Gemini Ins. Co. v. W. Marine Ins. Servs. Corp., 210-cv-03172-KJM-JFM
| Decision Date | 06 August 2013 |
| Docket Number | No. 210-cv-03172-KJM-JFM,210-cv-03172-KJM-JFM |
| Court | U.S. District Court — Eastern District of California |
| Parties | GEMINI INSURANCE COMPANY, a corporation, Plaintiff, v. WESTERN MARINE INSURANCE SERVICES CORPORATION, a California corporation, Defendant. |
This matter is before the court on defendant's motion for leave to file a first amended answer. This matter was decided without a hearing. For the following reasons, defendant's motion is DENIED.
Plaintiff alleges effective July 1, 2004 that plaintiff and defendant entered into a contract entitled "Program Administrator Agreement" ("PAA") appointing defendant to administer, underwrite, and issue insurance policies insured by plaintiff. (Compl. ¶ 7, ECF 1.) Plaintiff also alleges defendant "[a]greed to defend, indemnify and hold Gemini harmless fromand against all claims, actions, causes of action, liability or loss which result from any real or alleged negligent or willful acts, errors, or omissions of Westmar, or the servants, employees, representatives, producers, or brokers of Westmar in the performance of breach of duties under the PAA." (Id.)
Defendant issued plaintiff insurance policy number WGP0000073-00 to Wesco Sales Corporation ("Wesco") with a term of August 6, 2004 to August 6, 2005. (Id.) The policy included blanket coverage for all of Wesco's locations. (Id.) However when Wesco renewed its policy the following year, the renewed policy did not include blanket coverage, instead including limits based on per location coverage. (Id.) Under the renewed policy Wesco made a claim to plaintiff for damage to Wesco docks, unaware the renewed policy did not include blanket coverage. (Id.) When Wesco did not receive blanket coverage for its claim, it filed an action against plaintiff for breach of contract and breach of the covenant of good faith and fair dealing. (Id. at 4.) Plaintiff settled with Wesco, and agreed to pay Wesco $950,000. (Id.) Plaintiff alleges on May 7, 2009, defendant agreed to indemnify plaintiff for the settlement with Wesco. (Id.) Plaintiff now alleges defendant is in breach of contract for refusing to indemnify plaintiff's settlement with Wesco, and was negligent in failing to notify Wesco the renewal policy would not include blanket coverage. (Id. at 4-5.)
In defendant's original answer to plaintiff's complaint, defendant admitted it "[e]ntered a Program Administrator Agreement with Gemini effective July 1, 2004." (Answer ¶ 7, ECF 9.) In defendant's proposed amended answer, defendant admits it entered into a "Program Administrator Agreement" (PAA) with Berkeley Underwriting Partners LLC (Berkeley) effective July 1, 2004, but denies entering the PAA with Gemini. (Proposed Am. Answer ¶ 7, ECF 54.) Defendant asserts the admission in the first answer was a mistake, based on a prior attorney's work referring to both Berkeley and Gemini collectively as "Gemini."(Decl. of Steven W. Yuen ¶ 7, ECF 54-1). Plaintiff asserts the defendant's proposed amendment would be futile as by "entering into an agreement with Gemini's agent, BUP [Berkeley], Westmar also entered into an agreement with Gemini." (Opp'n to Mot. for Leave to Am. Answer ¶ 2, ECF 59). Defendant argues the proposed amendment supports their defense that plaintiff lacks standing to sue, and thus would not be futile. (Reply to Opp'n to Mot. for Leave to Am. Answer ¶ 3, ECF 62.)
Plaintiff filed the original complaint with this court on November 23, 2010. Defendant filed its original answer on February 17, 2011. On March 18, 2013 defendant filed a motion for leave to file its first amended answer according to Federal Rule of Civil Procedure 15 (a)(1)(B)(2). On April 9, 2013, plaintiff filed its opposition to defendant's motion for leave to amend, and on April 19, defendant its reply.
Federal Rule of Civil Procedure 15(a)(2) states "[t]he court should freely give leave to [to amend its pleading] when justice so requires" and the Ninth Circuit has "stressed Rule 15's policy of favoring amendments." Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989). "In exercising its discretion [regarding granting or denying leave to amend] 'a court must be guided by the underlying purpose of Rule 15 -- to facilitate decision on the merits rather than a pleading or the technicalities."" DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987) (quoting United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981)). However, Ascon Properties, 866 F.2d at 1160 (internal citations omitted).
