Keown v. Tudor Ins. Co.

• Citation: 621 F.Supp.2d 1025
• Decision Date: 30 May 2008
• Docket Number: Civil No. 08-00041 JMS/KSC.
• Parties: Robert E. KEOWN, Plaintiff, v. TUDOR INSURANCE COMPANY, a New Hampshire Corporation, Defendant.
• Court: U.S. District Court — District of Hawaii

621 F.Supp.2d 1025

Robert E. KEOWN, Plaintiff, v. TUDOR INSURANCE COMPANY, a New Hampshire Corporation, Defendant.

Civil No. 08-00041 JMS/KSC.

United States District Court, D. Hawai`i.

May 30, 2008.

COPYRIGHT MATERIAL OMITTED

Alan Van Etten, Klevansky Piper Van Etten, LLP, Honolulu, HI, Bridget Gallagher Morgan, Klevansky Piper Van Etten, LLP, Honolulu, HI, for Plaintiff.

Amanda J. Weston, John H. Price, Honolulu, HI, James L. Wraith, Selvin Wraith Halman LLP, Oakland, CA, for Defendant.

ORDER AFFIRMING MAGISTRATE JUDGE CHANG'S APRIL 17, 2008 FINDINGS AND RECOMMENDATION TO GRANT PLAINTIFF'S MOTION FOR REMAND

J. MICHAEL SEABRIGHT, District Judge.

I. INTRODUCTION

Plaintiff Robert Keown ("Plaintiff"), a realtor, filed this action in Hawaii state court against his professional liability insurer, Tudor Insurance Company ("Defendant"), seeking a declaration that Defendant is obligated to defend and indemnify Plaintiff in a separate Hawaii state action that names Plaintiff as a defendant. Defendant removed the action to this court, and Plaintiff now seeks remand.

On April 17, 2008, United States Magistrate Judge Chang entered his Findings and Recommendation to Grant Plaintiff's Motion for Remand ("April 17, 2008 F & R"), finding that the court should decline jurisdiction because this declaratory judgment action implicates unresolved state law issues. On May 2, 2008, Defendant filed Objections, arguing that April 17, 2008 F & R erred in finding that (1) the Complaint alleges a claim for declaratory relief only, and (2) insurance coverage disputes cannot be heard in federal court. Based on the following, the court AFFIRMS the April 17, 2008 F & R.

II. BACKGROUND

On January 11, 2005, Honpa Hongwanji Mission of Hawaii ("Honpa") filed a complaint in the Circuit Court of the Fifth Circuit, State of Hawaii (the "Honpa action") against Plaintiff and the Koloa Early School (the "Early School"). The Honpa complaint makes the following allegations: Plaintiff is a director of the Early School, and on its behalf negotiated and agreed to basic terms of a co-tenancy arrangement between Honpa and the Early School for certain real property located in Koloa, Kauai (the "subject property"). Pl.'s Mot. Remand, Ex. A. ¶ 10. Later, Plaintiff, "acting as Principal Broker/Broker-in-Charge," represented both parties in negotiations with the Seller, and prepared the Deposit Receipt Offer and Acceptance ("DROA"). Id. ¶ 12. Honpa and the Early School purchased the subject property without agreeing how to document ownership of the subject property, and without an agreed-upon written co-tenancy agreement. Id. ¶¶ 14-15. After the purchase, a mortgage was filed on the subject property, identifying Plaintiff as mortgagee of an undivided ½ interest in the subject property. Id. ¶ 19. The Honpa complaint includes two claims: (1) for a partition of the subject property and a declaration that Honpa's interest is not encumbered by Plaintiff's mortgage; and (2) a negligence claim against Plaintiff for breach of duty of care in representing Honpa in the purchase of the subject property. Id. ¶¶ 34-35.

At the time of these transactions, Plaintiff had a professional liability insurance policy for his real estate business from Defendant, naming as the insured Bob Keown, Ltd. DBA Makai Properties, and Robert E. Keown, "acting within the scope of his duties as a past or present ... principal ... or employee of the Insured." See Pl.'s Mot. Remand, Ex. D at 2. On February 1, 2005, Plaintiff forwarded the Honpa complaint to Defendant to determine whether it "can provide legal representation to Mr. Keown." Pl.'s Mot. Remand, Ex. B. On February 8, 2005, Defendant rejected Plaintiff's claim for the following reasons:

As noted in the Complaint, it is alleged that you are serving as an officer and/or director of the co-defendant Early School and, as such, Exclusion G. otherwise would preclude coverage for this matter. Please also note that Exclusion N. also precludes coverage for your services and/or capacity as an officer or director of a business enterprise not named in the Declarations.

Pl.'s Mot. Remand, Ex. C at 3. On April 20, 2007, Plaintiff requested that Defendant reconsider its decision, especially in light of caselaw from various jurisdictions which supports that the insurance exclusions should not apply where Plaintiff's status as a director of the Early School is not directly implicated in the Honpa action. Pl.'s Mot. Remand, Ex. D, at 25-32. On July 20, 2007, Defendant reaffirmed its rejection of Plaintiff's claim.

