Lennar Mare Island, LLC v. Steadfast Ins. Co.

• Decision Date: 31 March 2016
• Docket Number: No. 2:12-cv-02182-KJM-KJN,2:12-cv-02182-KJM-KJN
• Citation: 176 F.Supp.3d 949
• Parties: Lennar Mare Island, LLC, Plaintiff, v. Steadfast Insurance Company, Defendant. And Related Counterclaims.
• Court: U.S. District Court — Eastern District of California

176 F.Supp.3d 949

Lennar Mare Island, LLC, Plaintiff,

v. Steadfast Insurance Company, Defendant.And Related Counterclaims.

No. 2:12-cv-02182-KJM-KJN

United States District Court, E.D. California.

Signed March 31, 2016

Ryan L. Werner, Pennington Lawson LLP, San Francisco, CA, Alan H. Packer, Newmeyer & Dillion, Walnut Creek, CA, Gregory Lee Dillion, Newmeyer & Dillion LLP, Newport Beach, CA, John A. Whitesides, Serena M. Warner, Angelo Kilday and Kilduff, Sacramento, CA, for Plaintiff.

Dale Hugh Oliver, John Sherman Purcell, Quinn Emanuel Urquhart & Sullivan LLP, Neil R. O'Hanlon, Hogan Lovells US LLP, Los Angeles, CA, Blaise Stephen Curet, Stephen Wong, Jane Karren Baker, William David Campagne, Sinnott, Puebla, Campagne & Curet, APLC, Merri Anne Baldwin, Rogers Joseph O'Donnell, San Francisco, CA, for Defendant.

ORDER

Kimberly Mueller, UNITED STATES DISTRICT JUDGE

Lennar Mare Island, LLC (LMI), CH2M Hill Constructors, Inc. (CCI), and Steadfast Insurance Company dispute their obligations with respect to the clean-up of Mare Island, a former U.S. Navy shipyard. This order addresses LMI's motions for partial summary judgment of the definitions of “Government Authority” and “Known Pollution Conditions.” ECF Nos. 160, 186. The court held a hearing on August 7, 2015. Ryan Werner appeared for LMI, Deborah Ballati and Amanda Hairston appeared for CCI¹ , and Dale Oliver and John Purcell appeared for Steadfast. The court allowed post-hearing briefing, now on file. The motions are GRANTED IN PART as set forth in this order.

I. UNDISPUTED FACTS

The parties do not dispute this case's general history, which the court has summarized in previous orders. See Order Feb. 28, 2014, at 6–9, ECF No. 95; Order May 15, 2014, at 2–4, ECF No. 111;² Order Apr. 7, 2015, at 2–3, ECF No. 264.³ The claims here stem from environmental clean-up work LMI and CCI have undertaken at the former U.S. Navy shipyard on Mare Island in Vallejo, California. LMI agreed to clean up the former base and contracted with CCI, who would investigate and remediate pollution. LMI is also a party to a consent agreement with the City of Vallejo and the California Department of Toxic Substances Control (DTSC). Steadfast Resp. Stmt. Undisputed Material Fact re Gov't Auth. (Auth. UMF) no. 7, ECF No. 170. In short, this consent agreement governs LMI's clean-up efforts at Mare Island. See id. nos. 8-15.

At about the time LMI and CCI agreed to undertake efforts to clean up the base, Steadfast issued two insurance policies to LMI and CCI: (1) the Remediation Stop Loss or RSL policy, now expired, which provided coverage to CCI should the cost of the cleanup of “Known Pollution Conditions” exceed a specific amount; and (2) the Environmental Liability Insurance or ELI policy, which among other things provides coverage to LMI for the cost of remediating pollution other than the Known Pollution Conditions. Among other limitations, the ELI policy covers clean-up costs only if (1) “required by Governmental Authority,” Auth. UMF no. 3,⁴ and (2) costs are not expended on the remediation of “Known Pollution Conditions.” Auth. Evid. Ex. 1, at SJCE 167596.

LMI alleges Steadfast caused it several million dollars in damages by refusing to pay or delaying payments for claims under the ELI policy. First Am. Compl., ECF No. 22. The complaint describes seven environmental clean-up sites in particular. See id. ¶ 34. LMI also seeks declaratory judgment that Steadfast must pay specific claims. See id. ¶¶ 34–35. CCI alleges similarly that Steadfast wrongfully withheld payments under the RSL policy and seeks damages and declaratory relief. Answer & Countercl., ECF No. 12. Steadfast denies these allegations and asserts counterclaims against both LMI and CCI. After a series of dismissals and amendments, Steadfast now proceeds on contract claims and seeks a declaration of its rights under both policies. See generally Order Mar. 3, 2016, ECF No. 351;⁵ Steadfast's Second Am. Countercl., ECF No. 315.

