Gon v. First State Ins. Co., 88-2484

• Decision Date: 30 March 1989
• Docket Number: No. 88-2484,88-2484
• Citation: 871 F.2d 863
• Parties: Alan C. GON; Jackie Yee; David Quan; Richard Tsang; Gilbert M. Nishimura; Ira M. Sako; Michael T. Ito; Morris Mark, Plaintiffs-Appellees, v. FIRST STATE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 863

871 F.2d 863

Alan C. GON; Jackie Yee; David Quan; Richard Tsang;

Gilbert M. Nishimura; Ira M. Sako; Michael T.

Ito; Morris Mark, Plaintiffs-Appellees, v. FIRST STATE INSURANCE COMPANY, Defendant-Appellant.

No. 88-2484.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 17, 1988.

Decided March 30, 1989.

Donald K. Fitzpatrick and Joan E. Havens, Mendes & Mount, Los Angeles, Cal., for defendant-appellant.

Phyllis E. Andelin and William Goodman, San Francisco, Cal., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of California.

Before PREGERSON, CANBY and BEEZER, Circuit Judges.

CANBY, Circuit Judge:

First State Insurance Company appeals an order of the district court requiring it to pay all legal expenses of the insureds as they are incurred, without contemporaneous apportionment, in ongoing litigation with the Federal Savings and Loan Insurance Company. We affirm.

FACTS AND PROCEEDINGS BELOW

In September 1983, First State Insurance Company issued a Directors and Officers liability policy to Gateway Savings and Loan. The appellees are the officers and directors of Gateway insured under that policy.

On April 14, 1986, the Federal Home Loan Bank Board determined that Gateway Savings and Loan was insolvent and appointed the Federal Savings and Loan Insurance Company (FSLIC) as the conservator of Gateway. On May 4, 1987, FSLIC filed suit against the former officers and directors of Gateway, alleging they had engaged in unsafe, unsound, and imprudent banking practices, which caused Gateway's losses.

In May 1987, Gon and the other former officers and directors of Gateway tendered their defense in the FSLIC action to First State. First State responded that it had no duty to defend or to pay legal expenses as they were incurred, and that several of the claims in the FSLIC complaint were probably excluded under the terms of the policy. First State subsequently notified the insureds that it was rescinding the insurance contract because it believed that misrepresentations were made in the original application for insurance. In August 1987, First State filed a complaint for rescission in state court. That case was removed to federal court. The insureds then filed this action in federal court against First State, seeking declaratory and injunctive relief On the insureds' motion for summary judgment, the district court held that the policy required First State to pay legal expenses as they were incurred, and that California insurance law imposed upon First State a duty to defend the insureds in the FSLIC action. This order, filed November 23, 1987, required First State to pay the insureds' legal expenses as they were incurred.

and damages arising from First State's refusal to defend or otherwise acknowledge its duties under the contract. The two actions were then assigned to the same district judge as related cases. The judge elected to proceed with the case brought by the insureds, and to hold the rescission action in abeyance.

At First State's request, the district court issued a clarification order on December 15, 1987, holding that First State did not have to pay defense costs for claims that the FSLIC complaint "clearly reveals to be based entirely on allegations of conduct not covered by the policy." It also held that First State was not required "to pay the defense costs of non-insured persons." The court further ordered the parties to work out an equitable apportionment formula for excluding expenses of defending claims and persons not covered by the policy.

The parties failed to agree on the apportionment of defense costs. The district court issued an order on March 16, 1988, further clarifying the original order of November and the subsequent December order. In it, the court ordered First State to pay all legal expenses of all insureds as they are incurred, without contemporaneous apportionment, because distinguishing potentially covered claims from uncovered claims was not practicable and would defeat the purpose of the insurance company's duty to defend. Similarly, the court ordered that First State pay the legal expenses of certain of the insureds that it contends are not covered by the policy by reason of their not acting in their capacity as officers and directors of Gateway. First State reserved the right, the court held, to recover defense costs clearly attributable to uncovered claims or uncovered individuals after judgment in the FSLIC action.