On December 17, 2007, Plaintiff filed a Complaint for declaratory relief against Defendant in the State of Hawaii Circuit Court of the Fifth Circuit. Plaintiff seeks a declaration of his rights to indemnity and defense from Defendant regarding the Honpa action, as well as attorneys' fees and costs. On January 28, 2008, Defendant removed the action on the basis of diversity, 28 U.S.C. § 1332(a). On February 27, 2008, Plaintiff filed a Motion for Remand, which Magistrate Judge Chang recommended be granted in his April 17, 2008 F & R.¹ On May 2, 2008, Defendant filed its Objections to the April 17, 2008 F & R, and Plaintiff responded on May 12, 2008.

III. STANDARD OF REVIEW

Plaintiff asserts that the court should apply a de novo standard of review to his Motion for Remand.² The Ninth Circuit has not considered this issue, but "several circuits have held that a motion to remand is to be treated as a dispositive motion." McClelland v. Merck & Co., 2007 WL 178293, at *1 (D.Haw. Jan. 19, 2007) (citing cases). Given the present state of the law, the court treats the motion to remand as a dispositive motion. See Sylvester v. Menu Foods, Inc., 2007 WL 4291024, at *2 (D.Haw. Dec. 5, 2007) (applying a de novo standard of review because the magistrate judge crafted the decision as a findings and recommendation, a decision to remand would effectively remove the case from the court, and a de novo review would be most beneficial to defendant); McClelland, 2007 WL 178293, at *1; Ortiz v. Menu Foods, 525 F.Supp.2d 1220, 1222 (D.Haw.2007).

Pursuant to Federal Rule of Civil Procedure 72(b), 28 U.S.C. § 636(b)(1)(B), and Local Rule 74.2, the court must apply a de novo standard of review to a magistrate judge's case dispositive order. Specifically, the district court must make a de novo determination of those portions of the magistrate judge's report to which an objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge. Under a de novo standard, this court reviews "the matter anew, the same as if it had not been heard before, and as if no decision previously had been rendered." Freeman v. DirecTV, Inc., 457 F.3d 1001, 1004 (9th Cir.2006).

IV. DISCUSSION

Defendant raises the following two objections to the April 17, 2008 F & R: (1) the Complaint includes an independent claim for monetary relief, over which the court has mandatory jurisdiction, Def.'s Obj. 8; and (2) the April 17, 2008 F & R improperly concluded that insurance coverage disputes cannot be heard in federal court. Def.'s Obj. 3. The court rejects both these arguments.

A. Plaintiff's Request for Attorneys' Fees and Costs

The Ninth Circuit applies "the principle that `when other claims are joined with an action for declaratory relief (e.g., bad faith, breach of contract, breach of fiduciary duty, rescission, or claims for other monetary relief), the district court should not, as a general rule, remand or decline to entertain the claim for declaratory relief.'" United Nat'l Ins. Co. v. R & D Latex Corp., 242 F.3d 1102, 1112 (9th Cir.2001) (quoting Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir.1998) (en banc)). Despite this general rule, the presence of claims for monetary relief does not require the district court to accept jurisdiction where the action is "primarily declaratory in nature." See id. (citing Employers Reinsurance Corp. v. Karussos, 65 F.3d 796 (9th Cir.1995) and Golden Eagle Ins. Co. v. Travelers Co., 103 F.3d 750 (9th Cir.1996)). Rather, the court must analyze:

whether the claim for monetary relief is independent in the sense that it could be litigated in federal court even if no declaratory claim had been filed. In other words, the district court should consider whether it has subject matter jurisdiction over the monetary claim alone, and if so, whether that claim must be joined with one for declaratory relief.

Id. at 1113.

The April 17, 2008 F & R applied this test and determined that Plaintiff's request for attorneys' fees is dependent on Plaintiff's claim for declaratory relief—meaning that the court's jurisdiction over this action is discretionary, as opposed to mandatory. See Apr. 17, 2008 F & R 12-13. Based on a de novo review, the court agrees.

The Complaint alleges that Plaintiff "is entitled to a binding declaration that [Defendant] is required to indemnify and defend [Plaintiff] in the Lawsuit and must pay for [Plaintiff's] attorneys' fees and costs in defending himself in the Lawsuit," Compl. ¶ 84, and seeks an "award of attorneys' fees and costs incurred in connection with this action, pursuant to Haw.Rev.Stat. § 431:10-242 (2007)." Id. at A. This provision provides:

Where an insurer has contested its liability under a policy and is ordered by the courts to pay benefits under the policy, the policyholder, the beneficiary under a policy, or the person who has acquired the rights of the policyholder or beneficiary under the policy shall be awarded reasonable attorney's fees and the costs of suit, in addition to the benefits under the policy.

According to its plain words, § 431:10-242 requires that where the court orders the insurer to pay benefits under a policy, the insured is also entitled to attorneys' fees. Thus, § 431:10-242 does not create a separate cause of action for attorneys' fees, but instead conditions the payment of attorneys' fees and costs on...