Here, the PAA contains a choice-of-law provision designating Illinois state law as controlling. (Compl., Ex. 1, ¶ 10.5, ECF 1.) "When a federal court sits in diversity, it must look to the forum state's [California] choice of law rules to determine the controlling substantive law." Patton v. Cox, 276 F.3d 493, 495 (9th Cir. 2002). "When parties to a contract bargain for an explicit choice of law provision, courts applying California's choice-of-law rules are guided by the California Supreme Court's decision in Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459 [] (1992)." Nuvo Research Inc. v. McGrath, C 11-4006 SBA, 2012 WL 1965870, at *3 (N.D. Cal. 2012).
In Nedlloyd, the California Supreme Court determined that the proper test for determining whether to enforce a choice of law provision is: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law. Nedlloyd, 3 Cal. 4th at _____. If either of these two prongs is satisfied, the court must determine whether the chosen forum's law is contrary to a fundamental policy of California. Id. If there is no conflict, the court enforces the parties' choice of law. Id.
Given that Berkeley is listed as a resident of Illinois in the PAA, there is a reasonable basis for the parties to choose Illinois law as controlling. (ECF 1, Ex 1, 15.) Furthermore, nothing in the record indicates enforcing Illinois law would be contrary "to some fundamental principle of justice, some prevalent conception of morals, some deep-seated tradition of the commonweal." Brack v. Omni Loan Co., Ltd., 80 Cal. Rptr. 3d 275, 282 (Cal. App. 4th Dist. 2008) (internal citations omitted). Thus, the choice-of-law provision in the PAA is valid and enforceable.
However, this court's application of Federal Rule of Civil Procedure15 is controlling, as the Rule 15 standard for granting leave to amend is procedural. Goldberg v. Pac.Indem. Co.. 627 F.3d 752, 755 (9th Cir. 2010); see also Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996) (Stevens, Scalia dissenting) ("Under the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law."). Nevertheless, the question of the futility of the alleged defense is a question of substance; thus, Illinois state law is controlling for that issue alone. Wetterman v. Monaco Coach Corp., 141 F. Supp. 2d 1263, 1264 (D. Or. 2001) ().
A court may deny leave to amend for several reasons, including (1) a showing of prejudice to the other party, (2) bad faith by the moving party, or (3) futility of the proposed amendment. See e.g., Bowles v. Reade 198 F.3d 752, 758 (9th Cir. 1999). Viewing the facts in light most favorable to the moving party as required, nothing in the defendant's motion suggests plaintiff would be prejudiced or the defendant is acting in bad faith in requesting leave to amend, as discussed below. However, because there is no set of facts that could be proven under the proposed amendment to constitute a valid defense, the amendment is futile.
First, there would be no prejudice to plaintiff in granting defendant's motion to amend. When determining if there is a showing of prejudice, the court will often look to any additional litigation expenses that would be incurred by the nonmoving party, or any undue delay the amendment would cause to litigation. Ascon Properties, 866 F.2d at 1160 (internal citations omitted) (moving parties' new theory would impose undue additional discovery costs on opposing counsel, and moving parties' multiple amendments had caused undue delay). Here, neither party has initiated discovery or made their initial disclosures under Federal Rule of Civil Procedure 26. Moreover, this is the defendant's first motion to amend.
Second, the record does not suggest the defendant's amendment is proposed in bad faith. A moving party may be found to be acting in bad faith if the amendment was filed to cause "mere undue delay." Johnson v. Hewlett-Packard Co., 809 F. Supp. 2d 1114, 1122 (N.D. Cal. 2011). For the reasons discussed above, the amendment would not cause undue delay.
However, the proposed amendment would be futile. When determining whether an amended answer would be futile, the court applies the test for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). See Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988) .
Neither the facts pled in the original answer nor those in the proposed amendment would establish a valid defense for defendant, if proven. Defendant asserts the proposed amendment preserves its fourteenth affirmative defense, that plaintiff lacks standing to sue. Under Illinois law, the agency relationship between plaintiff and Berkeley gives p...
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