First State now appeals this order. First State challenges the district court's holding that First State has a duty to defend the insureds and pay legal expenses as incurred. It also contests the denial of its request for contemporaneous apportionment of the legal expenses. The insureds, in addition to opposing First State on the merits, assert that we lack jurisdiction over the appeal, or at least over some of the issues presented by First State. We address the latter, threshold issues before turning to the merits.

DISCUSSION

A. JURISDICTION

1. Appealability of the Order of March 16, 1988.

We have jurisdiction to review an order "granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions" under 28 U.S.C. Sec. 1292(a)(1). Appellee Quan contends that the district court's order of March 16, 1988, qualifies neither as an injunction, nor as an order modifying an injunction. He therefore concludes that the order is unappealable for lack of finality. We disagree.

An injunction may be defined as an order that is directed to a party, enforceable by contempt, and designed to accord or protect some or all of the substantive relief sought by a complaint in more than temporary ¹ fashion. 16 C. Wright, A. Miller, E. Cooper, & E. Gressman, Federal Practice & Procedure: Jurisdiction Sec. 3922 at 29 (1977). It is to be contrasted with an order by a court that regulates the conduct of the litigation, which is not considered an injunction for purposes of appellate jurisdiction, even though punishable by The original order of November 23, 1987, directed First State to pay defense expenses in the FSLIC litigation as they were incurred. The order met the general definition of an injunction in that it was directed to First State, was enforceable by contempt, and provided most of the substantive relief the insureds sought. It did not concern only the conduct of the litigation, as Quan contends. The order of December 15, 1987, clearly modified the original order by directing that expenses be apportioned so that First State need only pay covered expenses as they were incurred. Finally, the order of March 16, 1988, from which this appeal was taken, again modified the original injunction by providing that First State pay all defense expenses, subject to later reimbursement after a post-trial apportionment. Having concluded that the original order was an injunction, we have no difficulty characterizing the March 16th order as a modification of that injunction. The March 16th order substantially changed the terms and force of the injunction as it stood immediately prior to March 16; the change was a modification, not a mere clarification. See Movie Systems, Inc. v. MAD Minneapolis Audio Distributors, 717 F.2d 427, 429-30 (8th Cir.1983). It is therefore appealable under 28 U.S.C. Sec. 1292(a)(1).

contempt. Orders relating to discovery are examples of the latter. See id. at 30 (and cases cited within).

2. Issues Raised by Appeal Only of the March 16 Order Modifying the Injunction.

The original injunction ordering First State to pay defense expenses as they were incurred was entered on November 23, 1987. First State did not appeal that injunction, but did request clarification on December 11, 1987. The district court responded with an order of clarification on December 15, 1987, which modified the injunction by providing that First State was entitled to apportion defense costs and not pay those that were clearly excluded by the policy or that related to non-covered individuals. First State did not appeal that order. Then, on March 16, 1988, after the parties could not agree on an apportionment formula, the district court entered its order requiring First State to pay all defense costs as incurred, subject to apportionment after judgment in the FSLIC trial. From this order, First State took a timely appeal.

The insureds argue that, because First State did not appeal the earlier orders, it is precluded from attacking the ruling, embodied in the first order, that First State must pay potentially covered defense expenses as they are incurred. The insureds contend that the only issue properly before us is the modification made by the March 16th order: the ruling that First State must wait until after trial to apportion covered and uncovered defense expenses. While there is something to be said on both sides of this argument, we conclude that First State's appeal is not so narrowly confined as the insureds would have it.

It is true that a party that has failed to appeal from an injunction cannot regain its lost opportunity simply by making a motion to modify or dissolve the injunction, having the motion denied, and appealing the denial. In such a case, the appeal is limited to the propriety of the denial, and does not extend to the propriety of the original injunction itself. Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1418 n. 4 (9th Cir.1984). See also Denley v. Shearson/American Express, Inc., 733 F.2d 39, 42-43 (6th Cir.1984). As a result, review of denials of motions to modify or dissolve injunctions are generally limited to the "new matter" presented by the motion. Sierra, 739 F.2d at 1418 n. 4.

A somewhat more delicate question is presented when a motion to modify an injunction is granted. It is still true that one who has long since foregone a right to appeal an injunction ought not to regain it simply because a...