This order addresses two motions for summary judgment LMI filed in December 2014 and January 2015. The first motion seeks an order that the DTSC consent agreement is “Government Authority” and requires LMI to clean up any and all contamination it discovers at the seven Mare Island sites. Mem. P. & A. Summ. J. Gov't Authority (Auth. Mem.) 8, ECF No. 160-1. In its reply, LMI tempers this request and asks only for an order specifying the DTSC agreement “constitutes Governmental Authority” and “if LMI incurs a cost in complying with the Consent Agreement, it is a cost required by Governmental Authority within the meaning of the ELI Policy.” Reply Gov't Auth. 3, 8, ECF No. 226.

In its second motion, LMI seeks an order defining “Known Pollution Conditions” to be only those conditions listed in certain tables and figures attached to the RSL policy. Mem. P.&A. Summ. J. Pollution (Poll. Mem.) 2, ECF No. 187. The terms for which LMI seeks definitions are found in the ELI and RSL policies and in the endorsements and other materials attached to those policies. The parties agree those documents govern their dispute. See Auth. UMF nos. 1, 3, 6–15; Resp. Statement Undisputed Material Facts re Known Pollution Condition (Poll. UMF) nos. 1, 2, 4–9, ECF No. 195.

Steadfast opposes both motions. Auth. Opp'n, ECF No. 169; Poll. Opp'n, ECF No. 193. In general, it contends the ELI policy terms are not susceptible to the definitions LMI proposes, and in any event, if they are, Steadfast argues the terms must be interpreted with the benefit of extrinsic evidence. CCI takes no position on these definitions or LMI's pending motions for summary judgment.

After the parties presented their arguments at hearing, the court granted Steadfast and LMI leave to file supplemental briefing addressing two specific questions: (1) “Under California law, is an ambiguous contract term a prerequisite to admission of extrinsic evidence of the contracting parties' course of performance?”; and (2) “Where in the briefing on file, if at all, has Steadfast cited to portions of the record to show there is a genuine dispute of material fact whether the parties' course of performance explained or supplemented the ELI policy's definition of 'Known Pollution Condition'?” Order Aug. 14, 2015, ECF No. 289. Both parties submitted responsive supplemental briefs. Suppl. Opp'n, ECF No. 292; Suppl. Reply, ECF No. 299.

II. LEGAL STANDARD

A court must grant a motion for summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A motion for summary judgment calls for a “threshold inquiry” into whether a trial is necessary at all, that is, whether “any genuine factual issues ... properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court does not weigh evidence or assess the credibility of witnesses; rather, it determines which facts the parties do not dispute, then draws all inferences and views all evidence in the light most favorable to the nonmoving party. See id. at 255, 106 S.Ct. 2505 ; Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.' ” Matsushita , 475 U.S. at 587, 106 S.Ct. 1348 (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co. , 391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968) ).

The moving party bears the initial burden of “informing the district court of the basis for its motion, and identifying those portions of the [record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the party opposing summary judgment bears the burden of proof at trial, the moving party need only illustrate the “absence of evidence to support the non-moving party's case.” In re Oracle Corp. Sec. Litig. , 627 F.3d 376, 387 (9th Cir.2010). The burden then shifts to the non-moving party to “go beyond the pleadings” and “designate specific facts” in the record to show a trial is necessary to resolve genuine disputes of material fact. Celotex , 477 U.S. at 324, 106 S.Ct. 2548 (quotation marks omitted). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson , 477 U.S. at 248, 106 S.Ct. 2505.

The same standard applies to motions for partial summary judgment. See Fed. R. Civ. P. 56(a) (“A party may move for summary judgment, identifying each claim or defense—or the part of each claim or defense —on which summary judgment is sought....”); accord Barsamian v. City of Kingsburg , 597 F.Supp.2d 1054, 1061 (E.D.Cal.2009).

The court turns first to the definition of “Governmental Authority” and then considers the definition of “Known Pollution Conditions.”

III. GOVERNMENTAL AUTHORITY

California contract law applies to interpret the policies here. See Bell Lavalin, Inc. v. Simcoe & Erie Gen. Ins. Co. , 61 F.3d 742, 745 (9th Cir.1995). Contract interpretation is ordinarily a question of law. Waller v. Truck Ins. Exch., Inc. , 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995) ; WYDA Assocs. v. Merner , 42 Cal.App.4th 1702, 1710, 50 Cal.Rptr.2d 323 (1996). “A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” Cal. Civ. Code § 1636. A court looks first and foremost to the contract's language, which controls if “clear and explicit,” provided it “does not involve an absurdity.” Id. § 1638. “When a contract is reduced to writing, the intention of the parties is to be...