custody and control over its peanut inventory at all relevant times. Lawrence materially misrepresented the value of that peanut inventory on several inventory certificates submitted to CoBank. CoBank reasonably relied on these representations in extending credit to Aldus. See Fireman's Fund Ins. Co. v. Nat'l Bank for Coop. ("Fireman's Fund I "), 849 F.Supp. 1347, 1352-53 (N.D.Cal.1994).

Lawrence filed for Chapter 11 bankruptcy protection in 1988. In 1992, CoBank initiated arbitration in San Francisco against XLS as Lawrence's successor. Lawrence/XLS did not defend the arbitration, which resulted in an award in favor of CoBank for $10,000,000.00 plus costs and interest. Id. at 1353. CoBank reduced its award to judgment in the United States Bankruptcy Court for the Northern District of California. Id. at 1354.

Subsequently, Lawrence/XLS's insurers sued CoBank for a declaratory judgment that they were not liable to CoBank for the arbitration award. This suit was filed in the U.S. District Court for the Northern District of California under federal diversity jurisdiction, 28 U.S.C. § 1332, ¹ and the federal Declaratory Judgment Act, 28 U.S.C. § 2201. District Judge Barbara Caulfield determined that CoBank had not suffered "property damage" or other injury within the meaning of Lawrence/XLS's insurance policies and granted the insurers' motions for summary judgment against CoBank. Fireman's Fund I, 849 F.Supp. at 1369.

Meanwhile, Aldus had initiated proceedings against Lawrence/XLS in Texas state court under the Texas Deceptive Trade Practices Act, Tex. Bus. & Comm.Code §§ 17.41-17.62 ("TDPA"). Case No. 92-05172 (Tex. 261st Jud. Dist., filed Apr. 14, 1992). Pursuant to the CICA, the Texas action was stayed and the dispute was decided through arbitration in California. See Fireman's Fund Ins. Co. v. Nat'l Bank for Coop., No. CV-92-2667-VRW, 1995 WL 334809 (N.D.Cal. May 30, 1995) ("Fireman's Fund II "), at * 1.

A few months after Aldus initiated its Texas action against Lawrence/XLS, the U.S. Bankruptcy Court for the Northern District of California issued an injunction in Lawrence/XLS's bankruptcy case. It barred Aldus

Page 892

or CoBank from enforcing any judgment directly against Lawrence/XLS, but preserved their right to proceed against Lawrence/XLS's insurers. Id.

On September 14, 1994, the arbitrators determined that Aldus had sustained "actual damages" of $3,752,456.90 due to Lawrence/XLS's "false, misleading, and deceptive acts and practices." Because Lawrence had committed those acts and practices knowingly, the arbitrators further awarded Aldus twice its actual damages, or $7,505,913.80, plus interest. They also awarded Aldus costs, fees, and expenses totalling more than $1.5 million. Aldus reduced this award to a Texas judgment in the amount of $13,665,139.02 against Lawrence/XLS.

While the arbitration was pending, Lawrence/XLS's insurers moved to join Aldus as a defendant in their declaratory relief action against CoBank. CoBank opposed joinder of Aldus, claiming that Aldus lacked sufficient contacts with California to subject it to personal jurisdiction in the district court. The district court rejected CoBank's arguments and joined Aldus as a defendant, predicating jurisdiction on Aldus's consent to arbitration in California.

On June 6, 1994, Aldus moved to dismiss the insurers' action against it, claiming lack of personal jurisdiction, failure to state a claim for which relief can be granted, and lack of subject matter jurisdiction. In the alternative, Aldus requested that the suit be stayed pending completion of the arbitration or transferred to the U.S. District Court for the Northern District of Texas. Aldus received its arbitration award on September 14, 1994. On October 19, 1994, Aldus filed an amended motion to dismiss based solely on lack of personal jurisdiction.

On December 12, 1994, District Judge Vaughn R. Walker denied Aldus's motion to dismiss, stay, or transfer. Judge Walker found, as had District Judge Caulfield in rejecting CoBank's motion opposing joinder, that Aldus had consented to jurisdiction in California by agreeing to the arbitration clause in the CICA. Judge Walker also rejected Aldus's claim that the court could not issue a declaratory judgment against it because it was a bankrupt "corporate shell."

Judge Walker expressed serious concerns about the "gamesmanship" of Aldus's attorney, Paul Miller. The judge ordered Miller to show cause within 20 days as to why the court should not impose Rule 11 sanctions against him. After reviewing Miller's submission and those of the insurers, Judge Walker found Aldus's motion of June 6 frivolous and imposed Rule 11 sanctions against Miller.

Pursuant to Judge Walker's order, the insurers filed amended complaints seeking declaratory judgments that Aldus has no claim against them to enforce its arbitration award against Lawrence/XLS. Aldus answered these complaints, again denying that it was subject to personal jurisdiction in California. The insurers then moved for summary judgment, alleging that no genuine issue of material fact remained for trial. Before the summary judgment motions were heard, Aldus filed a motion to dismiss for failure to join Lawrence/XLS as an indispensable party under F.R.Civ.P. 19. In support of this motion, Aldus claimed that the lawsuit threatened Lawrence/XLS's interests, that complete relief could not be granted without Lawrence/XLS, and that because joinder of Lawrence/XLS would destroy diversity, the action should be dismissed.

Judge Walker heard the insurers' motions on May 12, 1995. However, because Local Rule 220-6 requires that counter-motions be filed with opposition papers, and Aldus had filed its motion to dismiss two weeks after filing its papers opposing the summary judgment motions, the judge found Aldus's motion untimely and did not consider it.

Judge Walker determined that the only issue to be resolved was whether Aldus could enforce the arbitration award against the insurers and that this issue turned on whether Lawrence/XLS's policies covered the damages for which Aldus had received that award. Noting that the CoBank litigation had already resolved the coverage issue in the insurers' favor, Judge Walker held that Lawrence's intentional misrepresentations had not caused Aldus "property damage" as defined in the insurance policies and that Aldus had no other basis for recovering under

Page 893

Lawrence/XLS's policies. Judge Walker also sustained the Rule 11 sanctions against Miller and fixed those sanctions at the costs incurred by the insurers in defending Miller's frivolous motion. ²

On May 30, 1995, Judge Walker issued...